Getting back to basics – ship chartering explained

Ship charter is a vital part of the shipping industry – with there always being a relationship between charter rates and freight rates. But what is a charter? FTW asked Andrew Robinson, director, admiralty and shipping, at Norton Rose SA to create a definitive explanation of the term. A charter party (from the Latin charta partita, being a legal paper or instrument, divided, i.e. written in duplicate so that each party retains half), is a written, or partly written and partly printed contract between a shipowner and a merchant, by which a ship is let or hired for the conveyance of goods on a specified voyage, or for a defined period. “In the ‘old days’ the cargo interest would retain one part of the document and the master of the ship the other,” said Robinson. “When the cargo interest presented his or her part, and it matched the master’s part, the master would release the cargo reflected therein to the cargo interest. “Also, in a written contract between shipowner and charterer whereby a ship is hired, all terms, conditions and exceptions are stated in the contract or incorporated by reference.” The charterer takes over the vessel for either a certain amount of time (a ‘time charter’) or for a certain pointto- point voyage (a ‘voyage charter’), giving rise to these two main types of charter agreements. Quite often a shipowner will charter the ship by ‘demise’ or ‘bareboat’ to a charterer, who takes over the vessel as if it were his own. A voyage charter is the hiring of a vessel and crew for a voyage between a load port and a discharge port. The charterer pays the vessel owner (or time or demise charterer – referred to as a ‘disponent owner’) on a per-ton or lump-sum basis. The owner pays the port costs (excluding stevedoring), fuel costs and crew costs. The payment for the use of the vessel is known as freight. A voyage charter specifies a period, known as laytime, for the loading and unloading of the cargo. A time charter is the hiring of a vessel for a specific period of time; the owner still manages the vessel but the charterer selects the ports and directs where the vessel goes. The charterer pays for all fuel the vessel consumes, port charges, and a daily hire to the owner of the vessel. A bareboat charter or demise charter is an arrangement for the hiring of a vessel whereby no administration or technical maintenance is included as part of the agreement. In commercial demise chartering, the charter period may last for many years and may end with the charterer acquiring title (ownership) of the ship. In this case, a demise charter may be a form of hire-purchase from the owners, or the financing bank, or the shipbuilders. Demise chartering is common for tankers and bulk-carriers.