UNIT 2

Conference Systems
Liner ship-owners engaged on same trade usually operate with some measure of agreement amongst
themselves. This agreement may be informal or formal and usually covers such items as freight rates,
the number of sailings in a given time, working conditions etc. In fact, in many cases the only factor
left open to competition is the efficiency and quality of service offered. These associations of liner
ship-owners are known as conferences.

Organization and Concerns Shippers Council

Shippers’ councils. When liner conferences were formed they represented the ocean carriers and
whether or not they exercised monopoly power, they still presented a negotiating group that had
strong bargaining power.

If individual shippers require carriage of goods and if they are restricted to using the services of liner
operators who are members of a conference, the imbalance in bargaining power can lead to unfair
contractual terms and conditions. Individual shippers are constrained in their capacity to enter into
contracts, which give them some benefits. For shippers to have some influence on the carriage of
goods by sea, they must group in such a way as to be able to define their requirements and make these
requirements known to the carriers meaningfully. Joint action with other shippers combines
negotiating strength and consultative status when conferences and other carriers attempt to increase
the freight rates. Combination also allows shippers to deal with government policy, regulations,
industrial relations, and other non commercial matters with which individual shippers may experience
difficulties.

There are shippers’ councils in many countries. The national shippers’ councils also amalgamate into
regional councils. For example, the various European councils have combined into the “European
Shippers’ Council”, a very powerful body that has had great influence not only on conference
activities but perhaps also on national and international policy making. The operation of shippers’
councils depends on the government system under which they exist. In a shipping system in which
government intervention and regulation is low, shippers can combine effectively to balance the
bargaining strength of conferences and other groups of carriers. In socialist countries and other
countries in which severe government regulations and intervention exists, there may be little
advantage in having shippers’ councils

The shippers’ council represents the shippers, the users of a service of carriage of goods, whether by
sea or air or road or rail. The main objectives of a good shippers’ council are to obtain fair freight
rates and adequate shipping services for its members. The objectives of a shippers’ council influence
its activities, which include:

(a) The monitoring of freight rates and surcharges of carriers and conferences and the raising of
objection, if such is warranted, against unfair increases;
(b) Educating, through publications, training courses, seminars, workshops and conferences, the staff
of the member community about the business of shipping and the objectives of the shippers’ council;
(c) Publicising its activities widely through press releases, press conferences and media contact and
thus presenting the shippers’ viewpoint to the general public who form the consumer base who will
eventually have to pay for any unjustified freight rate increases by carriers;
(d)Sharing views with governments and port authorities in order to obtain the best advantages for its
members in the various regulatory environments;
(e) Cooperating with other shippers’ councils to ensure that if their concerns are not fully addressed at
national level, they may be able to enhance the treatment given to shippers at an international level
because of the additional bargaining strength.
The United Nations Code of Conduct for Liner Conferences gives shippers some rights, but since
1983 (when the Code entered into force) these rights may no longer be adequate. In the Preamble of
the Code it is stated that conferences should hold meaningful consultations with shippers’
organisations, shippers’ representatives and shippers on matters of common interest. The “shippers’
organisation” as defined is what is now called a “shippers’ council”. The Code seems to assume that
in each country which is party to the Code there is a shippers’ council. If the Code were to be
meaningful in the modern world, and it may not be with the developments that have taken place,
especially the apparent waning of the concept of liner conferences, it would seem that a country
without a shippers’ council would be unable to apply the Code.
A shippers’ council’s activities are quite different from those of a shippers’ association, although the
former may be converted into the latter or exist alongside it.

CHARTERING
Chartering is an activity within the shipping industry. A merchant who wants to ship large amount of
cargo, particularly if in bulk, would charter or hire a ship. In some cases a charterer may
own cargo and employ a shipbroker to find a ship to deliver the cargo 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) 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.

