Time Charter

How Hire is calculated: Time charter hire is commonly calculated and described in dry-cargo charterparties as a daily rate – e.g. US$ 8,000 daily. To this is applied a pro-rata adjustment for part of a day. Thus a vessel on hire for 10 days 12 hours -in other words for 10.5 days – would be entitled to gross hire of US$ 84,000. Thus for hire paid ‘semi-monthly’ (i.e. 15 days in advance for a thirty day calendar month) gross hire would amount to US$ 120,000 (US$ 8,000 x 15), or US$ 240,000 for the full calendar month. An alternative but less utilised method of calculating hire is to base same on a vessel’s deadweight tonnage per calendar month. Thus for a 40,000 tonne summer deadweight bulkcarrier, the equivalent timecharter rate to US$ 8,000 daily can be calculated as follows: US$ 240,000 ¸ 40,000 sdwt = US$ 6.00 per sdwt tonne. However, the duration of a ‘calendar month’ varies month by month. One month it will indeed consist of 30 days, another of 31 or even 28 days. Consequently, it is normal to use as a factor in such calculations, the average number of days in a calendar month allowing, of course, for the leap year. An average calendar month will therefore be found to exist of 30.4375 days, and this will give a slightly different daily value to our bulkcarrier: 40,000 tonnes sdwt x US$ 6.00 per tonne ¸ 30.4375 = US$ 7.885.01 daily. The ASBATIME charterparty (for example) allows for either method of hire calculation in clause 4. When Hire is payable: In nearly every case, it is agreed that hire is payable in advance i.e. monthly, or semi-monthly, or every fifteen days in advance. The ASBATIME, clause 5 selects ‘semi-monthly in advance’ but, in the interests of easy accounting, convenience and certainty, it is common practice to pay hire every fifteen days in advance, which continues to allow for subsequent equal payments irrespective of whether a calendar month comprises 28, 29, 30 or 31 days. For the period leading up to redelivery, when there will probably not be an entire ‘semi-monthly’ period outstanding, charterers are normally reluctant to pay hire in excess of that which is estimated to be due. Nevertheless, the ASBATIME, in common with most other time charters, stipulates that ‘hire shall be paid for the balance day by day as it becomes due, if so required by owners’.