charter party 01

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Charter Party

By Capt Sarabjit Butalia

August 2009


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CHARTER PARTY

Charter Party (Lat. charta partita, a legal paperor instrument, divided, i.e. written in duplicateso that each party retains half), a written, or

partly written and partly printed, contractbetween a shipowner and a merchant, by whicha ship is let or hired for the conveyance of

goods on a specified voyage, or for a definedperiod.
http://en.wikipedia.org/wiki/Shipownerhttp://en.wikipedia.org/wiki/Merchanthttp://en.wikipedia.org/wiki/Merchanthttp://en.wikipedia.org/wiki/Shipowner


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CHARTER PARTY

A vessel might also be chartered to carrypassengers on a journey. Also, a written contractbetween shipowner and charterer whereby a

ship is hired; all terms, conditions andexceptions are stated in the contract orincorporated by reference.


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CHARTER PARTY

Charter party is the contract between the ownerof a vessel and the charterer for the use of avessel. The charterer takes over the vessel for

either a certain amount of time (a time charter)or for a certain point-to-point voyage (a voyagecharter), giving rise to these two main types ofcharter agreement.

There is a subtype of time charter called thedemise or bareboat charter.


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CHARTER PARTY

Time charter-

In a time charter, the vessel is hired for a specificamount of time. The owner still manages thevessel but the charterer givers orders for theemployment of the vessel, and may sub-charterthe vessel on a time charter or voyage charter

basis.


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Charter Party

The major operation under this function is to findcontinued and suitable employment for the ships tomaximise revenue earnings.

These operations are therefore primarily concernedwith finding suitable cargoes for ships irrespective ofwhether the ships are owned or are hired.

These operations are concerned with evaluating

intended voyages to maximise earning so as to pay forthe cost of ship, cost of its operations and to makesome profit.


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Charter Party

There are many mutually agreed arrangementsbetween the owners of cargo or shippers and theship owners or ship operators for transportation

of cargoes.

The terms and conditions for carriage of cargocan either be on liner terms or under different

charter party terms that primarily depend uponthe types of ships and cargo.


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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


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Charter Party

Description of the Ship

The type of ship to be hired/chartered very muchdepends 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 havingappropriate format which is required to contain severalpages of information required ship details


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Charter Party


Many Charterers require the following plans to besupplied 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 ifcentrifugal pumps are installed.


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Charter Party


Cubic Capacity

Speed and Consumption Constant Weights


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Charter Party


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 andsafe working load of cargo gear, compliance with internationalregulations for carriage of specialised cargo and such otherimportant details relevant for the intended cargo and trade.

For example some bulk cargoes may require that the holds beequipped with carbon-di-oxide fire protection system, or specialrequirement of cargo securing in the holds.


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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


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Charter Party


Cubic Capacity

Speed and Consumption Constant Weights


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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.


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Charter Party


The Charter Party will guarantee that the vesselwill trade within the Institute Warranty

Limits(I.W.L)- a trading area defined byUnderwriters to prevent the more serious risk ofship causality loss.

The dangerous areas such as war zones and icebound areas may be excluded from the charterparty.


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Charter Party


The Charter Party shall also include certainexclusions for the cargo to be loaded such as

asphalt in bulk ,pitch in bulk ,livestockexplosives ,fish meal ,scrap , sulphur, andlogs.

In addition ,a modern phenomena oftenincluded in the cargo exclusion clause isnuclear products.


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Types of Charter Parties

There are two types of charters, Non-demise andDemise Charter. The charter by demise is not veryfrequent in normal day-to-day business but a number of

ships are chartered on a so-calledbareboat

basis.

This kind of charter ordinarily means that the vessel isput at the disposal of a charterer with out any crew.

The charterer thus takes over almost all of the ownersfunctions except for the payment of the capital costs

and the hull and machinery insurance premiums.


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Type of Charter parties

Reason for Demise Charters( Bare Boat Charters)

Demise charters are created not so much with a view tothe carriage of goods but more as part of a complicated

financing arrangement ,often with the intention that thecharterer should become the owner of the ship in duecourse.

Thus, a contract for the purchase of a ship byinstallments will often incorporate a demise charter intothe contract.


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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 acquiringthe 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 wouldotherwise 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.


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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 withinagreed trading limits as directed by the time charterer inconsideration for the payment of hire;

(2) Voyage Charter contracts for the use of the ship andher crew to carry an agreed cargo on an agreed voyage

regardless for the payment of freight ( and possiblyother remuneration such as demurrage if theloading/discharging is delayed beyond the time agreedfor such operations)


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Voyage Charter: Voyage charter is an engagement of a vessel for a single

voyage between declared ports to transport fullshipload of cargo or a certain quantity of cargo. The

freight is paid on per tonne of cargo (DWT) bases oron lump sum basis.

