Charter Party

Charter Party

Charter Party

The major operation under this function is to find continued and suitable employment for the ships to maximise revenue earnings.

These operations are therefore primarily concerned with finding suitable cargoes for ships irrespective of whether the ships are owned or are hired.

These operations are concerned with evaluating intended voyages to maximise earning so as to pay for the cost of ship, cost of its operations and to make some profit.

Charter Party

There are many mutually agreed arrangements

between the owners of cargo or shippers and the

ship owners or ship operators for transportation

of cargoes.

The terms and conditions for carriage of cargo

can either be on liner terms or under different

charter party terms that primarily depend upon

the types of ships and cargo.

Charter Party

Charter party is a contract between the ship-

owner and the Charterer.

Three important elements are;

(a) Description of the ship

(b) Description of the trade

(c ) Description of time period

Charter Party

Description of the Ship

The type of ship to be hired/chartered very much

depends on the nature and whereabouts of the intended

trade.

Its normal for owners to provide all the details of the

ship with a guarantee about its accuracy.

An example such as Shell time and Inter tank having

appropriate format which is required to contain several

pages of information required ship details

Charter Party


Many Charterers require the following plans to be

supplied by the Owners;

(1) General Arrangement Plan ,including loading scale

(2) Detailed Cargo manifold arrangement Drawing

(3) Pumping Arrangement Plan

(4) Plan of Cargo Tank Ventilating System

(5) Manufacturers Characteristics Curves of Pumps if

centrifugal pumps are installed.

Charter Party


Cubic Capacity

Speed and Consumption

Constant Weights

Charter Party


These, apart from the name of the ship, include – year of built, flag, dead weight, maximum dimensions, maximum draught, fresh water allowance, speed, fuel consumption, cargo space in bail and grain capacities, number of hatches and holds, type and safe working load of cargo gear, compliance with international regulations for carriage of specialised cargo and such other important details relevant for the intended cargo and trade.

For example some bulk cargoes may require that the holds be equipped with carbon-di-oxide fire protection system, or special requirement of cargo securing in the holds.

Charter Party


Name of the Ship

Year of Build

Name and location of Owners

Flag

Class

Call Letters

GRT/NRT

Summer Deadweight

Fresh Water Allowance

Fresh Water Allowance

Charter Party


Cubic Capacity

Speed and Consumption

Constant Weights

Charter Party

Description of the Trade

As much as Charterer is interested to know

the details of the ship in the same way the

Owner is interested to know about the type

of trade the ship will be engaged in.

Owners will negotiate an entry to that effect

the berths and ports to which the vessel will

trade are safe and ship will remain afloat.

Charter Party


The Charter Party will guarantee that the vessel will trade within the Institute Warranty Limits(I.W.L)- a trading area defined by Underwriters to prevent the more serious risk of ship causality loss.

The dangerous areas such as war zones and ice bound areas may be excluded from the charter party.

Charter Party


The Charter Party shall also include certain exclusions for the cargo to be loaded such as asphalt in bulk ,pitch in bulk ,livestock explosives ,fish meal ,scrap , sulphur, and logs.

In addition ,a modern phenomena often included in the cargo exclusion clause is nuclear products.

Charter Party

Description of the Period

The period of charter commences with vessel’s

delivery to the Charterers and ,like all charters

with vessel’s delivery to the Charterers and like

all charters, this delivery is either spot

Types of Charter Parties

There are two types of charters, Non-demise and Demise Charter. The charter by demise is not very frequent in normal day-to-day business but a number of ships are chartered on a so-called ‘bareboat’ basis.

This kind of charter ordinarily means that the vessel is put at the disposal of a charterer with out any crew. The charterer thus takes over almost all of the owner’s functions except for the payment of the capital costs and the hull and machinery insurance premiums.

Type of Charter parties

Reason for Demise Charters( Bare Boat Charters)

Demise charters are created not so much with a view to

the carriage of goods but more as part of a complicated

financing arrangement ,often with the intention that the

charterer should become the owner of the ship in due

course.

Thus a contract for the purchase of a ship by

installments will often incorporate a demise charter into

the contract.

Type of Charter Parties

Demise Charter

A variant of this would be for a financing bank lend the funds required to buy the ship ,the bank then acquiring the ownership of the ship but demise chartering it to the borrower for the period of the loan.

This would enable the bank to avoid not only the operating costs but also the liabilities which it would otherwise have to bear in relation to the operation of the ship under a mortgage.

Demise charters are also concluded between two associated companies for tax or employment reasons.


Charter parties other than Demise;

There are two types;

(1) Time Charters i.e. contracts for the use of the ship and her crew for a specified period of time within agreed trading limits as directed by the time charterer in consideration for the payment of hire;

(2) Voyage Charter contracts for the use of the ship and her crew to carry an agreed cargo on an agreed voyage regardless for the payment of freight ( and possibly other remuneration such as demurrage if the loading/discharging is delayed beyond the time agreed for such operations)


Voyage Charter:

Voyage charter is an engagement of a vessel for a single voyage between declared ports to transport full shipload of cargo or a certain quantity of cargo. The freight is paid on per tonne of cargo (DWT) bases or on lump sum basis.

