Charter Party

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Charter Party
2
Charter Party

• The major operation under this function is to
  find continued and suitable employment for the
  ships to maximise revenue earnings.
• These operations are therefore primarily
  concerned with finding suitable cargoes for ships
  irrespective of whether the ships are owned or
  are hired.
• These operations are concerned with evaluating
  intended voyages to maximise earning so as to pay
  for the cost of ship, cost of its operations and
  to make some profit.

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Charter Party

• There are many mutually agreed arrangements
  between the owners of cargo or shippers and the
  ship owners or ship operators for transportation
  of cargoes.
• The terms and conditions for carriage of cargo
  can either be on liner terms or under different
  charter party terms that primarily depend upon
  the types of ships and cargo.

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Charter Party

• Charter party is a contract between the
  ship-owner and the Charterer.
• Three important elements are
• (a) Description of the ship
• (b) Description of the trade
• (c ) Description of time period

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Charter Party

• Description of the Ship
• The type of ship to be hired/chartered very much
  depends on the nature and whereabouts of the
  intended trade.
• Its normal for owners to provide all the details
  of the ship with a guarantee about its accuracy.
• An example such as Shell time and Inter tank
  having appropriate format which is required to
  contain several pages of information required
  ship details

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Charter Party

• Description of the Ship
• Many Charterers require the following plans to be
  supplied by the Owners
• (1) General Arrangement Plan ,including loading
  scale
• (2) Detailed Cargo manifold arrangement Drawing
• (3) Pumping Arrangement Plan
• (4) Plan of Cargo Tank Ventilating System
• (5) Manufacturers Characteristics Curves of Pumps
  if centrifugal pumps are installed.

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Charter Party

• Description of the Ship
• Cubic Capacity
• Speed and Consumption
• Constant Weights

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Charter Party

• Description of the Ship
• These, apart from the name of the ship, include
  year of built, flag, dead weight, maximum
  dimensions, maximum draught, fresh water
  allowance, speed, fuel consumption, cargo space
  in bail and grain capacities, number of hatches
  and holds, type and safe working load of cargo
  gear, compliance with international regulations
  for carriage of specialised cargo and such other
  important details relevant for the intended cargo
  and trade.
• For example some bulk cargoes may require that
  the holds be equipped with carbon-di-oxide fire
  protection system, or special requirement of
  cargo securing in the holds.

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Charter Party

• Description of the Ship
• Name of the Ship
• Year of Build
• Name and location of Owners
• Flag
• Class
• Call Letters
• GRT/NRT
• Summer Deadweight
• Fresh Water Allowance
• Fresh Water Allowance

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Charter Party

• Description of the Ship
• Cubic Capacity
• Speed and Consumption
• Constant Weights

11
Charter Party

• Description of the Trade
• As much as Charterer is interested to know the
  details of the ship in the same way the Owner is
  interested to know about the type of trade the
  ship will be engaged in.
• Owners will negotiate an entry to that effect the
  berths and ports to which the vessel will trade
  are safe and ship will remain afloat.

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Charter Party

• Description of the Trade
• The Charter Party will guarantee that the vessel
  will trade within the Institute Warranty
  Limits(I.W.L)- a trading area defined by
  Underwriters to prevent the more serious risk of
  ship causality loss.
• The dangerous areas such as war zones and ice
  bound areas may be excluded from the charter
  party.

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Charter Party

• Description of the Trade
• The Charter Party shall also include certain
  exclusions for the cargo to be loaded such as
  asphalt in bulk ,pitch in bulk ,livestock
  explosives ,fish meal ,scrap , sulphur, and logs.
• In addition ,a modern phenomena often included in
  the cargo exclusion clause is nuclear products.

14
Charter Party

• Description of the Period
• The period of charter commences with vessels
  delivery to the Charterers and ,like all charters
  with vessels delivery to the Charterers and like
  all charters, this delivery is either spot

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Types of Charter Parties

• There are two types of charters, Non-demise and
  Demise Charter. The charter by demise is not
  very frequent in normal day-to-day business but a
  number of ships are chartered on a so-called
  bareboat basis.
• This kind of charter ordinarily means that the
  vessel is put at the disposal of a charterer with
  out any crew. The charterer thus takes over
  almost all of the owners functions except for
  the payment of the capital costs and the hull and
  machinery insurance premiums.

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Type of Charter parties

• Reason for Demise Charters( Bare Boat Charters)
• Demise charters are created not so much with a
  view to the carriage of goods but more as part of
  a complicated financing arrangement ,often with
  the intention that the charterer should become
  the owner of the ship in due course.
• Thus a contract for the purchase of a ship by
  installments will often incorporate a demise
  charter into the contract.

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Type of Charter Parties

• Demise Charter
• A variant of this would be for a financing bank
  lend the funds required to buy the ship ,the bank
  then acquiring the ownership of the ship but
  demise chartering it to the borrower for the
  period of the loan.
• This would enable the bank to avoid not only the
  operating costs but also the liabilities which it
  would otherwise have to bear in relation to the
  operation of the ship under a mortgage.
• Demise charters are also concluded between two
  associated companies for tax or employment
  reasons.

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Type of Charter parties

• Charter parties other than Demise
• There are two types
• (1) Time Charters i.e. contracts for the use of
  the ship and her crew for a specified period of
  time within agreed trading limits as directed by
  the time charterer in consideration for the
  payment of hire
• (2) Voyage Charter contracts for the use of the
  ship and her crew to carry an agreed cargo on an
  agreed voyage regardless for the payment of
  freight ( and possibly other remuneration such as
  demurrage if the loading/discharging is delayed
  beyond the time agreed for such operations)

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Type of Charter parties

• Voyage Charter
• Voyage charter is an engagement of a vessel for a
  single voyage between declared ports to transport
  full shipload of cargo or a certain quantity of
  cargo. The freight is paid on per tonne of cargo
  (DWT) bases or on lump sum basis.
• The ship owner provides for all the ships costs
  with its crew, expenses for fuel, water, canal
  dues, port dues, loading and discharging expenses
  etc. in return the charterer pays him the hire
  charges for carrying the cargo as per described
  or utilised cargo capacity of the ship.

