The term “Charter Party” is the contract between the owner of a vessel and the one that takes over the Vessel for a certain amount of time or voyage. It embodies the essential terms and conditions regarding the charter, such as the operations of ship and cargo and the freight or hire payments. If the terms of the charter party contract permits, the Charterer may enter into subcontracts with other shippers. The terms are often mutually agreed upon depending on the ships and cargo types. The significant operations under this function are to find out the continued and suitable environment for the ships to maximize the revenue earnings.
Different Kinds of Charter
Charter parties are broadly classified into four kinds. They are as follows:
- Voyage charter parties
- Time charter parties
- Bareboat Charter Party
- Dock Charter – Party
The parties decide whether a charter party is a time charter party or a demise charter party shown in their contract. There is yet another kind of charter party contract called Port, berth or dock – charter party.
Voyage Charter Party
In Voyage Charter parties, the parties are for the carriage of a full cargo, which is hired not for some time, but at a specified rate per ton, only for one voyage, between named ports or the ports to be named on arrival in a given area. It is frequently used when there are different varieties, and most commodities and trades have a particular type to suit their purposes. The Charterer assumes that there is no responsibility for the Vessel’s operation but generally pays for the expenses in and out, as included in the charter party. In the Voyage Charter Party contract, the master is mainly concerned with parties because of the laytime, dispatch and demurrage clauses and the necessity of tendering the Notice of Readiness to load or discharge. In this type of charter, the charterer contracts is an agreement to provide a cargo at a given rate per day. The Voyage charter contract is generally for bulk cargo, in the scale of tons or cubic feet, for all or part of the Vessel’s carrying capacity.
Time Charter Party
Under a time charter, the Charterer hies the ship for a stated period, for a specified, round trip voyage or occasionally for a stated one-way voyage. The Charterer bears the cost of bunkers and sores consumed. The ship is leased to Charterer for the time being therefore it is also known as charter party by demise. In this type of charter:
- The Charterer bears the fuel cost
- The shipowner manages the ship
- The maintenance of the ship is the shipowner’s responsibility
- The shipowner pays the crew costs
- The Charterer pays port dues
- The Charterer appoints agents at ports
Bareboat Charter Party
In the Bareboat Charter Party contract, the shipowner leases the entire bare Vessel. The Charterer is responsible for operating it as though it were his Vessel. As long as the chartered party covers the Vessel, the shipowner loses authority over the shipping vessel. The contract specifies that Charterer pays all the expenses such as: fuel, stores, provisions, harbour dues, pilotage, etc. and employs and pays the crew.
However, a clause in the charter party may state that the owner must approve the master and the ship’s chief engineer. The Charterer is also responsible for delivering the ship in the same order and condition when delivered; ordinary wear and tear are accepted and excused from charges. The Shipowner representatives, mostly the port captain and the port engineer, may check the logbooks for information relating to the groundings, striking objects and collisions on redelivery. Fuel oil in the Vessel on delivery is paid for by the Charterer – at the current price at the Port at that time, and on redelivery, the owner of the ship pays for the fuel in the Vessel at the current price in the Port at the time.
Port, Berth or Dock Charter – Party
A Port Charter Contract states the Port at which the ship shall be made available is called “port charter party”. The berth or dock charter party states where the ship is to be made available at the specified loading spot in a port or dock. Here, the owner of the Charterer is obliged to bring the ship at the specified berth or dock. If that place is not in a position to receive the shipment due to some congestion or some other cause, the waiting period will go to the owners of the ship account.
In the case of a port charter party, the area designated as the commercial area of the Port is used by the shipowner where ships usually wait for the berth and where it can be put at Charterer.
Persons Bound by the Charter Party
Apart from the Shipowner and Charterer, the following persons are bound by a charter party.
Part owner of Shares in ship
Any part owner of a ship can reserve the right to its employment in any particular way. However, such employment is under a charter made by the managing owner appointed by himself.
The purchaser having a partial interest under the charter is bound by the charter in existence, but is not liable for expenses or in case of losses on charters that were completed before his purchase.