The ship owner provides for all the ship’s costs with its crew, expenses for fuel, water, canal dues, port dues, loading and discharging expenses etc. in return the charterer pays him the hire charges for carrying the cargo as per described or utilised cargo capacity of the ship.


Voyage Charter:

To compensate for the delays that may be

encountered in cargo loading/discharging

operations, the ‘demurrage and despatch’

clauses for compensation to the affected parties

are inserted in charter party.


Voyage Charterparty

List of Charterparty Clauses

1.Preamble;This can be extensive in some charterparties .In the Multiform much of what may be found in preambles of certain forms is contained in clause 1.

There are two important of the brief Multiform preamble however –the place and the date of the charterparty.


Voyage Charterparty

List of Charterparty Clauses

Place This can be important as ,in the absence of a clause to the contrary,the place where a contract is deemed to have may govern the law which is to be applied to that contract in the event of dispute.

Thus if the place is London ,English Law may be very likely prevail.


Voyage Charterparty

Date equally important the date to be shown

is that which by fixture negotiations are

concluded with all subjects lifted-in other

words ,when all negotiating formalities are

complete.


Voyage Charterparty

Clause 1 ;Name and brief description of vessel

The Multiform allows for a more complete vessel description in the main ,printed part of the form than many (e.g compare with AMWELSH).

The position of the vessel when the contract is negotiated is also important


Voyage Charterparty

Clause 2; Condition of vessel

It is usual for a shipowner to confirm that a

vessel is in a suitable condition safely and

properly to undertake the contractual

voyage.


Voyage Charterparty

Clause 2;

Cargo description-Commodity and nature of the goods to be carried eg bulk or bagged stowage factor( eg about 55 cubic feet per tonne) and either minimum/max quantity or cargo size margins and in whose option ( eg 12,000 tonnes,5% or less in owners option)


Voyage Charterparty

Clause 2;

Loading Places- Names of loading place(s) and or range (eg Bordeaux/Hamburg range); mention of number of safe berths/anchorages charterers entitled to use at each place; whether vessel to remain always afloat or safely aground maximum/minimum available drafts.

Type of Charterparties

Voyage Charterparty

Clause 3;

Discharging places and port orders/rotation

Clause 4- Laydays and Cancelling

The spread of dates which a vessel is to present herself at the first (or sole) loading port .This spread should be entered in a contract as well as conditions under which the contract can be cancelled in the event that the vessel is unable to meet those dates.


Voyage Charterparty

Clause 5;

Freight the amount and currency of freight

to whom ,where and when payable .The risk

of vessel and /or cargo loss on passage in

relation to freight should be specified-ie

whether freight is deemed earned as cargo is

loaded or upon delivery.


Voyage Charterparty

Clause 6;

Cost of Loading/Discharging which of the parties to the contract is to appoint and pay for cargo handling at each port.

Clause 7;

Notice of Readiness/Time Counting-

An important clause in the calculation of laytime.


Voyage Charterparty

Clause 8;

Loading/Discharging Rates- the speed at which cargo-handling activities are to be performed.

Clause 9;

Demurrage/Despatch- daily amount of liquidated damages (demurrage) payable by a charterer in the event a vessel is detained in port beyond the maximum permitted laytime as well as any stipulations to despatch


Voyage Charterparty

Clause 10;

Notices- A shipowner/Master may be

required to give comprehensive notices of a

vessel’s expected arrival at the first (or sole)

loading port ,failing which the shipowner

may face a penalty in the form of extra

laytime allowed a charterer.


Voyage Charterparty

Clause 12;

Ship’s Gear- A normal clause in dry cargo

shipping specifying that a vessel’s gear will

be maintained to a high standard and

specifying what happens in the event of gear

breakdown resulting in extra expense.


Voyage Charterparty

Clause 14 & 15

Grab discharge/Stevedore damage-

Owners normally confirm that a vessel is

suitable for grab discharge and formalities

need to be set out in the event that a vessel

suffers damage during the cargo handling

processes.


Voyage Charterparty

Clause 17;

Overtime who is to pay for overtime.

Clause 18 & 19;

Shifting/Seaworthy trim -Who is to pay shifting costs(if any) between berths also whether time so used is to count as laytime The vessel is to be left in safe seaworthy condition between the ports.


Voyage Charterparty

Clause 13 & 16;

Cargo Separation and Tallying

Where a vessel is to carry various parcels of cargo,it may not be possible for al separations between individual parcels to be natural.

The tallying (checking) of cargo as it is loaded or discharged is frequently an expensive operation and cargo claims can arise for alleged short delivery ,bad condition etc.


Voyage Charterparty

Clause 20;

Dues and Taxes –This clause specifies which party to the contract is responsible for taxes which may be levied against the vessel and/or her cargo and /or the freight.

Clause 21;

Port Agents- In any charter party it is advisable that reference be made as to which of the parties is responsible for the selection of an agent.


Voyage Charterparty

Clause 22 & 34

Bills of Lading-The of lading to be

presented to the Master or his/her agent

upon completion of the loading .Master or

his/her agent to sign the bill of lading

indicating the apparent condition of the

cargo.