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Type of Charter parties

• Voyage Charter
• To compensate for the delays that may be
  encountered in cargo loading/discharging
  operations, the demurrage and despatch clauses
  for compensation to the affected parties are
  inserted in charter party.

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Type of Charter parties

• Voyage Charterparty
• List of Charterparty Clauses
• 1.PreambleThis can be extensive in some
  charterparties .In the Multiform much of what may
  be found in preambles of certain forms is
  contained in clause 1.
• There are two important of the brief Multiform
  preamble however the place and the date of the
  charterparty.

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Type of Charter parties

• Voyage Charterparty
• List of Charterparty Clauses
• Place This can be important as ,in the absence
  of a clause to the contrary,the place where a
  contract is deemed to have may govern the law
  which is to be applied to that contract in the
  event of dispute.
• Thus if the place is London ,English Law may be
  very likely prevail.

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Type of Charter parties

• Voyage Charterparty
• Date equally important the date to be shown is
  that which by fixture negotiations are concluded
  with all subjects lifted-in other words ,when all
  negotiating formalities are complete.

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Type of Charter parties

• Voyage Charterparty
• Clause 1 Name and brief description of vessel
• The Multiform allows for a more complete vessel
  description in the main ,printed part of the form
  than many (e.g compare with AMWELSH).
• The position of the vessel when the contract is
  negotiated is also important

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Type of Charter parties

• Voyage Charterparty
• Clause 2 Condition of vessel
• It is usual for a shipowner to confirm that a
  vessel is in a suitable condition safely and
  properly to undertake the contractual voyage.

26
Type of Charter parties

• Voyage Charterparty
• Clause 2
• Cargo description-Commodity and nature of the
  goods to be carried eg bulk or bagged stowage
  factor( eg about 55 cubic feet per tonne) and
  either minimum/max quantity or cargo size margins
  and in whose option ( eg 12,000 tonnes,5 or less
  in owners option)

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Type of Charter parties

• Voyage Charterparty
• Clause 2
• Loading Places- Names of loading place(s) and or
  range (eg Bordeaux/Hamburg range) mention of
  number of safe berths/anchorages charterers
  entitled to use at each place whether vessel to
  remain always afloat or safely aground
  maximum/minimum available drafts.

28
Type of Charterparties

• Voyage Charterparty
• Clause 3
• Discharging places and port orders/rotation
• Clause 4- Laydays and Cancelling
• The spread of dates which a vessel is to present
  herself at the first (or sole) loading port .This
  spread should be entered in a contract as well as
  conditions under which the contract can be
  cancelled in the event that the vessel is unable
  to meet those dates.

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Type of Charterparties

• Voyage Charterparty
• Clause 5
• Freight the amount and currency of freight to
  whom ,where and when payable .The risk of vessel
  and /or cargo loss on passage in relation to
  freight should be specified-ie whether freight is
  deemed earned as cargo is loaded or upon
  delivery.

30
Type of Charterparties

• Voyage Charterparty
• Clause 6
• Cost of Loading/Discharging which of the parties
  to the contract is to appoint and pay for cargo
  handling at each port.
• Clause 7
• Notice of Readiness/Time Counting-
• An important clause in the calculation of laytime.

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Type of Charterparties

• Voyage Charterparty
• Clause 8
• Loading/Discharging Rates- the speed at which
  cargo-handling activities are to be performed.
• Clause 9
• Demurrage/Despatch- daily amount of liquidated
  damages (demurrage) payable by a charterer in the
  event a vessel is detained in port beyond the
  maximum permitted laytime as well as any
  stipulations to despatch

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Type of Charterparties

• Voyage Charterparty
• Clause 10
• Notices- A shipowner/Master may be required to
  give comprehensive notices of a vessels expected
  arrival at the first (or sole) loading port
  ,failing which the shipowner may face a penalty
  in the form of extra laytime allowed a charterer.

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Type of Charterparties

• Voyage Charterparty
• Clause 12
• Ships Gear- A normal clause in dry cargo
  shipping specifying that a vessels gear will be
  maintained to a high standard and specifying what
  happens in the event of gear breakdown resulting
  in extra expense.

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Type of Charterparties

• Voyage Charterparty
• Clause 14 15
• Grab discharge/Stevedore damage-
• Owners normally confirm that a vessel is suitable
  for grab discharge and formalities need to be set
  out in the event that a vessel suffers damage
  during the cargo handling processes.

35
Type of Charterparties

• Voyage Charterparty
• Clause 17
• Overtime who is to pay for overtime.
• Clause 18 19
• Shifting/Seaworthy trim -Who is to pay shifting
  costs(if any) between berths also whether time so
  used is to count as laytime The vessel is to be
  left in safe seaworthy condition between the
  ports.

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Type of Charterparties

• Voyage Charterparty
• Clause 13 16
• Cargo Separation and Tallying
• Where a vessel is to carry various parcels of
  cargo,it may not be possible for al separations
  between individual parcels to be natural.
• The tallying (checking) of cargo as it is loaded
  or discharged is frequently an expensive
  operation and cargo claims can arise for alleged
  short delivery ,bad condition etc.

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Type of Charterparties

• Voyage Charterparty
• Clause 20
• Dues and Taxes This clause specifies which party
  to the contract is responsible for taxes which
  may be levied against the vessel and/or her cargo
  and /or the freight.
• Clause 21
• Port Agents- In any charter party it is advisable
  that reference be made as to which of the parties
  is responsible for the selection of an agent.

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Type of Charterparties

• Voyage Charterparty
• Clause 22 34
• Bills of Lading-The of lading to be presented to
  the Master or his/her agent upon completion of
  the loading .Master or his/her agent to sign the
  bill of lading indicating the apparent condition
  of the cargo.

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Type of Charterparties

• Voyage Charterparty
• Clause 23
• Lightening- where cargo lightening is necessary a
  comprehensive clause covering all facets of this
  sometimes complex operation should be negotiated
  .The MULTIFORM and AWELSH clauses between them
  cover several of these facets but nearly all of
  them.

