Ship Charter

F R Chowdhury

In shipping when a ship is hired it is always referred to as being on charter. The owner of the ship is still
referred to as the owner and one who hires the ship or space thereof is referred to as the charterer. The
instrument of agreement is known as the “charter party”, commonly called C/P. There are standard forms for
different types of charter devised by various international trade associations and chambers of trade and
commerce including the ICC, BIMCO and the Baltic Exchange. C/P is normally drawn by mutually (ship-owner
and charterer or their agents) agreeing to various clauses of one of the specific forms with special conditions
or exception/ exemption noted by lines. The coal, grain rice, timber, stone, ore, fertiliser, and other trades all
have their own forms of charter-party. There are 3 conventional types of charter. They are:
1. Demise or Bare-boat charter
2. Time charter
3. Voyage charter

Demise or bare-boat charter:

as the name implies it is the charter in which the charterer hires the ship for a long period of time, mostly in
newly built condition directly from the yard, and takes delivery of the ship with no crew, stores or bunkers. In
other words the delivery of the ship is made in its bare state. The charterer employs his staff to man the vessel,
puts on board stores, provision and spares as considered necessary, takes bunkers, finds cargo and employs
the vessel. In most cases the insurance of the vessel may be also undertaken by the charterer. The charterer
takes the responsibility of repair, maintenance, survey, certification and docking. The owner has no operational
responsibility. The oil companies normally operate the tankers under bare-boat registry (often taken as a new
delivery from the yard).

The charterer operates the vessel (in lawful trade) in a manner as if s/he is the owner. The charterer can even
put his/ her own marking on the funnel. However, the charterer cannot raise any cash/ finance against the ship
because s/he is still not the owner. Some countries also allow registration of a ship under bare-boat charter for
the period of charter or if the C/P leads to eventual sale of the ship to the charterer. However, the C/P has to
have a clause allowing the charterer to register the ship under a different flag for the period of charter. The
Administration of the bare-boat registry will evidently seek the consent of the primary register before the vessel
is registered under bare-boat registry.

Time charter:

The ship is chartered for a specific period, say about six months to a year, at a fixed rate (normally a daily rate)
with option to extend the period to complete a voyage. On mutual consent the charter may be renewed or
extended for further period. Charter hire is normally paid in advance, say about 15 or 30 days at a time. The
owner retains the master and the crew and continues to pay their wages. The owner continues to pay for the
insurance (hull and machinery and P&I for the crew). The charterer may take a P&I cover for cargo or other
claims. There are special charterers’ P&I clubs to provide coverage of the charterers’ requirements. The owner
also remains responsible for repair, maintenance, survey and certification. The vessel is normally put “off-hire”
for the period vessel becomes/ remains non-operational.
The charterer finds the cargo and employs the vessel. He pays for fuel, pilotage and port dues. He also pays for
stevedoring, dunnage, lashing, tomming etc., if any. The charterer or his agents issues the B/L (Bill of Lading). If
the master is required to sign the B/L he does so “for and on behalf of the charterer”. The owner who also pays
for the fresh water consumed by the crew pays lubricating oil, being a part of the ship’s maintenance. The
charterer may put its own marking on the funnel.

Normally there is “on-hire” and “off-hire” survey at the time of delivery/ re-delivery to ensure that the ship is
returned to the owners in the same state as was chartered. Compensation is paid for any damages caused
during the charter. Differences in the quantity of oil and water are normally settled at the rate prevailing at the
port of re-delivery. The owners pay for crew (for routine operation and maintenance) but any over-time for the
business of the charterer is paid for by the charterer.

The master abides by and carries out all lawful advice and instruction of the charterers. Charterer’s
representative or Cargo Superintendent may be allowed to stay on board for which the owners may claim
boarding expenses. Entertainment (hospitality) expenses in respect of pilot, port officials, customs etc. are
reimbursed by the charterers.

There are also trip time charters, which are for shorter durations related to one specific voyage between two or
more ports. The principle remains the same as long term time charter parties.

Voyage charter:

It is in fact an agreement between the owner (carrier) and the charterer (shipper) to carry a given quantity of
cargo from a point A to a point B at an agreed rate of freight per ton. It normally refers to a quantity with +/- 2%
option for either party. The ship will serve “Notice of Readiness” on arrival at loading port when it is ready for
loading. If it is on liner terms the owner (carrier) employs stevedores at both ends and pays for it. However, the
charterer must provide the cargo to the hook for loading and away from the hook at the port of discharge.
However, in most voyage charter the loading and discharging is done by the charterer. The C/P will stipulate
either on FIO (free in out) or FIOST (free-in-out, stowed and trimmed) basis and the rate at which the loading
and discharging will be done by the charterers. If stipulated in the C/P the ship may give notice of arrival at the
port of discharge to charterer and the charterer’s agents may handle the ship.

The C/P stipulates a given rate of loading/ discharging (time factor) and if the charterer fails to maintain the
flow at the given rate and causes delay to the ship then demurrage is payable by the charterer to the owner at a
pre agreed rate. Similarly if the charterer handles the ship at a rate faster than stipulated and thereby releases
the ship ahead of schedule then the owner pays to the charterer “despatch” money which is normally fixed at a
rate lower than the demurrage. Generally it is fifty percent or half of the agreed demurrage rate.

In voyage charter the owner meets all expenses relating to the ship and its operation. The charterer pays for
the cargo carried at the agreed rate.

Bulk import by state owned organisations through tender/ quotation normally invite bids for a certain quantity
of a specific cargo (normally import) to be delivered to a point at an agreed rate. This involves for the supplier
to buy the goods and ship it through voyage charter. The ship is required to serve notice of readiness and the
importer (consignee) will take delivery of the goods at a stipulated rate of discharge with provision for
demurrage. If a B/L is required for banking purpose then it is signed with a clause “all terms and conditions as
per C/P”.
It is quite possible for the same ship to be first on bare-boat charter with one party, time charter with a second
party and then finally on a voyage charter or liner engagement. In modern global shipping there is also charter
for space or slot charters.