Voyage Charterparty

Clause 23;

Lightening- where cargo lightening is necessary a comprehensive clause covering all facets of this sometimes complex operation should be negotiated .The MULTIFORM and AWELSH clauses between them cover several of these facets but nearly all of them.


Voyage Charterparty

Clause 26;

General Average;

A clause specifying is to be adjusted and or paid irrespective of the ports of call involved and the laws relating to GA.

Clause 27;

Strikes; Both parties to a charterparty have risks and liabilities in the event of a strike.


Voyage Charterparty

Clause 28;

Exception- The rights of contracting parties to cancel the charter parties in case of events making its performance virtually impossible –eg Force Majeure or Acts of God.

Clause 31;

Commission- Specifies the amount and to whom commissions and brokerages are payable ,usually adding that commissions/brokerages are payable on freight ,deadfreight and demurrage.


Voyage Charterparty

Clauses 32 & 33

Protecting Clauses-A set of clauses

commonly included in the printed form of a

charterparty or as additional clauses .This

also includes P&I bunkering clause sets out

owners rights to deviate for bunkers during

the contractual voyage.


Voyage Charterparty

Clause 24;

Lien and Cesser- Most charterparties contain a cesser and lien clause and the MULTIFORM and AWELSH (clause 26) are no exceptions.

Clause 33;

Ice- Depending on the trade involved it may not be necessary for an ice clause to be included in a charter party ,but where one is required ,great care should be taken over its wording.


Voyage Charterparty

Clause 33;

War Risks- War risks clauses should be examined in detail as some are unfair to shipowners ,others to charterers and/or patently unsuitable for the purpose intended.

A war risk clause should provide a shipowner with the right to refuse to allow his vessel and her crew to enter or to remain in an area which has become dangerous due to warlike activity.


Voyage Charterparty

Signature-No Charterparty is complete

without the signatures of or on behalf of the

parties concerned.


Time Charterparty

Preamble ;The first page of the charterparty

and covering a wide range of subjects within

its text ,not least the place where the

contract is made ,the date of the charterparty

and the names and domiciles of the

contracting parties.


Time Charterparty

Vessel Description ;Depending upon the

complexity of the intended trade ,the

description of the vessel may be more or less

as for voyage charterparties ,with the

important addition of speeds and bunker

consumptions.


Time Charterparty

Duration of period ;The duration of a period

time charter .The parties can agree an exact

redelivery date ,but in practice this is

difficult to comply with and ,in the event of

legal disputes.


Time Charterparty

Clause 6;

Trading Intentions/limits -The areas of the

world in which the vessel is to be employed

should be entered-eg worldwide but always

within Institute Warranty Limits and parts of

the world specifically excluded from the

permissible trading area.


Time Charterparty

Clause 12;

Cargo Intention/exclusions- This includes

details of cargoes which can and those

which cannot be carried.

Vessel condition-Just as for voyage

charterparties an undertaking by the vessel’s

owners that the vessel is in good condition.


Time Charterparty

Clause 1;

Owner’s Responsibilities-Lists what an

owner is to provide.

Clause 2;

Charter’s responsibilities-Lists what a

charterer is to provide.


Time Charterparty

Clause 3;

Bunkers-It is common practice for time charterers

to take over and pay the owner for the bunkers

remaining on board a vessel upon delivery on to

time charter ,and for owners to act similarly upon

redelivery ,the quantities of fuel ,diesel and/or gas

oil ,and the prices per tonne of each being

negotiated when fixing.


Time Charterparty

Clause 4,5 and 29;

Hire-Amount when ,where and to whom

hire is payable and arrangements for other

payments ,less deductions for items such as

port expenses and cash for master

Agreement for procedure incase of late

payment of hire.


Time Charterparty

Clause 15;

Off-Hire- Provisions leading to off-hire situations –eg poor performance ,strike of crew ,drydocking etc- and appropriate deductions form hire payments.

Vessel performance-This includes range of speed and consumptions say from 8 knots to 15 knots in both laden and ballast conditions


Time Charterparty

Cargo Claims ;For their mutual benefit it is

important that the timecharterers and

owners of the time chartered vessels reach

an undertaking on how cargo claims will be

handled.


Time Charterparty

Clause 8 &9;

Master/Officers-The duties of a ship’s

master are defined and it is spelt out that

although a Master is the owner’s legal

servant he must act under the orders of the

charterers as far as the employment is

concerned.


Time Charterparty

Clause 11;

Logbooks-The charterers normally add this clause that they have the right to check a vessel’s performance by reference to a specialised weather routing company eg Ocean routes and in the event that the log books and the independent reports disagree the independent reports take precedence over the log books .This is important in respect of off-hre claims and vessel’s performance.


Time Charterparty

Clause 10;

Supercargo/Victualling-Spells out charterer’s right to appoint a supercargo and the costs of exercising this right with regard to meals and accommodation.

Clause 38;

Pollution-Many states are becoming extremely conscious of pollution of their waterways and coastlines and merchant ship owners must ensure that their vessels comply with a host of international and national legislation in connection with this subject.


Time Charterparty

Clause 19;

Salvage-It seems fair that expenses and rewards in cases of salvage should be shared and this is normal practice.

