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Charter Party Charter Party

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ship chartering and relavance of charter party..

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Page 1: Charter Party

Charter PartyCharter Party

Page 2: Charter Party

Charter PartyCharter Party

The major operation under this function is The major operation under this function is to find continued and suitable employment to find continued and suitable employment for the ships to maximise revenue earnings. for the ships to maximise revenue earnings.

These operations are therefore primarily These operations are therefore primarily concerned with finding suitable cargoes for concerned with finding suitable cargoes for ships irrespective of whether the ships are ships irrespective of whether the ships are owned or are hired. owned or are hired.

These operations are concerned with These operations are concerned with evaluating intended voyages to maximise evaluating intended voyages to maximise earning so as to pay for the cost of ship, earning so as to pay for the cost of ship, cost of its operations and to make some cost of its operations and to make some profit.profit.

Page 3: Charter Party

Charter PartyCharter Party

There are many mutually agreed There are many mutually agreed arrangements between the owners of arrangements between the owners of cargo or shippers and the ship owners or cargo or shippers and the ship owners or ship operators for transportation of ship operators for transportation of cargoes. cargoes.

The terms and conditions for carriage of The terms and conditions for carriage of cargo can either be on liner terms or cargo can either be on liner terms or under different charter party terms that under different charter party terms that primarily depend upon the types of ships primarily depend upon the types of ships and cargo.and cargo.

Page 4: Charter Party

Charter PartyCharter Party

Charter party is a contract between Charter party is a contract between the ship-owner and the Charterer.the ship-owner and the Charterer.

Three important elements are;Three important elements are; (a) Description of the ship(a) Description of the ship (b) Description of the trade(b) Description of the trade (c ) Description of time period(c ) Description of time period

Page 5: Charter Party

Charter PartyCharter Party

Description of the ShipDescription of the Ship The type of ship to be hired/chartered very The type of ship to be hired/chartered very

much depends on the nature and whereabouts much depends on the nature and whereabouts of the intended trade.of the intended trade.

Its normal for owners to provide all the details Its normal for owners to provide all the details of the ship with a guarantee about its of the ship with a guarantee about its accuracy. accuracy.

An example such as Shell time and Inter tank An example such as Shell time and Inter tank having appropriate format which is required having appropriate format which is required to contain several pages of information to contain several pages of information required ship details required ship details

Page 6: Charter Party

Charter PartyCharter Party

Description of the ShipDescription of the Ship Many Charterers require the following plans to Many Charterers require the following plans to

be supplied by the Owners;be supplied by the Owners; (1) General Arrangement Plan ,including loading (1) General Arrangement Plan ,including loading

scale scale (2) Detailed Cargo manifold arrangement (2) Detailed Cargo manifold arrangement

DrawingDrawing (3) Pumping Arrangement Plan(3) Pumping Arrangement Plan (4) Plan of Cargo Tank Ventilating System(4) Plan of Cargo Tank Ventilating System (5) Manufacturers Characteristics Curves of (5) Manufacturers Characteristics Curves of

Pumps if centrifugal pumps are installed.Pumps if centrifugal pumps are installed.

Page 7: Charter Party

Charter PartyCharter Party

Description of the ShipDescription of the Ship Cubic CapacityCubic Capacity Speed and ConsumptionSpeed and Consumption Constant WeightsConstant Weights

Page 8: Charter Party

Charter PartyCharter Party Description of the ShipDescription of the Ship These, apart from the name of the ship, include – year These, apart from the name of the ship, include – year

of built, flag, dead weight, maximum dimensions, of built, flag, dead weight, maximum dimensions, maximum draught, fresh water allowance, speed, fuel maximum draught, fresh water allowance, speed, fuel consumption, cargo space in bail and grain capacities, consumption, cargo space in bail and grain capacities, number of hatches and holds, type and safe working number of hatches and holds, type and safe working load of cargo gear, compliance with international load of cargo gear, compliance with international regulations for carriage of specialised cargo and such regulations for carriage of specialised cargo and such other important details relevant for the intended cargo other important details relevant for the intended cargo and trade. and trade.

