Oceangoing Cargo Ships Safety & Operational Matters
Home || Tanker Safety || Container Ship Handling || Commercial Management || EMS ||

How Cargo Ships Charterparties Are Negotiated?

The Contract between one party who has control of a ship and another party who wishes to make use of the vessel is known as a Charterparty. Time and voyage charters are two types of charter party agreements that widely used in worldwide shipping markets. In a Time Charter, the Owner hires the ship to the Charterer for a set period, usually with restrictions on trading limits and cargoes – so that the Owner's interest is protected. Time Charters can be for short (e.g., single voyages) or for long periods. Typically the Owner is agreed to get paid on a rate per day while the vessel is on charter. i.e., The Owner agrees to provide the vessel to the Charterer for his commercial use for an agreed period.

Time and vessel performance are critical under time charter's and of prime importance are meeting the C/P warranties concerning speed and performance and also to avoid off-hire time as far as possible. Under a time charter party owner take care of the crew, Stores & Provisions, Ship Maintenance, Communications, Husbandry Fees, etc.

containerships operational matters
Oil Tanker Safety Guide
On the other hand, time charterers' responsibility is to arrange Fuel, Port & Canal Dues, Pilotage, Towage/Linesmen, Agency Fees except for husbandry, Communications re Voyage & Cargo, Berth Dues (sometimes), Wharfage, Stevedoring, War Risk Insurance, Freight Tax, etc. However, this list is not exhaustive. Routinely parties fix the best terms and conditions as suited for their business.

In a voyage charter, the ship is hired to carry a particular cargo (or a variety of shipments) between specified places. Usually, either at a freight rate per MT of cargo moved or for lump sum freight to the Owner. i.e., The Owner agrees to provide the cargo-carrying capacity of his vessel to the Charterer for a specific voyage(s).

The commercial operator will operate the vessel on a voyage charter and relay specific instructions from the Charterer to the Master. These instructions must be followed diligently. For any safety or operational restrictions, the commercial operator and ship manager should be consulted immediately.

In a typical voyage charter party, the shipowner takes care of Ship, Crew, Machinery, Stores and Provisions, Ship Maintenance, and Fuel cost, etc. Furthermore, ships Communications Charges, Port & Canal Dues, Agency Fees, Towage/Linesmen, Pilotage, Berth Dues, Wharfage, Stevedoring, Freight Tax (sometimes see C/P), War risk insurance routinely covered by a shipowner.

On the other hand, the voyage charterer is responsible for Berth Dues, Wharfage (see C/P terms), Stevedores (see C/P terms), Cargo Dues/Freight Tax (see C/P), War risk insurance. The list is not exhaustive. Both ship owners and Charterers are free to negotiate their liabilities. In essence, in a shipping business, commercial awareness drives parties to negotiate a deal. Successful parties know how to make the correct decisions to mitigate risk and ensure profitability in their business.

How Are Charter Parties Negotiated?

Charter parties may be negotiated in a variety of ways. For example, parties use "fixtures," "fixture recapitulations," pro forma charter party agreements, and specially prepared (manuscript) charter party agreements. Typically, charter parties are negotiated through a worldwide network of shipbrokers. However, the principals may choose to forgo the use of a broker and owners, and charterers may "fix" directly.

Initially, owners and charterers often express "indications," which are non-binding expressions of what an owner may be willing to accept (hire under a time charter or freight under a voyage charter) or what a charterer might be willing to pay. Negotiations typically begin via email and or phone, etc. and at some following point, the vessel or the cargo may be offered "firm." Essentially, fixtures are made by the acceptance of a firm offer.

No two firm offers are identical but generally it is understood that a firm offer contains the "main" or "essential" terms of the charter party. Depending upon whether the proposed charter is on a time or voyage basis, a firm offer often includes: the parties, the name of the vessel, the hire or freight rate, the charter party's duration, the intended cargo, the laycan, the place of delivery and redelivery, or the load or discharge ports, vessel characteristics, and other terms and conditions that the parties deem to be important and therefore, "main." These other main terms depend upon the nature of the charter being agreed to, the services being performed, the cargo, etc.

The parties customarily will also agree that the proposed charter party fixture will be based on a standard pro forma charter party. Usually, a pro forma published and endorsed by well-recognized shipping organizations such as BIMCO, or ASBA. These, for example, include the NORGRAIN voyage charter (for the carriage of grain), the NYPE time charter (dry cargo time charter), BP3 Time charter (tanker time charter), Baltime charter (dry cargo time charter), Asbatankvoy (tanker voyage charter), the Gencon charter, among many others.

The parties may agree that the pro forma to be used is an executed charter previously entered into by the parties, or other parties, for example, the head charter in a chain of charters "back to back," the intent is to make logical amendments to the old or other contract to reflect new dates, the rates paid, cargo carried, etc.

In a typical charter party negotiations, the bottom line is a pro forma used as a platform for negotiating main terms. In this form of negotiation, the parties typically do not exchange detailed draft contracts, but rather, exchange emails or other communications regarding which terms in the pro forma are accepted or rejected. Under this form of negotiation, owners and charterers agree to the main or essential terms through a fixture and the other terms or "details" are provided in the pro forma, or are agreed subsequently, for example, the next day after the firm offer has been accepted.

Once the fixture is concluded, and any subjects or conditions are cleared (or "lifted") the usual practice is for a fixture recapitulation to be prepared (fixture recap) that memorializes the agreement, and that represents the Contract. The fixture recap will typically indicate, at its very beginning, language such as "charterers are pleased to advise that all subjects are in order and that we are fully fixed clean with the following details…" or some equivalent language. The vessel at that point is fixed and a binding charter party has been agreed.