Clause 37;

Laying up-Unlike tanker time charterparties it is only rarely that dry-cargo owner and time charterers consider the risks of a vessel laying up through lack of employment .What most dry-cargo time charterparties do include ,however is reference to what happens if a vessel is detained in port for periods in excess of 30 days


Time Charterparty

Clause 17;

Arbitration –an essential part of any contract

For example incase ASBATIME specifies New

York since the charterparty is drafted and

published by a body of resident in New York.


Time Charterparty

Clause 18;

Lien-Just as an element of voyage charters

each party’s right of lien must be considered

and stipulated.

Clause 16;

Exceptions-Similar to the voyage charter

clause.


Time Charterparty

Clause 8;

Bill of Lading-Specifies the manner in which bills of lading are to be drawn up ,the signing of same and protection for an owner in case of paper inconsistencies.

Clause 35;

Stevedore damage-Provision for notification of stevedore damage and repairs.

Signature ;Not to be forgotten.


Time Charter:

Time charter terms are for longer duration, for a few months to over a year and in certain cases for a number of years. In case of time charter the charterer takes a ship on daily hire basis for a specific time period and utilises it for number of voyages in declared geographical range of ports but is not bound to operate the vessel on fixed routes.

The charterer has to ensure that the vessel is not required to sail beyond the International Warranty Limits or in war zones without the owner’s knowledge.


Time Charter

Decision for such operations is entirely the owner’s prerogative. The time charter hires are payable in advance, generally on fortnightly basis. Performance clauses are incorporated in time charter parties.

Underperformance on account of speed, excessive fuel consumption and deficiency in cargo handling rates make the owner liable for compensation to the charterer. In some charter parties a certain time period may be allowed for the regular routine maintenance, beyond which the vessel becomes ‘off hire’, and pro rata deductions are made from the time charter hire.



Hybrid Charter parties

It is becoming increasingly common to see

charters which combine some of the aspects of

both time and voyage charters ,e.g.

(1) Trip Charters i.e. Contracts obliging the

charterer to pay hire for the time taken by the

ship to complete a specified voyage e.g. round

Atlantic voyage.



(2) Consecutive voyage charter parties e.g. four consecutive voyages between A and B

(3) Slot Charters space sharing agreements i.e. agreements which enable liner operators to utilize empty space on their ships by allowing other operators to use some of the empty capacity in their vessels in exchange for the right to use an equivalent amount of space on the ships of such other operators.



Slot Charters This form of arrangement is

common in the container trade and

remuneration is a complicated equation often

calculated with regard to the net profit over a

period by all the operators who are part of the

arrangement.

Ship Owner’s standpoint

From the ship-owners point of view a charter provides income. However the owner has to decide his chartering strategy in order to maximize his income .If the ship is time chartered ,the income of the ship is guaranteed at a fixed period without the need to repeatedly find new employment.

However during that period the market rate of hire may go up or down .If the market rate goes down then the Owner will have benefited from the time charter.

However if the market rate has increased ,the time charter will prevent the Owner from exploiting the higher market rate.

Ship Owner’s standpoint

The Owner may therefore prefer-if he feels that

the market rate will improve in the future –to

avoid committing his ship to a time charter and

fix his ship instead for a voyage charter on the

spot market and when lucrative fixtures become

available.

The Charterers Requirement

The charterer is usually either a speculator on

the chartering market who hopes to make a

profit by a wise strategy of chartering and sub-

chartering or is a trader who needs

transportation for his cargo.


Example If the charterer is a trader who wishes to sell goods on CIF terms then ,if he does not own a ship he will need to charter one in order to satisfy his obligation under the cargo sale contract to transport the goods to the buyer’s chosen port of delivery.

He may either decided to secure transportation for a period ( i.e. time charter) thereby knowing in advance what the transportation cost element of his cargo sale will be for that period when negotiating the price of the goods or alternatively ,he may speculate on the market and secure transportation for a particular cargo to a particular destination.


He will negotiating the sale of that cargo ( i.e. voyage charter)

Whether the charter is a time charter or a voyage charter the charter will be looking for terms which provide him with the maximum flexibility to control the employment of the ship since his transportation requirements may well change depending on the requirements of the cargo sale contract.

Terms of the Charter

Conditions ,Warranties and In nominate

Terms

Warranty is a term of less importance ,the

breach of which will normally allow the

innocent party to claim damages but not to

terminate the contract.


Conditions ,Warranties and In nominate Terms

Condition is a term of such importance that any breach of it will entitle the innocent party to terminate the contract forthwith.

Example;

(a) A statement that the ship is fully classed

(b) The duty to proceed on a voyage without deviation.

(c ) A statement that the vessel is expected ready to load by a certain date.


Conditions ,Warranties and In nominate

Terms

Conditions;

Example;

(d) A statement relating to the ship’s flag in

wartime.

(e) A statement that no dangerous on

unlawful goods will be shipped

Terms of Charter

Conditions ,Warranties and In nominate Terms

In nominate ( or Intermediate terms)

In general it appears that terms relating to the vessel’s description will be treated as intermediate terms in which case the question of whether or not the charter can be terminated will depend upon the seriousness of the effect of the breach.

Terms which are implied by law

Even when the charter is silent on a particular issue ,the law may imply a term if it is necessary to do so it give business efficacy to the contract.