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Type of Charterparties

• Voyage Charterparty
• Clause 26
• General Average
• A clause specifying is to be adjusted and or paid
  irrespective of the ports of call involved and
  the laws relating to GA.
• Clause 27
• Strikes Both parties to a charterparty have
  risks and liabilities in the event of a strike.

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Type of Charterparties

• Voyage Charterparty
• Clause 28
• Exception- The rights of contracting parties to
  cancel the charter parties in case of events
  making its performance virtually impossible eg
  Force Majeure or Acts of God.
• Clause 31
• Commission- Specifies the amount and to whom
  commissions and brokerages are payable ,usually
  adding that commissions/brokerages are payable on
  freight ,deadfreight and demurrage.

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Type of Charterparties

• Voyage Charterparty
• Clauses 32 33
• Protecting Clauses-A set of clauses commonly
  included in the printed form of a charterparty or
  as additional clauses .This also includes PI
  bunkering clause sets out owners rights to
  deviate for bunkers during the contractual voyage.

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Type of Charterparties

• Voyage Charterparty
• Clause 24
• Lien and Cesser- Most charterparties contain a
  cesser and lien clause and the MULTIFORM and
  AWELSH (clause 26) are no exceptions.
• Clause 33
• Ice- Depending on the trade involved it may not
  be necessary for an ice clause to be included in
  a charter party ,but where one is required ,great
  care should be taken over its wording.

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Type of Charterparties

• Voyage Charterparty
• Clause 33
• War Risks- War risks clauses should be examined
  in detail as some are unfair to shipowners
  ,others to charterers and/or patently unsuitable
  for the purpose intended.
• A war risk clause should provide a shipowner with
  the right to refuse to allow his vessel and her
  crew to enter or to remain in an area which has
  become dangerous due to warlike activity.

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Type of Charterparties

• Voyage Charterparty
• Signature-No Charterparty is complete without the
  signatures of or on behalf of the parties
  concerned.

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Type of Charterparties

• Time Charterparty
• Preamble The first page of the charterparty and
  covering a wide range of subjects within its text
  ,not least the place where the contract is made
  ,the date of the charterparty and the names and
  domiciles of the contracting parties.

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Type of Charterparties

• Time Charterparty
• Vessel Description Depending upon the complexity
  of the intended trade ,the description of the
  vessel may be more or less as for voyage
  charterparties ,with the important addition of
  speeds and bunker consumptions.

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Type of Charterparties

• Time Charterparty
• Duration of period The duration of a period time
  charter .The parties can agree an exact
  redelivery date ,but in practice this is
  difficult to comply with and ,in the event of
  legal disputes.

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Type of Charterparties

• Time Charterparty
• Clause 6
• Trading Intentions/limits -The areas of the world
  in which the vessel is to be employed should be
  entered-eg worldwide but always within Institute
  Warranty Limits and parts of the world
  specifically excluded from the permissible
  trading area.

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Type of Charterparties

• Time Charterparty
• Clause 12
• Cargo Intention/exclusions- This includes details
  of cargoes which can and those which cannot be
  carried.
• Vessel condition-Just as for voyage
  charterparties an undertaking by the vessels
  owners that the vessel is in good condition.

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Type of Charterparties

• Time Charterparty
• Clause 1
• Owners Responsibilities-Lists what an owner is
  to provide.
• Clause 2
• Charters responsibilities-Lists what a charterer
  is to provide.

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Type of Charterparties

• Time Charterparty
• Clause 3
• Bunkers-It is common practice for time charterers
  to take over and pay the owner for the bunkers
  remaining on board a vessel upon delivery on to
  time charter ,and for owners to act similarly
  upon redelivery ,the quantities of fuel ,diesel
  and/or gas oil ,and the prices per tonne of each
  being negotiated when fixing.

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Type of Charterparties

• Time Charterparty
• Clause 4,5 and 29
• Hire-Amount when ,where and to whom hire is
  payable and arrangements for other payments ,less
  deductions for items such as port expenses and
  cash for master Agreement for procedure incase of
  late payment of hire.

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Type of Charterparties

• Time Charterparty
• Clause 15
• Off-Hire- Provisions leading to off-hire
  situations eg poor performance ,strike of crew
  ,drydocking etc- and appropriate deductions form
  hire payments.
• Vessel performance-This includes range of speed
  and consumptions say from 8 knots to 15 knots in
  both laden and ballast conditions

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Type of Charterparties

• Time Charterparty
• Cargo Claims For their mutual benefit it is
  important that the timecharterers and owners of
  the time chartered vessels reach an undertaking
  on how cargo claims will be handled.

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Type of Charterparties

• Time Charterparty
• Clause 8 9
• Master/Officers-The duties of a ships master are
  defined and it is spelt out that although a
  Master is the owners legal servant he must act
  under the orders of the charterers as far as the
  employment is concerned.

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Type of Charterparties

• Time Charterparty
• Clause 11
• Logbooks-The charterers normally add this clause
  that they have the right to check a vessels
  performance by reference to a specialised weather
  routing company eg Ocean routes and in the event
  that the log books and the independent reports
  disagree the independent reports take precedence
  over the log books .This is important in respect
  of off-hre claims and vessels performance.

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Type of Charterparties

• Time Charterparty
• Clause 10
• Supercargo/Victualling-Spells out charterers
  right to appoint a supercargo and the costs of
  exercising this right with regard to meals and
  accommodation.
• Clause 38
• Pollution-Many states are becoming extremely
  conscious of pollution of their waterways and
  coastlines and merchant ship owners must ensure
  that their vessels comply with a host of
  international and national legislation in
  connection with this subject.