Mortgagor or Mortgagee
A mortgager in possession has by statute the powers of an ordinary owner, except that he must not materially impair the value of the mortgagee’s security. In case of security, the charter of any kind does not impair his security therefore binds the mortgagee out of possession, and the burden of proving that a charter is of such a nature is on him.
But the mortgagee is not bound by a charter, entered into by the mortgagor after the mortgagee, which does impair the mortgagee’s security – e.g. consider a charter to carry the contraband of war to a port of a belligerent power, in such a case the insurance against the risk of capture is impossible.
Insurer or Underwriter
An underwriter on a ship, by acceptance of the notice of abandonment of a ship, becomes entitled to freight earned by her subsequently but does not become entitled to the benefits or liable to the obligations of any pending contract of affreightment.
Inclusions in Charter Agreement
Parties Involved: In a Charter Agreement, there are usually two parties involved: the company contracting for the charter to transport their product or cargo, and the second is the logistics company who will fulfil the logistical requirements. They are simultaneously known as the Client and the Charter Company.
Effective Dates: This section of the agreement specifies the dates of significance in the context of the contract, such as when the cargo will be transported, by what dates it needs to be delivered and the total tenure of the transport agreement.
Where does it Apply: This agreement is legally binding within the borders of the state, city or county in which it was initially drafted at, and it also follows International Maritime Laws.
Under the Charter Party, the shipowner is obligated to arrange for ship delivery to Charterer at an agreed date and place in proper condition, fit and ready for charter services. The Owners’ must guarantee that the Vessel is seaworthy. As held in F.C. Bradley & Sons v. Federal Steam Navigation (1929) 24 L1.L. Rep. 446, “The ship must have that degree of fitness which ordinary careful owner would require his vessel to have at the commencement of her voyage having regard to all the probable circumstances of it”.
The shipowners are further required to co-operate with charterers in loading and unloading cargoes. Owners need to undertake that they will enter into contracts with third parties for carriage of cargoes loaded on the ship and keep the ship properly manned and provide her with necessary supplies and meet the running expenses during the charter period viz. Insurance, Wages, Stores and maintain vessels class and keep her in an efficient state.
The Charterer is obligated to pay hire from when the ship is delivered until she is redelivered i.e., Payment in advance, right to make deductions from hire, Owners’ right to withdraw, Charterer promise to trade the Vessel within certain limits and loading specific cargo.
Charterer will supply the Vessel with bunkers and pay certain costs, maintain the quality and quantity of fuel, Port charges, Pilotage. The Charterers will need to co-operate with the owners in loading and unloading cargoes. Once the Charterer finishes using the Vessel, he s under obligation to redeliver her to the shipowner at the end of charter period.
Analysis of the Clauses of Charter Party
Most of the Charter Party Agreements are made in writing and based on standard forms which the Baltic and International Maritime Council has approved. In addition to the vast number of standard form charter parties in use, there also exist a large number of private charter parties with their standard. Both standards from and private charter parties are supplemented by many additional clauses (rider clauses)
One of the most important clauses of a Charter Party is the description of the Vessel among other things, the Vessel’s name, flag, ownership, class, deadweight capacity, registered tonnage, speed and fuel consumption.
Most Charter Party whether, time or voyage, include express undertakings that the charterers shall employ the Vessel in safe ports. A safe port is defined in the English case in Leeds Shipping vs Eastern Shipping as “… a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship …”.
Other important clause is that of a Delivery which determines the period from which the owner agrees to place the services of his Vessel through his master and crew at the disposal of the charterers. It further contains a provision regarding the shipowners undertaking to deliver the Vessel in a seaworthy condition. The Baltime, by Clause 1 requires the Vessel on delivery to be in a seaworthy condition with warranty. The obligation to provide a seaworthy vessel relates to the commencement of the charter period and thereafter the owners undertake to maintain the Vessel in an efficient state throughout the service. There are two aspects of seaworthiness. The first requires that the ship, her crew and her equipment shall be in all respects sound and able to encounter and withstand the ordinary perils of the sea during the contemplated voyage. The second requires that the ship shall be suitable to carry the contracted cargo.
