CHARTERING
CHARTERING
Definition
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, sublet the ship or a part of it to a third party, who now
becomes the “Disponent Owner”.
The chartering agreement is contained in a document, called “Charter Party”.
In most countries, chartering agreements are governed by local legislation.
TYPES OF CONTRACT OF AFFREIGHTMENT
Introduction
For the transportation of goods, a ship owner can operate his ship in different ways.
1. He can operate his ship himself for the transport of its own goods. This
occurs mainly with large and powerful companies such as oil companies,
chemical companies and steel industries, which usually import their own raw
materials.
2. He can let out his ship i.e. lend it to a third party.
Only in case of hire will it be necessary to conclude a contract of affreightment
between the parties concerned.
In some countries, their Merchant Shipping Act refers to the charter party.
In Belgium for instance, article 115 of Book II of the Commercial Code stipulates
the different ways of chartering: “ ….for the whole vessel or for a part of the vessel ,
for a complete voyage or for a limited duration, by weight, number or measure,
against a fixed price or by quantity of cargo”.
The first and second subparagraph of the same article also gives the meaning of
the term freight: “The rent of a ship or other seagoing vessel is called freight”.
If we refer to the enumeration of above mentioned article 115, we can distinguish the
following main types of contracts of affreightment:
- the voyage charter;
- the time charter;
- the demise charter or bareboat charter;
- the lump sum charter or chartering against a fixed price;
- the contract or affreightment;
- the booking-note;
- the forward voyage charter;
The chartering by weight, number or measure has become obsolete and is
therefore no longer encountered.
On the other hand, 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.
Some contracts of affreightment are bound locally such as the net form -
chartering, which is used in the U.S. and where in addition to the freight, the charterer
must also pay for the handling of the cargo.
There are also contracts of affreightment which are not related to the transport of
goods such as the chartering of passenger ships, tugs, ship for scientific research,
etc.
The 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. It is the most widespread form of chartering.
a. The entire ship is chartered for the transport of a full cargo, and this:
• for a well determined voyage;
• for a voyage to go and return
• for a series of specific voyages
• for a round trip with different harbours and the right for the charterer to load
and discharge.
b. Part of the ship is chartered for the transport of a certain shipment or part cargo.
If the ship is chartered entirely, the agreement will usually be noted by a charter
party, although, under certain legislations, this agreement may also be materialized
by other means, even by testimony.
Usually, under a voyage charter both the fixed costs and the variable costs are at
the expense of the ship owner. In the contract of affreightment it is clearly stipulated
who must pay the cargo handling cost. (See further Shipping Costs.)
The 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.
Under the period time charter, the charterer can make as many trips during that
period with the ship as he possibly can. Under the trip time charter, only a single trip
can be made just as under a voyage charter but at time charter conditions.
Under a time charter the ship owner is only responsible for the nautical and
technical operation of the ship whereas the charterer (in fact the time charterer) is
responsible for the commercial operation of the ship. It follows that under a time
charter, the fixed costs of the ship are for the account of the owner and the
variable costs are for the account of the time charterer. (See also Classification
of Operating Costs.)
With a traditional time charter the time charterer will hire the ship equipped and
manned.
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. (See further, Costs in Bareboat Charters.)
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.
As mentioned before, there are three main ways of chartering:
- the voyage charter;
- the time charter; and
- the bareboat charter or demise charter.
Usually, those contracts of affreightment which are fixed by means of a charter
party, relate to a named ship, so that the ship owner is obliged to make that ship
available to the charterer and no other one. In other paragraphs we will see that each
type of contract of affreightment has its own specific characteristics. So, under the
voyage charter, the laydays the demurrage, and the lay/can are of the utmost
importance; under the time charter, the parameters of the ship, in terms of speed and
fuel consumption are very important.
The Contract of Affreightment
In some cases the ship owner will prefer to fix a contract of affreightment on the basis
of a fixed price per ton transported cargo without binding himself contractually to
have to deliver a named ship. A ship owner who operates an entire fleet, generally
prefers to be able to transfer the goods which he must carry, from one ship to another
to be able to realize the most profitable operation prospects of his ships against the
lowest possible freight rates. On the other hand, a shipper that has to make
regular shipments - e.g. ten consignments of 50,000 tons of coal from Colombia to
Rotterdam with two-monthly intervals - prefers to arrange all those shipments in a
single contract where the specifications of each trip is left at the discretion of the ship
owner.
In that case, between the ship owner and the shipper, a contract or affreightment will
be concluded whereby the shipper doesn’t have to worry about the transport of his
goods, while the ship owner can use his ships with a maximum of flexibility. 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. (Stopford, M., Maritime Economics, London, Unwin
Hyman, 1988, 24.)
The booking-note
In some cases, instead of a charter party, a much simpler document is used namely
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 booking-note has the advantage of being less complicated than the charter
party and it usually refers to the clauses and conditions of the bill of lading, a
document which is essential to the implementation of the contract. The conditions of
the bill of lading are generally those that are applied on regular lines and which are
called liner term so that one could define the booking-note as a shortened charter
party with liner term. Wilders, P., Le contrat d'affrètement maritime, Anvers, Lloyd
Anversois Publishers, 1969, 32.
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.
