Chartering is an activity within the shipping industry where a ship is on ‘hire or lease’ on mutually agreed terms and conditions between the ship owner and cargo owner normally, known as a Charter Party.
A freight rate is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport (truck, ship, train, aircraft), the weight of the cargo, and the distance to the delivery destination.
Types of charter & relevance to trade
There are three main types of charter
- 1 ) VOYAGE CHARTER
The voyage chartering means that the ship-owner promises to carry on board a specific ship, a particular cargo for a single voyage from one or more loading ports to one or more discharging ports.
The payment is called freight and the contract is called a voyage charter party.
Under a voyage charter, the shipowner retains the operational control of the vessel and is responsible for all the operating expenses such as port charges, bunkers, vessel’s insurance, taxes, etc.
The charterer’s costs are usually costs and charges relating to the cargo.
Loading and discharging costs are divided between the ship-owner and the charterer in accordance with the agreement from case to case.
CHARACTERISTICS OF VOYAGE CHARTERING
1.3.1 Specific vessel, specific cargo, specific port and specific route.
1.3.2 Rights, duties and responsibilities of ship-owners and charterers are determined by the charter party.
1.3.3 The charterer should be responsible for the arrangement of the cargo, payment of freight calculated according to the quantity of the cargo loaded or carried and other expenses concerned.
1.3.4 The ship owner possesses and controls the vessel and takes charge of the operation of the vessel and the manning and management of crew.
1.3.5 The ship owner should bear the operational expenses of the vessel.
1.3.6 The payment by the charterer to the ship owner for chartered vessel is usually called ‘freight’ instead of ‘hire’.
1.3.7 The ship-owner charters out the whole vessel or part of her space to the charterer.
1.3.8 There are the provisions for the lay time, demurrage and dispatch.
- 2) TIME CHARTERING
The time chartering means that the ship-owner provides a designated manned ship to the charterer, and the charterer employs the ship for a specific period against payment of hire instead of for a certain number of voyages or trips.
Time charter generally does not include loading and unloading costs in the charter rate.
A single voyage
Several months or years
Reasons for time charter
The time charterer may be a ship owner who for a time needs to enlarge his fleet or a cargo owner with a continuous need for transport, who does not want to invest money in a ship but wants to have the control of the commercial operation of the vessel. The charterer may be a speculator taking a position in anticipation of a change in the market
The charterer is liable for costs directly connected with the use of the vessel, for example, bunker costs and port charges and pays for the loading and discharging. Under a time charter the crew is employed by the ship owner, who is also responsible for the nautical operation and maintenance of the vessel and supervision of the cargo.
CHARACTERISTICS OF TIME CHARTERING
2.2.1 The ship owner should be responsible for the manning of crew and bears the wages and provisions thereof.
2.2.2 The master shall be under the orders and directions of the charterer as regards employment and agency. If the charterer shall have reasonable cause to be dissatisfied with the conduct of the master or officers, the ship-owner shall on receiving the complaint make a change in the appointments, if necessary.
2.2.3 The charterer should be responsible for the operation of the vessel and bear the variable operational costs such as bunkers, port charges, handling charge and canal tolls etc.
2.2.4 The ship owner should bear the fixed operational costs such as costs relating to the vessel capital, ship’s maintenance and stores, insurance premium and so on.
2.2.5 The ship is chartered as a whole/part and the hire is calculated and collected according to the duration of chartering and the agreed hire rate.
2.2.6 There are the provisions for the delivery/redelivery of vessel.
- 3) BAREBOAT CHARTER
A bareboat charter or demise charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible for taking care of such things.
There are legal differences between a bareboat charter and other types of charter arrangements, commonly called time or voyage charters. In a voyage or time charter, the charterer charters the ship (or part of it) for a particular voyage or for a set period of time. In these charters, the charterer can direct where the ship will go but the owner of the ship retains possession of the ship through its employment of the master and crew. In a bare-boat or demise charter, on the other hand, the owner gives possession of the ship to the charterer and the charterer hires its own master and crew. The bare-boat charterer is sometimes called a “disponent owner”. The giving up of possession of the ship by the owner is the defining characteristic of a bareboat or demise charter.