Ship owners, Time Charterers, Ship Operators

Just as a house or apartment may be subject to different leases and sub-leases for varying periods, a vessel may similarly be operating under a number of different charter parties at any given time. An important difference, however, is that a charterer does not have any right of possession over the ship. Charterer merely acquires the right to use the services of the vessel and her crew. The registered shipowner, the real ‘owner’, is unlikely to be engaged in the production or trading of cargoes and will consequently have no personal use in mind for the vessel. In the ‘tramp’ trade, his purpose in owning ships is to charter them to others as profitably as he can. Alternatively, he may be operating a regular line particularly if the vessel is a container ship or reefer ship. But even in those cases ship owner will not have any proprietary interest in the cargo. Although many ship owners prefer to play the ‘spot’ market by chartering their vessels out for a single voyage or short series of voyages or for a limited duration of only two or three months, others will prefer to avoid the fluctuations of the freight market by agreeing a long-term charter for a duration of anything from 12 months to, say, eight years or longer. Long-term charters will often give charterers the option to purchase after a certain number of years. Such charters are frequently negotiated when the vessel has not yet been built, at a time when the prospective owner may need to show to his bankers that the vessel will produce an assured revenue stream during its early years. Many companies make it their business to ‘trade’ the freight markets by taking vessels on time charter for a given period in the expectation that freight rates will rise during such period, thereby enabling them to sub-charter such vessels, either on a time or voyage basis, at a profit. Unlike a shipowner, who has to employ crews, maintain and insure his vessels, and repay mortgagee banks their loan installments, a time charterer ‘operator’ has relatively few overheads – apart from the obligation to maintain hire payments on his chartered-in fleet. If he sub-time charters most of the ships, he will not be concerned with such matters as finding cargoes, buying bunkers or appointing local port agents, since responsibility for such matters is assumed by the sub-time charterer. If the daily rate of hire obtained from such time charters (or the net freights from sub-voyage charters) exceeds the hire he has to pay to the head owner, the
‘operator’ (as such time charterers are known) will be in profit. If the operator is paying only US$8,500 per day in hire, having taken the vessel on charter around five years ago, but is currently receiving around US$50,000 per day from his sub-charterer, his profit will be very substantial, particularly if that daily profit is ‘locked in’ under a sub-charter for a lengthy period.