Ship Chartering Process

Process of chartering ships takes place in the charter market by the parties that enter the market seeking to fulfill a need in transportation capacity (charterers) and those who have available ships (shipowners). Ship chartering process is facilitated by intermediaries (shipbrokers).

Shipowners are the owners of merchant vessels that offer transport services of goods at a predetermined freight rate. Whether they be single shipowners, large ship-owning companies or independent entities organized into shipping pools, shipowners must earn sufficient revenue to operate their shipping enterprises successfully and make a good profit.

Charterers own cargo and need to charter a ship to carry the cargo safely, on time, efficiently, and at the lowest freight rate possible to their chosen destination. In addition, a charterer may not have cargo but may want to charter a ship for a specific period and tirade the ship itself with the purpose of making a profit above the hire rate. Charterers maybe small firms or world trading houses. Governments may charter ships for the purpose of carrying national cargo.

Finally, other shipping companies may charter ships, as they may be engaged in the business of chartering in on time charter and chartering out on the spot market and profiting in the process. Intermediaries between shipowners and charterers or buyers and sellers of ships are called shipbrokers. Perfect competition is facilitated when many shipowners try to maximize their profits by finding cargo for loading near where the ship is at the highest possible freight rate, whereas charterers try to transfer their cargo at the lowest possible freight rate. Shipbrokers have the knowledge and experience to link the goals of shipowners and charterers. Shipbrokers may be in-house brokers (in shipping companies or large groups) or competitive independent brokers.

Ship chartering process is one of the most important procedures in the business of shipping. Ship chartering process is as important as the transportation of cargo itself from its place of production to the consumption destination.

Chartering may take the form of short-term agreements to effect a single voyage for the carriage of an agreed-upon volume of cargo at a fixed (market) rate measured as freight in dollars per ton of cargo carried (a voyage charter).

Time chartering is a longer-term arrangement in which freight or hire is paid in dollars per day of hire.

Trip chartering is used for a single voyage, but payment and terms are similar to those of time chartering, whereas a contract of affreightment (CoA) involves the carriage of a large volume of cargo over a longer period of time from a predetermined port (or ports) to another and terms are similar to those of a voyage charter.

The last type of chartering is bareboat chartering, which involves a long-term arrangement (five years or more) in which the bareboat charterer becomes the disponent owner of the ship. Standard charter-party examples:

  • Voyage Chartering: GENCON, OREVOY, COALVOY, and AUSTWHEAT
  • Time Chartering: NYPE and BALTIME
  • Contracts of Affreightment: VOLCOA
  • Bareboat Chartering: BARECON