Types of Charterparties

Types of Charterparties

A charterparty is an agreement by which a shipowner leases an entire vessel or parts of its cargo spaces (e.g., part of a deck) to a charterer to carry cargo for payment.

In this article, we discuss the main types of charterparties.

Time charter

Under a time charter, a shipowner leases a vessel with a master and a crew for a fixed period. The charterparty stipulates the duration of the lease.

The shipowner pays for crew wages, provisions, insurance, and vessel repairs. The charterer pays for all fuel and port charges.

For the use of the vessel, the charterer is obliged to pay the hire. However, the charterer is not required to pay hire for periods when the vessel cannot be used for cargo carriage due to accident, strike, or bad weather. Such periods are called off-hire.

The charterer determines the commercial destiny of the vessel: where to sail and what to carry, whether to sublet the vessel, etc.

The Pirate Taxi Service leases Jack Sparrow a Black Pearl car together with a driver for a month. Jack tells the driver where to go and what to take. Each month Jack pays for the fuel and the hire, while the Pirate pays wages for the driver and car's repair costs. Sometimes Jack sublets the car to Captain Barbossa.

In practice, the right to use a vessel is not absolute. The charters restrict the geography of sailing and the type of cargo to be carried.

A particular type of time charter is a trip charter. The trip charter is concluded for a short period to carry a specific cargo along a specific route, e.g., 10,000 mt of wheat from London to New York. Standard time charter pro-formas are following BALTIME 2001, NYPE 93, 2015, and SHELLTIME 4.

Bareboat charter

Under a bareboat charter (or "demise charter"), the shipowner leases the vessel without a crew. The charterer arranges all processes, such as hiring a master and a crew, supplying provisions, taking care of maintenance, and paying operating costs.

Blackbeard owns 30 cars. To make money, Blackbeard leases the cars to the Pirate Taxi Service. The Service then arranges the transportation processes: hiring drivers, setting the conditions and rates for the taxi, paying for fuel and maintenance, for a garage, and advertising.

Apart from the difference in commercial terms, the type of charter is relevant in legal liability. Suppose a master has agreed to discharge cargo without providing original bills of lading. Subsequently, the persons who possessed the originals sue the shipowner for wrongful discharge. Who will be liable: the charterer or the shipowner?

The answer is simple: if the vessel is on a bareboat charter, the charterer is liable since he hired the master who decided to discharge; if the vessel is on a time charter, the shipowner who hired the master is liable.

Standard pro forma bareboat charter is BARECON 2001, 2017.

Voyage charter

A voyage charter is a contract for hiring a vessel or part of cargo spaces to carry specific cargo along an agreed route.

The charterer pays freight to the shipowner for the carriage of cargo under the voyage charter. The freight can be fixed (lump-sum) or set according to the amount of cargo loaded (e.g., $50 per ton). The rest of the costs are paid by the shipowner.

Jack hires a taxi through the Pirate Service to get from Tortuga to Jamaica. All he must do is get in the car and drive, the Pirate handles everything else: pays for fuel, car repairs, etc.

The voyage charter can also be concluded for consecutive voyages — when the parties agree on repeated voyages under the same conditions.

Jack agreed with the Pirate that the latter would drop Jack off and pick him up from work for a month. In return, Jack agreed to pay a fixed rate.

In the case of consecutive flights, to calculate demurrage and dispatch, each voyage shall be considered as a separate one.

Standard pro-forma voyage charters are GENCON 1994, SYNACOMEX 2000, SHELLVOY 6.

Slot charter

This type of charter is used in container shipping. In a slot charter, the charterer leases cargo space (slots) on the vessel to carriage containers. A slot charter combines the features of voyage and time charters: part of the vessel is leased on a long-term basis.

The standard slot charter proforma is SLOTHIRE.

Shipowner, Registered owner, Disponent owner and Head Charterer

In shipping, a vessel may be sublet several times, which raises the question of who the shipowner is.In practice, the following terms should be distinguished from each other.

Head Charterer is a first charterer, i.e. the person who hires the vessel directly from Registered owner. If Head Charterer sublets the vessel, all subsequent charterers will be referred to as charterers.

Shipowners can be either Registered owner or Disponent owner.

Registered owner is a company to which the vessel is legally registered.

Disponent owner is a company that disposes of the vessel. This can be a bareboat, time, or voyage charterer.  

About Fortior

Fortior is an international law firm with a key specialisation in English litigation, arbitration, and dispute resolution in shipping and international trade. Fortior’s team consists of English solicitors and lawyers qualified in other jurisdictions (New York, Switzerland, Malta, Italy, Georgia, Ukraine, Kyrgyzstan). Fortior has offices in Geneva, Georgia and Kyiv.

Danil Hristich, head of the Ukrainian office of Fortior Law, and lawyers Sergey Platonov and Yana Zdioruk have prepared the article.

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