Chartering is defined as an agreement where a shipowner agrees to rent out his ship to a cargo owner to move cargoes from one point to another. Hence,<strong> ship charters</strong> refer to the rental contracts for agreements that allow for the rental of a ship to move cargoes. This process involves a shipowner, defined as the legal entity officially registered as the owner of the ship, and a charterer, which is defined as the company which hires these ships for transporting their cargo. The contract which binds the charterer and the owner is called a Charter Party. This i a document that contains the details of the operation, such as the personal data of the crew, details of the route and lay time.
Ship Charterers liaise with intermediaries, known as Ship Brokers, or deal directly with ship owners to discuss about the contracts that arrange for the charter of ships to get their desired cargoes to their clients by the most cost and time effective means. Now that we know about the various stakeholders and their definitions, let us share about how ship chartering works, and why it is important for charterers to learn about ship chartering contracts.
How does Ship chartering work?
There are a few different types of ship charter contracts that charterers might encounter, such as:
A voyage charter refers to hiring a ship and crew for a voyage between a load port and a discharge port. The charterer pays the shipowner on a per-ton (weight) or lump-sum (single large payment) basis, while the shipowner pays the port costs (excluding stevedoring), fuel costs and crew costs.
A time charter refers to hiring a ship for a fixed timeframe; the owner retains management of the ship, but the charterer has the power to choose which ports to dock and directs where the ship goes. Additionally, the charterer bears all the fees that the ship incurs. This includes the cost of fuel that the ship consumes, port charges, and a daily ‘hire’ to the owner of the ship.
A bareboat charter or a demise charter refers to hiring a ship whereby no administration or technical maintenance is included as part of the agreement. The charterer bears the full operating expense which includes fuel, crew wages, port expenses and hull insurance. In fact, most charter periods (usually counted in years) end with the charterer obtaining ownership of the ship. Effectively, the owner relinquishes possession of the ship to the charterer and the charterer takes full control of the ship along with the legal and financial responsibility for it.