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Type of Charterparties

• Time Charterparty
• Clause 19
• Salvage-It seems fair that expenses and rewards
  in cases of salvage should be shared and this is
  normal practice.
• Clause 37
• Laying up-Unlike tanker time charterparties it is
  only rarely that dry-cargo owner and time
  charterers consider the risks of a vessel laying
  up through lack of employment .What most
  dry-cargo time charterparties do include ,however
  is reference to what happens if a vessel is
  detained in port for periods in excess of 30 days
  

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Type of Charterparties

• Time Charterparty
• Clause 17
• Arbitration an essential part of any contract
  For example incase ASBATIME specifies New York
  since the charterparty is drafted and published
  by a body of resident in New York.

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Type of Charterparties

• Time Charterparty
• Clause 18
• Lien-Just as an element of voyage charters each
  partys right of lien must be considered and
  stipulated.
• Clause 16
• Exceptions-Similar to the voyage charter clause.

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Type of Charterparties

• Time Charterparty
• Clause 8
• Bill of Lading-Specifies the manner in which
  bills of lading are to be drawn up ,the signing
  of same and protection for an owner in case of
  paper inconsistencies.
• Clause 35
• Stevedore damage-Provision for notification of
  stevedore damage and repairs.
• Signature Not to be forgotten.

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Type of Charter parties

• Time Charter
• Time charter terms are for longer duration, for a
  few months to over a year and in certain cases
  for a number of years. In case of time charter
  the charterer takes a ship on daily hire basis
  for a specific time period and utilises it for
  number of voyages in declared geographical range
  of ports but is not bound to operate the vessel
  on fixed routes.
• The charterer has to ensure that the vessel is
  not required to sail beyond the International
  Warranty Limits or in war zones without the
  owners knowledge.

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Type of Charter parties

• Time Charter
• Decision for such operations is entirely the
  owners prerogative. The time charter hires are
  payable in advance, generally on fortnightly
  basis. Performance clauses are incorporated in
  time charter parties.
• Underperformance on account of speed, excessive
  fuel consumption and deficiency in cargo handling
  rates make the owner liable for compensation to
  the charterer. In some charter parties a certain
  time period may be allowed for the regular
  routine maintenance, beyond which the vessel
  becomes off hire, and pro rata deductions are
  made from the time charter hire.

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Type of Charter parties
66
Type of Charter parties

• Hybrid Charter parties
• It is becoming increasingly common to see
  charters which combine some of the aspects of
  both time and voyage charters ,e.g.
• (1) Trip Charters i.e. Contracts obliging the
  charterer to pay hire for the time taken by the
  ship to complete a specified voyage e.g. round
  Atlantic voyage.

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Type of Charter parties

• Hybrid Charter parties
• (2) Consecutive voyage charter parties e.g. four
  consecutive voyages between A and B
• (3) Slot Charters space sharing agreements i.e.
  agreements which enable liner operators to
  utilize empty space on their ships by allowing
  other operators to use some of the empty capacity
  in their vessels in exchange for the right to use
  an equivalent amount of space on the ships of
  such other operators.

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Type of Charter parties

• Hybrid Charter parties
• Slot Charters This form of arrangement is common
  in the container trade and remuneration is a
  complicated equation often calculated with regard
  to the net profit over a period by all the
  operators who are part of the arrangement.

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Ship Owners standpoint

• From the ship-owners point of view a charter
  provides income. However the owner has to decide
  his chartering strategy in order to maximize his
  income .If the ship is time chartered ,the income
  of the ship is guaranteed at a fixed period
  without the need to repeatedly find new
  employment.
• However during that period the market rate of
  hire may go up or down .If the market rate goes
  down then the Owner will have benefited from the
  time charter.
• However if the market rate has increased ,the
  time charter will prevent the Owner from
  exploiting the higher market rate.

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Ship Owners standpoint

• The Owner may therefore prefer-if he feels that
  the market rate will improve in the future to
  avoid committing his ship to a time charter and
  fix his ship instead for a voyage charter on the
  spot market and when lucrative fixtures become
  available.

71
The Charterers Requirement

• The charterer is usually either a speculator on
  the chartering market who hopes to make a profit
  by a wise strategy of chartering and
  sub-chartering or is a trader who needs
  transportation for his cargo.

72
The Charterers Requirement

• Example If the charterer is a trader who wishes
  to sell goods on CIF terms then ,if he does not
  own a ship he will need to charter one in order
  to satisfy his obligation under the cargo sale
  contract to transport the goods to the buyers
  chosen port of delivery.
• He may either decided to secure transportation
  for a period ( i.e. time charter) thereby knowing
  in advance what the transportation cost element
  of his cargo sale will be for that period when
  negotiating the price of the goods or
  alternatively ,he may speculate on the market and
  secure transportation for a particular cargo to a
  particular destination.

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The Charterers Requirement

• He will negotiating the sale of that cargo ( i.e.
  voyage charter)
• Whether the charter is a time charter or a voyage
  charter the charter will be looking for terms
  which provide him with the maximum flexibility to
  control the employment of the ship since his
  transportation requirements may well change
  depending on the requirements of the cargo sale
  contract.

74
Terms of the Charter

• Conditions ,Warranties and In nominate Terms
• Warranty is a term of less importance ,the breach
  of which will normally allow the innocent party
  to claim damages but not to terminate the
  contract.

75
Terms of the Charter

• Conditions ,Warranties and In nominate Terms
• Condition is a term of such importance that any
  breach of it will entitle the innocent party to
  terminate the contract forthwith.
• Example
• (a) A statement that the ship is fully classed
• (b) The duty to proceed on a voyage without
  deviation.
• (c ) A statement that the vessel is expected
  ready to load by a certain date.

76
Terms of the Charter

• Conditions ,Warranties and In nominate Terms
• Conditions
• Example
• (d) A statement relating to the ships flag in
  wartime.
• (e) A statement that no dangerous on unlawful
  goods will be shipped

77
Terms of Charter

• Conditions ,Warranties and In nominate Terms
• In nominate ( or Intermediate terms)
• In general it appears that terms relating to the
  vessels description will be treated as
  intermediate terms in which case the question of
  whether or not the charter can be terminated will
  depend upon the seriousness of the effect of the
  breach.

