Dry cargo commercial practice 02- Methods of ship employment

Preamble Methods of ship employment can conveniently be divided into the following main elements: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) \/oyage Chartering Consecutive Voyages chartering Time Chartering Bareboat Chartering Contracts of Affreightment Joint Ventures Shipping Pools Parcelling Project Cargoes Slot Charters

Voyage Chartering A Voyage Charter can be briefly described as an arrangement whereby a Shipowner undertakes to carry on his vessel a defined and quantified cargo from one port to another for a consideration which is mostly agreed to on per ton basis of cargo loaded and called Freight. For certain cargoes where the stowage factor is volatile like agriproducts, freight is also agreed on a lump sum basis rather than on a per ton basis. Terms like loading and discharging rate, rate of demurrage / despatch etc. and when the ship should arrive at the load port are agreed and the collection of all these terms are referred to as a Charter Party which is agreed between the Shipowner and the Charterer (who could also be the Shipper). GENCON, Amwelsh are one of the most common voyage charter parties in existence today. The voyage charter is a business venture the profitability of which entirely depends upon proper estimation of the duration of the voyage and costs. Despite the most accurate assumptions the profitability may vary vastly and there will be deterioration in the earnings if port costs, bunker costs escalate or if the duration were to get exceeded due to slower discharge, strikes etc. Conversely the results would improve if the costs were to decrease or if the vessel achieved better turnaround. The concept of demurrage / despatch is thus a penalty / reward system whereby the shipowner earns demurrage for time exceeded beyond permitted time of loading and discharging and pays despatch for time saved. Consecutive Voyages chartering Sometimes the parties to a voyage charter are content to co-operate on pre-agreed repeat business. They will then sign an agreement which commits the ship performing a number of voyages, either a predetermined number, or occasionally for as many as can be accommodated within a fixed period of time. All the voyages are covered by the same basic terms and conditions although it may be agreed that the freight rate fluctuates over the period of the contract.

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Dry cargo commercial practice 02- Methods of ship employment

Each of the voyages is treated as a separate contract for purposes of demurrage and dispatch. Should the ship be lost for any reason, then the contract comes to an end and the owner is relieved of any further commitment to the contract. In this the Consecutive Voyage Contract differs materially from the apparently similar Contract of Affreightment. Trip time chartering When the ship is chartered for a specified trip, clauses like the following are sometimes used instead of usual trading limits. One time charter voyage, with loading at I or 2 ports in Sweden and discharging at 1 or 2 Ports in Brazil. Redelivery shall be on dropping outboard pilot at last discharging port. Total Period estimated to 30 days." Time Chartering When a vessel is hired for a specific period, say for 12 months (15 days more or less) and the remuneration to the owner is agreed on a per day basis (called hire or charter hire) then the vessel is considered to be employed on a time charter and the party taking over the vessel is called the Time Charterer. On a time charter, the responsibilities of the parties differ substantially from those involved in voyage chartering. A Time charterer assumes control of the operational (let us call it, the `commercial') matters of the vessel including, for example, the appointment and payment of port agents, purchase of bunkers, payment of port charges, etc. leaving the Shipowner responsible for the management of the ship, with particular regard to maintenance, crewing, insurance, etc. Hire or Charter Hire is paid to the owners semi-monthly or monthly in advance. However, should the vessel fail to perform as per the terms provided and agreed to in the time charter party or suffer such interruptions to the smooth performance as mechanical breakdowns, she may be considered `off-hire', during which period the Owner will not be entitled to remuneration. Many Charterers find it expedient to employ vessels on a time charter basis for single or round-trip voyages and this practice has given rise to the term `trip-chartering'. A trip-charter is similar to voyage chartering with regard both to the duration of the venture and to the fact that the intention of the parties is to employ the vessel for, say, one or two voyages, but there the similarity ends, and the roles of Charterer and Owner are identical to those assumed for time charters of longer periods. Division of Time Charter responsibilities Under Voyage Chartering arrangements, most of the responsibilities given below will become those of the Shipowner, with the exception that usually (but not always) the Charterer retains responsibility for Stevedoring, Cargo Handling and the Insurance of Cargo.

