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Charter Party

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Charter Party Charter Party The major operation under this function is to find continued and suitable employment for the ships to maximise revenue earnings. – PowerPoint PPT presentation

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Title: Charter Party


1
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.

3
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.

4
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

5
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

6
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.

7
Charter Party
  • Description of the Ship
  • Cubic Capacity
  • Speed and Consumption
  • Constant Weights

8
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.

9
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

10
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.

12
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.

13
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

15
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.

16
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.

17
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.

18
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)

19
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.

20
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.

21
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.

22
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.

23
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.

24
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

25
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)

27
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.

29
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.

31
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

32
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.

33
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.

34
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.

36
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.

37
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.

38
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.

39
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.

40
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.

41
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.

42
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.

43
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.

44
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.

45
Type of Charterparties
  • Voyage Charterparty
  • Signature-No Charterparty is complete without the
    signatures of or on behalf of the parties
    concerned.

46
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.

47
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.

48
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.

49
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.

50
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.

51
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.

52
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.

53
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.

54
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

55
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.

56
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.

57
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.

58
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.

59
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

60
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.

61
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.

62
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.

63
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.

64
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.

65
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.

67
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.

68
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.

69
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.

70
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.

73
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.

83
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
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