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

Page 9: Charter Party

Charter PartyCharter Party Description of the ShipDescription of the Ship Name of the ShipName of the Ship Year of BuildYear of Build Name and location of OwnersName and location of Owners FlagFlag ClassClass Call LettersCall Letters GRT/NRTGRT/NRT Summer DeadweightSummer Deadweight Fresh Water AllowanceFresh Water Allowance Fresh Water AllowanceFresh Water Allowance

Page 10: Charter Party

Charter PartyCharter Party

Description of the ShipDescription of the Ship Cubic CapacityCubic Capacity Speed and ConsumptionSpeed and Consumption Constant WeightsConstant Weights

Page 11: Charter Party

Charter PartyCharter Party

Description of the TradeDescription of the Trade As much as Charterer is interested to As much as Charterer is interested to

know the details of the ship in the know the details of the ship in the same way the Owner is interested to same way the Owner is interested to know about the type of trade the ship know about the type of trade the ship will be engaged in.will be engaged in.

Owners will negotiate an entry to that Owners will negotiate an entry to that effect the berths and ports to which effect the berths and ports to which the vessel will trade are safe and ship the vessel will trade are safe and ship will remain afloat. will remain afloat.

Page 12: Charter Party

Charter PartyCharter Party

Description of the TradeDescription of the Trade The Charter Party will guarantee The Charter Party will guarantee

that the vessel will trade within the that the vessel will trade within the Institute Warranty Limits(I.W.L)- a Institute Warranty Limits(I.W.L)- a trading area defined by trading area defined by Underwriters to prevent the more Underwriters to prevent the more serious risk of ship causality loss.serious risk of ship causality loss.

The dangerous areas such as war The dangerous areas such as war zones and ice bound areas may be zones and ice bound areas may be excluded from the charter partyexcluded from the charter party. .

Page 13: Charter Party

Charter PartyCharter Party Description of the TradeDescription of the Trade The Charter Party shall also include The Charter Party shall also include

certain exclusions for the cargo to certain exclusions for the cargo to be loaded such as asphalt in be loaded such as asphalt in bulk ,pitch in bulk ,livestock bulk ,pitch in bulk ,livestock explosives ,fish meal ,scrap , explosives ,fish meal ,scrap , sulphur, and logs.sulphur, and logs.

In addition ,a modern phenomena In addition ,a modern phenomena often included in the cargo often included in the cargo exclusion clause is nuclear products. exclusion clause is nuclear products.

Page 14: Charter Party

Charter PartyCharter Party

Description of the PeriodDescription of the Period The period of charter commences The period of charter commences

with vessel’s delivery to the with vessel’s delivery to the Charterers and ,like all charters with Charterers and ,like all charters with vessel’s delivery to the Charterers vessel’s delivery to the Charterers and like all charters, this delivery is and like all charters, this delivery is either spot either spot

Page 15: Charter Party

Types of Charter PartiesTypes of Charter Parties

There are two types of charters, Non-demise There are two types of charters, Non-demise and Demise Charter. The charter by demise is and Demise Charter. The charter by demise is not very frequent in normal day-to-day not very frequent in normal day-to-day business but a number of ships are chartered business but a number of ships are chartered on a so-called ‘bareboat’ basis. on a so-called ‘bareboat’ basis.

This kind of charter ordinarily means that the This kind of charter ordinarily means that the vessel is put at the disposal of a charterer with vessel is put at the disposal of a charterer with out any crew. The charterer thus takes over out any crew. The charterer thus takes over almost all of the owner’s functions except for almost all of the owner’s functions except for the payment of the capital costs and the hull the payment of the capital costs and the hull and machinery insurance premiums. and machinery insurance premiums.

Page 16: Charter Party

Type of Charter parties Type of Charter parties

Reason for Demise Charters( Bare Boat Reason for Demise Charters( Bare Boat Charters)Charters)

Demise charters are created not so much Demise charters are created not so much with a view to the carriage of goods but more with a view to the carriage of goods but more as part of a complicated financing as part of a complicated financing arrangement ,often with the intention that arrangement ,often with the intention that the charterer should become the owner of the charterer should become the owner of the ship in due course.the ship in due course.

Thus a contract for the purchase of a ship by Thus a contract for the purchase of a ship by installments will often incorporate a demise installments will often incorporate a demise charter into the contract.charter into the contract.

Page 17: Charter Party

Type of Charter PartiesType of Charter Parties Demise CharterDemise Charter A variant of this would be for a financing bank A variant of this would be for a financing bank

lend the funds required to buy the ship ,the lend the funds required to buy the ship ,the bank then acquiring the ownership of the ship bank then acquiring the ownership of the ship but demise chartering it to the borrower for but demise chartering it to the borrower for the period of the loan.the period of the loan.

