Ship chartering is the process of hiring the use of a ship from a vessel owner to another company - the charterer - for the transportation of goods. It is a process where people working for a shipowner, operator, cargo owner or trader try to optimize the freight revenues for a portfolio of vessels and cargoes.
Understanding the nuances of chartering is vital in ensuring efficient and cost-effective transportation of goods around the globe.
Parties Involved in Ship Chartering
- Ship owner/Ship operator: The entity providing the ship.
- Charterer: The entity who controls the cargo and is renting the vessel for transportation.
- Ship broker: An intermediary who provides market information and connects charterers with vessel owners or operators
Types of Charters
Voyage Charter
Voyage chartering is the most common type of ship charter. A voyage charter normally involves renting the vessel as well as its crew for a particular voyage between two or more ports.
The rent is based on the quantity or weight of the cargo that is carried on the voyage or based on a fixed agreed-upon amount. All costs related to the voyage are paid by the owner, and payment for the use of the vessel is known as freight.
Time Charter
In a time charter, the charterer hires the vessel for a specific period of time, usually several months to a few years. The charterer pays hire for the use of the vessel, as well as voyage related costs. The ship owner is responsible for the vessel's crew, maintenance, and insurance.
Bareboat Charter
In a bareboat charter, the charterer has full control of the vessel. Apart from the capital cost of building the vessel, which is the ship owner’s responsibility, all other costs including fuel, crew, port charges, maintenance and insurance, are paid by the charterer.
The Ship Chartering Process
In shipping, the chartering process is an efficient way of making sure that vital goods are transported around the globe. Chartering has evolved over many centuries and will continue to develop as the world-trade continues to grow.
- Identifying Needs: The first step in the chartering process is determining the specific shipping requirements. This involves identifying factors such as type of cargo, route, port restrictions, and schedule.
- Selecting a Broker: Most companies work with shipbrokers who specialize in matching charterers with ship owners. Brokers will have extensive knowledge about available ships, their condition, and the current market level for freight.
- Finding Potential Vessels: The next step involve identifying suitable vessels based on size, quality, age, and the desired timeline.
The broker will approach the ship owners with the cargo requirement and ask for the owners offer (the freight they want for transporting the cargo or the hire they want to rent out their ship on timecharter). When one or more offers have been received the negotiations will commence.
- Negotiating Terms: Negotiating terms involves agreeing on the charter rate, laytime (the total time allowed for loading and discharging the cargo), demurrage (the overtime payment if laytime has expired), and other specific terms outlined in the charter party agreement.
- Charter Party Agreement: Once the negotiations are concluded, a charter party agreement is established. This legacy binding document outlines the terms and conditions of the charter, including the type of charter, the terms of payment, responsibilities and any additional terms.
