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.