NYPE and GENCON:

NYPE and GENCON charter parties are most frequently used for time and voyage charters respectively. These
are standard forms which have undergone many revisions. There are also many bespoke (tailor made) charter
parties for genre specific shipments. BIMCO is one of the major organisations which introduce specific Rider
Clauses to Charter Parties, depending upon the frequent changes to shipping trade. The Piracy Clause is one
such example of a new introduction since the Somalian Piracy operations created problems with shipping
routes.

Disputes and Arbitration:

Like every contract, Charter Parties may also have their usual disputes. Resolving these is through an
appropriate Clause such as the Arbitration Clause. The most frequent place agreed is in London with English
law to apply. Arbitrators are generally members of the LMAA. The arbitrators “award” is often accepted as a
solution to the dispute. There are however a good number of these being challenged at the court of First
Instance with further appeals working its way up to the House of Lords where major maritime cases are
discussed and judgments are issued. These form the back bone of English Maritime Law.

The Ship Broker:

The intermediate party to drawing up a Charter is the ship broker, who is the common party to the Owner and
the Charterer. Reputable brokers are also members of BIMCO as well as members of The Institute of
Shipbrokers in London where they preach and practice the term “Our word, our bond”.

Fixture Notes:

There are however Owners and Charterers who engage in Charter Parties directly. Sometimes they tend to fix
vessels on a “Fixture Note” which is a brief contract having just the major points of a Charter such as Freight
(or Daily hire rate), Laycan, Loading and Discharging rates and Demurrage and Despatch rates. They avoid the
use of lengthy charter parties.

COA:

And finally, we also have the existence of COAs or Contract of Affreightment, the main purpose being to “oblige
a carrier to lift a fixed or determinable quantity of cargo of a specified type over a given period of time.” Usually,
this contract is not restricted to one particular vessel, but operates as a series of voyage charters.

(Original by F R Chowdhury in July/ 2011 & revised by Capt. Ghulam Hussain in Dec/ 2017).

Q. Write brief notes on the adverse effects that a fuel containing high value of the following may cause: (a)
Viscosity (b) Density (c) Sulphur (d) Corodson Carbon Residue (e) Asphaltene (f) Vanadium & Sodium (g) Ash
(h) Water

(By Kamal Hossain, Chief Engineer)

Viscosity
High viscosity of fuel may cause the following effects being using high temperature heating
– Fouling of Oil heater
– Gassing of Fuel
– Thermal expansion to fuel pump and injector component leading to seizure or sticking
– Clogging of filter

Density

High density of fuel oil means high contents of impurities . It may effect to
– Filter clogging
– High temperature require for sedimentation & purification
– Upsetting to purifiers
– Being fuel pump is volume-measuring device , produce more heat when combustion .

Ash

Natural ash are usually Silicon , Aluminium , Calcium , Iron , Nickle , Vanadium and Sodium . If high ash content
may effect the following
– High density
– Defects in filtration and purification
– Deposits may effect as abrasive wear to piston rings , liner , fuel pump components , T.C turbine blades
– Dangerous effect of Vanadium and Sodium may shorter exhaust valve life.

Water

More than 1 % of water content may cause

– Corrosion on fuel pump and injector component tend to seizure.
– Misfiring of engine and stop in extreme case
– Poor combustion , reduce out put and T.C surging
– Emulsification of fuel leading to sludge formation
– Fuel foaming in mixing column
– Promote microbial degradation
– Loss of energy content and quantity of fuel.

Sludge

It may cause
– Instability of fuel
– Blockage of filters
– Upsetting of purifier operation

Asphaltenes

It is a hydrocarbon compound of solid combustible substances which are insoluble in fuel oil. Asphaltenes may
cause

– Clogging of filters ,Fouling of heaters and upsetting purifier operation

– Corrosion of fuel pump’s component and seizure
– Sticking of nozzles and tend to trumpet formation
– Prolong combustion time and its flame close to liner wall and overheat , burn cyl. L.O
– Due to poor combustion , unburned products tend to abrasive wear of Piston Rings & Liners , seizure &
broken piston rings.
– Fouling of scavenge port and exhaust system

Sulphur

– Produce combustion products containing SO2 & SO3 to cause cold corrosion wear of
Piston rings, Liners ,Turbocharger water cooled casing , Exhaust valve cage….. ect.
– High temperature corrosion to exhaust valve.
– Adhesion of black lacquer on the liner inner surface
– Form L.O acidity condition.

Vanadium,Sodium

May cause hot corrosion during combustion . They are formed corrosive products as SODIUM VANADATE
COMPOUND when combustion temperature 530 ‘C , stick to the metal and attack the protective coating of the
surface , cause hot corrosion especially to Exhaust valve , Turbocharger turbine blades and nozzle ring.

Carbon residue Poor combustion with smoky exhaust and produce depositing product effect to ….
– Trumpet formation of nozzle
– Depositing Piston ring zone tend to seizure and broken
– Remove cylinder L.O film and act as abrasive to wear Piston rings and liners, – –
– Fouling of scavenge space and inlet / exhaust ports
– Depositing in Turbocharger and corrosion to nozzle ring and turbine blades
– Fouling at Economizer and uptake

Catalytic Fines.

These are very small size of 3 ~ 100 microns, hard and abrasive compound of Alumina and Silica.
Larger parts may increase wear in fuel pump and valve components
Smaller parts below 5 micron promote Piston rings & Liner wear.