Amongst all other clauses, Charter partiers usually contain a cancelling clause under which the Charterer is given the right to cancel the charter party at his discretion, in the event the Vessel is not delivered by a particular date. The effect of the cancellation clause is that although its operation is not dependent on any breach of the charter party by the owners, nevertheless, the charters are entitled to cancel if the Vessel is not delivered in a condition described by the charterer party i.e., in a seaworthy condition and in every way fit for the service.
The Charter Party also provides for the maintenance of the Vessel. The shipowner shall pay for expenses for the Vessel to maintain her class and keep the Vessel in a thoroughly efficient state of hull, machinery and equipment during the services.
Benefits of a Charter Agreement
The benefits of having a Charter Party Agreement are that it clearly outlines the individual responsibilities of both the parties before and after the contract has come into effect and makes sure that both parties are well aware of their duties and responsibilities at all points time. This contract is a legal document and can thus be presented in court if there ever a need in the future. In the absence of an agreement, both parties don’t have a legal proof of a transaction ever taking place between both the entities and therefore stand to lose if the matter is ever taken to court.
A charter contract acts as a legal document between both the organizations and outlines the specifics of the cargo or products that need to be chartered from one point to another. It outlines the exact dimensions, weight, and contains of the cargo and mentions the amount of funds issued in exchange for the charter to be processed. The charter company needs to fulfil all the Client’s specifications and ensure that the shipment is transported safely and on time.
What is a Charter Agreement?
A Charter Agreement is a legal document created between two parties when either of them wants to charter a mode of transport or service for a specified amount of time. The first party in the Charter Agreement is known as the Client, and the second party is known as the Charter Company and is a logistics fulfilment company by nature.
When Do You Need a Charter Agreement?
The most common use of a charter contract is when a company or an organization needs a specific product or cargo to be shipped and or transported from one destination to the other in a stipulated amount of time. This contract allows the Charter Company to safely and securely transport the cargo as specified by the Client while ensuring that all the terms and conditions outlined and mutually agreed are fulfilled at all times. With this agreement in place, a company can usually charter a ship, Vessel or even a small boat.
How to Draft a Charter Agreement?
To draft a Charter Agreement, it is necessary to:
- Organize a meeting between the parties involved and discuss the terms and conditions of this agreement.
- Discuss the dates from when the contract will come into effect and details about the number of funds disbursed for the Charter process.
- Once both the parties have agreed to the terms and conditions, reach out to a legal team and ask them to draft this agreement on your organization’s behalf.
- Cross verify and check the details with both the parties and file the contract in the local court of law as advised by your legal team.
What are the key terms & Clauses in Charter Agreement?
Amongst other clauses stated above, some of the essential clauses of a Charter Agreement are:
- Notices: Both the stakeholders in the contract need to issue certain notices to each other and this section of the contract outlines the details of the same.
- Disclaimers: The parties involved in creating the contract need to provide specific disclaimers to each other, and this section contains details of the same.
- Remedies: In the case of a lapse in agreed terms and conditions or a default in Payment, certain remedies immediately come into effect, the details of which are enclosed in this section of the contract.
- Obligations: Both the parties have certain obligations to each other during and after creating the contract, the details of which are mentioned here.
When does demurrage start?
Unless otherwise provided in the charter party, demurrage starts when loading or discharging should have been completed. All days are counted, whether or not the cargo is worked, including Sundays, holidays and days not worked due to bad weather or other reasons. Once a vessel is on demurrage, it runs consecutively unless otherwise provided in the charter party.
What are the main types of charter parties?
The main types of charter parties are Bareboat Charter Party (sometimes called a Demise Charter). Time Charter Party and Voyage Charter Party.
Who is the carrier?
The carrier includes the owner or the Charterer who enters into a contract of carriage with a shipper.