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shipping and chartering

Chartering is an activity within the shipping industry. In some cases a charterer may own cargo and employ a shipbroker to find a ship to deliver the cargo for a certain price, called freight rate. Freight rates may be on a per-ton basis over a certain route (e.g. for iron ore between Brazil and China) or alternatively may be expressed in terms of a total sum – normally in U.S. dollars – per day for the agreed duration of the charter.

A charterer may also be a party without a cargo who takes a vessel on charter for a specified period from the owner and then trades the ship to carry cargoes at a profit above the hire rate, or even makes a profit in a rising market by re-letting the ship out to other charterers.

Depending on the type of ship and the type of charter, normally a standard contract form called a charter party is used to record the exact rate, duration and terms agreed between the shipowner and the charterer.

Time Charter Equivalent is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types.


BAREBOAT CHARTERER: Charterer gets the ship, its hull, and machinery, and must hire a crew or the services of a ship management company. By contrast, a time charterer pays for a ready-to-go vessel.

CHARTER PARTY: Actual document substantiating a vessel charter. There are several standard agreements, such as box time, or New York Produce Exchange (NYPE). Box time is favored more than NYPE, which dates to the 1920s and contains archaic language. Larger liner companies have their own charter parties. Most charter parties are written, though a few are oral, generally among parties whose business is well known to each other. By law, a charter party is no less valid if it has been orally rendered.

VOYAGE CHARTER: A charterer pays for use of a vessel to carry cargo from one designated port to another, or one port range to another. Charterer is usually responsible for stowage, discharge of cargo, and pays freight passed on vessel capacity or cargo loaded. The greatest risk is that a voyage may last longer than anticipated.

TIME CHARTER A charterer pay for the use of a vessel for a specified period. The charterer also provides and pays for fuel, port charges, and pilotage. The shipowner retains responsibility for navigation and most operations aboard the vessel.

PART CHARTER:Usually based on voyage charter party model, and occur when a shipowner cannot locate a charterer with a full load. Part charters can work well if the cargo is too large or bulky to be carried on a liner vessel, but too small to justify a full vessel charter.

RECAP The document transmitted when a fixture has been agreed, setting forth all of the negotiated terms and details. This is the operative document until the charter party is drawn up.

HIRE Charterer compensates the owner for use of a vessel. "On hire" means the ship is in service as contracted. "Off hire" means that the ship is temporarily unavailable to the charterer.

FIXTURE Conclusion of charter negotiations between owner and charterer, when an agreement has been reached to charter a vessel.

DISPONENT OWNER: Name used to describe a charterer who acts as an owner by sub-chartering a vessel, and assuming an owner’s liability to the sub-charterer.

FREIGHT: Compensation paid to the owner by the voyage charterer for use of a vessel. "This is sometimes confusing because the same term is used to describe the payment made by a cargo shipper to the bill of lading issuer," said Keith Heard, an admiralty attorney with the firm of Burke & Parsons in New York.

It is most important to remember that the "Free" reference is viewed from the Ship Owners point of view - not the Shipper’s. Some Shippers get caught out when they read the word "Free" as they incorrectly believe that it refers to them.

Freight rates quoted on a FIOS basis specifically exclude all aspects relating to cargo handling operations. The ship is only responsible for expenses arising as a result of the ship calling into the port, i.e. tugs, pilots and light dues etc. Another very important consideration when booking cargo on FIOS terms is that the ship does not bear any responsibility for the speed of loading or discharging. Usually the rate agreed includes a fixed "free" period of time for loading/discharging operations, after which time a daily demurrage is incurred. Obviously this is of paramount importance where port congestion or stevedoring performance is uncertain. There are many overseas ports which fall into this category and particularly where vessel demurrage rates can vary significantly, depending on the size and type of ship nominated to undertake the particular project.

Liner Terms is a very ambiguous statement and can be interpreted in a variety of ways in different ports of the world and by different Ship Owners/Agents. Personally we would prefer to clearly define the extent of responsibility when quoting on this basis.

Given that this is a notional point in chartering terms, this is best described as the Shipper/Receiver arranging for delivery/receival of cargo to/from directly under ships hook and the ship paying for the labour to stow the cargo in the vessels cargo holds, as well as on-board lashing & securing and provision of dunnage materials, and to discharge again over the ship’s side. Shore based stevedoring aspects remain the responsibility of the shipper/receiver, however, there are some Owners that may incorporate these costs into their LTHH rate. Once again, ask Owners to clearly define this aspect.

Wharfage charges/dues/taxes can be a contentious issue but are usually considered to be for the Shippers/Receivers account and there may also be many other statutory levies on cargo or freight that may apply. Many Shippers/Receivers are unaware of these additional costs and do not include them into their costing and consequently may be left with an unexpected considerable expense at the completion of a project.

This is somewhat a vaguer term given different port practices. However, it generally implies that the freight amount provided includes both shore based and on-board stevedoring, lashing/unlashing, dunnage materials, securing/unsecuring and all costs of presenting to/receiving the cargo from the ship’s side; with the shippers/receivers just bearing the cost of discharging from/reloading to the transport, along with the usual port charges/levies/taxes etc.

Frequently the terms are varied at different ends of the voyage i.e. FILO (Free In/Liner Out), LIFO (Liner In Free Out) or FIFO (Free In/Free Out) etc. To be absolutely sure of all liabilities, it is always advisable to request that terms clearly and concisely indicate what is/isn’t included in your particular contract - in layman’s terms.

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Royal Global Energy is an energy commodity trading company. We are engaged in commercial activities primarily across oil trading, shipping and soft commodities. Our success is anchored on the skill, market intelligence and worldwide resources we deploy to add value to our customers, stakeholders and to optimise the value chain.

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