The court will not be over ready to do so and will certainly not do so merely to save one of the parties from a bad deal or to make the contract fairer

Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying so that if while the parties were making their bargain ,an officious bystander were to suggest some express provision for it in their agreement.

Terms which are implied by law

Examples

(1) That the ship is seaworthy

(2) That the owner will proceed with the voyage

with reasonable dispatch

(3) That the charterer will not ship dangerous

cargo.

(4) That the port nominated by the charter will

be safe for the vessel

Chartering Operations

Liner

Tramping


Liner Operations

Liner shipping is associated with fixed sailing schedules

of vessels, providing predetermined sailing frequencies,

range of the sailing dates, fixed routes and range of

ports that are covered on the voyages.

The system comprises sharing of cargo capacities of

member shipping lines on agreed tariff rates to organise

reliable and regular sailing patterns.


Liner Operations

The ships operating on liner terms may be general cargo ships carrying break bulk cargo, container vessels, Ro-Ro vessels etc. Liner vessels carry a mix of smaller parcels of different types of cargoes during the same voyage.

When vessels are operated under liner terms the applicable freight rates are normally those that are negotiated and decided by the Liner Conferences.

The conferences publish the schedule of freight rates and conditions for carriage. These freight rates remain in force for long periods and have provisions of adjustments e.g. surcharge for fuel prices, undue delays in some ports etc.


Liner Operations

Marketing;

In context of shipping it refers to marketing of the ship’s services (space for cargo). Securing cargo for ships involves continuous market survey, advertising ship’s voyage schedules and direct contact with the clients.

Shipping company may have a marketing department with professionals dedicated to canvassing for cargo and related documentation.


Operations on Tramping Terms

Vessels operating on tramping terms are mostly those carrying bulk cargoes which may be dry bulk cargoes like ore, coal, grain etc. or liquid bulk cargoes like crude oil, petroleum products, chemicals etc.

Tramping terms normally mean carriage of one commodity of cargo involving one shipper, one consignee and one bill of lading. Although at times there may be more number of consignees and cargo parcels carried under different bills of lading.


Operation on Tramping Terms

The freight rate or hire rate of a vessel is agreed

upon, between the ship owner or operating

owner and the cargo owner or shipper.

Negotiations are made through intermediaries

known as the owner’s brokers and charterers’

agents who match requirements of cargoes with

the ships and vice a versa.



They get paid for their services by way of brokerage and address commission respectively.

The agreements for carriage of cargo between the owners and the charterers are known as charter parties. There are different types of charter parties for different types of cargoes, geographical locations, terms for carriage, handling of cargoes etc.

The standard formats of charter parties facilitate faster agreements as most terms and conditions are known to both the parties.



There are different types of charter parties for

different types of cargoes, geographical locations,

terms for carriage, handling of cargoes etc.

The standard formats of charter parties

facilitate faster agreements as most terms and

conditions are known to both the parties.



Standard formats have been developed or approved by internationally reputed institutions like Baltic and International Maritime Council (BIMCO); International Association of Independent Tanker Owners (INTERTANKO); General Council of British Shipping (GCBS); Institute of Chartered Shipbrokers; Association of Shipbrokers and Agents USA etc.

Amendments in a charter party is made as necessary for a specific voyage by inclusions/replacements/removal of clauses on the basis of agreements between the two parties for

Operations on Tramping Terms:

Voyage estimating:

Voyage estimating is an important function under chartering and operations. It is a process of estimating viability of a voyage.

It involves estimation of expected revenue and expenses that will have to be incurred for making a prospective voyage and is an essential exercise to find the best option out of different alternatives that may be available for a ship’s employment.

Offers for prospective employment are compared on a common datum of earnings, which may be either daily Gross Operating Profit (GOP) also called Gross Daily Surplus, Nett Daily Surplus, the TC Rate or Daily Yield


When whole ship is fixed on a voyage charter and the freight

rates are applied on the basis of per tonne of cargo it becomes desirable to load maximum amount of cargo. Then it becomes necessary to calculate the maximum quantity of cargo that can be carried for the purpose of voyage estimation.

This calculation involves taking into consideration the DWT, hold capacities, stowage factor, available depths of water in the loading and discharging ports, geographical areas the ship is required to trade, seasonal draught restrictions, variation of draught that may be encountered due to the change in water density, quantity of fuel and water needed for the voyage and ship’s constants


.On the expense side the costs and time for

cargo handling, costs for river or canal transit as

applicable, cost of fuel, vessel’s standing charges

etc. are calculated to assess the voyage viability.


Operating Expenses:

The expenses involved in ship operations are generally classified in two types. First are those that are incurred when the ship actually makes a voyage, whether it is loaded with cargo or is on ballast.

The expenses are termed as direct operating expenses (DOE). The second types are those that need to be incurred irrespective of whether the vessel is sailing or not.

These are indirect operating expenses (IOE) also called standing charges or the running cost.


Number of estimations are made, with slightly varied freight

rates e.g. in steps of 10 cents per tonne within the expected range.

This done for each of the prospective voyage to assess viability of voyages as well as to facilitate negotiations. For the purpose of voyage estimations standard forms are used by the estimators.

