What is Time Charter?
There are two (2) main types of Time Charters:
- Period Time Charter, which, as its name implies, is for a period of time, usually several months or years
- Trip Time Charter (TCT) is for a single voyage only – but under time charter conditions.
The time or period charter is where the charterer takes over the ship for a certain period of time – it could be as short as one month or as long as 20 years, although the latter is not very common.
The shipowner still operates the ship but, instead of earning Freight per ton carried, Shipowner is paid Hire at an agreed amount either every calendar month or, much more usually, every 15 days in advance, either as a lump sum or occasionally an amount per deadweight ton per month.
Trip Time Charter (TCT) is usually for a single voyage; however, the division of responsibilities is the same as those for a time charter and the usual time charter forms are used.
Trip Time Charter (TCT) may be used by shipowners where port delays are expected or during periods of uncertainty over fuel prices and fuel availability.
The advantage of a Trip Time Charter (TCT) as far as the charterer is concerned is the greater freedom which this allows, because details of the voyage are kept off the market and therefore trader competitors will not know the charterer’s load or discharge ports.
The Charterer is able to select ports or indeed a trading area without having to agree to the details with the Shipowner, who is indifferent to any additional costs which may result from the charterer’s choice of ports, as these costs will be met by the charterer.
The division of responsibilities is spelt out clearly in the different charterparty documents as it forms the basis of the contract between the Shipowner and Charterer.
What is Time Charter?
A time charter is a type of contract used in the shipping industry where a ship owner rents out their vessel to a “charterer” for a specific period of time. The owner of the ship remains in control of the vessel, including its navigation and management, but the charterer decides on the ports and cargo.
During the time charter period, the charterer bears all the costs related to the voyage, including fuel, port charges, and any other related expenses. The ship owner, on the other hand, covers the costs related to the ship’s operations, such as crew wages and maintenance.
The rate of hire in a time charter is usually expressed in terms of a daily rate. The ship owner gets paid whether the ship is moving or idle, as long as the ship is in the charterer’s service. The ship owner is paid in advance, typically for a period of 15 days.
The period of a time charter can range from a few weeks to several years, depending on the agreement between the ship owner and the charterer. It’s a common method used in the shipping industry because it offers flexibility to the charterers and income stability for the ship owners.
Time Charter Types
Time charters come in three main forms:
- Trip Time Charter (TCT): This involves chartering a vessel for a particular trip or voyage, with the time of hire being the estimated duration of the voyage.
- Period Time Charter: This is where the vessel is chartered for a specific period, which could range from a few months to several years. It’s often used for predictable, regular shipping needs.
- Bareboat Charter or Demise Charter: This is a more long-term arrangement where essentially the charterer takes over almost all the responsibilities and costs of the ship owner, sometimes even including the ship’s crew costs.
The terms of a time charter contract typically contain clauses stipulating responsibilities and liabilities, including details about loading and unloading of goods, safe ports, and how to handle disputes. The parties might also agree on off-hire periods – times when the ship isn’t available for the charterer’s use due to repairs, inspections, or crew illness – during which the charterer might not have to pay the hire.
Time charters provide a measure of predictability in an industry that can be volatile. The ship owner has a guaranteed income for the charter period, and the charterer has a guaranteed vessel for their transport needs. On the downside, charterers bear the risk of changes in voyage costs like fuel prices, and owners bear the risk of market changes affecting the daily hire rate when the charter period ends.
Time charters are governed by standard industry contracts, such as those provided by BIMCO and ASBA, the largest of the international shipping associations. This helps to standardize terms and conditions across the industry, reducing the potential for disputes and misunderstandings.
For charterers, one of the main advantages of a time charter is the level of control it offers. They have the flexibility to choose the cargo and its destination. This is particularly beneficial for businesses with fluctuating trade patterns, as they can respond to changing market demands by adjusting their shipping routes accordingly.
For ship owners, a time charter offers a steady source of income, which can help with cash flow management and financial planning. They are protected from potential downturns in the freight market during the period of the charter, although they may also miss out on any upswings.
Another important factor is the management of risk. In a time charter, the charterer assumes many of the voyage risks, including increases in fuel prices and port costs. The ship owner, on the other hand, retains responsibility for the vessel and its operation, including any costs associated with vessel breakdowns or maintenance.