CHARTER PARTY

Charter party (Latin: Charta partita; a legal paper or instrument, divided, i.e. written in duplicate so
that each party retains half), a written, or partly written and partly printed, contract between a ship-
owner and a merchant, by which a ship is let or hired for the conveyance of goods on a specified
voyage, or for a defined period. A vessel might also be chartered to carry passengers on a journey.
A charter party is the contract between the owner of a vessel and the charterer for the use of a vessel.
The charterer takes over the vessel for either a certain amount of time (a time charter) or for a certain
point-to-point voyage (a voyage charter), giving rise to these two main types of charter agreement.
There is a subtype of time charter called the demise or bareboat charter.
In a time charter, the vessel is hired for a specific amount of time. The owner still manages the vessel
but the charterer gives orders for the employment of the vessel, and may sub-charter the vessel on a
time charter or voyage charter basis.
The demise or bareboat charter is a subtype of time charter in which the charterer takes responsibility
for the crewing and maintenance of the ship during the time of the charter, assuming the legal
responsibilities of the owner and is known as a disponent owner.
In a voyage charter, the charterer hires the vessel for a single voyage, and the vessel's owner (or
disponent owner) provides the master, crew, bunkers and supplies

Types of Chartering:
1. Time Charter: The ship is chartered as a functioning operating unit for a period of time. The
charterer pays the hire money and the ship transports cargo wherever the charterer wishes.
These can be for any period of time and maybe for a few weeks (short time charters ) to
fifteen years ( long time charters). The hire charge may be expressed as cost per day or cost
per month.
The charter hire depends on the duration of the charter. The owners have to pay depreciation,
brokerage( if any ) part of the claims depending on the conditions of the charter party, and
other charges like wages, provisions, maintenance and repairs, stores, supplies and
equipment, lubricating oil, water, insurance, survey and overhead charges.
The charterer have to pay for fuel, port charges, stevedoring charges, cleaning of holds,
dunnage, ballast water, commission of cargo, brokerage and part of the claims, depending on
condition of charter party.

2. Voyage Charter: The ship is chartered to carry cargo on specified voyage between places. The
ship owner pays virtually everything except perhaps the loading and discharging costs. Parties
have to agree on lay time (Cargo handling time).
The freight is usually assessed at so much per ton off cargo carried or alternatively as a “lump
sum” for the voyage.
The ship can be let out on full or part cargo basis. The master is appointed by the owners. The
owner acts as carriers. The freight depends on the quantity of the cargo. The owners have to
pay for wages, provisions, maintenance and repairs, stores, supplies and equipment,
lubricating oil, water, insurance, survey, overhead charges, depreciation, fuel and port
charges, stevedoring charges ( depending on the charter party ) cleaning of hold, ballast,
commissions, brokerage and claims.

3. Demise Charter (Bare Boat Chartering) : Under this method the ship is chartered just as a
hull. The charterer will have to equip the ship with personnel, fuel and other necessaries and
operate the ship. This charter is usually for long period, say for five years or more. Normally
a ship owner or prospective ship-owner prefers this method. The bare-boat charterer is
sometimes called a "disponent owner". The giving up of possession of the ship by the owner
is the defining characteristic of a bareboat or demise charter.

Responsibility of Charters and Ship Owners

A person or a company acting as a charterer of a vessel assumes responsibilities broadly similar to

those of a ship-owner. The contracting parties, normally a cargo owner or a sub-charterer, will view
the charterer as the “ship-owner” of the vessel. The charterer also assumes liabilities towards the
vessel owner, including damage inflicted on the vessel.
Most vessels are chartered either on a Time Charter or a Voyage Charter contract. In both cases the
charterer becomes liable as he assumes a position similar to a ship-owner towards the sub-contracting
party (either a sub-charterer or cargo owner). His liabilities are broadly similar to those of a ship-
owner, with liability to cargo, to freight and in some instances, although rare, to pollution claims.

The charterer also assumes liabilities toward the party he charters the vessel from, the ship-owner or
another charterer. Primarily, this type of liability relates to damages caused to the vessel in the course
of loading or discharging cargo or damage from vessel calling at an unsafe port or berth.