Apart from providing a standard, the use of forms provides and assurance to the estimator that no details are left out. The forms are also helpful in assessing the actual value of the estimations after the voyage has been completed as well as serve as a reference for future estimations


Computer Programmes:

Custom built computer software programmes are now available for the purpose of voyage estimation. The computer database holds the ships’ particulars including fuel consumption at different speeds that in the normal range of operations. Based on the essential parameters programmed into it, the system provides available deadweight capacity once information such as draught; density of water and bunker remaining on board are entered while it picks up the constants form database and provides for these in the calculations


Computer Programmes:

The programme provides shortest distances between link ports like Singapore, Suez, Panama etc, requiring only additional distances to be entered in. The programme also calculates the ship’s draughts applicable to the load line zones deduced from the dates of the prospective voyage.

It is integrated with updated information on the daily bunker prices at major bunker ports to provide suitable bunkering options on the ports en-route.

In case programmed for tankers it can provide tank wise capacities taking into consideration the volume variations due to temperatures as well as corrections for list and trim.


Computer Programs

The programme provides a number of figures

for TC rates based on small step variations (10

cents per tonne) of freight rates.

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More information about BIMCO's idea can

be obtained from BIMCO's web site at

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Relationship between the Charter

party and Bills of Lading

In the vast majority of cases a charterer is either a

trader who is selling or buying goods or is someone

acting for such a party vis-à-vis the ship-owner and the

main purpose of a chartered ship is to carry goods to

the satisfaction of a contract for the International sale

of goods.

The ability of the charterer to obtain a bill of lading

from the ship is a fundamental requirement since

without a bill of lading ,the trader will have great

difficulty in selling the goods.



Important points to remember

The seller often knows nothing of the fundamental

standing of the buyer and is taking the risk in

considering his good unless he can reasonably certain

of being paid for them.

The obvious solution that of demanding payment in

advance is unlikely to appeal to the buyer ,who may

have no reason to trust the seller to ship goods of the

promised quantity and description.




The buyer is not usually present or represented

at the load port and is not therefore in a position

to inspect the goods.

Furthermore even after the shipment so long as

the cargo remains at sea its quantity and

condition cannot be inspected by any further

potential buyer.




The cargo whilst at sea cannot be physically

transferred to a new buyer.

The only way in which the seller can effect a

transfer of any part of such cargo is by

transferring instead a document of title

which is accepted as being the documentary

equivalent of that cargo.



The Bills of lading was invented to cure these

difficulties and has the following functions;

(1) It is a receipt given by the carrier for the goods

which describes the apparent order and condition and

quantity or weight of the goods on shipment ;and

(2) It is a contract of carriage which sets out the terms

under which the goods are to be carried by the ship.

It is a transferable document of title ,possession of

which proves entitlement to the goods.



Payment for the goods can therefore be made

against the bill of lading and bill can be

negotiated ( provided it has been made out to

order) from one holder to another ,thereby

transferring from one holder to another the

right to obtain delivery of the goods from the

ship.



A sea waybill-otherwise known as a waybill is also a

receipt and a contract of carriage.

However it is not treated as a document of title since

unlike Bill of Lading it not negotiable and remains at all

times a contract with the shipper.

Since the sea waybill is neither negotiable nor a

document of title it is not well suited to transactions

involving documentary credits because banks tend to

place great importance on security.



Sea waybill should therefore be used only when

there is no intention of on-selling the goods

during the course of the voyage.

For this reason they are used most often in the

container trade



Which is the governing contract of carriage-The Charter Party or the Bill of Lading?

Since the bill of lading is a receipt for the shipment of goods ,it will come into operation once those goods have been shipped.

However if the vessel has been chartered it will probably come into operation as a result of orders which have already been given by the charterer under the charter party.


party and Bills of Lading Which is the governing contract of carriage-The Charter Party or

the Bill of Lading?

However since the Bill of Lading is also a contract of carriage of goods a potential conflict arises between the two contracts.

It would be commercial nonsense for there to be two contracts between the same two parties for the carriage of the same goods on the same voyage.

Accordingly the law has adopted a common sense approach and has held that when a bill of lading is held by a party who already has a charterparty contract with the person who is the carrier under the bill of lading ,the bill is to be treated as a receipt and a document of title-but not as a contract of carraige.



Which is the governing contract of carriage-The

Charter Party or the Bill of Lading?

However once that Bill of Lading is endorsed to

a party who is not a party to the charter party

then in his hands ,the bill of lading operates not

only as a receipt and a document of title but also

as a contract of carriage between him and the

carrier.




This is explained by Evans LJ in the case of Island Archon

Legal relations between shipowner and charterer are governed by their contract contained in the charterparty.

When a bill of lading is issued or is transferred to the owner or person entitled to possession of the cargo who is not the charterer ,then it contains or evidences a separate contract between the shipowner and that other person.




Example 1

A is a seller of goods on CIF terms to B .Under that contract it is the duty of A to arrange the transportation of the goods to B and in order to perform his duties under the sale of contract.

A charters a ship from her owner C

Once the cargo has been shipped a bill of lading is signed by the ship’s master on behalf of his owner as carriers and released to A as shipper.