Time charters also have a role in fleet management. They can help ship owners manage the balance between their owned and chartered-in vessels, allowing them to respond to changes in demand or capacity.
However, time charters are not without their challenges. For instance, disputes may arise between the charterer and the owner regarding off-hire clauses, or the condition of the vessel on delivery or redelivery. To mitigate this, it is important for both parties to clearly outline their terms and conditions in the charter party agreement.
Furthermore, time charters require careful management and coordination. This is because the charterer needs to ensure that their cargo is ready when the vessel arrives, and the owner needs to maintain the vessel’s operational efficiency to meet the charterer’s requirements. Despite these challenges, time charters continue to play a crucial role in international trade, offering flexibility and income stability to both charterers and ship owners.
What is the difference between Trip Time Charter and Period Time Charter?
Two common types of charter agreements are the Trip Time Charter and the Period Time Charter. The primary difference between these two types of charters lies in the duration and purpose of the agreement.
- Trip Time Charter: In this type of charter agreement, the vessel is hired for a particular trip or a series of trips. The charter period is usually determined by the time it takes to complete the specified trip(s), including loading and unloading of cargo. The charterer essentially charters the vessel from point A to point B (and possibly to point C, D, etc., if multiple trips are involved). The charterer controls the vessel’s voyage but not its management or operations. The shipowner is still responsible for running the vessel, including providing the crew and maintaining the ship.
- Period Time Charter: In a Period Time Charter, the charterer hires the vessel for a fixed period, which could range from a few months to several years. The charterer gains broader control over the vessel, deciding where it will go and what cargo it will carry during this period, subject to any restrictions in the charter party (contract). Like in a Trip Time Charter, the shipowner maintains responsibility for the ship’s management and operations.
In both cases, the charterer pays what’s known as ‘hire’ – typically a daily rate – for the use of the ship. The main difference between the two lies in the duration and purpose of the charter: a specific trip or trips in the case of a Trip Time Charter, and a fixed period in the case of a Period Time Charter.
Trip Time Charter Firm Offer Example 1
Trip Time Charter Firm Offer Example 2
RQ: Supramax – Ultramax
LAYCAN: 09-14 JUNE
DELY: APS KAKINADA
RE-DELY: W.AFR PICO (NON HRA)
1TCT WITH H’LESS BAGS
DURATION: ABT 60-65 DAYS WOG
3.75 PCT ADCOM HERE
Trip Time Charter Firm Offer Example 3
50K – 55K DWT
Cargo: Bulk Agris
Redelivery: Dakar-Nouakchott Range
Laycan: 26-30 June 2023
Duration: abt 30-35 days
3.75 PCT ADC
Trip Time Charter Firm Offer Example 4
-NEED SMX OR UMX, VESSEL CRANE UPTO 30MT
-LAYCAN: 25TH MAY-5TH JUNE,2023
-DEL 1SP THAILAND TO SOUTH CHINA RANGE
-DURATION: 70 DAYS WOG
-INTEND TO TRANSPORT STEEL CARGO FROM SOUTH EAST ASIA AND FAR EAST TO US GULF
-REDEL 1SP TAMPA TO VERACRUZ RANGE
Trip Time Charter Firm Offer Example 5
60K – 65K dwt
Delivery: W. Med / Gib
Redelivery: East Africa
Laycan: 26 May – 5 June 2023
Duration: abt 35 days wog
3.75 PCT ADC
Trip Time Charter Firm Offer Example 6
47/63K DWT/GRD/GRABS-MAX 25 YRS
DELY APS SALALAH
TCT WITH BLK HMLESS MINERALS
2.5PCT ADD PAST H-CHART
CAN DO VOYAGE RELET
CAN DO 2/3 LL FOR THE RIGHT VESSEL
Period Time Charter Firm Offer Example 1
20/35,000 dwt, max 30 yrs old, grd
Del Med / Bsea range
Dur abt 1 year
Nype 3,75 ttl comm
Period Time Charter Firm Offer Example 2
– ACCT HANDBULK
– HANDYMAX/TRY SUPRAMAX
– LAYCAN: 30 JUNE ONW
– DELY: EMED
– RE-DELY: WW
– DURATION: ABT 12 MONTHS
– 3.75 PCT ADCOM HERE
Period Time Charter Firm Offer Example 3
SD/BOX TYPE MAX 20 YEARS OLD GRAB-FITTED
DEL: MED – CONT RANGE
45 /50.000 DWAT
MIN 6 MONTH – UP TO 1 YEAR
LAYCAN : MAY/JUNE
3,75 TTL ADD COMM
Period Time Charter Firm Offer Example 4
DEL: WCI/ PG RANGE