The ship owner provides for all the ships costs with itscrew, expenses for fuel, water, canal dues, port dues,

loading and discharging expenses etc. in return thecharterer pays him the hire charges for carrying thecargo as per described or utilised cargo capacity of theship.


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Voyage Charter:

To compensate for the delays that may beencountered in cargo loading/discharging

operations, the demurrage and despatchclauses for compensation to the affected parties

are inserted in charter party.


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Voyage Charterparty

List of Charterparty Clauses

1.Preamble;This can be extensive in some

charterparties .In the Multiform much ofwhat may be found in preambles of certainforms is contained in clause 1.

There are two important of the briefMultiform preamble howeverthe place andthe date of the charterparty.


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Voyage Charterparty

List of Charterparty Clauses

Place This can be important as ,in the

absence of a clause to the contrary,the placewhere a contract is deemed to have maygovern 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.


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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.


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Voyage Charterparty

Clause 1 ;Name and brief description ofvessel

The Multiform allows for a more completevessel description in the main ,printed partof the form than many (e.g compare with

AMWELSH).The position of the vessel when the contract

is negotiated is also important


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Voyage Charterparty

Clause 2; Condition of vessel

It is usual for a shipowner to confirm that avessel is in a suitable condition safely and

properly to undertake the contractual

voyage.


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Voyage Charterparty

Clause 2;

Cargo description-Commodity and nature of

the goods to be carried eg bulk or baggedstowage factor( eg about 55 cubic feet pertonne) and either minimum/max quantity

or cargo size margins and in whose option (eg 12,000 tonnes,5% or less in ownersoption)


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Voyage Charterparty

Clause 2;

Loading Places- Names of loading place(s)

and or range (eg Bordeaux/Hamburgrange); mention of number of safeberths/anchorages charterers entitled to use

at each place; whether vessel to remainalways afloat or safely agroundmaximum/minimum available drafts.


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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 .Thisspread should be entered in a contract as well as

conditions under which the contract can becancelled in the event that the vessel is unable tomeet those dates.


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Voyage Charterparty

Clause 5;

Freight the amount and currency of freightto 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 isloaded or upon delivery.


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Voyage Charterparty

Clause 6;

Cost of Loading/Discharging which of the

parties to the contract is to appoint and payfor cargo handling at each port.

Clause 7;

Notice of Readiness/Time Counting-An important clause in the calculation of

laytime.


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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 liquidateddamages (demurrage) payable by a charterer in the

event a vessel is detained in port beyond themaximum permitted laytime as well as anystipulations to despatch


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Voyage Charterparty

Clause 10;

Notices- A shipowner/Master may berequired 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 extralaytime allowed a charterer.


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Voyage Charterparty

Clause 12;

Ships Gear- A normal clause in dry cargoshipping 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.


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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.


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Voyage Charterparty

Clause 17;

Overtime who is to pay for overtime.

Clause 18 & 19;

Shifting/Seaworthy trim -Who is to payshifting costs(if any) between berths also

whether time so used is to count as laytimeThe vessel is to be left in safe seaworthycondition between the ports.


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Voyage Charterparty

Clause 13 & 16;

Cargo Separation and Tallying

Where a vessel is to carry various parcels of cargo,itmay not be possible for al separations betweenindividual parcels to be natural.

The tallying (checking) of cargo as it is loaded or

discharged is frequently an expensive operationand cargo claims can arise for alleged shortdelivery ,bad condition etc.


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Voyage Charterparty

Clause 20;

Dues and TaxesThis clause specifies which party

to the contract is responsible for taxes which maybe levied against the vessel and/or her cargo and/or the freight.

Clause 21;

Port Agents- In any charter party it is advisablethat reference be made as to which of the parties isresponsible for the selection of an agent.


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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 thecargo.


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Voyage Charterparty

Clause 23;

Lightening- where cargo lightening is

necessary a comprehensive clause coveringall facets of this sometimes complexoperation should be negotiated .The

MULTIFORM and AWELSH clausesbetween them cover several of these facetsbut nearly all of them.


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Voyage Charterparty

Clause 24;

Lien and Cesser- Most charterparties contain a

cesser and lien clause and the MULTIFORM andAWELSH (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 acharter party ,but where one is required ,great careshould be taken over its wording.


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Voyage Charterparty

Clause 26;

General Average;

A clause specifying is to be adjusted and orpaid irrespective of the ports of call involvedand the laws relating to GA.

