Chartering is an activity within the
shipping industry
Maritime transport (or ocean transport) and hydraulic effluvial transport, or more generally waterborne transport, is the transport of people ( passengers) or goods (cargo) via waterways. Freight transport by sea has been widely used thro ...
whereby a
shipowner
A ship-owner is the owner of a merchant vessel (commercial ship) and is involved in the shipping industry. In the commercial sense of the term, a shipowner is someone who equips and exploits a ship, usually for delivering cargo at a certain frei ...
hires out the use of their vessel to a charterer. The contract between the parties is called a
charterparty
A charterparty (sometimes charter-party) is a maritime contract between a shipowner and a "charterer" for the hire of either a ship for the carriage of passengers or cargo, or a yacht for pleasure purposes.
Charter party is a contract of carriag ...
(from the French ''"charte partie"'', or "parted document"). The three main types of charter are: demise charter, voyage charter, and time charter.
The charterer
In some cases a charterer may own
cargo
Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including trans ...
and employ a
shipbroker
Shipbroking is a financial service, which forms part of the global shipping industry. Shipbrokers are specialist intermediaries/negotiators (i.e. brokers) between shipowners and charterers who use ships to transport cargo, or between buyers an ...
to find a
ship
A ship is a large watercraft that travels the world's oceans and other sufficiently deep waterways, carrying cargo or passengers, or in support of specialized missions, such as defense, research, and fishing. Ships are generally distinguished ...
to deliver the
cargo
Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including trans ...
for a certain price, called
freight rate
A freight rate (historically and in ship chartering simply freight) is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport (truck, ship, train, aircraft), the w ...
. Freight rates may be on a per-ton basis over a certain route (e.g. for iron ore between Brazil and China), in
Worldscale
Worldscale is a unified system of establishing payment of freight rate for a given oil tanker's cargo. Worldscale was established in November 1952 by London Tanker Brokers’ Panel on the request of British Petroleum and Shell as an average total c ...
points (in case of
oil tankers
An oil tanker, also known as a petroleum tanker, is a ship designed for the bulk transport of oil or its products. There are two basic types of oil tankers: crude tankers and product tankers. Crude tankers move large quantities of unrefined crud ...
) 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.
A charterer may also be a party without a cargo who 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.
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.
Time charter equivalent is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types.
Charter types
There are three main types of charter:
*A demise charter, or
bareboat charter
A bareboat charter or demise charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible f ...
, is an arrangement for the hiring of a vessel whereby 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 responsibility for it. The charterer pays for all operating expenses, including fuel, crew, port expenses and P&I and
hull insurance. In commercial demise chartering, a subtype of
bareboat charter
A bareboat charter or demise charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible f ...
ing, 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 is a form of hire-purchase from the owners, who may well have been the shipbuilders. Demise chartering is common for tankers and bulk-carriers.
*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
lump-sum
A lump sum is a single payment of money, as opposed to a series of payments made over time (such as an annuity).
The United States Department of Housing and Urban Development distinguishes between "price analysis" and "cost analysis" by whether th ...
basis. The owner pays the port costs (excluding
stevedoring
A stevedore (), also called a longshoreman, a docker or a dockworker, is a waterfront manual laborer who is involved in loading and unloading ships, trucks, trains or airplanes.
After the shipping container revolution of the 1960s, the number o ...
), fuel costs and crew costs. The payment for the use of the vessel is known as ''
freight
Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including transp ...
''. A voyage charter specifies a period, known as
laytime
In commercial shipping, laytime is the amount of time allowed in a voyage charter for the loading and unloading of cargo.
Under a voyage charter or time charter, the shipowner is responsible for operating the vessel, and the master and crew are ...
, for loading and unloading the cargo. If laytime is exceeded, the charterer must pay ''
demurrage
The term "demurrage" from Old French ''demeurage'', from ''demeurer'' – to linger, tarry – originated in vessel chartering and referred to the period when the charterer remained in possession of the vessel after the period normally allowed ...
''. If laytime is saved, the charter party may require the shipowner to pay ''
despatch'' to the charterer.
*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 – a significant determinant of
CO 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 this sense takes full commercial control of the vessel during the time charter period. Operation of the vessel itself remains with the owner.
Variations on these types include:
*A passenger cruiseship charter - The hiring of a passenger cruise ship in regular service for a limited period of time exclusively for a private function, using all accommodations; often for business meetings or conferences, music festivals, charity fundraisers or global events such as the 2016 Rio Olympics.
*A trip time charter is a comparatively short time charter agreed for a specified route only (as opposed to the standard time charter where charterer is free to employ the vessel within agreed trading areas).
*A bareboat yacht charter (In the leisure industry, the term "demise charter" is not used). Bareboat yacht chartering is the short-term hire for only a few weeks or even less. The owner supplies the yacht in
seaworthy order, fully fuelled and possibly revictualled. The yacht may be part of a holiday flotilla; and sometimes the yacht is crewed by an employee of the owner. At the end of the hire period, the charterers are expected to pay for the fuel used.
*A contract of
affreightment
Affreightment (from freight) is a legal term relating to shipping.
A ''contract of affreightment'' is a contract between a ''ship-owner'' and a charterer, in which the ship-owner agrees to carry goods for the charterer in the ship, ''or'' to giv ...
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. Agreed frequency of cargoes may require more than one ship. Unlike a true charter, the cargo-owner does not have a
laytime
In commercial shipping, laytime is the amount of time allowed in a voyage charter for the loading and unloading of cargo.
Under a voyage charter or time charter, the shipowner is responsible for operating the vessel, and the master and crew are ...
period, nor is he responsible for
demurrage
The term "demurrage" from Old French ''demeurage'', from ''demeurer'' – to linger, tarry – originated in vessel chartering and referred to the period when the charterer remained in possession of the vessel after the period normally allowed ...
.
Charterers' Liability Insurance
A Charterers' Liability Insurance is a type of insurance meant to protect shipping businesses from certain risk or liabilities.
This could include fines and breaking of a law, cargo or vessel damage and physical injuries including and up to death.
Coverage of a Charterers' Liability Insurance can vary based on the charter-party type and additional inclusions or exclusions arranged prior to the purchase of the insurance.
See also
*
Seaworthiness
Seakeeping ability or seaworthiness is a measure of how well-suited a watercraft is to conditions when underway. A ship or boat which has good seakeeping ability is said to be very seaworthy and is able to operate effectively even in high sea stat ...
*
Laytime
In commercial shipping, laytime is the amount of time allowed in a voyage charter for the loading and unloading of cargo.
Under a voyage charter or time charter, the shipowner is responsible for operating the vessel, and the master and crew are ...
*
Demurrage
The term "demurrage" from Old French ''demeurage'', from ''demeurer'' – to linger, tarry – originated in vessel chartering and referred to the period when the charterer remained in possession of the vessel after the period normally allowed ...
References
Further reading
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{{Ship chartering
Ship management
Admiralty law