This would enable the bank to avoid not only This would enable the bank to avoid not only the operating costs but also the liabilities the operating costs but also the liabilities which it would otherwise have to bear in which it would otherwise have to bear in relation to the operation of the ship under a relation to the operation of the ship under a mortgage.mortgage.

Demise charters are also concluded between Demise charters are also concluded between two associated companies for tax or two associated companies for tax or employment reasons. employment reasons.

Page 18: Charter Party

Type of Charter partiesType of Charter parties Charter parties other than Demise;Charter parties other than Demise; There are two types; There are two types; (1) Time Charters i.e. contracts for the use of (1) Time Charters i.e. contracts for the use of

the ship and her crew for a specified period of the ship and her crew for a specified period of time within agreed trading limits as directed by time within agreed trading limits as directed by the time charterer in consideration for the the time charterer in consideration for the payment of hire;payment of hire;

(2) Voyage Charter contracts for the use of the (2) Voyage Charter contracts for the use of the ship and her crew to carry an agreed cargo on ship and her crew to carry an agreed cargo on an agreed voyage regardless for the payment of an agreed voyage regardless for the payment of freight ( and possibly other remuneration such freight ( and possibly other remuneration such as demurrage if the loading/discharging is as demurrage if the loading/discharging is delayed beyond the time agreed for such delayed beyond the time agreed for such operations) operations)

Page 19: Charter Party

Type of Charter partiesType of Charter parties

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

for a single voyage between declared ports to for a single voyage between declared ports to transport full shipload of cargo or a certain transport full shipload of cargo or a certain quantity of cargo. The freight is paid on per quantity of cargo. The freight is paid on per tonne of cargo (DWT) bases or on lump sum tonne of cargo (DWT) bases or on lump sum basis. basis.

The ship owner provides for all the ship’s The ship owner provides for all the ship’s costs with its crew, expenses for fuel, water, costs with its crew, expenses for fuel, water, canal dues, port dues, loading and canal dues, port dues, loading and discharging expenses etc. in return the discharging expenses etc. in return the charterer pays him the hire charges for charterer pays him the hire charges for carrying the cargo as per described or carrying the cargo as per described or utilised cargo capacity of the ship.utilised cargo capacity of the ship.

Page 20: Charter Party

Type of Charter partiesType of Charter parties

Voyage Charter:Voyage Charter: To compensate for the delays that To compensate for the delays that

may be encountered in cargo may be encountered in cargo loading/discharging operations, the loading/discharging operations, the ‘demurrage and despatch’ clauses ‘demurrage and despatch’ clauses for compensation to the affected for compensation to the affected parties are inserted in charter party. parties are inserted in charter party.

Page 21: Charter Party

Type of Charter partiesType of Charter parties Voyage CharterpartyVoyage Charterparty List of Charterparty ClausesList of Charterparty Clauses 1.Preamble;This can be extensive in 1.Preamble;This can be extensive in

some charterparties .In the some charterparties .In the Multiform much of what may be Multiform much of what may be found in preambles of certain forms found in preambles of certain forms is contained in clause 1.is contained in clause 1.

There are two important of the brief There are two important of the brief Multiform preamble however –the Multiform preamble however –the place and the date of the place and the date of the charterparty.charterparty.

Page 22: Charter Party

Type of Charter partiesType of Charter parties

Voyage CharterpartyVoyage Charterparty List of Charterparty ClausesList of Charterparty Clauses Place This can be important as ,in Place This can be important as ,in

the absence of a clause to the the absence of a clause to the contrary,the place where a contract contrary,the place where a contract is deemed to have may govern the is deemed to have may govern the law which is to be applied to that law which is to be applied to that contract in the event of dispute.contract in the event of dispute.

Thus if the place is London ,English Thus if the place is London ,English Law may be very likely prevail. Law may be very likely prevail.

Page 23: Charter Party

Type of Charter partiesType of Charter parties

Voyage CharterpartyVoyage Charterparty Date equally important the date Date equally important the date

to be shown is that which by to be shown is that which by fixture negotiations are fixture negotiations are concluded with all subjects concluded with all subjects lifted-in other words ,when all lifted-in other words ,when all negotiating formalities are negotiating formalities are complete.complete.

Page 24: Charter Party

Type of Charter partiesType of Charter parties Voyage CharterpartyVoyage Charterparty Clause 1 ;Name and brief Clause 1 ;Name and brief

description of vesseldescription of vessel The Multiform allows for a more The Multiform allows for a more

complete vessel description in the complete vessel description in the main ,printed part of the form than main ,printed part of the form than many (e.g compare with AMWELSH).many (e.g compare with AMWELSH).