Charterers in any role, whether as voyage charterer or time charterer, need insurance cover for this
exposure. Even when the charter-party contractually imposes the liability on a ship-owner, most
jurisdictions allows a claimant to pursue recovery for damages from a party he find most suitable. The
claimant has freedom of choice, to sue either the charterer or the ship-owner. The charter-party will
eventually determine, contractually, who should bear the cost, but this may follow a long legal
process.

Many claims between ship-owner and charterer refer to stevedore damage or unsafe port or damage
from contaminated fuel. Therefore, in addition to the P&I cover, this may also include Charterer’s
Liability for damage to Hull (DTH).Even if the contract is on a voyage charter, where the ship-owner
has an obligation to ensure named ports are safe for his vessels, the charter-party may name a range of
ports for discharge. If the port is unsafe, the charterer may have a liability to the ship-owner, should
damage to the vessel occur. Stevedore damage to vessels is commonplace when loading or
discharging cargo. This is yet another typical liability imposed on the charterer.

All charterers, regardless of position in the ”chartering chain” require cover for both P&I liabilities
and damage to hull. As soon as the contract is signed, whether voyage or time charter, the charterer
has an insurable exposure.

THE DETERMINATION OF FIXTURE RATES

The fixture or rate of hire of a vessel depends on the following factors: (a) The state of the market
for chartered tonnage. When vessels are scarce fixture rates tend to be high, and vice versa. The
extent of the fluctuations depends on other factors examined below, in particular the type and
terms of the charter party and the vessel's specification. (b) The world economic outlook. If events
suggest an upturn in trade, rates will tend to increase; for example, a poor grain harvest in the USSR
will give rise to large imports of wheat from the USA and other countries. Conversely, when the price
of oil rose sharply in 1973 many countries were obliged to reduce their merchandise imports in
order to fund their oil import bill. (c) The type of vessel sought. The fixture rates for vessels of a
common specification will tend to fluctuate more widely than those for specialized or purpose-built
ships. (d) The duration of charter party. The fixture rates for voyage charters tend to be more
volatile than those for time charters, primarily owing to the shorter duration of the former. Time
charters can extend up to seven years, during which period the economy may pass through the
entire trade cycle of depression and recovery, so that time charter rates tend to be influenced less
by economic variations than by financial factors such as those outlined in item below. (e) The overall
cost of providing the vessel, a factor of particular relevance to time charters. Fixed costs comprise
such items as survey expenses, insurance, depreciation, administration and, where applicable,
mortgage payments. Non-demise charter parties, whereby the shipowner provides the crew, will
also entail variable costs, such as crew wages and expenditure on fuel. Charter parties may provide
for rates to be index linked, particularly if the fuel and crew costs are to be borne by the shipowner.
Fixture rates for tankers would be linked to the Worldscale index. A similar costing exercise would be
undertaken before a shipowner negotiated a voyage charter. (f) Ship specification, comprising
especially the vessel's capacity, speed, draught, age, classification society, type of propulsion and
crewing level. On the basis of this the charterer will be able to evaluate the economics of the charter
in terms of both revenue production and expenses. For example, the vessel may have a high capacity
but be slow and too deep a draught for optimum operation on a service. As a compromise, the
vessel may be used partly laden and charte red on an interim basis. (g) Any scale guidelines that
apply, such as the Worldscale index.

THE CHARTERER'S REQUIREMENTS

A prospective charterer, whether he be a merchant with a quantity of cargo available for shipment
or a shipowner wishing to augment his fleet, must state his requirements to the shipbroker acting on
his behalf. In so doing he should consider the following specifications: (a) The desired capacity. This
is a primary consideration, particularly if a voyage charter is required for shipment of a given
quantity of cargo. Ship capacity involves not only cubic capacity , but also deadweight tonnage. The
stowage factor is also a useful criterion. If a charterer is engaging tonnage to augment an existing
fleet, it is desirable that the capacity specification be similar to that of other vessels on the service to
ensure flexibility of operation. (b) The ship's speed. Another critical factor is the speed of the
chartered vessel must match that of an existing fleet in a particular trade. The type of propulsion and
its cost are particularly relevant.