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Commercial Shipping M07


SHINC terms: Sundays, holidays including Christmas and Saturday tanker trades ... charges while exposing the fleet to the profit potential of the spot market. ... – PowerPoint PPT presentation

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Title: Commercial Shipping M07

Commercial Shipping (M07)
  • Learning objectives
  • Discuss the mechanics of chartering a vessel
  • Have a working knowledge of voyage, time and
    bareboat charter, and the advantage and
    disadvantage of each
  • Explain the advantage of contract of
  • Describe the advantage of using BIMCO standard
  • Explain the main function of the Baltic Exchange

Commercial Shipping (M07)
  • Forms of chartering
  • Voyage charter
  • Time charter
  • Bareboat (demise) chartering
  • The negotiation process
  • Shipbrokers
  • Charter party
  • Charter party forms
  • Chartering in the freight market

Commercial Shipping (M07)
  • Cost structure of shipping operations
  • ?
  • Shipping operations
  • ?

Commercial Shipping (M07)
  • A shipowner an individual or company that
    invests the capital funds in vessels to meet the
    shipping needs of end users.
  • A charterer the end user of shipping

Commercial Shipping (M07)
  • Form of chartering
  • Voyage charter
  • the shipowner provides the vessel and her crew
    while the charterer supplies the cargo. The ship
    can be chartered to carry as much cargo as it can
    between one destination and another.
  • The shipowner receives a freight payment for the
    movement of cargo between two or more ports and
    out of this the shipowner pays all voyage
    operating costs.
  • Voyage charters provide for demurrage and
    dispatch payments if the time in port exceeds, or
    is less than, lay time.

Commercial Shipping (M07)
  • Voyage charter
  • Lay time the total eligible time counted from
    the arrival of the vessel at the loading terminal
    until completion of loading and after the
    vessels arrival at the receiving terminal until
    completion of discharging the cargo.
  • Notice of readiness submitted when all matters
    are settled with Customs and public health and
    port authorities and the vessel is ready in all
    respects for loading or unloading.

Commercial Shipping (M07)
  • Voyage charter
  • Demurrage paid by the charterer to the shipowner
    for detention of the ship.
  • Dispatch paid by the shipowner to the charterer
    for releasing the ship earlier. In cost terms
    dispatch is generally half demurrage.
  • SHINC terms Sundays, holidays including
    Christmas and Saturday tanker trades
  • SHEX WWD Sundays, holidays excluded weather
    working days dry-bulk trades.

Commercial Shipping (M07)
  • Contract of affreightment (CoA)
  • similar to voyage charters except that CoA does
    not designate a specific vessel. Instead, the
    charterer contracts with the shipowner to make a
    number of round trip voyages between two ports
    (or a range of ports) at a stated rate.
  • an ideal and convenient option for a seller or a
    buyer to ensure reliable shipment of commodities.
  • avoids fluctuations in the freight market and
    thereby making more accurate calculations and
    avoid disastrous differences in costs.
  • more flexibility, the shipowner does not have to
    commit the vessel to the exclusive service of any
    one charterer. A portfolio of CoA can act as a
    hedge to ensure a minimum level of revenue income
    that supports fixed operating and financing
    charges while exposing the fleet to the profit
    potential of the spot market.

Commercial Shipping (M07)
  • Time charter
  • A charterer hires a ship for a set period of
    time, usually for months or several years.
  • Shipowner
  • receives previously agreed sums of hire money,
    instead of freight.
  • is responsible for running expenses, including
    all costs and risk of vessel operation (e.g.
    manning, insurance, repair and maintenance,
    lubricant, consumables).
  • Charterer
  • arranges the vessels employment and bunker fuel
  • is responsible for operational expenses incurred
    on the vessels voyages such as port dues,
    pilotage, canal tolls, bunkers, cargo handling
    charges and the like.

Commercial Shipping (M07)
  • Time charter
  • Advantages of time charter for the shipowner
  • From the shipowners standpoint the ship is
    employed for a definite period of time, with
    regular income to the shipowner and the minimum
    of risk.
  • Time charter provides the shipowner with a good
    cover against a decline in freight rates.
  • The shipowner does not have to worry about the
    day-to-day trading of the vessel as far as
    bunkers, port charges and cargo expenses are
  • The vessel will remain on hire even if delayed
    through port labour troubles.

