Charter parties explained

A charter party is a contract, arranged usually by a shipbroker, between a shipper of goods, and the owner of a ship upon which the goods are to be carried. It is legally binding, internationally recognised and is perhaps one of the most important facilitators of trade and transport. The charter party sets out all the terms upon which the deal is to be done and the freight rate, which is effectively the price of the hire, which may be a sum per tonne shipped or a daily "rental" for the vessel. A fair deal, giving a reasonable rate and conditions to both shipper and shipowner, ought to be the consequence of a properly arranged fixture, using documents that have been carefully thought out to provide for this equity between the parties. An important role for BIMCO, which has been important in this field for nearly a century, is in the development of fair and balanced charter parties. There are many different types of charter, perhaps the simplest being a voyage charter under which the ship provides transport for a specific cargo - such as wheat or coal - between a loading port and a discharge port at terms which specify a rate per tonne. The charter party will usually set out the dates for the ship's arrival at the loading port, estimated time for loading and discharge and for the voyage itself, the speed of the ship being known. And if there are variations because of heavy weather on the voyage, port congestion or berths not being available, or if the ship undertakes the operation faster than had been provided, then there are adjustments which will be provided for. A time charter is another common form of agreement, with the owner of the ship operating his ship as instructed by the charterer between certain agreed dates for an agreed daily or monthly rate. During this period, it

will be the charterer who will pay for the running costs of the ship such as the fuel and insurance. An analogy would be a contract to hire a car. A more long term agreement is what is known as a "bareboat" charter where the owner of the ship effectively hands the operation of that vessel to a charterer, who will then operate the ship during the agreed period as if he owned it, like a shore side leasing agreement. The charterer will be responsible for the repairs and running costs, the crewing and insurance, and he may even paint the ship in his company's own colours. Another type of charter is the contract of affreightment, which is a convenient way of operating for a charter who has a large quantity of cargo to move over time and involving many voyages. Under this agreement, the owner will agree to carry the cargo for an agreed price per tonne and usually specify to deliver a certain tonnage per month, or per voyage. "Industrial" cargoes such as coal or iron ore are often shipped under contracts of affreightment, with the owners agreeing to carry, say 100,000 tons per month, from South Africa to Rotterdam, but within these constraints, leaving the shipowners free to arrange their ships to fulfil this contract. Charter parties are an essential tool for sea trading and the avoidance of disputes between the two parties that are involved, and they can be tailored to virtually every kind of trade or ship-type.