Example 1

Whilst the bill of lading is held by A it does not operate as a contract of carriage between A and C since there is already a Charterparty contract between those two parties.

When the bill of lading is endorsed by A to B pursuant to the contract of sale then ,in the hands of B it operates as a contract of carriage between B and C since there is no charter party contract between B and C.




Example 2

A sells B on FOB terms .In this case the duty to provide the transportation falls on B and he charters the ship C .Once the cargo has been shipped the master releases the bill of lading to A as shipper.

Whilst the bill of lading is held by A it operates as a contract of carriage between A and C since there is no charter party contract between A and C.




Example 2

Once the bill of lading is endorsed by A to B the bill of lading will not operate as a contract of carriage between B and C since there is already a charter party contract between B and C.

Once the bill is further endorsed by B to D it operates as a contract of carriage between D and C since there is no charter party contract between D and C.



Conflicting duties under the Charter Party and the Bill of Lading

Once the cargo has been shipped under a Chartered vessel it is clear that the ship owner can be a party to different contracts( the charter party and the bill of lading) with two different contracting parties (the charterer under the charter party and the consignee under the bill of lading).

Therefore unless the two contracts are on back to back terms there is a potential for confusion and conflict.


party and Bills of Lading Conflicting duties under the Charter Party and the Bill of

Lading

Example 1

Employment orders given by the charterer under the charter party may put the owner in breach of his obligations to the cargo owner under the bill of lading.

An order given by a charterer to change the port of discharge from Port A to B after the Bills of lading have been released for Port A would if the shipowner complied with them make him guilty of deviation under the bill of lading contract.

This could seriously prejudice his P&I cover ( Insurance)




Example

The issue of a bill of lading may seriously diminish the effectiveness of rights which the owner may have under the charter.

For example an owner has the right under Clause 5 of the NYPE form of charter to withdraw the vessel from the charterer’s employment if hire has not punctually been paid.




Example

However if a bill of lading has been issued in the meantime a withdrawal may be not much use to the ship owner since he completely separate obligations to the cargo owner under the bills of lading will continue

These obligations include the duty to proceed to and deliver the cargo at the port specified in the bill of lading even though the bill of lading freight may already have been pre-paid to the charterer and even though no further hire will be payable under the time charter.




Example

Indeed the owner may even have to pay out of his own pocket port expenses ,stevedoring charges and other costs which should have been for the time charterer’s account under the time charter if the charter had not been terminated by the withdrawal.

Oil Tanker Freights

AVERAGE FREIGHT RATE ASSESSMENT (AFRA)

Introduction

AFRA and its Terms of Reference was originally laid down and sponsored by Shell and subsequently BP for their internal use.

In 1982, shell and BP stopped sponsoring it.

It is now compiled by the London Tanker Brokers Panel and is based on information relating to transport agreements supplied by various oil companies and also from all known fixtures concluded on the open market.

It is recognized by tax authorities in many countries for pricing of intra-company oil movements.

Oil Tanker Freights

AVERAGE FREIGHT RATE ASSESSMENT (AFRA)

Principle

To establish an average transportation cost per ton in a given month for vessel in different size categories.

To represents the cost of all chartered tonnage actually operating in the month being assessed, irrespective of when the vessel was fixed.

Fixtures concluded during the period of assessment will not affect the result unless such vessel is actually performing a voyage during the assessment month.

Oil Tanker Freights

Who uses AFRA and why?

It removes the variable factors in shipping costs so that

the rate paid by the affiliate reflects the cost of

chartered tonnage operating in the month being

calculated.

It takes into account transport costs on a worldwide

basis including spot market factor for that month.

It is also used for transactions between oil traders and

also by government bodies

Oil Tanker Freights

AFRA rate DWT categories

General purpose – 16,500/24,000

Medium range – 25,000/44,999

Large range 1 – 45,000/79,999

Large range 2 – 80,000/159,999

VLCC – 160,000/319,999

ULCC – 320,000/549,999

Oil Tanker Freights

Vessels not included in the assessment

Government-owned vessels except when on commercial charter

Vessels employed in specialized trades such as the carriage of clean oils, petrochemicals, lube oils, bitumen, etc.

Vessels employed in protected trades such as the U.S. Jones Act trade.

Components in each size category

Company vessels

Vessels on long term charter (>18 months)

Vessels on short term charter (<18 months)

Vessels on single voyage charter

Oil Tanker Freights

The mechanics of AFRA

The calculations are made for the period from the 16th of a month to the 15th of the next month, both dates inclusive. It is the weighted average of commercially chartered tonnage as employed in the international transport of oil during the period considered.

Vessels fixtures for each of the above four vessel categories are supplied by member companies who use AFRA and from report of fixtures concluded on the market for loading in the period under assessment.

Oil Tanker Freights

AFRA Assessment steps

The carrying capacity of each vessel operating during the assessment period is calculated using a standard voyage.

The weighted average rate in US dollars per ton for carrying a ton of oil on that standard voyage is estimated for each of the four vessel oil on that standard voyage is estimated for each of the four vessel types. For vessels that are on time charter, the TCH/DWT /month is converted into cost per ton of cargo for the standard voyage.