78
Terms which are implied by law

• Even when the charter is silent on a particular
  issue ,the law may imply a term if it is
  necessary to do so it give business efficacy to
  the contract.
• The court will not be over ready to do so and
  will certainly not do so merely to save one of
  the parties from a bad deal or to make the
  contract fairer
• Prima facie that which in any contract is left to
  be implied and need not be expressed is something
  so obvious that it goes without saying so that if
  while the parties were making their bargain ,an
  officious bystander were to suggest some express
  provision for it in their agreement.

79
Terms which are implied by law

• Examples
• (1) That the ship is seaworthy
• (2) That the owner will proceed with the voyage
  with reasonable dispatch
• (3) That the charterer will not ship dangerous
  cargo.
• (4) That the port nominated by the charter will
  be safe for the vessel

80
Chartering Operations

• Liner
• Tramping

81
Chartering Operations

• Liner Operations
• Liner shipping is associated with fixed sailing
  schedules of vessels, providing predetermined
  sailing frequencies, range of the sailing dates,
  fixed routes and range of ports that are covered
  on the voyages.
• The system comprises sharing of cargo capacities
  of member shipping lines on agreed tariff rates
  to organise reliable and regular sailing
  patterns.

82
Chartering Operations

• Liner Operations
• The ships operating on liner terms may be general
  cargo ships carrying break bulk cargo, container
  vessels, Ro-Ro vessels etc. Liner vessels carry
  a mix of smaller parcels of different types of
  cargoes during the same voyage.
• When vessels are operated under liner terms the
  applicable freight rates are normally those that
  are negotiated and decided by the Liner
  Conferences.
• The conferences publish the schedule of freight
  rates and conditions for carriage. These freight
  rates remain in force for long periods and have
  provisions of adjustments e.g. surcharge for fuel
  prices, undue delays in some ports etc.

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Chartering Operations

• Liner Operations
• Marketing
• In context of shipping it refers to marketing of
  the ships services (space for cargo). Securing
  cargo for ships involves continuous market
  survey, advertising ships voyage schedules and
  direct contact with the clients.
• Shipping company may have a marketing department
  with professionals dedicated to canvassing for
  cargo and related documentation.

84
Chartering Operations

• Operations on Tramping Terms
• Vessels operating on tramping terms are mostly
  those carrying bulk cargoes which may be dry bulk
  cargoes like ore, coal, grain etc. or liquid bulk
  cargoes like crude oil, petroleum products,
  chemicals etc.
• Tramping terms normally mean carriage of one
  commodity of cargo involving one shipper, one
  consignee and one bill of lading. Although at
  times there may be more number of consignees and
  cargo parcels carried under different bills of
  lading.

85
Chartering Operations

• Operation on Tramping Terms
• The freight rate or hire rate of a vessel is
  agreed upon, between the ship owner or operating
  owner and the cargo owner or shipper.
  Negotiations are made through intermediaries
  known as the owners brokers and charterers
  agents who match requirements of cargoes with the
  ships and vice a versa.

86
Chartering Operations

• Operations on Tramping Terms
• They get paid for their services by way of
  brokerage and address commission respectively.
• The agreements for carriage of cargo between the
  owners and the charterers are known as charter
  parties. There are different types of charter
  parties for different types of cargoes,
  geographical locations, terms for carriage,
  handling of cargoes etc.
• The standard formats of charter parties
  facilitate faster agreements as most terms and
  conditions are known to both the parties.

87
Chartering Operations

• Operations on Tramping Terms
• There are different types of charter parties for
  different types of cargoes, geographical
  locations, terms for carriage, handling of
  cargoes etc.
• The standard formats of charter parties
  facilitate faster agreements as most terms and
  conditions are known to both the parties.

88
Chartering Operations

• Operations on Tramping Terms
• Standard formats have been developed or approved
  by internationally reputed institutions like
  Baltic and International Maritime Council
  (BIMCO) International Association of Independent
  Tanker Owners (INTERTANKO) General Council of
  British Shipping (GCBS) Institute of Chartered
  Shipbrokers Association of Shipbrokers and
  Agents USA etc.
• Amendments in a charter party is made as
  necessary for a specific voyage by
  inclusions/replacements/removal of clauses on the
  basis of agreements between the two parties for

89
Operations on Tramping Terms

• Voyage estimating
• Voyage estimating is an important function under
  chartering and operations. It is a process of
  estimating viability of a voyage.
• It involves estimation of expected revenue and
  expenses that will have to be incurred for making
  a prospective voyage and is an essential exercise
  to find the best option out of different
  alternatives that may be available for a ships
  employment.
• Offers for prospective employment are compared on
  a common datum of earnings, which may be either
  daily Gross Operating Profit (GOP) also called
  Gross Daily Surplus, Nett Daily Surplus, the TC
  Rate or Daily Yield

90
Operations on Tramping Terms

• When whole ship is fixed on a voyage charter and
  the freight rates are applied on the basis of per
  tonne of cargo it becomes desirable to load
  maximum amount of cargo. Then it becomes
  necessary to calculate the maximum quantity of
  cargo that can be carried for the purpose of
  voyage estimation.
• This calculation involves taking into
  consideration the DWT, hold capacities, stowage
  factor, available depths of water in the loading
  and discharging ports, geographical areas the
  ship is required to trade, seasonal draught
  restrictions, variation of draught that may be
  encountered due to the change in water density,
  quantity of fuel and water needed for the voyage
  and ships constants

91
Operations on Tramping Terms

• .On the expense side the costs and time for cargo
  handling, costs for river or canal transit as
  applicable, cost of fuel, vessels standing
  charges etc. are calculated to assess the voyage
  viability.

92
Operations on Tramping Terms

• Operating Expenses
• The expenses involved in ship operations are
  generally classified in two types. First are
  those that are incurred when the ship actually
  makes a voyage, whether it is loaded with cargo
  or is on ballast.
• The expenses are termed as direct operating
  expenses (DOE). The second types are those that
  need to be incurred irrespective of whether the
  vessel is sailing or not.
• These are indirect operating expenses (IOE) also
  called standing charges or the running cost.

