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This is an introductory article on time charters and voyage charters.
There are three main types of charters in shipping:
- Voyage charter
- Time charter.
- Bareboat charter (demise charter).
Charters are often compared to taxis because it is the most straightforward analogy to understand.
Voyage charter
Let’s begin with an example:
Sergey orders an Uber to get to work. Sergei pays the price based on distance and traffic jams. He does not pay for gas and does not pay the driver’s wage. If the car waits longer than 3 minutes for Sergey, he pays for the wait time. If the driver breaks the traffic rules, Sergey will not be held responsible (but his boss can reprimand him for being late).
Let’s consider this example in the context of a voyage charter:
Poseidon chartered a vessel to carry 15,000 tons of wheat from Varna to Barcelona. The freight rate is $30 per tonne. The loading and unloading rate is 5,000 tons per working day. The demurrage rate is $2,000 per day.
Now let’s break down the example into components:
- Port of loading and discharge. A charterparty may indicate more than one port.
- The charge for the carriage is the freight. Freight is often calculated per tonne of cargo, although it can also be fixed.
- Time for loading and discharge – laytime. Usually stated as a loading/unloading rate per day.
- Wait time – demurrage.
The shipowner is responsible for the actions of the master and crew. The shipowner may not only be the registered owner of the vessel but also, for example, the time charterer or bareboat charterer.
In a voyage charter, the shipowner pays for bunker, master and crew wages, port charges, and other expenses related to the vessel. These costs are included in the freight rate. The shipowner also bears the cost of repairs to the vessel.
The primary responsibility of the charterer under a voyage charter is to provide the cargo and pay the freight. The shipowner takes care of everything else.
Time charter
A time charter is a car hire with a driver. Back to Sergey:
Sergey went on a business trip to London for a fortnight. He has no time to explore the city, so he has rented a car with a driver. Sergey pays by the day, regardless of the frequency and length of his trips. He also pays for petrol and paid parking. Sergey does not pay the driver’s wage and does not pay traffic fines.
In a time charter, the vessel is not chartered to carry specific cargo from point “A” to point “B”. It’s chartered for a specific period of time. The shipowner provides and pays for the master and crew, as well as the insurance costs for the vessel. As with a voyage charter, the shipowner is responsible for their actions.
A time charterer has more responsibility:
- Instead of the freight for the carriage, the charterer pays hire, a fixed fee for the use of the vessel. As a rule, hire is paid monthly or semi-monthly.
- The charterer pays for bunker, port charges, loading and unloading costs, agency services, etc.
There is no laytime and demurrage in a time charter, as the charterer uses the vessel at his own discretion.
Main terms of a voyage charter and a time charter
There are two types of terms in a charterparty: implied and express. Implied terms automatically apply to all charterparties as a matter of fact or law, even if they are not mentioned in the charter. The express terms are the terms of the charterparty.
Implied terms
There are five main implied terms:
- The shipowner shall provide a seaworthy vessel at the commencement of the voyage.
- The vessel shall proceed with reasonable despatch.
- There should be no unjustifiable deviation.
- Not to ship dangerous goods without notice.
- To nominate safe ports of loading and discharge.
This list is not exhaustive.
Voyage charter terms
Main terms of a voyage charter:
- Ship’s name and description (IMO, flag, class, year built, tonnage, etc.)
- Location of the vessel at the time of the charter
- Expected date of readiness to load
- Description and quantity of cargo
- Ports of loading and discharge
- Freight rate
- Laydays и cancelling date – loading/discharge period and the date after which the charterer has the right to terminate the charter if the vessel fails to arrive at the port
- Notice of Readiness – provisions laying down rules for tendering a notice of a vessel’s readiness to load or discharge
- Rates of loading and discharge
- Demurrage and despatch
Time charter terms
Main terms of a time charter:
- Ship’s name and description (IMO, flag, class, year built, tonnage, etc.)
- Period of hire
- Trading limits – the geographical limitations in which the charterer is allowed to use the vessel.
- Provisions for the place and manner of delivery of the vessel to the charterer and redelivery to the shipowner
- Laydays/Cancelling – charterer’s ability to terminate the charter if the vessel is not delivered by the agreed date
- Hire rate and payment procedure
- Off-hire – cases where the charterer does not pay the hire because the vessel cannot be used (e.g. due to a breakdown)
- Quantity and payment of bunker fuel
- Cargo allowed for carriage
- Excluded cargo – cargo that the shipowner prohibits carrying on the vessel
- Speed and bunker consumption
- Provisions on the allocation of liability between the charterer and shipowner
Bareboat charter
This article does not cover bareboat (demise) charters, but getting back to Sergey, a bareboat charter is a hire car without a driver. You can read more about bareboat charters here.
If you need legal assistance with charters, feel free to contact me via email, Telegram, or WhatsApp.