Clause 27; Strikes; Both parties to a charterparty have

risks and liabilities in the event of a strike.


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Voyage Charterparty Clause 28;

Exception- The rights of contracting parties tocancel the charter parties in case of events making

its performance virtually impossibleeg ForceMajeure or Acts of God.

Clause 31;

Commission- Specifies the amount and to whom

commissions and brokerages are payable ,usuallyadding that commissions/brokerages are payableon freight ,deadfreight and demurrage.


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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 P&I bunkering clause sets out

owners rights to deviate for bunkers duringthe contractual voyage.


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Voyage Charterparty

Clause 33;

War Risks- War risks clauses should be examined

in detail as some are unfair to shipowners ,othersto charterers and/or patently unsuitable for thepurpose intended.

A war risk clause should provide a shipowner with

the right to refuse to allow his vessel and her crewto enter or to remain in an area which has becomedangerous due to warlike activity.


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Voyage Charterparty

Signature-No Charterparty is complete

without the signatures of or on behalf of the

parties concerned.


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Time Charterparty

Preamble ;The first page of the charterparty

and covering a wide range of subjects within

its text ,not least the place where thecontract is made ,the date of the charterparty

and the names and domiciles of the

contracting parties.


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Time Charterparty

Vessel Description ;Depending upon the

complexity of the intended trade ,the

description of the vessel may be more or lessas for voyage charterparties ,with the

important addition of speeds and bunker

consumptions.


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Time Charterparty

Duration of period ;The duration of a period

time charter .The parties can agree an exact

redelivery date ,but in practice this isdifficult to comply with and ,in the event of

legal disputes.


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Time Charterparty

Clause 1;

Owners Responsibilities-Lists what an

owner is to provide.

Clause 2;

Charters responsibilities-Lists what acharterer is to provide.


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Time Charterparty

Clause 3;

Bunkers-It is common practice for time charterers

to take over and pay the owner for the bunkersremaining 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 beingnegotiated when fixing.


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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 latepayment of hire.


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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 thepermissible trading area.


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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 isconcerned.


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Time Charterparty

Clause 8;

Bill of Lading-Specifies the manner in which bills

of lading are to be drawn up ,the signing of sameand protection for an owner in case of paperinconsistencies.

Clause 35;

Stevedore damage-Provision for notification ofstevedore damage and repairs.

Signature ;Not to be forgotten.


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Time Charterparty Clause 10;

Supercargo/Victualling-Spells out charterers right toappoint a supercargo and the costs of exercising this right

with regard to meals and accommodation. Clause 38;

Pollution-Many states are becoming extremely conscious ofpollution of their waterways and coastlines and merchantship owners must ensure that their vessels comply with ahost of international and national legislation in connection

with this subject.


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Time Charterparty

Clause 11;

Logbooks-The charterers normally add this clause

that they have the right to check a vesselsperformance by reference to a specialised weatherrouting company eg Ocean routes and in the eventthat the log books and the independent reportsdisagree the independent reports take precedenceover the log books .This is important in respect ofoff-hre claims and vessels performance.


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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.


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Time Charterparty

Clause 15;

Off-Hire- Provisions leading to off-hire

situationseg poor performance ,strike ofcrew ,drydocking etc- and appropriatedeductions form hire payments.

Vessel performance-This includes range ofspeed and consumptions say from 8 knots to15 knots in both laden and ballast conditions


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Time Charterparty

Cargo Claims ;For their mutual benefit it is

important that the timecharterers and

owners of the time chartered vessels reachan undertaking on how cargo claims will be

handled.


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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.


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Time Charterparty Clause 19;

Salvage-It seems fair that expenses and rewards in cases ofsalvage 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 risksof a vessel laying up through lack of employment .Whatmost dry-cargo time charterparties do include ,however isreference to what happens if a vessel is detained in port for

periods in excess of 30 days


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Time Charter: Time charter terms are for longer duration, for a few

months to over a year and in certain cases for a numberof years. In case of time charter the charterer takes aship on daily hire basis for a specific time period andutilises it for number of voyages in declaredgeographical range of ports but is not bound to operatethe vessel on fixed routes.

The charterer has to ensure that the vessel is notrequired to sail beyond the International WarrantyLimits or in war zones without the owners knowledge.



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Time Charter Decision for such operations is entirely the owners prerogative.

The time charter hires are payable in advance, generally onfortnightly basis. Performance clauses are incorporated in time

charter parties. Underperformance on account of speed, excessive fuel

consumption and deficiency in cargo handling rates make theowner liable for compensation to the charterer. In some charterparties a certain time period may be allowed for the regular

routine maintenance, beyond which the vessel becomesoff

hire, and pro rata deductions are made from the time charterhire.


