For the proper functioning of the worldwide economy, shipment of raw materials like iron ore, coal, oil and grain by bulk carriers on oceans and navigable waters is crucial.
Generally, raw materials are shipped in bulk form by bulk carriers. Bulk carriers carry coal, iron ore, grain and similar bulk cargoes. On the other hand, tankers carry liquid cargoes like oil, oil products, chemicals, vegetable oils and other liquid cargoes. Cargoes that are shipped in bulk form are often transported by bulk carriers. Bulk carrier contracts or charter-parties are signed directly between shipper and bulk carrier owner with or without intermediary shipbrokers. Bulk cargo shipment is substantially different than shipment of goods in containers.
Bulk cargoes like iron ore, coal, oil and grain are generally transported pursuant to bulk carrier charters such as voyage charters or time charters.
Voyage Charter Typical Terms:
In voyage charter, ship owner or ship operator usually provides specific bulk carrier to charterers in order to
- load a specific cargo
- at a specified load port or ports
- at a designated time
- deliver that cargo to a designated discharge port or ports
- for specified freight rate on contract
Generally, freight rate is denominated in terms of per tons carried or lump sum basis. For example, a bulk carrier carrying a 100,000 metric ton cargo of coal for China $25 per ton would earn gross freight of U.S. $2.5 million.
Responsible party for arranging loading and discharging operations of bulk cargoes:
Unlike the shipment of goods under Carriage of Goods by Sea Act (COGSA), shipper or charterer is generally responsible for arranging for the loading and discharging of bulk cargoes. Customary practice arises from the fact that cargo owner is usually in best position to arrange for safe and efficient loading and discharging of the bulk carrier.
Generally, voyage charter contracts (charter-party) usually set specific lay days (laytime). Lay Days (Laytime) is time period during which bulk carrier owner or operator must arrive at load port and make bulk carrier ready to load its cargo. If bulk carrier is delayed beyond free lay days at a contracted rate on voyage charter contract (charter-party), cargo owner or charterers pays demurrage to bulk carrier owners or operators. If cargo owners or charterers loads or discharges bulk carrier at a rate more quickly than anticipated contracted rate on voyage charter contract (charter-party), bulk carrier owners or operators pays dispatch money to charterers.
Generally, voyage charter contracts (charter-party) provide that loading and discharge will occur on the basis of one safe berth (SB), always afloat (AA). One safe berth (SB), always afloat (AA) is construed as a warranty by bulk carrier charterer that berth will be safe for the bulk carrier. If berth turns out to be unsafe and as a consequence of this unsafe berth bulk carrier is damaged, charterer could be held liable for the resulting damages. If berth owner or operator knew of the hazard that resulted in damage to the bulk carrier, charterer may be able to shift responsibility for liability to that bulk carrier owner or operator.
Bulk carrier charterer can cancel a charter if bulk carrier is late to loading port. Usually, voyage charter contracts (charter-party) have cancellation clause that contains certain date. If bulk carrier does not issue proper notice of readiness in time which was agreed on voyage charter contract (charter-party), charterer may cancel the charter. Bulk carrier charterers’ cancellation right is a no fault right. No Fault right means that charter may be cancelled regardless of cause of the bulk carrier’s late arrival.
If shipper fails to ship the agreed amount of cargo that was agreed on voyage charter contract (charter-party), bulk carrier owners or operators are usually entitled to damages. Charterers pay ship owners or operators dead freight.
Carriage of Goods by Sea Act does not apply to private carriage of cargoes, such as bulk cargoes, unless ship owners or operators agree with charterers to adopt Carriage of Goods by Sea Act in the charter contract.