DWT: 40,000 MT – 60,000 MT DWT
CARGO: HARMLESS BULK CARGO
DURATION: 6 + 6 MTHS
LAYCAN : PROMPT
Period Time Charter Firm Offer Example 5
MAX 25 YEARS OLD GRAB-FITTED
UP TO 1 YEAR
LAYCAN : JUNE ONW
3,75 TTL ADD COMM
Period Time Charter Firm Offer Example 6
30/35,000 DWT GRD
DEL SINGAPORE/ JAPAN RANGE
DUR ABT 1 YEAR
NYPE 3,75 TTL COMM
Time Charter Party Forms
There are several different forms of time charter agreements, typically standardized by industry organizations. Some of the most commonly used Time Charter Party Forms in Dry Bulk Shipping are:
- The New York Produce Exchange Form (NYPE): Perhaps the most popular and commonly used time charter form, it was initially developed by the New York Produce Exchange in 1913. The NYPE form underwent revisions in 1946 and 1993 to adapt to changing needs and legal concerns. It covers all aspects of the time charter including payment of hire, delivery and redelivery, off-hire clauses, maintenance and operation, etc.
- The Baltime Form: Originated by BIMCO (Baltic and International Maritime Council), this form was traditionally used for smaller and older vessels, especially for short periods or specific voyages. The BALTIME 1939 is fairly shipowner-friendly, providing the shipowner with more rights than the charterer, a fact which the more balanced BALTIME 2001 seeks to address.
Where can I find a Time Charter Party Form?
We kindly suggest that you visit the web page of BIMCO (Baltic and International Maritime Council) and ASBA (Association of Ship Brokers and Agents) to obtain the original Charter Party forms and documents. www.bimco.org and www.asba.org
Important Parts of Time Charter Party
The various aspects of time charter party agreements that these forms cover can be broken down into the following general categories:
- Description of the Vessel: The charter party agreement will include a detailed description of the vessel, including its name, flag, year of build, and technical specifications such as tonnage, carrying capacity, speed, and fuel consumption.
- Delivery and Redelivery: The agreement will specify the place and time for delivery of the vessel to the charterer, and the place and time for redelivery of the vessel back to the owner. The conditions under which the vessel must be redelivered, including its state of repair, will also be specified.
- Hire Rate and Payment Terms: The rate of hire, usually specified as a daily rate, and the terms of payment, including any deposits or advances, will be detailed in the agreement.
- Maintenance and Operation: The agreement will set out the duties and responsibilities of the owner and charterer with respect to the operation and maintenance of the vessel. Generally, the owner is responsible for the technical operation and maintenance of the vessel, while the charterer is responsible for commercial operation, including the costs of loading, unloading, and port charges.
- Off-Hire Clauses: These clauses detail the conditions under which the vessel may be considered off-hire, meaning the charterer is not required to pay hire. This can occur when the vessel is unable to perform its commercial function due to issues such as breakdowns or necessary repairs.
- Bunkers: This part of the agreement deals with the provision and payment for fuel (bunkers). Typically, the charterer is responsible for providing bunkers during the period of the charter, but the vessel is delivered and redelivered with a specified amount of fuel on board, for which the charterer must pay.
- Indemnity and Insurance: The agreement will specify the insurance coverage required and the division of liability between the owner and charterer.
- Dispute Resolution: The agreement will typically include a clause setting out the procedures for resolving any disputes, which can include negotiation, mediation, arbitration, or litigation, and the choice of law that will apply.
- Warranties and Representations: The owner will often provide warranties about the condition of the vessel, its seaworthiness, its compliance with certain regulatory standards, and its capability to perform certain functions. If these warranties are not met, the charterer may have a right to terminate the agreement or seek damages.