Oil Tanker Freights

AFRA Assessment steps

An overall weighted average is calculated for each size group as follows:

(Total carrying capacity of each size category) x (Weighted average rate for that size category)

The values arrived are in US dollars per ton and are converted into WS index on the basis of the standard voyage used and are published as a WS Index Figure for each size category.

Oil Tanker Freights

WORLD SCALE

The WORLDSCALE Associations of London and New York jointly publish a book, listed over 60,000 voyage rates and distances.

The book is revised yearly to take account of changes in bunker prices and port dues, amendments are also published from time to time throughout the year.

These “base” rates are given in US$ per tonne of cargo and take into account bunker prices, canal transit times and port charges.

Oil Tanker Freights

World Scale

The rate is based on a standard vessel of 75,000 tonnes cargo capacity costing $ 12,000 per day fixed hire and performing a round voyage load/discharge and back to load port at 14.5 knots on 55 tonnes of fuel oil per day. It must be emphasized that these rates are nominal rates, in practice the ship-owner and charter will negotiate a rate for the particular voyage is question as a percentage of the nominal rate.

Thus if the voyage was fixed at WORLDSCALE 100 (WS 100) then the rate would be as published. If the voyage was fixed at WS 170 then it would be 170% of the published rate.

Oil Tanker Freights

World Scale

This has proven to be a remarkably successful compromise

between the charterer’s desire for flexible discharge options and

the owners need for a fair predictable income for his vessel,

however there are problems. WORLDSCALE is based upon an

average vessel earning an average rate with average rate with

average costs.

The further your vessel is away from the WORLDSCALE

average and the further away the market is from WS 100 then

the greater the potential for distortions.

Oil Tanker Freights

World Scale

This is why when looking at fixture reports you may see a VLCC fixing at WS 60 whilst a product tanker is fixed at WS 200, the cost per tonne of cargo moved on a VLCC is much lower than the cost per tonne of cargo moved on a product tanker, thus the product tanker will attract a higher WORLDSCALE percentage. Prudent owners will be aware of any distortions their particular vessel specifications and the state of the market may cause and will adjust their figures accordingly.

Oil Tanker Freights

World Scale

The new worldwide tanker nominal freight scale (WORLDSCALE) is intended merely as a standard of reference to assist subscribers to conduct business.

The responsibility of the associations is limited to providing subscribers with rates for voyages calculated in accordance with the basis of a calculation and to revising WORLDSCALE from time to time.

The nominal rate for a voyage does not in itself have any significance as representing a fair or reasonable rate for the standard vessel or any other size and/or type of vessel at any particular time.

Oil Tanker Freights

World Scale

Market levels of freight are to be expressed in terms of a percentage of the nominal freight rate. Thus WORLDSCALE 100 would mean the rate for the voyage in question as calculated and issued by the associations, while WORLDSCALE 175 would mean 175 per cent of that rate and WORLDSCALE 75 would mean 75 per cent of that rate.

Rates are calculated and quoted only in USD per tonne. However, freight may of course by payable in any currency and the contracting parties should specify clearly the currency of payment and the method to be used to determine the rate of exchange to apply if the currency of payment is to be other than USD.

Oil Tanker Freights

World Scale

Basis of calculation

All rate calculations, which are made in USD, are per tonne for a full cargo for the standard vessel based upon a round voyage from loading port or ports to discharging port or ports and return to first loading port using the under-mentioned factors.

All of the factors shown are purely nominal and for rate calculation purposes only. In particular, the fixed hire element of USD 12,000 per day is not intended to represent an actual level of operating costs, nor to produce rates providing a certain level of income or margin of profit, either for the standard vessel or for any other vessel under any flag.

Oil Tanker Freights

World Scale

Standard vessel

Total capacity 75,000 tonnes

(i.e. the vessel’s capacity for cargo plus stores, water, and bunkers, both voyage and reserve; also see section 5 (2) of part A of the preamble).

Average service speed 14.5 knots

Bunker consumption steaming 55 tonnes per day

Purposes other than steaming 100 tonnes per round voyage

Oil Tanker Freights

World Scale

In Port- 5 tonne for each port involved during

the voyage.

Grade of Fuel Oil 380 CST

Port Time 4 days for a voyage from one loading

port to one discharging port.

Additional 12 hours allowed for extra port

involved on a voyage.

Oil Tanker Freights

World Scale

Fixed Hire Element USD 12,000 Per day

Bunker price 149,75 per tonne

This price represents the average worldwide

bunker price for fuel oil (380 cst) during the

period 1st October 1999 to 30th September

2000 as assessed by Cockett marine oil limited

(of London)

Oil Tanker Freights

World Scale

Port costs

Port costs used are those assessed by the associations in the light of information available to them up to the end of September 2000, the rate of exchange used for converting costs in a local currency to USD being the average applicable during September 2000.

Canal transit time

24 hours is allowed for each transit of the Panama canal.

30 hours is allowed for each transit of the Suez Canal.

Mileage is not taken into account in either case.

Oil Tanker Freights

World Scale

Examples of Wet Fixtures

Source Fair Play October 2008

Examples of Time Charters

Baltic Dry Index;

Source Fairplay October 2008

Thank You & Any

Questions

Documents

Charter Party