Ship Chartering

Port of Ploce, Croatia - Solid Bulk Terminal

Ship chartering is the lease of a ship by the owner of the vessel to another company, the charterer, for the transport of goods. There are several different types of charter contracts and many different players involved.

The two main actors in ship chartering are the ship owner and the ship charterer. There are also others, such as the ship broker and the shipping agent who deals with the operation in the port and the ship manager, who is in charge of operating and managing the crew of the vessel.

It is important to mention that the term Charter Party refers to the contract itself, and not to the parties that enter into the contract. This document states the rate, duration and terms agreed between the ship owner and the charterer.

The ship owner provides the ship to transport cargo from one port to another. The charterer signs a contract with the ship owner to rent the ship, or space on the ship, for the transportation of their cargo. In some cases, a charterer may own the cargo and hire a ship broker to find a suitable vessel to transport the cargo for a certain price, called freight rate.

The freight rate is the price that is set for transporting the goods from one port to another, as well as any other surcharge that is agreed.

The ship broker is essentially an intermediary connecting both parties to earn a brokerage fee. He can represent ship owner or charterer in negotiations and usually specializes in specific areas of cargo transportation (liquid bulk, dry bulk, general cargo, etc).

Shipping agents are designated to assume responsibility for the handling of goods (loading and discharging) in ports on behalf of the owners, fleet managers and/or charterers. They handle essential routine tasks, such as crew transfers, customs documentation, etc, in close collaboration with the port authorities.

Charter Types

The three most common types of charter contracts are the voyage charter, the time charter and the bare boat charter.

Voyage Charter

The basic hiring of a ship and its crew for a voyage between the port of loading and the port of discharge is known as a voyage charter. In this type of contract, the charterer pays the shipowner per ton (weight) or as a lump sum (single large payment). Port expenses, with the exception of stowage, fuel and crew, are paid by the ship owner, and the payment for the use of the ship is known as freight.

Under the terms of a voyage charter, a specific time is agreed for the loading and unloading of cargo. This is known as laytime, which, if exceeded, obliges the charterer to pay a demurrage.

Time Charter

A time charter refers to the rental of a ship for a specific period of time. Here, the owner continues to manage the ship, but the charterer selects the ports, decides the route and has full operational control of the ship for the duration of the contract. The charterer pays fuel costs, port charges, cargo handling costs, commissions, and a daily rental fee.

The Bare Boat Charter

Under the terms of a bare boat charter, the charterer has full control of the vessel. In addition to the capital cost of building the vessel, which is the responsibility of the owner, all other costs, including fuel, crew, port charges, and insurance, are borne by the charterer. The legal and financial responsibility of the vessel rests with the charterer.

The contract may be for long duration charters lasting many years. This is quite common for tankers and bulk carriers. It can be a form of hire-purchase where the charterer ultimately acquires ownership of the vessel.