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Hybrid Charter parties

It is becoming increasingly common to seecharters which combine some of the aspects of

both time and voyage charters ,e.g.

(1) Trip Charters i.e. Contracts obliging thecharterer to pay hire for the time taken by the

ship to complete a specified voyage e.g. roundAtlantic voyage.


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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 utilizeempty space on their ships by allowing otheroperators to use some of the empty capacity intheir vessels in exchange for the right to use anequivalent amount of space on the ships of suchother operators.


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Hybrid Charter parties

Slot Charters This form of arrangement iscommon in the container trade and

remuneration is a complicated equation oftencalculated with regard to the net profit over aperiod by all the operators who are part of the

arrangement.


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Ship Owners standpoint

From the ship-owners point of view a charter providesincome. However the owner has to decide hischartering strategy in order to maximize his income .Ifthe ship is time chartered ,the income of the ship is

guaranteed at a fixed period without the need torepeatedly find new employment.

However during that period the market rate of hire maygo 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 thehigher market rate.


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Ship Owners standpoint

The Owner may therefore prefer-if he feels thatthe market rate will improve in the futuretoavoid committing his ship to a time charter and

fix his ship instead for a voyage charter on thespot market and when lucrative fixtures becomeavailable.


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The Charterers Requirement

The charterer is usually either a speculator onthe chartering market who hopes to make a

profit by a wise strategy of chartering and sub-chartering or is a trader who needstransportation for his cargo.


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Example If the charterer is a trader who wishes to sellgoods on CIF terms then ,if he does not own a ship he

will need to charter one in order to satisfy his obligationunder the cargo sale contract to transport the goods tothe buyers chosen port of delivery.

He may either decided to secure transportation for a

period ( i.e. time charter) thereby knowing in advancewhat the transportation cost element of his cargo salewill be for that period when negotiating the price of the

goods or alternatively ,he may speculate on the marketand secure transportation for a particular cargo to aparticular destination.


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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 termswhich provide him with the maximum flexibilityto control the employment of the ship since histransportation requirements may well change

depending on the requirements of the cargo salecontract.


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Terms of the Charter

Conditions ,Warranties and In nominateTerms

Warranty is a term of less importance ,the

breach of which will normally allow theinnocent party to claim damages but not toterminate the contract.

T f C


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Conditions ,Warranties and In nominate Terms Condition is a term of such importance that any

breach of it will entitle the innocent party toterminate 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.

T f h Ch


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Conditions;

Example;

(d) A statement relating to the ships flag in

wartime.

(e) A statement that no dangerous on

unlawful goods will be shipped

T f Ch


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Terms of Charter


In nominate ( or Intermediate terms)

In general it appears that terms relating tothe vessels description will be treated asintermediate terms in which case thequestion of whether or not the charter can beterminated will depend upon the seriousnessof the effect of the breach.

T hi h i li d b l


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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 itgive 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 partiesfrom 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 soobvious that it goes without saying so that if while theparties were making their bargain ,an officiousbystander were to suggest some express provision for itin their agreement.

T hi h i li d b l


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Terms which are implied by law

Examples

(1) That the ship is seaworthy

(2) That the owner will proceed with the voyagewith reasonable dispatch

(3) That the charterer will not ship dangerouscargo.

(4) That the port nominated by the charter willbe safe for the vessel

Ch i O i


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Chartering Operations

Liner

Tramping



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Liner Operations

Liner shipping is associated with fixed sailing schedulesof vessels, providing predetermined sailing frequencies,

range of the sailing dates, fixed routes and range ofports that are covered on the voyages.

The system comprises sharing of cargo capacities ofmember shipping lines on agreed tariff rates to organise

reliable and regular sailing patterns.

Ch i O i


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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 ofcargoes during the same voyage.

When vessels are operated under liner terms the applicablefreight rates are normally those that are negotiated and decidedby the Liner Conferences.

The conferences publish the schedule of freight rates and

conditions for carriage. These freight rates remain in force forlong periods and have provisions of adjustments e.g. surchargefor fuel prices, undue delays in some ports etc.



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Liner Operations Marketing;

In context of shipping it refers to marketing of theships services (space for cargo). Securing cargo forships involves continuous market survey, advertisingships voyage schedules and direct contact with theclients.

Shipping company may have a marketing departmentwith professionals dedicated to canvassing for cargoand related documentation.



