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Chartering is an activity within the shipping industry whereby a
shipowner A ship-owner is the owner of a merchant vessel (commercial ship) and is involved in the shipping industry. In the commercial sense of the term, a shipowner is someone who equips and exploits a ship, usually for delivering cargo at a certain f ...
hires out the use of their vessel to a charterer. The contract between the parties is called a
charterparty A charterparty (sometimes charter-party) is a maritime contract between a shipowner and a "charterer" for the hire of either a ship for the carriage of passengers or cargo, or a yacht for pleasure purposes. Charter party is a contract of carriage ...
(from the French ''"charte partie"'', or "parted document"). The three main types of charter are: demise charter, voyage charter, and time charter.


The charterer

In some cases a charterer may own
cargo Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including tra ...
and employ a
shipbroker Shipbroking is a financial service, which forms part of the global shipping industry. Shipbrokers are specialist intermediaries/negotiators (i.e. brokers) between shipowners and charterers who use ships to transport cargo, or between buyers an ...
to find a
ship A ship is a large watercraft that travels the world's oceans and other sufficiently deep waterways, carrying cargo or passengers, or in support of specialized missions, such as defense, research, and fishing. Ships are generally distinguished ...
to deliver the
cargo Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including tra ...
for a certain price, called freight rate. Freight rates may be on a per-ton basis over a certain route (e.g. for iron ore between Brazil and China), in Worldscale points (in case of
oil tankers An oil tanker, also known as a petroleum tanker, is a ship designed for the bulk transport of oil or its products. There are two basic types of oil tankers: crude tankers and product tankers. Crude tankers move large quantities of unrefined cr ...
) or alternatively may be expressed in terms of a total sum - normally in U.S. dollars - per day for the agreed duration of the charter. A charterer may also be a party without a cargo who takes a vessel on charter for a specified period from the owner and then trades the ship to carry cargoes at a profit above the hire rate, or even makes a profit in a rising market by re-letting the ship out to other charterers. Depending on the type of ship and the type of charter, normally a standard contract form called a charter party is used to record the exact rate, duration and terms agreed between the shipowner and the charterer. Time charter equivalent is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types.


Charter types

There are three main types of charter: *A demise charter, or
bareboat charter A bareboat charter or demise charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible ...
, is an arrangement for the hiring of a vessel whereby no administration or technical maintenance is included as part of the agreement. The charterer obtains possession and full control of the vessel along with the legal and financial responsibility for it. The charterer pays for all operating expenses, including fuel, crew, port expenses and P&I and hull insurance. In commercial demise chartering, a subtype of
bareboat charter A bareboat charter or demise charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible ...
ing, the charter period may last for many years and may end with the charterer acquiring title (ownership) of the ship. In this case, a demise charter is a form of hire-purchase from the owners, who may well have been the shipbuilders. Demise chartering is common for tankers and bulk-carriers. *A voyage charter is the hiring of a vessel and crew for a voyage between a load port and a discharge port. The charterer pays the vessel owner on a per-ton or
lump-sum A lump sum is a single payment of money, as opposed to a series of payments made over time (such as an annuity). The United States Department of Housing and Urban Development distinguishes between " price analysis" and "cost analysis" by whether ...
basis. The owner pays the port costs (excluding stevedoring), fuel costs and crew costs. The payment for the use of the vessel is known as ''
freight Cargo consists of bulk goods conveyed by water, air, or land. In economics, freight is cargo that is transported at a freight rate for commercial gain. ''Cargo'' was originally a shipload but now covers all types of freight, including tran ...
''. A voyage charter specifies a period, known as laytime, for loading and unloading the cargo. If laytime is exceeded, the charterer must pay '' demurrage''. If laytime is saved, the charter party may require the shipowner to pay '' despatch'' to the charterer. *A time charter is the hiring of a vessel for a specific period of time; the owner supplies the vessel and crew, but the charterer selects the ports, route and vessel speed – a significant determinant of CO emissions. The charterer pays for all fuel the vessel consumes, port charges, commissions, and a daily ''hire'' to the owner of the vessel. The charterer in this sense takes full commercial control of the vessel during the time charter period. Operation of the vessel itself remains with the owner. Variations on these types include: *A passenger cruiseship charter - The hiring of a passenger cruise ship in regular service for a limited period of time exclusively for a private function, using all accommodations; often for business meetings or conferences, music festivals, charity fundraisers or global events such as the 2016 Rio Olympics. *A trip time charter is a comparatively short time charter agreed for a specified route only (as opposed to the standard time charter where charterer is free to employ the vessel within agreed trading areas). *A bareboat yacht charter (In the leisure industry, the term "demise charter" is not used). Bareboat yacht chartering is the short-term hire for only a few weeks or even less. The owner supplies the yacht in seaworthy order, fully fuelled and possibly revictualled. The yacht may be part of a holiday flotilla; and sometimes the yacht is crewed by an employee of the owner. At the end of the hire period, the charterers are expected to pay for the fuel used. *A contract of
affreightment Affreightment (from freight) is a legal term relating to shipping. A ''contract of affreightment'' is a contract between a '' ship-owner'' and a charterer, in which the ship-owner agrees to carry goods for the charterer in the ship, ''or'' to ...
is not strictly a charter contract, but is somewhat similar to a voyage charter. Under a contract of affreightment the shipowner undertakes to carry a number of cargoes within a specified period of time on a specified route. Agreed frequency of cargoes may require more than one ship. Unlike a true charter, the cargo-owner does not have a laytime period, nor is he responsible for demurrage.


Charterers' Liability Insurance

A Charterers' Liability Insurance is a type of insurance meant to protect shipping businesses from certain risk or liabilities. This could include fines and breaking of a law, cargo or vessel damage and physical injuries including and up to death. Coverage of a Charterers' Liability Insurance can vary based on the charter-party type and additional inclusions or exclusions arranged prior to the purchase of the insurance.


See also

* Seaworthiness * Laytime * Demurrage


References


Further reading

* * {{Ship chartering Ship management Admiralty law