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Dry cargo commercial practice 02- Methods of ship employment

Division of responsibility in a time charter Shipowner Time Charterer Crewing Employment Repairs, Bunkering Maintenance and Spares Port Expenses Classification, Canal Tolls Surveys Stevedoring Lubricating Oils, Cargo Handling Fresh Water, Insurance of Cargo Insurance of Vessel Insurance of bunkers Stores and Provisions Heating and Cooking Voyage charter Carriage of cargo from one port (or ports) to another port (or ports) or consecutive voyages. Consideration: freight per ton of cargo carried or lump sum freight. Usually for full load or parcels of homogenous cargo. Full payment is usually made on loading of cargo or partly on loading and balance on discharge. Usually time allowed for loading/discharging called laytime is agreed upon. If loading/discharging is completed after the expiry of laytime, demurrage is payable to the ship owner and if same completed before expiry, dispatch is payable usually at half the demurrage rate by the ship owner. The Owner loses laytime for breakdowns affecting cargo operations. Also, time may be lost due to rains, strikes etc. as per agreed terms. Usually all port charges, canal dues, cost of bunkers and all risks of voyage delays and also port delays are borne by the ship owner. Voyage is conducted as per the shipowners instructions/orders as per requirements of the charterer Time charter Ship hired for an agreed period or for an agreed trip or round voyage on time basis. Consideration: charter hire payable on time basis e.g. per day or per 15 days or per calendar month. Payment is made in advance at regular, pre-determined intervals, say, every 15 or 30 days All port charges, canal dues, cost of bunkers, etc. are borne by the charterer. Charter is conducted as per the charterers instructions/orders. The charterer becomes a disponent owner for the duration of the charter. May be used for full load in tramp trade or in liner trade. Ship goes off hire for such eventualities as machinery/engine breakdown, etc, as specified in the charter party for the period the ship or part thereof is not available for the services required, i.e. hire is not payable or only payable on pro rata basis for such periods. During the time charter period, such charges/expenses as are otherwise on ship owners account are borne by the charterer.

Whilst the list of clauses given below is by no means exhaustive, it provides some idea of the normal clauses required in a voyage charter party for dry-cargo vessels: Types of employment There are basically two types of charters or charter parties as viewed from a legal angle:

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Dry cargo commercial practice 02- Methods of ship employment

(a) (b) Demise or Bareboat Charter Non-Demise Charter

Demise or bareboat charter 1. In the demise or bareboat charter the shipowner puts at the disposal of the charterer merely the ship (hence called the bareboat charter) for a specified period of time, in some cases running into several years. The charterer appoints and pays for the master, officers and crew. The charterer provides the cargo and also pays during the charter period all expenses, such as technical surveys, maintenance, operation and all commercial expenses except the capital cost and hull arid machinery insurance premia which the owner incurs. The charterer takes over full control of the vessel as if he were the owner. (He is therefore called the disponent owner). The actual registered ownership still remains with the original owner. Bareboat chartering is not technically a contract for the carriage of goods by sea. It is a "lease" of the ship, with an option to sell it to the charterer at an agreed residual value after a period of time. Under this charter the vessel is chartered without any restrictions as to trade limits on the cargo to be carried. Any damage to (or claims on) the cargo is to be solely made good by the charterer. The shipowner has lien on the cargo for his charter hire. Any salvage earned by the vessel belongs to the charterer. The owner of the vessel receives a relatively modest hire payment commensurate with his reduced responsibilities and risks. In times when shipbuilding costs are high, shipowners may resort to chartering suitable tonnage from other owners on a bareboat-cum-demise basis to meet their immediate requirements. Financiers wishing to invest in ships but have no expertise to operate them find this method suitable Bareboat chartering was not common earlier. Hence there were no standard bareboat C/P contract formats in the past. However, in 1974 BIMCO published BARECON A and BARECON B, which were later amalgamated in 1989 as BARECON, 1989.

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Non demise charter A non-demise charter arises when the ship owner provides the ship and the crew, technically manages and supplies the ship, insures her for hull, war and P&I risks whilst the charterer undertakes the employment of the ship Check your knowledge 1. Discuss the differences between bareboat and non demise charters

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Dry cargo commercial practice 02- Methods of ship employment

2. How are the responsibilities of the overall operations divided between the owner and the charterer in a time charter It is possible that you have served on ships employed on voyages and trades described above. Recall your experiences on those voyage and the things that perhaps created problems

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