The most cost-effective manner for organizations to move cargo is through ship chartering. This process is very important. Charterers must have a complete idea about different aspects of chartering. This helps them to make quick strategic decisions and to negotiate well with charter parties.
This is a detailed guide chartering; how it works and why it is important in international trade.
Table of Contents
What is ship chartering?
Chartering is an agreement made between the shipowner and the cargo owner to rent the ship so that it can be used to move cargo from one destination to another. Rental contracts for agreements are made to rent and move cargo. The shipowner is the legal entity that owns the ship. The charterer is the company that rents the ship to move the cargo. The contract made between both parties is termed as Charter Party. This contract contains vital information including details of the route, personal data of the crew members and laytime.
Ship charterers either deal directly with shipowners or work with shipbrokers as intermediaries. In this way, they can find the best ships to transport cargo to their clients in the most efficient and cost-effective manner.
How does ship chartering work?
There are a few types of contracts in ship chartering:
- A time charter
- A voyage charter
- A bareboat charter
A time charter is a ship charter for a specific time. The ship management is carried out by the owner. However, it is the charterer who decides where the ship goes and which ports to dock at. Additionally, all the expenses incurred by the ship will be covered by the charterer. Expenses include the port charges, fuel charges and daily rent to the shipowner.
A voyage charter is a charter for a single voyage between two ports; from where the cargo is loaded to where it is discharged. The charterer pays the shipowner on a lump-sum or per-ton basis. The shipowner bears the expenses like fuel costs, port costs and crew costs.
A bareboat charter is where the agreement does not cover the technical or administration maintenance charges. The complete operating expense including port expenses, crew wages, hull insurance and fuel charges must be paid for by the charterer.
Why is it important to know more about ship chartering contracts?
Securing better charter contracts must be a priority, regardless of the charter contract. This is important as it will help to increase the revenue of the company. The benefits ship chartering contracts to review are:
- The contract’s governing laws
- The provisions in the contract
- Disputes that may arise in charter party
- Issues that may arise in the ship chartering process
The contract’s governing laws
It is important to know more about governing laws in the contract that are related to contractual interpretation, validity, party obligation, consideration, discharge of the contract or obligation. Government agencies impose market conditions which the shipping industry must deal with. It is important to keep up with the trending geo-political movements that are relevant to maritime transport.
Learn about provisions in the contract
Learn the ship chartering contract in detail. Knowhow it protects the interest of both parties (shipowner and ship charterer). This market is intense and positions change rapidly.
Take care of disputes that may arise in the charter party
If issues are not taken care of properly it can result in litigation or arbitration. It is important to manage these potential issues to avoid any unnecessary expenses.
Learn to avoid issues that may arise in the ship chartering process
Chartering a ship comes with its share of dangers. It is important for the charterer to have a complete plan based on costs that include taxes and logistics as well as the price of the commodity to be transported.
Summary
International trade is largely dependent on ships to move cargo. For cargo businesses, it is important to invest time in understanding ship chartering and its different aspects.
