By Ajay Menon
Ships, boats and other recreational vessels are owned by a large number of individuals who often purchase them as assets. They do not use these vessels for shipping goods or for ferrying passengers.
Instead, they often lend them out to third party organizations who use them for a variety of purposes. In maritime legal terms, this lending process is known as chartering. Chartering is an important concept of the global maritime trade sector, and is of different types.
This article will delve into the differences between two specific categories of charters – the voyage charter and the time charter.
What is a Charter?
A charter is an agreement between two or more groups known as charter parties, regarding the leasing of a vessel for a fixed set of conditions. The terms and conditions stipulated in the charter are binding on all the parties in the agreement and covers a wide variety of clauses and possible scenarios that may arise. It is considered to be an official document in legal aspects and is required by Admiralty Law to be drawn up in case of any form of vessel hiring or leasing.
A shipowner is the first party in the charter agreement who owns the vessel under consideration. The charterer is an individual or organization who is in need of a ship.
The charterer may have cargo that he wishes to transport, or may further lease out the vessel to third parties.
The shipbroker is a link between ship owners and charterers, and aids in finalizing the terms of the agreement. The terms of the agreement include the duration of leasing, fees, payment instalments, regulations on usage, and detailed surveyor reports on the condition of the ship.
Payment is termed as a freight rate and is remitted to the shipowner at fixed intervals decided in the agreement.
Surveyor reports are important in chartering, as they ensure that the vessel is seaworthy prior to being chartered. Similarly, on completion of a charter agreement, and before final payment formalities, another survey report is conducted to ensure that the vessel has sustained no damage during the lease period.
The charter agreement lays down the responsibilities of each group and stipulates the condition in which the vessel is to be maintained.
There are three main types of charters – voyage charter, time charter, and demise charter.
The demise charter is often known as a bareboat charter, and grants ownership or possession of the vessel to the charterer subject to certain time-bound conditions.
Terms and Features of a Voyage Charter
A voyage charter is a type of charter in which a vessel is leased out for a particular voyage. The charter agreement lists the ports of call, destination, and restrictions on cargo, if any.
Most voyage charters are undertaken by charterers who have cargo that needs to be shipped. For this, they contact ship owners through brokers and arrange a ship for a particular voyage.
Payment of voyage charters can be done in two methods – on a per-ton basis, or on a lump-sum basis.
The per-ton basis involves paying the owner for every ton of cargo or freight transported on the vessel. This is preferred when the cargo tonnage is considerably lower than the gross maximum cargo tonnage of the vessel.
On the other hand, when a higher weight of the cargo is carried, it is advisable to pay on a lump-sum basis. The shipowner must ensure that the tonnage carried on board the vessel is within the acceptable limits of the ship. This includes checking the tonnage of on-deck cargo, and the various load lines of the vessel.
There are some important terms used in a contract agreement, that lays out the time-based rules to be followed for the duration of the contract.
Laytime refers to the time that a charterer is allowed to complete the loading and unloading process at a port of call. Since the owner pays duties and berthing charges at the port, they expect the charterer to hasten the process.
In case the charterer exceeds the laytime laid out in the contract, he is obliged to pay a penalty known as demurrage. This covers the extra costs incurred by the shipowner owing to the delay by the charterer.
On the other hand, if the ship is able to complete the loading and unloading operations before the stipulated time, the charterer can claim payment of a despatch from the owner. This is often seen as an incentive for charterers to complete the port operations as soon as possible.
In voyage chartering, the shipowner undertakes payment of fuel, operation, and employment-related costs. It is their responsibility to hire the officers and other crew members for the voyage either from a pool of individuals working for them, or using brokers as middlemen to source mariners and seafarers.
In addition, the owner must also pay costs such as berthing and loading operations. Any equipment used must also be paid for by the owners.
To recoup these costs, the owners charge a higher rate from the charterer. In general, charterers transporting a one-off consignment prefer voyage charters despite the high cost. This is because they are not tied down to the contract for a long period of time.
Simply put, a voyage charter involves a charterer hiring a vessel for the purpose of a single voyage, in which the route and ports have been pre-determined. The responsibility of duty and other payments along with recruitment is handled completely by the shipowner, while the cargo is the sole responsibility of the charterer.
*To be concluded
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