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-CHARTERPARTIES-

INTRODUCTION
• There are two main contracts of affreightment:
– Charterparties (contract for the use of the
whole or large part of the vessel)
– Bills of lading / sea waybills (contract for
carriage of individual parcels of cargo)
DEFINITION OF CHARTERPARTIES

• The term ‘charter party’ derives from Latin words


“carta partita” which means “contract divided”
• The old practice : when a contract was finalised
and written, the original document incorporating
the terms and conditions of the contract was cut
into 2 halves; one half to be kept by the
charterer and the other half by the shipowner.
This was done to prevent fraud in the original
document.
• Charterer – a person that is entitled to the use of
the ship.
• The ship is “to be chartered” or “under charter”.
TYPES OF CHARTERPARTIES

Bareboat/demise charterparties
Voyage charterparties
Time charterparties
1. Bareboat charterparties

• Contracts which give the charterer full control of


the vessel for an agreed period in exchange for
the payment of hire.
• Charterer provides his own crew and is
answerable for the acts of master and crew.
• The charterer is responsible for the operating cost
of the ship (e.g. crew, bunkers, port costs etc).
• Bareboat charters are used in following
circumstances:
– By governments requiring vessel, notably in time of
war.
– By shipowners that need to supplement an existing
fleet and who want total control over the vesse
(subject to limitation in c/p)
– As an instrument of ship finance.
Example of situation for bareboat charterparties

• A contract for the purchase of ship by installment


will often incorporate a bareboat charter into
the contract.

• A financing bank lend the funds required to buy a


ship. Thus, it acquires ownership of the ship. The
bank bareboat chartering the ship to the
borrower for the period of the laon.
2. Voyage charters

• Contracts for the use of ship to carry an agreed


to carry specific goods on one or more voyages
between named ports in exchange for the
payment of freight.
• Normally, (unless there is an express terms to the
contrary) shipowner is responsible for all the
operating costs of the ship. [technical &
commercial operation]
3. Time charters
• Contracts for the use of the ship for a specified
period of time in exchange for the payment of
hire.
• The owner pays for the crew and the cost of
insuring the ship and responsible for the vessel’s
fitness to trade. [technical operation]
• The charterer normally pays for bunkers, port
charges and cargo handling expenses (stevedoring
costs, agencies, pilotages) and “all other usual
expenses.” [commercial operation]
• The vessel may be sub-chartered to another
charterer or the charterer may contract for the
cariage of goods.
Allocation of costs
(Shipowner’s account)
VOYAGE CHARTER TIME CHARTER
Crew wages Crew wages
Provision (food) Provision (food)
Stores & Equipment Stores & Equipment
Lubricating oil Lubricating oil
Repairs Repairs
Surveys Surveys
Management overhead Management overhead
Fuel/bunker
Port charges
Pilotages
Stevedores / hold cleaning (*depends
on contract)
Dunnage
Risk of bad weather (delays)
Allocation of costs
(Charterer’s account)

VOYAGE CHARTER TIME CHARTER


Freight Hire
Stevedores Fuel/bunker
Port charges
Pilotages
Stevedores / hold cleaning
Dunnage
Risk of bad weather (delays)
Who bears the risk of delay?

Types of carterparty Risk of Delay Solution


TIME CHARTER Charterer Off-hire
VOYAGE CHARTER Shipowner Demurrage
** Time charter contains ‘off hire clause’ which provides that hire is not
payable by the charterer during any period when full use of the vessel is not
available to him due to circumstances which are attributable to the
shipowner or the vessel e.g. engine failure or crew deficiencies or
drydocking or defective loading equipment.

**Demurrage:
 A liquidated damages clause in a voyage charterparty for all time
used in loading or discharging cargo from the vessel after the expiry
of laytime.
 Demurrage is calculated as an agreed rate per day.

**Laytime:
 The contractual time or period of time given by the shipowner or carrier
to a voyage charterer for the loading or discharging of the cargo.
 It is the period the shipowner or carrier undertakes to make and keep
the vessel available for loading or discharging without payment
additional to the freight.
When Does Laytime Start to Run?

1.The chartered vessel must have become an


‘arrived ship’ at the agreed destination.

2.Notice of readiness (NOR) must have been given.

3.The vessel must in fact be ready to load.

** NOR is a notice by the shipowner to the charterer or


other person as required by the charterparty that the ship
has arrived at the berth/port and is ready to load or
discharge cargo)
When is the Ship “an Arrived Ship”?

 depends on the wording of the charterparty.


 If the charter is a berth charter, the ship is an
arrived ship on reaching the loading or
discharging berth.

 If the charter is a port charter she is an arrived


ship on reaching the usual waiting anchorage
within the legal and commercial limits of the
port of loading or discharge.
Additional forms of charteparties

• Slot charterparty: an agreement which enables


liner operators to utilise empty space on their
ships by allowing other operators to use some of
the empty carrying capacity in their vessel in
exchange for the right to use an equivalent
amount of space on the ships of such other
operators.

• Trip time charter: a charter of a vessel for a


specific voyage but on time charter terms. The
charterer pays hire for whatever the duration of
the voyage to be.
CHARTERING STRATEGY

• If the market rate of hire goes down, the owner


will have benefited from the time charter.

• If the market rate of hire goes up, the charter will


have benefited from the time charter. The time
charter will prevent the owner from exploiting
the higher market rate.
WHEN IS THERE A BINDING CONTRACT ?

• The formation of charterparty is governed by the


normal principles of general contract law.
• A charter party is concluded when the offer
made by the offeror is accepted by the offeree.
• There is no formal requirement under the
common law that a contract must be in writing.
• However, writing is important as evidence of the
terms of the contract.
• Until all terms have been agreed either party can
withdraw from further negotiations without
penalty.
• Even when all the details have been agreed, if the
fixture is subject to some other condition e.g.
“subject stem” or “subject board approval”, there
is no binding fixture until that condition has been
satisfied within the time given to do so.
TERMS OF THE CONTRACT

• Terms may be express or implied.


EXPRESS TERMS UNDER CHARTERPARTY
• Express terms of c/p are terms contained in the c/p
contracts.

• The terms deal with matters such as period of the


charter, the rate of the freight/hire, the loading,
carriage and discharge of goods, the allocation of
cost for loading and discharge operations, demurrage
rate, off-hire, payment of commission.
• There are various forms of charterparties used by
merchants.

 Some forms are intended for general trading.


 Baltime 1939 (Bimco Uniform Time-Charter) ,
 Gencon 1994
 New York Produce Exchange Form (NYPE)

• Others are intended for a specific type of trade:


-BPTIME (tanker), - BPVOY
SHELLLNGTIM(LNG), -COALVOY(coal),
- C “ORE” 7 (iron ore), -SUGARCHARTER
(sugar).
IMPLIED TERMS UNDER CHARTERPARTY

• Some obligations are automatically incorporated


into the contract by the courts in the absence of
agreement to the contrary.

• Such obligations are derived from a common


source in the law merchant.

• The ability of the parties to exclude the operation


of these terms by mutual agreement has been
restricted.
These obligations are:
ON THE PART OF SHIPOWNER
• To provide a seaworthy ship.
• Obligation of reasonable despatch.
• Obligation not to deviate from the agreed route
ON THE PART OF CHARTERER
• Obligation to nominate a safe port
• Obligation not to ship dangerous goods