- Liens: A lien gives the holder the right to seize or retain property until a debt is paid. Under a time charter, the owner will often have a lien on the cargo, and the charterer may have a lien on the vessel for any unpaid hire or other charges.
- Termination: The agreement will include terms for termination of the charter. This could include termination for breach of contract, or for other reasons such as the loss or unseaworthiness of the vessel.
- Force Majeure: These clauses protect the parties in case of unforeseeable circumstances that prevent one or both parties from fulfilling their obligations under the contract. In the maritime industry, this could include things like extreme weather conditions, war, or blockades.
- War Risks and Piracy: Given the potential for vessels to navigate in areas where there may be a risk of war or piracy, these issues are often addressed in the agreement.
- Trading Limits: The agreement may restrict the geographic areas where the vessel can be used. These could be broad (e.g., “worldwide”) or specific (e.g., “between ports in North America and Europe”).
- Safety and Environmental Regulations: The agreement will also need to address compliance with safety and environmental regulations, which can be quite strict in the maritime industry.
- Subletting and Assignment: The agreement may address whether the charterer has the right to sublet the vessel or assign the charter to another party.
Eeach charter party form is a standardized document that serves as a starting point for negotiations between the shipowner and charterer. Both parties usually make additions and deletions to the form to tailor it to their particular needs and circumstances. This flexibility allows each charter party agreement to be unique and meet the specific requirements of the respective deal.
What is Time Charter Party?
A Time Charter Party is a contract for the hire of a vessel for a specific period of time, typically in commercial shipping. In this agreement, the vessel’s owner (the charterer) retains control of the vessel but transfers possession to the charterer for a specific time period. The shipowner is responsible for providing a crew and paying for their wages, vessel insurance, and maintenance costs.
In the contract, the charterer assumes the costs of fuel (bunker), port charges, and any other operational expenses related to the specific voyage. The charterer is also typically given the right to decide the ports of call and what cargo will be carried, as long as these decisions are within the capabilities of the vessel and are legal.
In this arrangement, the charterer pays a daily hire to the owner for the use of the vessel. This hire rate is usually agreed upon in advance and can be subject to market fluctuations.
Time Charter Party agreements can be beneficial to both parties: for the ship owner, it can provide a stable income for a period of time, and for the charterer, it can offer flexibility to meet their specific shipping needs
In a Time Charter Party agreement, the charterer’s rights to utilize the ship are balanced by a set of obligations. The charterer is expected to use the ship in a manner that does not expose it to unnecessary danger. For example, the ship can’t be used to transport hazardous cargo unless it’s specified in the contract, and the ship can’t be directed to a port that is unsafe.
Moreover, the charterer is responsible for loading and unloading the ship within an agreed period of time, known as laytime. If the charterer exceeds this time, they are liable to pay demurrage, which is a penalty for delay. Conversely, if the charterer finishes loading/unloading before the laytime has expired, they may be entitled to despatch, which is a reward for early completion.
In the shipping industry, there are a number of standard time charter party contracts, such as the New York Produce Exchange Form (NYPE) or the Shelltime form, which can be used as a basis for agreements, with additional clauses added to cover specific needs of the parties involved. These standard forms help to simplify the drafting of contracts and ensure that they cover all necessary aspects of the charter agreement.
It’s also important to note that in a time charter, the risk of delay (due to bad weather, port congestion, or other unforeseen factors) is typically borne by the charterer, because the charterer pays for the hire of the ship on a daily basis, regardless of whether or not the ship is able to sail.
Lastly, once the agreed time period of the charter party ends, the charterer is expected to return the ship to the owner. The ship should be returned in the same condition as when it was received, with the exception of normal wear and tear. If not, the charterer could be liable for damages.
Voyage Charter Vs Time Charter
They have different structures and serve different purposes:
- Voyage Charter: In a voyage charter, the shipowner is hired to transport specific goods between pre-decided locations for a given voyage. The shipowner takes responsibility for the operation of the vessel including supplying the crew, bearing operational costs, and ensuring the maintenance and safety of the ship. The charterer pays the shipowner on a per voyage basis, with the freight rate usually based on the amount and type of cargo. The charterer is mainly concerned with the cargo and not the operation of the vessel. The charterer’s costs are fixed unless there is a delay, in which case demurrage charges may apply.
