CHARTERING

CHARTERING
 What is Chartering?
• Chartering is an agreement, whereby one
party, the owner, puts a ship or a part of it at
the disposal of another party, the charterer,
for the carriage of goods between named
ports.
• The charterer can in turn, sub-let the ship or a
part of it to a third party, who now becomes
the “Disponent owner”.
 Charter types
1. Voyage charter
2. Time charter
3. Bareboat charter
4. Lump sum charter
5. The contract or affreightment
6. The booking-note
7. The forward voyage charter
8. Cross chartering
9. Storage chartering
 Voyage charter

The voyage charter is a contract for the

carriage of a stated quantity and type of
cargo, by a named vessel between named
ports against an agreed price, called freight.
 Time charter
The time charter is a contract for the hire of a
named vessel for a specified period of time,
during which time he may use the vessel as
he wishes (exceptions considered of course).
The time during which the ship is chartered
differs from contract to contract and can
amount to several months or years, i.e. the
period time charter; or only amount to the
time that is necessary to undertake one
complete voyage, i.e. the trip time charter
 Bareboat charter
Under a bareboat charter, or demise charter,
the charterer must equip and man the ship
himself. The charterer must pay for all
operating costs (thus both the fixed or
running cost {with the exception of the
investment costs and possibly some other
fixed costs such as the cost for insurance,
classification, etc.} and the variable costs),
and recruit the captain and the crew.
 Lump sum charter
With a lump sum charter, the ship is let
against a fixed sum (lump sum). The loaded
quantities are not taken into account but only
the space of the ship that is made available to
the charterer
 The contract or affreightment
Under the terms of a contract of
affreightment (or a chartering agreement) the
ship owner commits himself to transport the
goods against a set price per ton without
having to mention which ship he will use.
 The booking note
The booking-note is used in the liner trade for
the shipment of important goods for which
tonnage was reserved long in advance. The
booking note is usually issued by the booking
agent.
 The forward voyage charter
The forward voyage charter is a type of
booking-note but used in tramp shipping and
not in the liner trade. The ship owner will fix a
cargo contractually for his ship in the future.
The contract of affreightment is concluded
long beforehand (sometimes six months, up
to one year), therefore, long before the goods
are loaded.
 Cross & Storage Chartering
The modern economic and commercial
practices and transport methods such as the
creation of consortia, containerization, etc.
have introduced new types of contracts of
affreightment, such as:
• "cross charters", where the owner can also
be the charterer of a part of the ship.
• storage chartering", where ships are
chartered for temporary storing of goods.
 What is Charter Party?
This is a written contract between the owner
of a vessel and the party (the charterer) who
takes over the vessel for transportation of
goods over a period of time or on a voyage
basis.
 What is Bill of lading?
Bill of Lading means a document which
evidences a contract of carriage by sea and
the taking over or loading of the goods by the
carrier, and by which the carrier undertakes to
deliver the goods against surrender of the
document. A provision in the document that
the goods are to be delivered to the order of a
named person, or to order, or to bearer,
constitutes such an undertaking
 Bill of lading Vs Charter party

The bill of lading is more important than the

charter party because the negotiable bill of
lading gives the right to receive the goods.
In fact the charter party is only a contract of
affreightment that only represents the hire of
tonnage space.
 What is freight?

The freight is the remuneration which the

charterer has to pay to the owner for the use of
the ship.
Under the voyage charter this is indicated by
the term "freight"; under the time charter the
term "hire" is used.
 How freight is expressed?
The freight can be expressed:
by unit of weight: in long tons (2,240 lbs or
1016 kilograms), in short tons (2,000 lbs or 907
kilograms) or in metric tons of 1000 kilograms
(currently nearly always metric measures are
used).
by unit volume: in cubic foot, in cubic meter,
in bushels, in hectolitre (for the transport of
grain), etc.
 Factors on freight calculation
The freight calculation depends on a lot of
factors, especially under the voyage charter
where not only the nature of the cargo plays a
role, but also the voyage, the season, the port
facilities and if the loading and/or discharging
costs of the cargo are for the account of the
ship or for the charterer's account
 Classification of costs
The costs in the shipping operations are classified in fixed
costs or running costs, and variable costs.
VARIABLE COSTS
RUNNING COSTS • Vessel's voyage costs
• Running costs investment  fuel costs
 capital • Port voyage costs
 interests  ports and light dues
 depreciations  tugs and pilotage costs
• Operating costs  canal dues
 manning costs  agency fees
 stores costs  costs linked to the arrival and
 repairs and maintenance costs
 insurance the sailing of the ship.
 administration • Cargo handling costs
 cargo handling costs
 cost for stowing of cargo
 Costs in voyage charter
Under a voyage charter all fixed and variable
costs are usually for the owner and included in
the freight which is expressed in tons of loaded
goods for a well defined quantity as stated in
the charter party. If this quantity is not loaded,
the owner is entitled to the full freight for the
missing quantity. This is called dead freight.
But, the cargo handling costs, like at F.I., F.O.,
F.I.O., etc. are at the expense of the charterer.
 Costs in time charter
Under the time charter the running cost are for
the owner but the variable expenses are for the
charterer. The freight will usually be lower and
expressed per ton deadweight with respect to
the summer load line.
 Costs in bareboat charter
Under the bareboat charter the owner will
exclusively bear the capital costs and possibly the
insurance (it is customary that the insurance is
concluded by the owner but that the bonus is
paid by the charterer) and classification of the
ship. All the other running cost and certainly the
variable cost are for the charterer. He will equip
and man the ship himself which gives him
practically the complete control over the
operation of the ship.
 Breakdown of costs
Description of Costs Bareboat Time Voyage
Depreciations &
O O O
Interest on Capital Financial Charges
Insurance of Hull and Machinery O or C O O
Survey Classification O or C O O
Maintenance and Repairs C O O
General Costs C O O
Stock, Supply Crew C O O
Wages Crew C O O
Lubricating Oil C O O

