Ship chartering is the practice of a vessel owner renting out the use of a ship to another firm, the charterer, for the movement of cargo. It may appear straightforward, but in practice, it is anything but. There are numerous types of charter contracts, various cost components, and, of course, numerous players. In this article, we’ll go over the fundamentals of chartering, including how it works, who’s involved, and how costs are allocated.
The ship owner and the charterer are the two main players in ship chartering. There are others, the most important of which is the ship broker. There is also the shipping agent, who handles the important in-port details, and the ship manager, who operates and crews the vessel on behalf of the owner for a fee. It should be acknowledged that the term charter party refers to the contract itself, rather than the parties who enter into it. The charter party specifies the rate, duration, and terms agreed upon by the ship owner and charterer.
The ship owner arranges for cargo to be transported from one port to another. The Charterer enters into a contract with the owner to hire the ship or a space on the ship for the purpose of transporting his cargo. In some cases, a charterer may own the cargo and hire a ship broker to locate a suitable vessel to deliver the cargo for a set fee, known as the freight rate. You can check out about vessel chartering in Malaysia here.
There are 3 main types of ship vessel charterers which are:
- Voyage charterer
- A voyage charter is the simple hiring of a vessel and its crew for a voyage between the ports of loading and discharge. The charterer pays the ship owner on a per-ton or lump sum basis in this type of contract. The owner pays all port costs, with the exception of stevedoring, fuel costs, and crew costs, and payment for the use of the vessel is known as freight. A specific time for cargo loading and unloading is agreed upon in the terms of a voyage charter. This is known as laytime, and if it is exceeded, the charterer is obligated to pay demurrage.
- Time charterer
- A time charter is the hiring of a vessel for a set amount of time. The ship is still managed by the owner, but the charterer chooses the ports, determines the route, and has complete operational control of the vessel for the duration of the contract. He pays for the fuel, port fees, cargo handling fees, commissions, and a daily hire fee.
- Demise charterer
- The charterer has complete control of the vessel under the definitions of a demise charter, also known as a bareboat charter. Aside from the capital cost of building the vessel, which is the owner’s responsibility, the charterer is responsible for all other costs such as fuel, crew, port charges, and insurance. The charterer bears legal and financial responsibility for the vessel.
- The contract can be for long-term charters lasting many years under the demise clause. For tankers and bulk carriers, this is fairly common. It could be a type of hire-purchase arrangement in which the charterer eventually acquires ownership of the vessel.