93
Operations on Tramping Terms

• Number of estimations are made, with slightly
  varied freight rates e.g. in steps of 10 cents
  per tonne within the expected range.
• This done for each of the prospective voyage to
  assess viability of voyages as well as to
  facilitate negotiations. For the purpose of
  voyage estimations standard forms are used by the
  estimators.
• Apart from providing a standard, the use of
  forms provides and assurance to the estimator
  that no details are left out. The forms are also
  helpful in assessing the actual value of the
  estimations after the voyage has been completed
  as well as serve as a reference for future
  estimations

94
Operations on Tramping Terms

• Computer Programmes
• Custom built computer software programmes are now
  available for the purpose of voyage estimation.
  The computer database holds the ships
  particulars including fuel consumption at
  different speeds that in the normal range of
  operations. Based on the essential parameters
  programmed into it, the system provides available
  deadweight capacity once information such as
  draught density of water and bunker remaining on
  board are entered while it picks up the constants
  form database and provides for these in the
  calculations

95
Operations on Tramping Terms

• Computer Programmes
• The programme provides shortest distances between
  link ports like Singapore, Suez, Panama etc,
  requiring only additional distances to be entered
  in. The programme also calculates the ships
  draughts applicable to the load line zones
  deduced from the dates of the prospective voyage.
  
• It is integrated with updated information on the
  daily bunker prices at major bunker ports to
  provide suitable bunkering options on the ports
  en-route.
• In case programmed for tankers it can provide
  tank wise capacities taking into consideration
  the volume variations due to temperatures as well
  as corrections for list and trim.

96
Operations on Tramping Terms

• Computer Programs
• The programme provides a number of figures for TC
  rates based on small step variations (10 cents
  per tonne) of freight rates.

97

• " BIMCO NEWS RELEASE MONDAY 29TH JULY 2002
• BIMCO, the world's largest shipping organisation,
  has just added NORGRAIN '89 to its innovative
  Internet Document Editing Application (idea),
  officially launched a year ago in Beijing.
• The number of companies using idea now exceeds
  200 and includes not only ship-owners and
  shipbrokers, but also ship management companies,
  port agents and law firms

98

• In addition to numerous conventional voyage and
  time charter parties, idea offers electronic
  versions of ship and crew management agreements,
  towage contracts, bills of lading and statements
  of fact.

99

• BIMCO's idea comes with free access to a
  comprehensive library of popular standard
  shipping forms, to which BIMCO will add new forms
  on a regular basis. Among the documents currently
  available on the system are

100

• Various BIMCO Contracts
• AMWELSH 93
• BALTIME 1939
• BARECON 89
• BIMCO STANDARD BUNKER CONTRACT 2001
• BOXTIME
• BPTIME 3
• CONGENBILL 1994

101

• Various BIMCO Contracts
• CONLINEBILL 2000
• CONLINEBOOKING 2000
• CREWMAN A
• CREWMAN B
• FUELCON
• GENCON 94
• GENTIME
• HEAVYCON

102

• Various BIMCO Contracts
• HYDROCHARTER
• NORGRAIN 89
• SALEFORM 87
• SALEFORM 93
• SHIPMAN 98
• SLOTHIRE
• Statement of Facts (short form)
• SUPPLYTIME 89
• SYNACOMEX 2000
• TOWCON
• TOWHIRE
• VOLCOA
• WORLDFOOD 99.

103

• More information about BIMCO's idea can be
  obtained from BIMCO's web site at
  www.bimco.dk/idea.

104
Relationship between the Charter party and Bills
of Lading

• In the vast majority of cases a charterer is
  either a trader who is selling or buying goods or
  is someone acting for such a party vis-à-vis the
  ship-owner and the main purpose of a chartered
  ship is to carry goods to the satisfaction of a
  contract for the International sale of goods.
• The ability of the charterer to obtain a bill of
  lading from the ship is a fundamental requirement
  since without a bill of lading ,the trader will
  have great difficulty in selling the goods.

105
Relationship between the Charter party and Bills
of Lading

• Important points to remember
• The seller often knows nothing of the fundamental
  standing of the buyer and is taking the risk in
  considering his good unless he can reasonably
  certain of being paid for them.
• The obvious solution that of demanding payment in
  advance is unlikely to appeal to the buyer ,who
  may have no reason to trust the seller to ship
  goods of the promised quantity and description.

106
Relationship between the Charter party and Bills
of Lading

• Important points to remember
• The buyer is not usually present or represented
  at the load port and is not therefore in a
  position to inspect the goods.
• Furthermore even after the shipment so long as
  the cargo remains at sea its quantity and
  condition cannot be inspected by any further
  potential buyer.

107
Relationship between the Charter party and Bills
of Lading

• Important points to remember
• The cargo whilst at sea cannot be physically
  transferred to a new buyer.
• The only way in which the seller can effect a
  transfer of any part of such cargo is by
  transferring instead a document of title which is
  accepted as being the documentary equivalent of
  that cargo.

108
Relationship between the Charter party and Bills
of Lading

• The Bills of lading was invented to cure these
  difficulties and has the following functions
• (1) It is a receipt given by the carrier for the
  goods which describes the apparent order and
  condition and quantity or weight of the goods on
  shipment and
• (2) It is a contract of carriage which sets out
  the terms under which the goods are to be carried
  by the ship.
• It is a transferable document of title
  ,possession of which proves entitlement to the
  goods.

109
Relationship between the Charter party and Bills
of Lading

• Payment for the goods can therefore be made
  against the bill of lading and bill can be
  negotiated ( provided it has been made out to
  order) from one holder to another ,thereby
  transferring from one holder to another the right
  to obtain delivery of the goods from the ship.

110
Relationship between the Charter party and Bills
of Lading

• A sea waybill-otherwise known as a waybill is
  also a receipt and a contract of carriage.
• However it is not treated as a document of title
  since unlike Bill of Lading it not negotiable and
  remains at all times a contract with the shipper.
• Since the sea waybill is neither negotiable nor a
  document of title it is not well suited to
  transactions involving documentary credits
  because banks tend to place great importance on
  security.

