In shipping, the chartering process is an efficient way of making sure that vital goods are transported around the globe. Chartering has evolved over many centuries and will continue to develop as the world-trade continues to grow.
Identifying Needs
The first step in the chartering process is determining the specific shipping requirements. This involves identifying factors such as type of cargo, route, port restrictions, and schedule.
A shipowner may be an individual or an organization who owns merchant ships that are registered under their name with a ship registry. Merchant ships carry cargo or passengers for a charge.
Shipowners are usually members of the regional chamber of shipping or the International Chamber of Shipping (ICS). This global body is responsible for all regulatory and operational issues to do with shipping. Legal issues that crop up in the shipping business are also handled by the ICS.
Selecting a Broker: Most companies work with shipbrokers who specialize in matching charterers with ship owners. Brokers will have extensive knowledge about available ships, their condition, and the current market level for freight.
Finding Potential Vessels
The next step involve identifying suitable vessels based on size, quality, age, and the desired timeline.
The broker will approach the ship owners with the cargo requirement and ask for the owners offer (the freight they want for transporting the cargo or the hire they want to rent out their ship on timecharter). When one or more offers have been received the negotiations will commence.
Negotiating Terms: Negotiating terms involves agreeing on the charter rate, laytime (the total time allowed for loading and discharging the cargo), demurrage (the overtime payment if laytime has expired), and other specific terms outlined in the charter party agreement.
Charter Party Agreement: Once the negotiations are concluded, a charter party agreement is established. This legacy binding document outlines the terms and conditions of the charter, including the type of charter, the terms of payment, responsibilities and any additional terms.
Ship chartering is like renting a ship for specific needs, whether transporting cargo or passengers whereas Chartering is an activity within the shipping industry whereby a shipowner hires out the use of their vessel to a charterer. The contract between the parties is called a charterparty (from French charte partie ‘parted document’).
In some cases, a charterer may own cargo and employ a shipbroker to find a ship to deliver the cargo for a certain price, the 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). Alternatively may be expressed in terms of a total sum, normally in US dollars, per day for the agreed duration of the charter.
A charterer may also be a party without a cargo that 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 reletting the ship out to other charterers
The nuances of chartering is vital in ensuring efficient and cost-effective transportation of goods around the globe
Charter types
There are three main types of charter:
Voyage Charter
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 on a per-ton or a 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 loading and unloading the cargo. If laytime is exceeded, the charterer must pay demurrage. If laytime is saved, the charter party may require the shipowner to pay despatch to the charterer.
Time Charter
A time charter is the hiring of a vessel for a specific period of time. The owner supplies the vessel and crew, but the charterer selects the ports, route and vessel speed, the last being a significant determinant of carbon dioxide emissions. The charterer pays for all fuel the vessel consumes, port charges, commissions and a daily hire to the owner of the vessel. The charterer in that sense takes full commercial control of the vessel during the time charter period. The operation of the vessel itself remains with the owner
Bareboat Charter
A demise charter, or bareboat charter, is an arrangement for the hiring of a vessel for which no administration or technical maintenance is included as part of the agreement. The charterer obtains possession and full control of the vessel, along with the legal and financial responsibilities for it. The charterer pays for all operating expenses, including fuel, crew, port expenses and P&I and hull insurance.
.In a bareboat charter, the charterer has full control of the vessel. Apart from the capital cost of building the vessel, which is the ship owner’s responsibility, all other costs including fuel, crew, port charges, maintenance and insurance, are paid by the charterer.
A contract of affreightment
A contract of affreightment is not strictly a charter contract but is somewhat similar to a voyage charter. Under a contract of affreightment, the shipowner undertakes to carry a number of cargoes within a specified period of time on a specified route. The agreed frequency of cargoes may require more than one ship. Unlike a true charter, the cargo-owner does not have a laytime period and is not responsible for demurrage.
Source photo : Tariq Mateen on Linkedin + other sources
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