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Operations on Tramping Terms Vessels operating on tramping terms are mostly those

carrying bulk cargoes which may be dry bulk cargoeslike 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, oneconsignee and one bill of lading. Although at times

there may be more number of consignees and cargoparcels carried under different bills of lading.



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Operation on Tramping Terms

The freight rate or hire rate of a vessel is agreedupon, 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 withthe ships and vice a versa.



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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 differenttypes of cargoes, geographical locations, terms forcarriage, handling of cargoes etc.

The standard formats of charter parties facilitate fasteragreements as most terms and conditions are known toboth the parties.



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Operations on Tramping Terms

There are different types of charter parties fordifferent types of cargoes, geographical locations,

terms for carriage, handling of cargoes etc.

The standard formats of charter partiesfacilitate faster agreements as most terms and

conditions are known to both the parties.

Ch t i O ti


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Operations on Tramping Terms

Standard formats have been developed or approved byinternationally reputed institutions like Baltic and International

Maritime Council (BIMCO); International Association ofIndependent Tanker Owners (INTERTANKO); GeneralCouncil of British Shipping (GCBS); Institute of CharteredShipbrokers; 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 clauseson the basis of agreements between the two parties for

Operations on Tramping Terms:


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Voyage estimating: Voyage estimating is an important function under

chartering and operations. It is a process of estimatingviability of a voyage.

It involves estimation of expected revenue and expenses

that will have to be incurred for making a prospectivevoyage and is an essential exercise to find the best optionout of different alternatives that may be available for aships employment.

Offers for prospective employment are compared on a

common datum of earnings, which may be either dailyGross Operating Profit (GOP) also called Gross DailySurplus, Nett Daily Surplus, the TC Rate or Daily Yield



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When whole ship is fixed on a voyage charter and the freightrates are applied on the basis of per tonne of cargo it becomesdesirable to load maximum amount of cargo. Then it becomesnecessary to calculate the maximum quantity of cargo that can becarried for the purpose of voyage estimation.



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This calculation involves taking into consideration the DWT,hold capacities, stowage factor, available depths of water in theloading and discharging ports, geographical areas the ship isrequired to trade, seasonal draught restrictions, variation ofdraught that may be encountered due to the change in water

density, quantity of fuel and water needed for the voyage andships constants



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.On the expense side the costs and time forcargo handling, costs for river or canal transit as

applicable, cost of fuel, vessels standing charges

etc. are calculated to assess the voyage viability.



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p p g

Operating Expenses: The expenses involved in ship operations are generally

classified in two types. First are those that are incurredwhen 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 beincurred irrespective of whether the vessel is sailing ornot.

These are indirect operating expenses (IOE) also calledstanding charges or the running cost.



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p p g

Number of estimations are made, with slightly varied freightrates e.g. in steps of 10 cents per tonne within the expected range.

This done for each of the prospective voyage to assess viabilityof voyages as well as to facilitate negotiations. For the purposeof voyage estimations standard forms are used by the estimators.

Apart from providing a standard, the use of forms provides andassurance to the estimator that no details are left out. The formsare also helpful in assessing the actual value of the estimationsafter the voyage has been completed as well as serve as a

reference for future estimations



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Computer Programmes: Custom built computer software programmes are now

available for the purpose of voyage estimation. Thecomputer database holds the ships particulars including

fuel consumption at different speeds that in the normalrange of operations. Based on the essential parametersprogrammed into it, the system provides availabledeadweight capacity once information such as draught;

density of water and bunker remaining on board areentered while it picks up the constants form databaseand provides for these in the calculations



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Computer Programmes: The programme provides shortest distances between link ports

like Singapore, Suez, Panama etc, requiring only additionaldistances to be entered in. The programme also calculates theships draughts applicable to the load line zones deduced fromthe dates of the prospective voyage.

It is integrated with updated information on the daily bunkerprices at major bunker ports to provide suitable bunkeringoptions on the ports en-route.

In case programmed for tankers it can provide tank wisecapacities taking into consideration the volume variations due totemperatures as well as corrections for list and trim.



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Computer Programs

The programme provides a number of figuresfor TC rates based on small step variations (10

cents per tonne) of freight rates.


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" BIMCO NEWS RELEASE MONDAY 29THJULY 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 nowexceeds 200 and includes not only ship-owners and

shipbrokers, but also ship management companies,port agents and law firms


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In addition to numerous conventional voyageand time charter parties, idea offers electronicversions of ship and crew management

agreements, towage contracts, bills of lading andstatements of fact.


