What Are The Three Main Types Of Chartering Services?
Chartering involves the hiring and use of a ship from a vessel owner to another individual or company. The charterer (the one hiring the ship) doesn’t necessarily need their own cargo. Sometimes, the charterer will use a charter service to ferry cargo across the world for their own profit. As there are a number of different uses for chartering, there are several different types of chartering services available. In this post, we’ll be covering the three main types of chartering services and what they are typically used for.
As the name suggests, a time charter is used when a vessel needs to be hired for a specific amount of time. This can be any duration that seems reasonable to both the owner and the charterer.
When the charter contract is active, the charterer may select exactly where the ship goes. They can choose specific routes, which ports to go to, and will typically have full control of the vessel. Depending on the contract, the charterer is usually responsible for putting together a crew. The charter will also be expected to pay for other variable costs. This includes fuel, cargo handling, provisions, commissions, and even port charges. However, the owner is still the manager of the ship and will be expected to pay fixed costs, such as maintenance-related expenses.
While this is a flexible contract, it’s typically used to hire a ship for a long period of time. Time charters can last just a couple of days, they are more commonly used for durations over a few weeks, months, or even years. A long-term agreement like this can be beneficial for ship owners, and contracts are usually detailed and comprehensive enough to cover penalties and other possibilities. In most cases, payment for a time charter is usually done on a frequent basis such as daily or weekly. However, time that is lost during the charter (such as a vessel being slowed down due to poor maintenance or bad weather) does not count towards the payment. This acts as a form of protection to ensure that the charterer does not pay for additional costs outside of what the contract states.
A voyage charter is the most basic way to hire a vessel together with its crew. The ship is typically hired for a particular route, and the contract concludes once the voyage has ended. Multiple voyages can be included in a single voyage charter. This is known as a consecutive voyage charter and is typically used when the charterer needs the ship to go back and forth between ports.
Since the charterer may not require all of the space available on the ship, voyage charters can often be arranged by a single ship owner that frequently travels a specific route. This allows the charterer to pay on a per-ton basis. However, if they do require all of the space available, then it’s possible to pay a lump sum as well.
Since the ship is still being managed by the owner, they are responsible for most of the costs associated with the ship itself. For example, the owner must arrange their own crew for the ship, and they also need to pay for any port-related costs and fuel. In order to recuperate these costs, the owner will typically charge a rate that includes these considerations. For instance, they could calculate the amount of fuel that is required to make a journey, and then include those costs as part of the voyage charger fee.
For a voyage charter, the charterer also needs to be mindful of laytime. This refers to the amount of time that the charterer has to complete the loading and unloading process at a port. Since the owner is responsible for port fees, they typically don’t want to stay longer than necessary and will charge the charterer a fee if they go over their contracted time.
Lastly, a demise charter means that the charterer has full control of a vessel. The only thing that the owner pays for is the construction or the cost of the vessel. Everything else, including the legal and financial responsibilities of a vessel, is passed on to a charterer. Since this is a long-term contract, it’s typically used when a vessel needs to be hired for several years. This can include large transportation vessels or tankers. This is sometimes known as a bareboat charter.
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