Chartering (shipping)
Encyclopedia
Chartering is an activity within the shipping
industry. In some cases a charterer may own cargo
and employ a shipbroker to find a ship
to deliver the cargo
for a certain price, called freight rate
. Freight rates may be on a per-ton basis over a certain route (e.g. for iron ore between Brazil and China) or alternatively may be expressed in terms of a total sum - normally in U.S. dollars - per day for the agreed duration of the charter.
A charterer may also be a party without a cargo who takes a vessel on charter for a specified period from the owner and then trades the ship to carry cargoes at a profit above the hire rate, or even makes a profit in a rising market
by re-letting the ship out to other charterers.
Depending on the type of ship and the type of charter, normally a standard contract form called a charter party is used to record the exact rate, duration and terms agreed between the shipowner and the charterer.
Time Charter Equivalent
is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types.
(In the context of the leisure industry, the term "demise charter" will rarely be heard. Bareboat yacht chartering will typically be the short-term hire for only a few weeks or even less. Here, the owner will supply the yacht in seaworthy order, fully fuelled and possibly revictualled. The yacht may be hired as one of a flotilla
; and at least one yacht may be manned by an employee of the owner. At the end of the hire period, the charterer will be expected to pay for the fuel used).
Shipping
Shipping has multiple meanings. It can be a physical process of transporting commodities and merchandise goods and cargo, by land, air, and sea. It also can describe the movement of objects by ship.Land or "ground" shipping can be by train or by truck...
industry. In some cases a charterer may own cargo
Cargo
Cargo is goods or produce transported, generally for commercial gain, by ship, aircraft, train, van or truck. In modern times, containers are used in most intermodal long-haul cargo transport.-Marine:...
and employ a shipbroker to find a ship
Ship
Since the end of the age of sail a ship has been any large buoyant marine vessel. Ships are generally distinguished from boats based on size and cargo or passenger capacity. Ships are used on lakes, seas, and rivers for a variety of activities, such as the transport of people or goods, fishing,...
to deliver the cargo
Cargo
Cargo is goods or produce transported, generally for commercial gain, by ship, aircraft, train, van or truck. In modern times, containers are used in most intermodal long-haul cargo transport.-Marine:...
for a certain price, called freight rate
Freight rate
A freight rate is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport , the weight of the cargo, and the distance to the delivery destination...
. Freight rates may be on a per-ton basis over a certain route (e.g. for iron ore between Brazil and China) or alternatively may be expressed in terms of a total sum - normally in U.S. dollars - per day for the agreed duration of the charter.
A charterer may also be a party without a cargo who takes a vessel on charter for a specified period from the owner and then trades the ship to carry cargoes at a profit above the hire rate, or even makes a profit in a rising market
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
by re-letting the ship out to other charterers.
Depending on the type of ship and the type of charter, normally a standard contract form called a charter party is used to record the exact rate, duration and terms agreed between the shipowner and the charterer.
Time Charter Equivalent
Time Charter Equivalent
The time charter equivalent rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types under which the vessels may be employed between the periods...
is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types.
Charter types
- A voyage charter is the hiring of a vessel and crew for a voyage between a load port and a discharge port. The charterer pays the vessel owner on a per-ton or lump-sum basis. The owner pays the port costs (excluding stevedoring), fuel costs and crew costs. The payment for the use of the vessel is known as freightFreight rateA freight rate is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport , the weight of the cargo, and the distance to the delivery destination...
. A voyage charter specifies a period, known as laytimeLaytimeIn commercial shipping, laytime is the amount of time allowed in a voyage charter for the loading and unloading of cargo. If the laytime is exceeded, demurrage is incurred...
, for unloading the cargo. If laytime is exceeded, the charterer must pay demurrageDemurrageThe term demurrage originated in vessel chartering and refers to the period when the charterer remains in possession of the vessel after the period normally allowed to load and unload cargo . By extension demurrage refers to the charges that the charterer pays to the shipowner for its extra use of...
. If laytime is saved, the charter party may require the shipowner to pay despatch to the charterer. - A time charter is the hiring of a vessel for a specific period of time; the owner still manages the vessel but the charterer selects the ports and directs the vessel where to go. The charterer pays for all fuel the vessel consumes, port charges, and a daily hire to the owner of the vessel.
- A bareboat charterBareboat charterA bareboat charter is an arrangement for the chartering or hiring of a ship or boat, whereby no crew or provisions are included as part of the agreement; instead, the people who rent the vessel from the owner are responsible for taking care of such things....
or demise charter is an arrangement for the hiring of a vessel whereby no administration or technical maintenance is included as part of the agreement. The charterer obtains possession and full control of the vessel along with the legal and financial responsibility for it. The charterer pays for all operating expenses, including fuel, crew, port expenses and P&I and hull insuranceMarine insuranceMarine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination....
. In commercial demise chartering, the charter period may last for many years; and may end with the charterer acquiring title (ownership) of the ship. In this case, a demise charter is a form of hire-purchase from the owners, who may well have been the shipbuilders. Demise chartering is common for tankers and bulk-carriers.
(In the context of the leisure industry, the term "demise charter" will rarely be heard. Bareboat yacht chartering will typically be the short-term hire for only a few weeks or even less. Here, the owner will supply the yacht in seaworthy order, fully fuelled and possibly revictualled. The yacht may be hired as one of a flotilla
Flotilla
A flotilla , or naval flotilla, is a formation of small warships that may be part of a larger fleet. A flotilla is usually composed of a homogeneous group of the same class of warship, such as frigates, destroyers, torpedo boats, submarines, gunboats, or minesweepers...
; and at least one yacht may be manned by an employee of the owner. At the end of the hire period, the charterer will be expected to pay for the fuel used).