Basic Ship Charter Forms

There are essentially two basic forms of carriage charter, depending upon whether the vessel is chartered for a period of time or for one or more voyages. In both instances the shipowner retains control of equipping and managing the vessel and agrees to provide a carrying service. In the case of the voyage charter he undertakes to carry a cargo between specified points, whereas in a time charter he agrees to place the carrying capacity of his vessel at the disposal of the charterer for a specified period of time. A typical example of a voyage charter is provided by a seller of goods under a CIF (Cost, Insurance, Freight) contract who, having agreed to ship the goods to the buyer, then charters a vessel to carry them to their destination. Time charters, on the other hand, are often used by carriers who wish to augment their fleet for a particular period of time without the expense of buying or running the vessel.
Before briefly outlining the characteristics of these two basic charter forms, mention must be made of a variety of hybrids which are the inevitable product of a climate of freedom of contract. The first of these hybrids is the trip charter, which consists of a time charter of a vessel for a specific cargo voyage. Instead of the fixed freight payable per unit of cargo on the completion of a voyage charter, this device ensures that the shipowner is paid hire for the entire time spent on the voyage until the cargo has been discharged at its destination. A slight variation on this form, designed to protect the shipowner in cases where the port of discharge is in an isolated area where other cargoes are unlikely to be available, is to require payment of hire to continue until the vessel has returned to the normal trade routes. While the trip charter falls into the category of time charters, the other two hybrids are treated as voyage charters despite the fact that in each case the contract involves the carriage of goods over a specified period of time. The first example is the consecutive voyage charter under which the vessel, having been chartered for a specific period of time, is required to
complete a series of voyages between designated ports during that period. An alternative form, with the same objective, is the long-term freighting contract under which the shipowner undertakes to transport specified quantities of a bulk product, such as coal or grain, between designated ports in a given time, using vessels of his own choice. The main distinctions between the two forms of voyage and time charter stem from their basic difference of function. While in both cases the shipowner remains responsible for the
running of his own vessel and is merely providing a carrying service, in the case of the voyage charter he is undertaking to transport a specified cargo between designated ports, whereas in the time charter he is placing his vessel for an agreed time at the disposal of the charterer who is free to employ it for his own purposes within the permitted contractual limits. The time
charterer thus controls the commercial function of the vessel and is normally responsible for expenditure directly resulting from compliance with his instructions, such as fuel costs, port charges and the cost of loading and discharging the cargo. He also undertakes to indemnify the shipowner against liabilities arising from bills of lading issued under his instructions. The
voyage charterer, in contrast, takes little more part in the operation of the vessel than would a shipper under a bill of lading contract. His primary obligation is to provide a cargo and to arrange for its reception at the port of discharge. Normally he also has to bear the cost of any time used in loading or discharging the cargo in excess of the agreed lay days. Occasionally he may himself undertake responsibility for the loading or discharging operations, but otherwise he takes no part in the general running of the vessel.
A further difference to be found between the two types of charter is in the method by which the price is calculated for the services provided by the shipowner. In the case of a voyage charter, payment can take the form either of a lump sum for the voyage or can be fixed in proportion to the amount of cargo carried. With a time charter, hire is payable according to the amount of time the vessel is placed at the disposal of the charterer. In either situation the crucial factor to be taken into consideration in calculating the appropriate rate is the basic time required to complete the particular operation and the likelihood of this time being extended by delays and hindrances beyond the control of the parties. From the shipowner’s point of view the time charter is far more attractive in this respect, since the risk of delay caused by such factors as bad weather, congestion in port or strikes of stevedores, falls on the charterer who must pay a flat rate for the time he hires the vessel. His only relief is to be found in the ‘off-hire’ clause which, in essence, provides that he is not required to pay for time lost due to circumstances which are attributable to the shipowner or the vessel, such as engine
failure or crew deficiencies. On the other hand, in a voyage charter the shipowner, by quoting a fixed rate per ton of cargo for the complete voyage, will himself bear the risk of delay arising from causes beyond the control of the parties. In fixing the appropriate freight rate for such a charter, therefore, negotiations will centre on the estimated time required for completion of the voyage, the number of lay days allowed for loading and discharge, and the amount of demurrage to be paid by the charterer in the event of those lay days being
exceeded.