Routinely, but not always, a formal charter party is then prepared and circulated. The formal charter is a completed pro forma with rider clauses. Charters may be negotiated in other ways. For example, through the exchange of specially prepared (manuscript) charter party agreements. It would more likely occur for long term charters of specialized vessels.

Hierarchy of C/P’s

The Master must be aware that there can be chains of charterers. Example:- If a voyage charter is involved, then it will always be the last in the chain. The Master is to be guided by the head charter party terms only and is advised that any subsequent sub charter parties received from charterers are to be used only for guidance. Any conflicting clauses are to be brought immediately to the attention of his commercial operator. It is also important because the Master will be required to sign for items such as Pilotage, tugs, canal dues, lashing material, etc., which, although services supplied to the ship are, because of the Charterparties, a liability of one or other of the Charterers.

Contracts of Affreightment (COA)

Another type of Contract is the Contracts of Affreightment (COA). Under COA, the shipowner agrees to provide his vessel or vessels to the Charterers for a series of voyages. This type of Contract is suitable for carrying a pre-specified amount of cargo or performing a pre-specified number of voyages. In this case, the C/P terms will remain the same for each voyage with perhaps only the freight rates being adjusted for the prevailing market conditions.

Our additional pages contain somewhat larger lists of resources where you can find useful informations

  1. Dry Cargo Charterparties

  2. There are numerous various forms, but to give a taste of dry cargo time charters, two types that are commonly used are: - New York Produce Exchange (NYPE 93) Baltic and International Marine Council (BALTIME 1939 (amended 2001)....

  3. Tanker Time Charters

  4. Specific information such as, parties to the contract, where and when the vessel will be delivered, rates of hire, general permitted cargoes, general trading range etc. ....

  5. Commercial VoyageManagement
  6. Time Charters and Pools have very strict off-hire clauses designed to compensate the Charterer for unavailability or under-performance of the vessel. It is important that off-hire is minimised wherever possible and that all opportunities for maintenance during waiting or idle time are utilised.

  7. Documentation & notices

  8. When a vessel is on Time Charter, bunkers and the majority of port services and costs, etc., are to the account of Time Charterers. However, should Time Charterers default on payment, then these charges may fall on Owners and there will then be a serious risk of the vessel being arrested for debts incurred by the Time Charterer. ....

  9. Function of bill of lading

  10. The Bill of Lading is one of the most important documents that the Master will sign and therefore strict controls on how it is issued are required. Although the B/L is usually drafted by the Shipper and presented to the Master for signature, it is an Owners document. One of its three functions is to act as a receipt for the cargo, so therefore the Master must make sure that the quantity and description of the goods is accurate as he will be expected to deliver the same to the Receiver.....

  11. Port of refuge

  12. A port or place of refuge is a port or place to which a vessel proceeds in consequence of an accident, sacrifice or other extraordinary circumstance. The loading port or discharge port/place can be the port/place of refuge. In case of deviation to a port/place of refuge, the Master must send (in addition to the previously mentioned information) the following to :.....

  13. Seaworthiness for cargo ship, international navigational condition & procedure for Insurance claim

  14. Insurance premiums amount to a very large proportion of the ship’s running costs. Whilst the owner insures his ship against certain risks and may present a claim which will recuperate at least part of his losses, the effect of submitting many claims will have the effect of increasing the insurance premiums for the next year. It is therefore in everyone’s interest to ensure that risks are not taken, that the ship operates safely and that accidents and incidents are avoided....

  15. Masters obligation to follow charterers routeing advise - The Hill Harmony case

  16. The Hill Harmony case involved a vessel on time charter trading trans-Pacific. The Charterers had engaged a weather routing service and the Master was advised to take the shortest northern great circle route, however he deemed it safer to take a more southerly rumb line route. The Charterers were eventually able to prove that the great circle route had been suitable for safe navigation and that the extra steaming time was for the Owners account....

  17. Role of a freight forwarder
    A freight forwarder, forwarder, or forwarding agent, is a person or a business entity that organizes shipments for individuals or corporations to get the goods from the point of origin to the desired market or from a producer directly to the customer or a distribution center. A freight forwarder dispatches shipments via a common carrier and books or otherwise arranges space for those shipments on behalf of shippers.

  18. How a Non Vessel Operating Common Carrier ( NVOCC) differs from a freight forwarder?
    A NVOCC (Non vessel Operating Common Carrier) is "a common carrier that holds itself out to the public to provide ocean transportation, issues its own bills of lading or equivalent documents, but does not operate the vessels that transport cargo”. A NVOCC is a carrier. It enters into a contract of carriage with the cargo shipper. It undertakes responsibility for the carriage like a ship owner that owns a vessel. However, the NVOCC is a carrier that does not own or operate the vessel used to perform the carriage.

Other info pages !

Ships Charterparties Related terms & guideline
Stevedores injury How to prevent injury onboard
Environmental issues How to prevent marine pollution
Cargo & Ballast Handling Safety Guideline
Reefer cargo handling Troubleshoot and countermeasures
DG cargo handling Procedures & Guidelines
Safety in engine room Standard procedures
Questions from user and feedback Read our knowledgebase
Home page

ShipsBusiness.com is merely an informational site about various aspects of ships operation,maintenance procedure, prevention of pollution and many safety guideline. The procedures explained here are only indicative, not exhaustive in nature and one must always be guided by practices of good seamanship.

User feedback is important to update our database. For any comment or suggestions please Contact us
Site Use and Privacy - Read our privacy policy and site use information.
//Home //Terms and conditions of use

Copyright © 2015 www.shipsbusiness.com All rights reserved.