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BIMCO's idea comes with free access to acomprehensive library of popular standardshipping forms, to which BIMCO will add new

forms on a regular basis. Among the documentscurrently available on the system are:


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Various BIMCO Contracts; AMWELSH 93

BALTIME 1939

BARECON 89 BIMCO STANDARD BUNKER CONTRACT 2001

BOXTIME

BPTIME 3 CONGENBILL 1994


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Various BIMCO Contracts; CONLINEBILL 2000

CONLINEBOOKING 2000

CREWMAN A CREWMAN B

FUELCON

GENCON 94

GENTIME HEAVYCON


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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.


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More information about BIMCO's idea canbe obtained from BIMCO's web site at

www.bimco.dk/idea.

Relationship between the Charter


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party and Bills of Lading

In the vast majority of cases a charterer is either atrader who is selling or buying goods or is someoneacting for such a partyvis--vis the ship-owner and themain purpose of a chartered ship is to carry goods tothe satisfaction of a contract for the International saleof goods.

The ability of the charterer to obtain a bill of lading

from the ship is a fundamental requirement sincewithout a bill of lading ,the trader will have greatdifficulty in selling the goods.



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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 certainof being paid for them.

The obvious solution that of demanding payment inadvance is unlikely to appeal to the buyer ,who may

have no reason to trust the seller to ship goods of thepromised quantity and description.



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Important points to remember

The buyer is not usually present or representedat 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 furtherpotential buyer.



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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 atransfer of any part of such cargo is by

transferring instead a document of title

which is accepted as being the documentaryequivalent of that cargo.



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The Bills of lading was invented to cure thesedifficulties and has the following functions;

(1) It is a receipt given by the carrier for the goodswhich describes the apparent order and condition andquantity or weight of the goods on shipment ;and

(2) It is a contract of carriage which sets out the termsunder which the goods are to be carried by the ship.

It is a transferable document of title ,possession ofwhich proves entitlement to the goods.



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Payment for the goods can therefore be madeagainst the bill of lading and bill can benegotiated ( provided it has been made out to

order) from one holder to another ,therebytransferring from one holder to another theright to obtain delivery of the goods from the

ship.



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A sea waybill-otherwise known as a waybill is also areceipt and a contract of carriage.

However it is not treated as a document of title sinceunlike Bill of Lading it not negotiable and remains at alltimes a contract with the shipper.

Since the sea waybill is neither negotiable nor adocument of title it is not well suited to transactions

involving documentary credits because banks tend toplace great importance on security.


d f d


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Sea waybill should therefore be used only whenthere is no intention of on-selling the goodsduring the course of the voyage.

For this reason they are used most often in thecontainer trade


d Bill f L di


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Which is the governing contract of carriage-TheCharter Party or the Bill of Lading?

Since the bill of lading is a receipt for the

shipment of goods ,it will come into operationonce those goods have been shipped.

However if the vessel has been chartered it willprobably come into operation as a result of

orders which have already been given by thecharterer under the charter party.


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Which is the governing contract of carriage-The Charter Party orthe Bill of Lading?

However since the Bill of Lading is also a contract of carriage ofgoods a potential conflict arises between the two contracts.

It would be commercial nonsense for there to be two contractsbetween the same two parties for the carriage of the same goodson the same voyage.

Accordingly the law has adopted a common sense approach andhas held that when a bill of lading is held by a party who already

has a charterparty contract with the person who is the carrierunder the bill of lading ,the bill is to be treated as a receipt and adocument of title-but not as a contract of carraige.


d Bill f L di


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However once that Bill of Lading is endorsed to

a party who is not a party to the charter partythen in his hands ,the bill of lading operates notonly as a receipt and a document of title but also

as a contract of carriage between him and thecarrier.


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Which is the governing contract of carriage-TheCharter Party or the Bill of Lading? This is explained by Evans LJ in the case of Island

Archon

Legal relations between shipowner and charterer aregoverned by their contract contained in thecharterparty.

When a bill of lading is issued or is transferred to theowner or person entitled to possession of the cargo

who is not the charterer ,then it contains or evidences aseparate contract between the shipowner and that otherperson.


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Which is the governing contract of carriage-TheCharter 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 transportationof the goods to B and in order to perform his dutiesunder the sale of contract.

A charters a ship from her owner C

Once the cargo has been shipped a bill of lading issigned by the ships master on behalf of his owner ascarriers and released to A as shipper.


d Bill f L di


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Which is the governing contract of carriage-TheCharter 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 isalready a Charterparty contract between those twoparties.

When the bill of lading is endorsed by A to B pursuantto the contract of sale then ,in the hands of B itoperates as a contract of carriage between B and Csince there is no charter party contract between B andC.


d Bill f L di


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Which is the governing contract of carriage-TheCharter 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 chartersthe ship C .Once the cargo has been shipped the masterreleases the bill of lading to A as shipper.

