TYPES OF SHIP CHARTERING

SHIP  CHARTERING

Chartering is an activity within the shipping industry.

The definition of a charterer is a person who reserves a ship or other mode of transportation for the personal use of others.Depending on the type of ship and the type of charter, normally a standard contract form called a charter party is used to record the exact rate, duration and terms agreed between the shipowner and the charterer.

In case the charterer owns the cargo:

• He employs a shipbroker to find a ship to deliver the cargo for a certain price, called freight rate.
•  Freight rates may be on a per-ton basis over a certain route (e.g. for iron ore between Brazil and China), in Worldscale points (in case of oil tankers) or alternatively may be expressed in terms of a total sum - normally in U.S. dollars - per day for the agreed duration of the charter.

In case of a charterer without a cargo:

• He takes a vessel on charter for a specified period from the owner and then trades the ship to carry cargoes at a profit above the hire rate, or even makes a profit in a rising market by re-letting the ship out to other charterers.

TYPES OF VESSEL CHARTERING:

1)   Voyage Chartering

2)   Time Chartering

3)   Bareboat Chartering

4)   Contracts of Affreightment [COA]

VOYAGE CHARTERING:

Voyage Chartering occurs when a vessel is employed f or a single trip, loading cargo from one or more ports for discharge at one or more ports. In return for the carriage of the cargo and, perhaps for the expenses of loading and / or discharging the cargo, the shipowner will receive monetary reward termed “freight‟. This freight can either be in the form of a lumpsum payment or, more commonly, it will be payable pro rata in respect of the quantit y of cargo carried, usually so much per tonne.It is normal to specif y the amount of time a Charterer is allowed for loading and discharging the vessel the “laytime‟ and should this time be exceeded, then liquidated damages termed “demurrge‟ will usually become payable.The dates between which the vessel is required to be presented at the loading port the “laydays‟ will also be recorded, as well also be recorded, as well as the cargo type and size that is to be carried.

TIME CHARTERING

Where vessels are hired for a specific period –eg.for 12 months (15 days more or less) the responsibilities of the parties differ substantially from those involved in voyage Chartering. A Time charterer assumes control of the operational ( let us call it, the “commercial‟) appointment and payment of port agents, purchase of bunkers, etc. leaving the Shipowner responsible f or the management of the ship, with particular regard to maintenance, crewing, insurance, etc.The Shipowner is rewarded by the payment of regular amounts of hire money, normally paid monthly or semi - monthly in advance.

However, should the vessel fail to perform properly or suffer such interruptions to the smooth performance as mechanical breakdowns, she may be considered “off - hire‟, during which period the Owner will not be entitled to remuneration.

Many Charterers find it expedient to employ vessels on a timecharter basis for single or round-trip voyages and this practice has given rise to the term “trip-chartering‟. A trip - charter is similar to voyage chartering with regard both to the duration of the venture and to the fact that the intention of the parties is to employ the vessel for, say, one or two voyages. But there the similarity ends, and the roles of Charterer and Owner are identical to those assumed f or time charters of longer periods.

BAREBOAT CHARTER

Sometimes termed “demise‟ Chartering, Bareboat Chartering arises on those occasions where Shipowner s hire out their vessel to a Charterer, who virtually runs the ship as if he were the Shipowner – assuming both the Time charterer‟s responsibilities (as defined above) and most, if not all, of the responsibilities of the

Shipowner. In return, the Shipowner receives a lower hire payment, commensurate with reduced responsibilities and risks. Strictly defined, “demis‟ Chartering differs from “bareboat‟ Chartering in that it may be agreed between the parties that the Shipowner provides a master and/or officers and/or crew and, perhaps, organizes the vessel’s insurance. Demise and Bareboating are in reality finance tools, designed to enable Investors to purchase ships, leaving the operation and management of the ships to Charterers with more expertise in those areas. The Charterers may, in fact, be Shipowners without the financial resources to fund such a purchase directly.

  

CONTRACTS OF AFFREIGHTMENT

These occur when a merchant – perhaps in reality either a Shipowner, a Charterer or an Operator – contracts to carry a given quantity of cargo between named ports on agreed voyage Chartering terms over several voyages. The merchant  may thereafter employ his own vessel(s) or charter - in outside ships in order to fulfill contractual obligations. The advantage of such a contract  to a Shipowner is that security of employment is obtained for his vessel(s) for the duration of the Contract of Affreightment, especially valuable if the Shiponwer considers that freight rates are about to fall. For Operators in a similar freight market situation, the advantage is in the profits they hope to realize by taking advantage of being able to fix - in tonnage at lower freight rates than those they will receive from the

charterer.

But the Charterer s may also be able to obtain financial advantage in the event that market freight rates rise once they have committed Owner or Operator “locked-in‟ to the Contract –always assuming that the Owner/Operator will keep their end of the deal and perform. But even if the market stays in “neutral‟ or moves against the Charterer by freight rates falling, at the very least the Charterer has exchanged the unrealibility of the daily market place for freight rate stability, thereby enabling emphasis to be placed in the development and marketing of the commodities involved.