Commercial Shipping (M07)
  • Time charter
  • Disadvantages of time charter for the shipowner
  • Although the master and crew are appointed by the
    shipowner, control of the vessel is lost to a
    certain extent, including, subject to cargo
    limitations, the nature of the cargo loaded in
    the vessel and the voyage undertaken.
  • If the freight market rises, the shipowner is
    unable to take advantage of it, and the charterer
    gets the benefit instead.
  • The vessel may not be in a convenient position
    for the shipowner to perform maintenance work on
    it. This disadvantage applies only in the case of
    a long-term charter.

Commercial Shipping (M07)
  • Time charter
  • Advantages of time charter for the charterer
  • The charterer can trade the vessel as if owned,
    subject only to charter party limitations.
  • The vessel can be hired on a long or short term
    basis, and this provides a good cover if the
    freight markets go up.
  • Liner companies can take tonnage on time charter
    and so supplement their own sailings if the
    volume of trade warrants additional tonnage.

Commercial Shipping (M07)
  • Time charter
  • Disadvantages of time charter to the charterer
  • The charterer is committed to the payment of hire
    over a period of time, and there is a risk of a
    fall in trade.
  • The charterer may be limited by the terms of the
    charter in the range of trading. This point
    should be taken into consideration when the
    charter is negotiated.

Commercial Shipping (M07)
  • Bareboat charter
  • Lease of a ship from the owner to the charter.
    The shipowner delivers the vessel bare to the
  • The charterer may operate the vessel with his own
    hired crew or contract the operation out the
    charterer bearing all risks of operation.
  • The charterer is free to re-charter the vessel
    (re-chartering does not relieve the charterer of
    any obligations towards the shipowner).
  • A major concern of the shipowner is the
    monitoring of the physical condition of the
    vessel. Stringent surveys will take place upon
    delivery, and strict clauses as to maintenance
    and condition are also included in the contract.

Commercial Shipping (M07)
  • The negotiation process
  • two negotiating parties involved in chartering a
    charterer (shipper) and a shipowner. Shipbrokers
    are usually employed to investigate the market
    and conduct the negotiations.
  • In most cases, both parties will have their own
    brokers and negotiate through their
    representatives, who should do their best to
    preserve their respective principals interests
    and intentions.

Commercial Shipping (M07)
  • Charter party
  • A contract in which a shipowner agrees to place
    their ship, or part of it, at the disposal of a
    charterer for the carriage of goods from one port
    to another port on being paid freight, or to let
    the ship for a specified period, the remuneration
    being known as hire money.
  • States in written form the agreement between a
    shipowner and a charterer and factually records
    the agreement and the terms and conditions that
    have been negotiated.
  • Can take any style and be drawn up by any
    individual or corporation, although common
    practice tends to form standard charter parties.

Commercial Shipping (M07)
  • Charter party forms
  • Standard charter party forms voyage, time and
  • make it easier for charterers and shipowners to
    conduct business as only exceptions and additions
    are to be negotiated.
  • The advantages of using such recommended charter
  • in common usage
  • convenient and widely available
  • expressed in wording that has often been legally
    tested in court
  • fair to both parties.

Commercial Shipping (M07)
  • Charter party forms (http//
  • Voyage charter party Uniform General Charter
  • Time charter parties for dry cargo ships
  • Baltic and International Maritime Conference
    Uniform Time Charter (BALTIME)
  • Time Charter approved by the New York Produce
    Exchange (NYPE)
  • Tankers have more choices and most major oil
    companies have their own standard forms.
  • In the absence of any clause to the contrary, the
    place where a contract is made governs which law
    is to be applied to the case in the event of a

Commercial Shipping (M07)
  • Negotiating a charter party

Commercial Shipping (M07)
  • Chartering in the freight market
  • The negotiation of charter parties usually take
    place through a shipbroker. The traditional
    centre for this activity is the Baltic Exchange
    in London. Other such centres exist in Hong Kong,
    New York and some other parts of the world.
  • Negotiations during the process of chartering
    follow a protocol. The parties negotiating the
    charter need to be aware of the elements of the
  • Baltic Exchange shipping information is the only
    source of independent, quality freight market
    data available.