Chartering Practices

By | January 3, 2017

When a tramp carrier is engaged, it is said to be under the charter, as one charterer hires either the whole or the bulk of its space. A tramp may be chartered in some ways.
Three most important forms of engagement are:

  1. Voyage Charter
  2. Time Charter
  3. Bareboat Charter or Charter by Demise.

Let us now discuss them in detail.

1. Voyage Charter

A ship may be chartered either for a single voyage (say, from port A to point B) or for the following voyage (say, from port A to port B to port C) or for a round voyage (say, from port A to port B to port A). The shipowners provide the vessel to the charterers for carriage of an agreed quantity of cargo from the named port or ports to be discharged at named port or ports. Alternatively, the agreement (known as Charter party) provides for carriage of cargo between ports within a particular range (say from any port in India to any port in Germany). In the latter case, the charterers will be required to convey the names of specific ports to the shipowners (which in effect is the Master of the vessel) at the time of voyage or voyages are to be made.

For engaging a tramp on a voyage basis, the charterers are to pay freight to the shipowners. Freight may be payable either according to the actual quantity loaded or only be calculated – by the total capacity of the ship. In the first case, the charterers’may also be required to pay for any capacity, which remained unused, Alternatively, the shipowners hire out the unused capacity to another charterer.

In a voyage charter, the shipowners are not only to meet all expenses of running the ship such as officers and crew wages, stores and provisions, insurance of ship, depreciation, etc. but also the operating expenses like fuel cost, port charges, light dues, etc. The shipowners recoup their expenses and earn profits from the freight paid by the charterers.

2. Time Charter

For time charter engagement, a ship is hired for a fixed period operation within the defined territories or between agreed ports. Although the ship is operated by the command of the charterers, it cannot be taken outside the agreed territories or agreed ports protect the interests of the shipowners. It may also be noted that period is the essence of the agreement, but it also provides for the voyage territories.

Under the time charter agreement, shipowners have the responsibility to deliver the vessel at the agreed port within the specified time period in such a condition that it is in every way fitted and equipped for the contemplated employment. The charterers, in turn, are to redeliver the vessel at the agreed port in the same condition, in which it was taken in charge, excepting normal wear and tear.

The entire capacity of the ship is hired, and the shipowners receive charter hire for the time duration for which it has been hired. The charter hire is payable in advance at certain agreed intervals. The quantity of cargo carried has not born upon the charter hire and even if no voyage is made because of the charterer’s fault, the shipowners are entitled to the hire.

In a time charter engagement, the responsibility of scheduling the ship’s employment and meeting port expenses, canal dues, fuels cost, cargo expenses, etc., remain with the charterers. However, running expenses of the vessel like officers and crew wages, stores, provisions, insurance;, etc., have to be met by the shipowners. Another feature of the time charter engagement is that the charterers can either operate themselves or sublet the vessel on voyage charter depending upon their requirements (provided the latter action is not expressly prohibited in the agreement between the shipowners and the charterers). If the market improves after the vessel is taken on time charter, and the charterers sublet it, the charterers) earn more money than what is payable to the shipowners by way of charter hire. Sometimes ships are time chartered on a long-term basis to fulfill the contractual obligations like the Contract Affreightment. Such long-term charters are entered into so as to protect the charterers from the vagaries of fluctuation in the freight market.

Expenditure-wise, the charterers have a greater responsibility under the time charter compared to voyage charter. However, under time charter, the shipowners undertake that the ship is in a seaworthy condition at the commencement of the period of hire and that they will exercise due diligence or reasonable care to maintain it in seaworthy condition. This implies that the shipowners are responsible for keeping the ship in a thoroughly efficient
state as regards hull. Machinery and equipment during the period of the charter agreement.

3. Bareboat Charter or Charter by Demise

Under this arrangement, the shipowners let out the bare ship for a period. The difference between the time charter and bareboat charter lies in the fact that in the latter case the ship in the bare form lies at the disposal of the charterers who If we the full right and responsibility of operating the ship. Table shipowners have the minimum responsibility and act like it’ they are ‘dead’ and have no concern about the ways the ship will be used. Also known as “Demise Charter” the charterers, in this case, become the deponent own ‘rs and ‘& are rcsl~onsible Sor Manning as well as operating the ship as if they are the owners of the ship.

Since the ship is at the disposal of coal-tenders, they have the right to appoint the Master and the Chief Engineer, however, subject lo the approval of the owners. They bear all costs and expenses for the operation of the ship. For the period, the shipowners are paid a fixed sum calculated at a certain rate per ton dead weight on summer freeboard per calendar month payable in advance. The ship is put at the disposal of the charterers in the seaworthy condition, and after the expiry of the period, it is redelivered to the shipowners in the same good order and condition as for and when delivered, minus the ordinary wear and tear.