Whilst the bill of lading is held by A it operates as acontract of carriage between A and C since there is nocharter party contract between A and C.


d Bill f L di


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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 betweenB and C since there is already a charter party contractbetween 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 isno charter party contract between D and C.


t d Bill f L di


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Conflicting duties under the Charter Party and theBill of Lading

Once the cargo has been shipped under a Charteredvessel it is clear that the ship owner can be a party to

different contracts( the charter party and the bill oflading) with two different contracting parties (thecharterer under the charter party and the consigneeunder the bill of lading).

Therefore unless the two contracts are on back to backterms there is a potential for confusion and conflict.


t d Bill f L di


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Conflicting duties under the Charter Party and the Bill ofLading

Example 1

Employment orders given by the charterer under the charterparty may put the owner in breach of his obligations to the cargoowner under the bill of lading.

An order given by a charterer to change the port of dischargefrom Port A to B after the Bills of lading have been released forPort A would if the shipowner complied with them make him

guilty of deviation under the bill of lading contract. This could seriously prejudice his P&I cover ( Insurance)


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Example

The issue of a bill of lading may seriously diminish the

effectiveness of rights which the owner may have underthe charter.

For example an owner has the right under Clause 5 ofthe NYPE form of charter to withdraw the vessel fromthe charterers employment if hire has not punctuallybeen paid.


p t d Bill f L di


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Example

However if a bill of lading has been issued in the

meantime a withdrawal may be not much use to theship owner since he completely separate obligations tothe cargo owner under the bills of lading will continue

These obligations include the duty to proceed to anddeliver the cargo at the port specified in the bill of

lading even though the bill of lading freight may alreadyhave been pre-paid to the charterer and even though nofurther hire will be payable under the time charter.


p rt nd Bill f L din


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Conflicting duties under the Charter Partyand the Bill of Lading

Example

Indeed the owner may even have to pay out ofhis own pocket port expenses ,stevedoringcharges and other costs which should have beenfor the time charterers account under the time

charter if the charter had not been terminated bythe withdrawal.

Oil Tanker Freights


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g

AVERAGE FREIGHT RATE ASSESSMENT (AFRA) Introduction

AFRA and its Terms of Reference was originally laiddown and sponsored by Shell and subsequently BP fortheir 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 transportagreements 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.

Oil Tanker Freights


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g

AVERAGE FREIGHT RATE ASSESSMENT (AFRA) Principle

To establish an average transportation cost per ton in agiven month for vessel in different size categories.

To represents the cost of all chartered tonnage actuallyoperating in the month being assessed, irrespective of

when the vessel was fixed.

Fixtures concluded during the period of assessment willnot affect the result unless such vessel is actuallyperforming a voyage during the assessment month.

Oil Tanker Freights


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g

Who uses AFRA and why? It removes the variable factors in shipping costs so that

the rate paid by the affiliate reflects the cost ofchartered tonnage operating in the month beingcalculated.

It takes into account transport costs on a worldwidebasis including spot market factor for that month.

It is also used for transactions between oil traders andalso by government bodies

Oil Tanker Freights


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g

AFRA rate DWT categories General purpose16,500/24,000

Medium range25,000/44,999

Large range 145,000/79,999

Large range 280,000/159,999

VLCC160,000/319,999

ULCC320,000/549,999

Oil Tanker Freights


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g

Vessels not included in the assessment Government-owned vessels except when on commercial charter

Vessels employed in specialized trades such as the carriage ofclean oils, petrochemicals, lube oils, bitumen, etc.

Vessels employed in protected trades such as the U.S. Jones Acttrade.

Components in each size category

Company vessels

Vessels on long term charter (>18 months)

Vessels on short term charter (


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g

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 datesinclusive. It is the weighted average of commercially

chartered tonnage as employed in the internationaltransport of oil during the period considered.

Vessels fixtures for each of the above four vesselcategories are supplied by member companies who use

AFRA and from report of fixtures concluded on themarket for loading in the period under assessment.

Oil Tanker Freights


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g

AFRA Assessment steps The carrying capacity of each vessel operating during

the assessment period is calculated using a standardvoyage.

The weighted average rate in US dollars per ton forcarrying a ton of oil on that standard voyage isestimated for each of the four vessel oil on thatstandard voyage is estimated for each of the four vessel

types. For vessels that are on time charter, theTCH/DWT /month is converted into cost per ton ofcargo for the standard voyage.

Oil Tanker Freights


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AFRA Assessment stepsAn 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 andare converted into WS index on the basis of thestandard voyage used and are published as a WSIndex Figure for each size category.

