Posty
Types of Charters in Shipping
There are three main types of charters in shipping:
Voyage charter
Time charter
Bareboat charter (demise charter)
Charters can be compared to taxis for simplicity.
Voyage Charter
Let's start with an example:
Sergey orders an Uber to get to work. He pays based on distance and traffic, without covering gas or the driver's wage. If the car waits longer than 3 minutes for Sergey, he pays for the wait time. If the driver breaks traffic rules, Sergey isn't responsible (though his boss might scold him for being late).
Now, let's apply this to a voyage charter:
Poseidon charters a vessel to transport 15,000 tons of wheat from Varna to Barcelona. The freight rate is $30 per ton. The loading and unloading rate is 5,000 tons per working day, and the demurrage rate is $2,000 per day.
Breaking down the example:
Port of loading and discharge: A charterparty can specify more than one port.
Freight: Charge for the carriage, often calculated per ton of cargo, but sometimes fixed.
Laytime: Time allowed for loading and discharge, usually stated as a rate per day.
Demurrage: Charge for waiting time beyond laytime.
Shipowner's responsibility: Includes actions of the master and crew. The shipowner can be the registered owner or a time/bareboat charterer.
In a voyage charter, the shipowner covers the costs of fuel, wages, port charges, and other vessel-related expenses, which are included in the freight rate. The shipowner also handles vessel repairs.
The charterer's main duty is to provide the cargo and pay the freight. The shipowner manages everything else.
Time Charter
A time charter is like hiring a car with a driver. Returning to Sergey:
On a business trip to London for two weeks, Sergey rents a car with a driver. He pays a daily rate regardless of usage and covers petrol and parking fees. He doesn't pay the driver's wage or traffic fines.
In a time charter, the vessel isn't chartered for a specific cargo from point A to B but for a set period. The shipowner provides and pays for the master and crew, as well as vessel insurance, and is responsible for their actions.
A time charterer has more responsibilities:
Hire: Instead of freight, the charterer pays a fixed fee for using the vessel, usually monthly or semi-monthly.
Costs: The charterer covers fuel, port charges, loading and unloading costs, agency services, etc.
No laytime or demurrage: The charterer uses the vessel at their discretion.
Main Terms of a Voyage Charter and a Time Charter
Charterparty terms can be implied or express. Implied terms apply automatically by fact or law, even if not mentioned. Express terms are explicitly stated in the charterparty.
Implied Terms
Key implied terms include:
Providing a seaworthy vessel at voyage start
Proceeding with reasonable dispatch
No unjustifiable deviation
No shipping dangerous goods without notice
Nominating safe loading and discharge ports
This list isn't exhaustive.
Voyage Charter Terms
Key terms include:
Ship's name and description (IMO, flag, class, year built, tonnage, etc.)
Vessel location at charter time
Expected readiness date for loading
Cargo description and quantity
Loading and discharge ports
Freight rate
Laydays and cancelling date (loading/discharge period and termination right if the vessel is late)
Notice of Readiness (rules for notifying readiness to load or discharge)
Loading and discharge rates
Demurrage and dispatch
Time Charter Terms
Key terms include:
Ship's name and description (IMO, flag, class, year built, tonnage, etc.)
Hire period
Trading limits (geographical limits for vessel use)
Delivery and redelivery provisions
Laydays/Cancelling (termination right if the vessel isn't delivered on time)
Hire rate and payment procedure
Off-hire (non-payment periods due to vessel unavailability, e.g., breakdown)
Bunker fuel quantity and payment
Allowed cargo
Excluded cargo (prohibited by shipowner)
Speed and bunker consumption
Liability allocation between charterer and shipowner
Bareboat Charter
This article doesn't cover bareboat (demise) charters, but to continue with Sergey's analogy, a bareboat charter is like renting a car without a driver. For more on bareboat charters, you can read here.
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