Contd….
 Breakdown of costs
Description of Costs Bareboat Time Voyage

Fresh Water C O or C O

Fuel Oil C C O

Harbour Dues C C O

Loading and Discharging Costs C C O or C

Stowage Material C C O or C

Cleaning of Holds C C O or C

Damage to Cargo C O or C * O or C *

• Either in total for the Charterer or

one part for the Owner and the balance for the Charterer
 Obligations of the owner
•The Ship Owner must provide the agreed ship
as indicated in the charter party.
•The Ship Owner must make the ship available in
the indicated port and on the indicated date
•The ship must be in a good state of
seaworthiness.
•The Ship Owner must place the agreed tonnage
at the disposal of the Charterer.
•The Ship Owner is not allowed to load other
goods without the consent of the Charterer
 Obligations of the charterer
•he must load the goods he committed himself to
•he must pay the agreed freight.
 Lien on the cargo
For the payment of the freight, the dead freight, the
demurrage and claims for damages the Owner has a
lien on the cargo
With regards to the lien on the cargo, the following
can be of importance:
•for payment of the freight, the Owner may ask the
court to sell part of the cargo or to take possession
of the cargo
•for payment of the freight, the master does not
have the right to hold the goods in his ship;
•for the freight, the Owner is a privileged creditor.
 Glossary of shipping terms
Shipper: Individual or company with cargo to
transport.
Charterer: Individual or company who hires a
ship.
Charter-party: Contract setting out the terms on
which the shipper contracts for the
transportation of his cargo or the
charterer contracts for the hire of a ship.
 Glossary of shipping terms
Voyage charter Ship earns freight per ton of cargo
transported on terms set out in
the charter-party which specifies
the precise nature and volume of cargo,
the port(s) of loading and discharge and the
laytime and demurrage. All costs paid by
the
shipowner.
Consecutive Vessel hired to perform a series of
voyage charter consecutive voyages between
A and B.
 Glossary of shipping terms
Contract of Shipowner undertakes to carry
Affreightment quantities of a specific cargo on a
particular route or routes over a
given period of time using ships
of his choice within specified
restrictions.
Period charter The vessels is hired for a specified
period of time for payment of a
daily, monthly or annual fee. There
are three types, time charter, trip charter
and consecutive voyage charter.
 Glossary of shipping terms
Time charter Ship earns hire, monthly or semi-
monthly. The shipowner retains
possession and mans and operates
ship under instructions from charterer
who pays voyage costs Trip charter Fixed on a time
charter basis for the period of a specific voyage
and for
the carriage of a specific cargo.
Shipowner earns ‘hire’ per day for the
period determined by the voyage.
 Glossary of shipping terms
Bare boat The owner of the ship contracts
Charter (for a fee, usually long-term) to
another party for its operation. The
ship is then operated by the second party as
if he owned it.
Laytime The period of time agreed between
the party to a voyage charter during
which the owner will make ship
available for loading/discharging of cargo.
 Glossary of shipping terms
Demurrage The money payable to the
shipowner for delay for which he is not
responsible in loading and/or discharging
beyond the laytime.
Despatch Means the money which the owner
agreed to repay if the ship is loaded or
discharged in less than the laytime
allowed in the charter-party (customarily
demurrage).
 Glossary of shipping terms
c.i.f. The purchase price of the goods (by
importer) include payment of insurance
and freight which is arranged by the
exporter.
f.o.b. Goods are purchased at cost and
the importer makes his own
arrangement for insurance and freight.