Oil Tanker Freights


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WORLD SCALE The WORLDSCALE Associations of London and

New York jointly publish a book, listed over 60,000voyage rates and distances.

The book is revised yearly to take account of changes inbunker prices and port dues, amendments are alsopublished 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 timesand port charges.

Oil Tanker Freights


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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 around voyage load/discharge and back to load port at 14.5 knotson 55 tonnes of fuel oil per day. It must be emphasized that

these rates are nominal rates, in practice the ship-owner andcharter will negotiate a rate for the particular voyage is questionas a percentage of the nominal rate.

Thus if the voyage was fixed at WORLDSCALE 100 (WS100) then the rate would be as published. If the voyage wasfixed at WS 170 then it would be 170% of the published rate.

Oil Tanker Freights


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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 anaverage vessel earning an average rate with average rate withaverage costs.

The further your vessel is away from the WORLDSCALE

average and the further away the market is from WS 100 thenthe greater the potential for distortions.

Oil Tanker Freights


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World Scale This is why when looking at fixture reports you may see

a VLCC fixing at WS 60 whilst a product tanker is fixedat WS 200, the cost per tonne of cargo moved on a

VLCC is much lower than the cost per tonne of cargomoved on a product tanker, thus the product tanker

will attract a higherWORLDSCALE percentage.Prudent owners will be aware of any distortions their

particular vessel specifications and the state of themarket may cause and will adjust their figuresaccordingly.

Oil Tanker Freights


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World Scale The new worldwide tanker nominal freight scale

(WORLDSCALE) is intended merely as a standard ofreference to assist subscribers to conduct business.

The responsibility of the associations is limited toproviding subscribers with rates for voyages calculatedin accordance with the basis of a calculation and torevising WORLDSCALE from time to time.

The nominal rate for a voyage does not in itself

have any significance as representing a fair orreasonable rate for the standard vessel or any othersize and/or type of vessel at any particular time.

Oil Tanker Freights


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World Scale Market levels of freight are to be expressed in terms of a

percentage of the nominal freight rate. Thus WORLDSCALE100 would mean the rate for the voyage in question as calculatedand issued by the associations, while WORLDSCALE 175 would

mean 175 per cent of that rate and WORLDSCALE 75 wouldmean 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 andthe contracting parties should specify clearly the currency ofpayment and the method to be used to determine the rate ofexchange to apply if the currency of payment is to be other thanUSD.

Oil Tanker Freights


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World Scale Basis of calculation

All rate calculations, which are made in USD, are per tonne for afull cargo for the standard vessel based upon a round voyagefrom loading port or ports to discharging port or ports andreturn to first loading port using the under-mentioned factors.

All of the factors shown are purely nominal and for ratecalculation purposes only. In particular, the fixed hire element ofUSD 12,000 per day is not intended to represent an actual level

of operating costs, nor to produce rates providing a certain levelof income or margin of profit, either for the standard vessel orfor any other vessel under any flag.

Oil Tanker Freights


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World Scale Standard vessel

Total capacity 75,000tonnes

(i.e. the vessels capacity for cargo plus stores, water,and bunkers, both voyage and reserve; also see section5 (2) of part A of the preamble).

Average service speed 14.5 knots

Bunker consumption steaming 55 tonnes per day Purposes other than steaming 100 tonnes

per round voyage

Oil Tanker Freights


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World Scale In Port- 5 tonne for each port involved during

the voyage.

Grade of Fuel Oil 380 CST Port Time 4 days for a voyage from one loading

port to one discharging port.

Additional 12 hours allowed for extra portinvolved on a voyage.

Oil Tanker Freights


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World Scale Fixed Hire Element USD 12,000 Per day

Bunker price 149,75 per tonne

This price represents the average worldwidebunker price for fuel oil (380 cst) during theperiod 1st October 1999 to 30th September

2000 as assessed by Cockett marine oil limited(of London)

Oil Tanker Freights


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World Scale Port costs

Port costs used are those assessed by the associations in the lightof information available to them up to the end of September2000, the rate of exchange used for converting costs in a localcurrency to USD being the average applicable during September2000.

Canal transit time

24 hours is allowed for each transit of the Panama canal.

30 hours is allowed for each transit of the Suez Canal. Mileage is not taken into account in either case.

Oil Tanker Freights


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World Scale

Examples of Wet Fixtures

Source Fair Play October 2008


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Examples of Time Charters


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Baltic Dry Index;

Source Fairplay October 2008


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Source Fairplay October 2008


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Thank You & AnyQuestions

charter party 01

Documents