111
Relationship between the Charter party and Bills
of Lading

• Sea waybill should therefore be used only when
  there is no intention of on-selling the goods
  during the course of the voyage.
• For this reason they are used most often in the
  container trade

112
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• Since the bill of lading is a receipt for the
  shipment of goods ,it will come into operation
  once those goods have been shipped.
• However if the vessel has been chartered it will
  probably come into operation as a result of
  orders which have already been given by the
  charterer under the charter party.

113
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• However since the Bill of Lading is also a
  contract of carriage of goods a potential
  conflict arises between the two contracts.
• It would be commercial nonsense for there to be
  two contracts between the same two parties for
  the carriage of the same goods on the same
  voyage.
• Accordingly the law has adopted a common sense
  approach and has held that when a bill of lading
  is held by a party who already has a charterparty
  contract with the person who is the carrier under
  the bill of lading ,the bill is to be treated as
  a receipt and a document of title-but not as a
  contract of carraige.

114
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• However once that Bill of Lading is endorsed to a
  party who is not a party to the charter party
  then in his hands ,the bill of lading operates
  not only as a receipt and a document of title but
  also as a contract of carriage between him and
  the carrier.

115
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• This is explained by Evans LJ in the case of
  Island Archon
• Legal relations between shipowner and charterer
  are governed by their contract contained in the
  charterparty.
• When a bill of lading is issued or is transferred
  to the owner or person entitled to possession of
  the cargo who is not the charterer ,then it
  contains or evidences a separate contract between
  the shipowner and that other person.

116
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• Example 1
• A is a seller of goods on CIF terms to B .Under
  that contract it is the duty of A to arrange the
  transportation of the goods to B and in order to
  perform his duties under the sale of contract.
• A charters a ship from her owner C
• Once the cargo has been shipped a bill of lading
  is signed by the ships master on behalf of his
  owner as carriers and released to A as shipper.

117
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• Example 1
• Whilst the bill of lading is held by A it does
  not operate as a contract of carriage between A
  and C since there is already a Charterparty
  contract between those two parties.
• When the bill of lading is endorsed by A to B
  pursuant to the contract of sale then ,in the
  hands of B it operates as a contract of carriage
  between B and C since there is no charter party
  contract between B and C.

118
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• Example 2
• A sells B on FOB terms .In this case the duty to
  provide the transportation falls on B and he
  charters the ship C .Once the cargo has been
  shipped the master releases the bill of lading to
  A as shipper.
• Whilst the bill of lading is held by A it
  operates as a contract of carriage between A and
  C since there is no charter party contract
  between A and C.

119
Relationship between the Charter party and Bills
of Lading

• Which is the governing contract of carriage-The
  Charter Party or the Bill of Lading?
• Example 2
• Once the bill of lading is endorsed by A to B the
  bill of lading will not operate as a contract of
  carriage between B and C since there is already a
  charter party contract between B and C.
• Once the bill is further endorsed by B to D it
  operates as a contract of carriage between D and
  C since there is no charter party contract
  between D and C.

120
Relationship between the Charter party and Bills
of Lading

• Conflicting duties under the Charter Party and
  the Bill of Lading
• Once the cargo has been shipped under a Chartered
  vessel it is clear that the ship owner can be a
  party to different contracts( the charter party
  and the bill of lading) with two different
  contracting parties (the charterer under the
  charter party and the consignee under the bill of
  lading).
• Therefore unless the two contracts are on back to
  back terms there is a potential for confusion and
  conflict.

121
Relationship between the Charter party and Bills
of Lading

• Conflicting duties under the Charter Party and
  the Bill of Lading
• Example 1
• Employment orders given by the charterer under
  the charter party may put the owner in breach of
  his obligations to the cargo owner under the bill
  of lading.
• An order given by a charterer to change the port
  of discharge from Port A to B after the Bills of
  lading have been released for Port A would if the
  shipowner complied with them make him guilty of
  deviation under the bill of lading contract.
• This could seriously prejudice his PI cover (
  Insurance)

122
Relationship between the Charter party and Bills
of Lading

• Conflicting duties under the Charter Party and
  the Bill of Lading
• Example
• The issue of a bill of lading may seriously
  diminish the effectiveness of rights which the
  owner may have under the charter.
• For example an owner has the right under Clause 5
  of the NYPE form of charter to withdraw the
  vessel from the charterers employment if hire
  has not punctually been paid.

123
Relationship between the Charter party and Bills
of Lading

• Conflicting duties under the Charter Party and
  the Bill of Lading
• Example
• However if a bill of lading has been issued in
  the meantime a withdrawal may be not much use to
  the ship owner since he completely separate
  obligations to the cargo owner under the bills of
  lading will continue
• These obligations include the duty to proceed to
  and deliver the cargo at the port specified in
  the bill of lading even though the bill of lading
  freight may already have been pre-paid to the
  charterer and even though no further hire will be
  payable under the time charter.

124
Relationship between the Charter party and Bills
of Lading

• Conflicting duties under the Charter Party and
  the Bill of Lading
• Example
• Indeed the owner may even have to pay out of his
  own pocket port expenses ,stevedoring charges and
  other costs which should have been for the time
  charterers account under the time charter if the
  charter had not been terminated by the
  withdrawal.

125
Oil Tanker Freights

• AVERAGE FREIGHT RATE ASSESSMENT (AFRA)
• Introduction
• AFRA and its Terms of Reference was originally
  laid down and sponsored by Shell and subsequently
  BP for their internal use.
• In 1982, shell and BP stopped sponsoring it.
• It is now compiled by the London Tanker Brokers
  Panel and is based on information relating to
  transport agreements supplied by various oil
  companies and also from all known fixtures
  concluded on the open market.
• It is recognized by tax authorities in many
  countries for pricing of intra-company oil
  movements.

