Lorenzo Shipping Corporation (LSC) is entering into time charter agreements (TCAs) with sister carrier NMC Container Lines, Inc. (NMCCLI) for three years to expand its customer base and enable economies of scale.
LSC, in a disclosure to the Philippines Stock Exchange, said its Board of Directors has approved the execution of four TCAs with NMCCLI that will take effect on October, 1, 2018, or “as soon as practical” after the effective date.
Both LSC and NMCCLI are part of Magsaysay Transport and Logistics’ liner shipping division.
LSC said the TCAs will have an initial term of three years with both parties having the option to agree to extend the term by another three years. The TCAs also allow for another three years’ extension once the extension period ends.
Under the TCAs, LSC said it will augment its fleet of five container ships with an additional four container vessels owned by NMCCLI. The NMCCLI vessels, namely General Romulo, General Natividad, General Evangelista, and MV Rasalas, will be delivered to LSC on the TCAs’ effectivity date to supplement the liner services of LSC.
LSC said the TCAs will allow it “to provide immediate increased service coverage and to expand its customer base more efficiently without the need for excessive capital investment or acquiring tonnage through ownership means.”
The carrier added that the TCAs will also enable it to “achieve economies of scale and greater synergies from streamlined processes and systems.”
“The benefits of the Charter Agreement to LSC’s customers include greater flexibility across trade routes and an increased coverage of their domestic shipping requirements,” LSC said.
LSC president and chief operating officer Reynold John Madamba, in an earlier interview with PortCalls, said the carrier is seeing “a lot of industry cooperation” such as slot-sharing.
“Just like the international shipping industry, we can see opportunities for cooperation between compatible carriers to maximize the return on fixed costs and eventually offer better value-for-money transportation services to customers while guaranteeing industry sustainability and stability,” Madamba said.
He noted that the number of industry players and vessels has been increasing while port facilities have not been expanding at the same rate, causing berth congestion in some terminals, including the major ones.
“I think the key is to talk to like-minded carriers to share slots on bigger vessels… so that we reduce the number of ships needed at the port,” he stated.
He said this will mean economies of scale and reduced fixed costs, translating to more competitive freight rates, less congestion at major ports, and overall less carbon footprint.
The carrier explained that the TCAs will be based on an internationally approved standard agreement of the Baltic and International Maritime Council (BIMCO) at fair market levels, terms, and conditions. BIMCO is the largest of the international shipping associations representing shipowners, with the main objective of protecting its global membership by providing information and advice, while promoting fair business practices and facilitating harmonization and standardization of commercial shipping practices and contracts.