Dry Bulk Ship Chartering In Depth Part 1

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Since I wrote the Chartering Terms article a while back, i have gotten quite a bit of email as it does not really explain Ship Chartering to a lay person.

 

So here we go, for fellow professionals, please bear with me or skip this article.

 

CHARTERING

 

Chartering is nothing but an engagement of a fleet for transportation of goods or passenger traffic. In ancient days, ship's Master/ Captain used to assume the responsibility of an owner like locating of cargoes, parcel size, voyages, freight rates etc. Way back in the 17th century, ship's captains met merchants in coffee houses/pubs of those days bargaining and haggling for cargoes. London being the hub of all shipping activities including chartering, those coffee clubs or hotels served as shipping markets. Over the years, keeping pace with the changing times and needs of the merchants / ship owners, the activities of the shipping held in clubs and hotels were developed into the famous shipping exchange, what is now well known as 'THE BALTIC EXCHANGE".

 

Chartering, in actual practice, is bringing together an owner of a vessel, which he seeks to let on hire or for which he seeks an employment, on one part, and an owner of goods, a merchant-shipper or a charterer who needs a ship for carriage of goods by sea, on the other, into a contractual relation and commitment, setting forth their respective duties and obligations as terms and conditions under which they remain legally bound with legal consequences. The instrument or document of the contract is called a "Charter-Party" and a "Charter party" is defined as a CONTRACT OF AFFREIGHTMENT. Thus, there must be a contract and there must also be an affreightment.

 

Affreightment is same as freighting, that is sending, forwarding, carrying, conveying or transporting goods from one place to another for a monetary consideration called "Freight" or hire. It is fixing price and value of hire for carrying a specified cargo on a specified distance by a conveyance or vehicle. Thus, ocean "freight" represents revenue earnings of a vessel/ship for sea-transportation. This is done in the form of a contract known as charter party agreement.

 

CHARTERING MODE

There are there type of modes in ocean transportation which are known as Voyage Charter, Time Charter and Bareboat Charter. A shipowner requiring to fix a vessel will consider prospects for her on being put on in any one of the these modes to obtain best returns. Thus, he has following options:

 

VOYAGE CHARTER: In a voyage charter a ship owner places his vessel at the disposal of the charterer for loading a full/part cargo as agreed from a port or two for discharge at one or two ports, as named or nominated in the Charter Party. It can be for one single voyage or a series of voyages - consecutive voyages. When the vessel is on a voyage charter, the owner gets freight per weight tonne of cargo actually loaded on board the vessel. The freight is earned and accrued on completion of the contracted voyage or the voyage has been substantially performed. Generally freight is paid on "right & true delivery".

 

TIME CHARTER: Where a charterer hires a vessel for a period, say, 3 months or one year, the vessel is said to be on time-charter. The owner gets an agreed "Hire" per day or per dead weight tonne (DWT) per month on her summer loadline. This hire is payable in advance. The vessel will be required to be delivered and redelivered at agreed places. Subject to satisfactory "On hire" survey, a delivery certificate will be signed in token of the vessel having been placed at the disposal of the time-charterer. The charter hire will commence to count thereafter. On expiry of the time-charter period, the vessel will be again subject to "Off Hire" survey and a "Re-delivery" certificate will have to be signed by the parties whereby the vessel will revert to her original owners. "On hire" and "Off-hire" surveys help establish that the condition of the vessel at the time of delivery and re-delivery is practically unchanged and remains the same barring ordinary wear and tear.

 

On time chartered vessel, the charterer will have to bear the cost of bunkers, port disbursements including agency commission and brokerage, stevedoring-loading-discharging, dunnage, cleaning holds or in lieu of payable to owners as agreed. For the owner's account will be officer's/crew wages, stores and provisions, ship maintenance depreciation etc. The charterers become deponent owners of the vessel and take full responsibility of cargo including all claims till the expiry of time charter agreement.

 

There will be an agreed arrangements to share the cost of water, bunkers remaining on board at the time of delivery and re-delivery, on-hire/off-hire survey fee and time consumed during such surveys and generally the bunker is priced at the ruling rate at the time of delivery and re-delivery, as the case may and to be borne accordingly by the charterer and the owner respectively.

 

BAREBOAT CHARTER: Bareboat charter, as also known as demits charter or charter by demise, is self-speaking, in that the very word "Bareboat" is quite suggestive of the vessel being offered just "Bare" and charterer must take the vessel in full control, to properly manner, fuel and ply to suit his requirement. The charterer virtually becomes the defacto owner and manages and controls the vessel. As in case of time-charter, here also the vessel will be surveyed on delivery and re-delivery. The owner collects from the charterer a certain rate per DWT ton on summer loadline capacity per calendar month, which is payable in advance. The charterer has to meet all the costs and charges. Owner has practically nil expenses and is not the carrier.

 

Ok, look out for the next article in this series.