International trade has increased over the last few years due to the effects of globalization. If you look at the figures, you will see that in 2019, US imports reached $2.5 trillion. With the extensive use of smartphones and the increased popularity of online shopping across the globe, people are now accustomed to buying from international brands from all corners of the world. This means companies who develop products and business owners buying products need to find new ways to ship those purchased products to the customers in an efficient manner.
Shipping products by sea is one such method. Shipowners hire out their vessels to charterers to carry out the shipping.This practice is termed as chartering. A person or a business who owns cargo needs a vessel to transport it at affordable rates. They need a broker to carry out the task of finding the right ship or vessel for the job. This job is performed by a charterer. The charterer enters a contract with shipowners for the use of vessel. The chartereris termed the charter party. The charterer is the one who works as a broker for the person with cargo and makes the vessel available at the best agreeable price for both partiestermed the freight rate. Ship finance solutions enable charterers to execute the contract.
The charterer’s responsibility includes a liability cover which also includes the freight rate. The rate is generally set per ton, based on the selected route. There are also circumstances when the rate is set based on the duration the vessel is hired or on thesum value of the cargo. Usually, the vessel is hired for a set duration to move cargo at a profitable rate.
The charter service is available in three ways and they are:
1. Voyage charter
In this situation both the vessel and crew are hired by the charterer. The vessel and the crew will complete the journey between the loading port and the discharge port. The owner of the ship will be paid a lump sum amount, or a price may be decided between the owner and the charterer for every ton on the vessel. In this scenario the owner will be responsible for paying the crew, buying fuel and settling the expenses incurred on the port.
Here the charter makes the payment for the ship which is termed as 'freight'.The contract will stipulate the duration for which the vessel will be chartered. That duration will cover the loading and unloading time of the cargo(laytime). If the charterer overruns the contract then the owner of the ship can demand recompense. Where the charterer completes the contract early, they may be paid a bonus by the shipowner.
In this type of charter system, the responsibility of administration or technical maintenance rests with the charterer.Once the ship has been chartered and comes into their possession then they have complete control over it, including the legal and financial responsibility.
Any operating expenses incurred by the ship will be taken care of by the charterer. They will buy fuel, hire crew, pay the insurance and otherexpenses that must be incurred.
Some other technicalities may occur if the ship has been hired for commercial purposes. For example, the length of the charter will be detailed in the charter and the charter title for the vessel will be made available. The demise charter in this case is similar to hire-purchase. This type of charter is generally used with tankers and bulk carriers.
In a time charter, the vessel is hired by the charterer on a time basis. The charterer decides the route and destinations while the ship is managed by the owner. They will pay the port charges, commissions, and fuel. The daily hiring fee will be their responsibility too.
These are basically the three main types of charters available for ships. Based on the kind and length of the voyage, thecrew will dictate the most effective type.