126
Oil Tanker Freights

• AVERAGE FREIGHT RATE ASSESSMENT (AFRA)
• Principle
• To establish an average transportation cost per
  ton in a given month for vessel in different size
  categories.
• To represents the cost of all chartered tonnage
  actually operating in the month being assessed,
  irrespective of when the vessel was fixed.
• Fixtures concluded during the period of
  assessment will not affect the result unless such
  vessel is actually performing a voyage during the
  assessment month.

127
Oil Tanker Freights

• Who uses AFRA and why?
• It removes the variable factors in shipping costs
  so that the rate paid by the affiliate reflects
  the cost of chartered tonnage operating in the
  month being calculated.
• It takes into account transport costs on a
  worldwide basis including spot market factor for
  that month.
• It is also used for transactions between oil
  traders and also by government bodies

128
Oil Tanker Freights

• AFRA rate DWT categories
• General purpose 16,500/24,000
• Medium range 25,000/44,999
• Large range 1 45,000/79,999
• Large range 2 80,000/159,999
• VLCC 160,000/319,999
• ULCC 320,000/549,999

129
Oil Tanker Freights

• Vessels not included in the assessment
• Government-owned vessels except when on
  commercial charter
• Vessels employed in specialized trades such as
  the carriage of clean oils, petrochemicals, lube
  oils, bitumen, etc.
• Vessels employed in protected trades such as the
  U.S. Jones Act trade.
• Components in each size category
• Company vessels
• Vessels on long term charter (gt18 months)
• Vessels on short term charter (lt18 months)
• Vessels on single voyage charter

130
Oil Tanker Freights

• The mechanics of AFRA
• The calculations are made for the period from the
  16th of a month to the 15th of the next month,
  both dates inclusive. It is the weighted average
  of commercially chartered tonnage as employed in
  the international transport of oil during the
  period considered.
• Vessels fixtures for each of the above four
  vessel categories are supplied by member
  companies who use AFRA and from report of
  fixtures concluded on the market for loading in
  the period under assessment.

131
Oil Tanker Freights

• AFRA Assessment steps
• The carrying capacity of each vessel operating
  during the assessment period is calculated using
  a standard voyage.
• The weighted average rate in US dollars per ton
  for carrying a ton of oil on that standard voyage
  is estimated for each of the four vessel oil on
  that standard voyage is estimated for each of the
  four vessel types. For vessels that are on time
  charter, the TCH/DWT /month is converted into
  cost per ton of cargo for the standard voyage.

132
Oil Tanker Freights

• AFRA Assessment steps
• An overall weighted average is calculated for
  each size group as follows
• (Total carrying capacity of each size category) x
  (Weighted average rate for that size category)
• The values arrived are in US dollars per ton and
  are converted into WS index on the basis of the
  standard voyage used and are published as a WS
  Index Figure for each size category.

133
Oil Tanker Freights

• WORLD SCALE
• The WORLDSCALE Associations of London and New
  York jointly publish a book, listed over 60,000
  voyage rates and distances.
• The book is revised yearly to take account of
  changes in bunker prices and port dues,
  amendments are also published from time to time
  throughout the year.
• These base rates are given in US per tonne of
  cargo and take into account bunker prices, canal
  transit times and port charges.

134
Oil Tanker Freights

• World Scale
• The rate is based on a standard vessel of 75,000
  tonnes cargo capacity costing 12,000 per day
  fixed hire and performing a round voyage
  load/discharge and back to load port at 14.5
  knots on 55 tonnes of fuel oil per day. It must
  be emphasized that these rates are nominal rates,
  in practice the ship-owner and charter will
  negotiate a rate for the particular voyage is
  question as a percentage of the nominal rate.
• Thus if the voyage was fixed at WORLDSCALE 100
  (WS 100) then the rate would be as published. If
  the voyage was fixed at WS 170 then it would be
  170 of the published rate.

135
Oil Tanker Freights

• World Scale
• This has proven to be a remarkably successful
  compromise between the charterers desire for
  flexible discharge options and the owners need
  for a fair predictable income for his vessel,
  however there are problems. WORLDSCALE is based
  upon an average vessel earning an average rate
  with average rate with average costs.
• The further your vessel is away from the
  WORLDSCALE average and the further away the
  market is from WS 100 then the greater the
  potential for distortions.

136
Oil Tanker Freights

• World Scale
• This is why when looking at fixture reports you
  may see a VLCC fixing at WS 60 whilst a product
  tanker is fixed at WS 200, the cost per tonne of
  cargo moved on a VLCC is much lower than the cost
  per tonne of cargo moved on a product tanker,
  thus the product tanker will attract a higher
  WORLDSCALE percentage. Prudent owners will be
  aware of any distortions their particular vessel
  specifications and the state of the market may
  cause and will adjust their figures accordingly.

137
Oil Tanker Freights

• World Scale
• The new worldwide tanker nominal freight scale
  (WORLDSCALE) is intended merely as a standard of
  reference to assist subscribers to conduct
  business.
• The responsibility of the associations is limited
  to providing subscribers with rates for voyages
  calculated in accordance with the basis of a
  calculation and to revising WORLDSCALE from time
  to time.
• The nominal rate for a voyage does not in itself
  have any significance as representing a fair or
  reasonable rate for the standard vessel or any
  other size and/or type of vessel at any
  particular time.

138
Oil Tanker Freights

• World Scale
• Market levels of freight are to be expressed in
  terms of a percentage of the nominal freight
  rate. Thus WORLDSCALE 100 would mean the rate for
  the voyage in question as calculated and issued
  by the associations, while WORLDSCALE 175 would
  mean 175 per cent of that rate and WORLDSCALE 75
  would mean 75 per cent of that rate.
• Rates are calculated and quoted only in USD per
  tonne. However, freight may of course by payable
  in any currency and the contracting parties
  should specify clearly the currency of payment
  and the method to be used to determine the rate
  of exchange to apply if the currency of payment
  is to be other than USD.

139
Oil Tanker Freights

• World Scale
• Basis of calculation
• All rate calculations, which are made in USD, are
  per tonne for a full cargo for the standard
  vessel based upon a round voyage from loading
  port or