- Time Charter: In a time charter, the charterer hires the vessel for a specific period of time. The shipowner still provides the crew and pays for maintenance and operational costs, but the charterer directs the movements of the vessel, including where the ship goes, what cargo it carries, and the ports it visits. The charterer pays for fuel and port fees. The charterer pays the shipowner on a per day (hire) basis for the use of the vessel, regardless of the amount or type of cargo. The charterer has greater control over the vessel’s operation, but also assumes more risks and responsibilities.
Risk and Responsibility:
In a voyage charter, the primary risk and responsibility for the shipowner is the successful completion of the voyage and the safe delivery of the cargo. The shipowner bears the operational risks, such as fuel costs, vessel maintenance, and crew wages. The charterer’s risk is primarily commercial in nature, i.e., the risk of the cargo market prices, and to a lesser extent, the risk of voyage delays.
In a time charter, the charterer assumes more responsibility and risk. They take on the commercial risk as well as the operational risks related to the voyages, including voyage planning, bunker costs (fuel), and port charges. The shipowner’s risk is mainly linked to the vessel itself, such as maintenance and crew wages.
A voyage charter is generally less flexible for the charterer as the cargo and destination are agreed upon in advance. However, it is a simpler agreement and requires less administrative effort from the charterer’s side.
In contrast, a time charter provides more flexibility for the charterer. They can decide where the vessel goes, what cargo it carries, and when and where loading and unloading takes place (within the agreed time frame). This flexibility allows the charterer to respond to market conditions more swiftly.
In a voyage charter, the charterer agrees to pay a freight rate, which is generally determined per ton of cargo. The rate includes the costs of operating the vessel for the voyage.
In a time charter, the charterer agrees to pay a daily hire for the use of the ship for a certain period. This is regardless of how much cargo is transported during that time. In addition, the charterer will pay for fuel and port charges, which are often substantial expenses.
The choice between a voyage charter and a time charter depends on a combination of factors including the nature of the cargo, the required flexibility, the capacity to assume risks, and the prevailing conditions in the shipping market. In some situations, a combination of different types of charters may be used to optimize cost and risk management. A voyage charter is more concerned with a specific cargo and journey, while a time charter is more about controlling the vessel for a set period of time.
What are the characteristics of a Time Charter Party?
A time charter party is a specific type of charter agreement in the shipping industry, where a vessel is hired for a specific period. The characteristics of a time charter party are as follows:
- Duration: The duration of a time charter party can range from a few months to several years. The agreed period is known as the “charter period.”
- Payment: The charterer pays hire, usually on a per day basis, to the shipowner for the use of the ship. The rate of hire is fixed and agreed upon before the charter period begins.
- Vessel Operation: The shipowner retains control over the vessel’s navigation and management, including crewing the vessel. This means that the owner bears the risk associated with these operations, such as delays due to the vessel’s breakdown or crew negligence.
- Cargo: The charterer has the right to decide the type and amount of cargo to be carried and the ports of call, within the agreed limits of the contract.
- Fuel Costs: The charterer typically bears the cost of bunkers (fuel oil) for the vessel’s main engines and diesel generators, while the owner covers lubricants and other operational consumables.
- Maintenance and Operational Costs: The shipowner is usually responsible for the vessel’s maintenance and operational costs. These include crew wages, insurance, repairs, and so on.
- Off-hire Periods: During any off-hire periods, when the vessel is not available for the charterer’s use (e.g., due to repairs, maintenance, or crew illness), the charterer is usually not required to pay hire. These periods are agreed upon in the charter party.
- Redelivery: At the end of the charter period, the charterer has to redeliver the vessel to the owner. The place of redelivery is typically stipulated in the contract.
- Charter Party Agreement: The specific terms and conditions of a time charter party are outlined in a document called the Charter Party Agreement. This is a legal document and can be subject to arbitration in the event of a dispute.
- Standard Forms: Most time charter parties use standard form contracts, such as the New York Produce Exchange Form (NYPE) or the Shelltime form, with additions and amendments as agreed between the parties.
These are the primary characteristics of a time charter party in maritime shipping. However, details can vary from one contract to another depending on the agreement between the shipowner and the charterer.