The position of the vessel when the The position of the vessel when the contract is negotiated is also contract is negotiated is also important important

Page 25: Charter Party

Type of Charter partiesType of Charter parties

Voyage CharterpartyVoyage Charterparty Clause 2; Condition of vesselClause 2; Condition of vessel It is usual for a shipowner to It is usual for a shipowner to

confirm that a vessel is in a confirm that a vessel is in a suitable condition safely and suitable condition safely and properly to undertake the properly to undertake the contractual voyage.contractual voyage.

Page 26: Charter Party

Type of Charter partiesType of Charter parties

Voyage CharterpartyVoyage Charterparty Clause 2;Clause 2; Cargo description-Commodity and Cargo description-Commodity and

nature of the goods to be carried eg nature of the goods to be carried eg bulk or bagged stowage factor( eg bulk or bagged stowage factor( eg about 55 cubic feet per tonne) and about 55 cubic feet per tonne) and either minimum/max quantity or either minimum/max quantity or cargo size margins and in whose cargo size margins and in whose option ( eg 12,000 tonnes,5% or option ( eg 12,000 tonnes,5% or less in owners option)less in owners option)

Page 27: Charter Party

Type of Charter partiesType of Charter parties Voyage CharterpartyVoyage Charterparty Clause 2;Clause 2; Loading Places- Names of loading Loading Places- Names of loading

place(s) and or range (eg place(s) and or range (eg Bordeaux/Hamburg range); mention Bordeaux/Hamburg range); mention of number of safe berths/anchorages of number of safe berths/anchorages charterers entitled to use at each charterers entitled to use at each place; whether vessel to remain place; whether vessel to remain always afloat or safely aground always afloat or safely aground maximum/minimum available drafts.maximum/minimum available drafts.

Page 28: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 3; Clause 3; Discharging places and port Discharging places and port

orders/rotationorders/rotation Clause 4- Laydays and CancellingClause 4- Laydays and Cancelling The spread of dates which a vessel is to The spread of dates which a vessel is to

present herself at the first (or sole) present herself at the first (or sole) loading port .This spread should be loading port .This spread should be entered in a contract as well as entered in a contract as well as conditions under which the contract can conditions under which the contract can be cancelled in the event that the vessel be cancelled in the event that the vessel is unable to meet those dates. is unable to meet those dates.

Page 29: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 5;Clause 5; Freight the amount and currency of Freight the amount and currency of

freight to whom ,where and when freight to whom ,where and when payable .The risk of vessel and /or payable .The risk of vessel and /or cargo loss on passage in relation to cargo loss on passage in relation to freight should be specified-ie freight should be specified-ie whether freight is deemed earned whether freight is deemed earned as cargo is loaded or upon delivery. as cargo is loaded or upon delivery.

Page 30: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 6;Clause 6; Cost of Loading/Discharging which Cost of Loading/Discharging which

of the parties to the contract is to of the parties to the contract is to appoint and pay for cargo handling appoint and pay for cargo handling at each port.at each port.

Clause 7; Clause 7; Notice of Readiness/Time Counting- Notice of Readiness/Time Counting- An important clause in the An important clause in the

calculation of laytime.calculation of laytime.

Page 31: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 8;Clause 8; Loading/Discharging Rates- the speed at Loading/Discharging Rates- the speed at

which cargo-handling activities are to be which cargo-handling activities are to be performed.performed.

Clause 9;Clause 9; Demurrage/Despatch- daily amount of Demurrage/Despatch- daily amount of

liquidated damages (demurrage) payable liquidated damages (demurrage) payable by a charterer in the event a vessel is by a charterer in the event a vessel is detained in port beyond the maximum detained in port beyond the maximum permitted laytime as well as any permitted laytime as well as any stipulations to despatch stipulations to despatch

Page 32: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 10;Clause 10; Notices- A shipowner/Master may Notices- A shipowner/Master may

be required to give comprehensive be required to give comprehensive notices of a vessel’s expected notices of a vessel’s expected arrival at the first (or sole) loading arrival at the first (or sole) loading port ,failing which the shipowner port ,failing which the shipowner may face a penalty in the form of may face a penalty in the form of extra laytime allowed a charterer.extra laytime allowed a charterer.

Page 33: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 12;Clause 12; Ship’s Gear- A normal clause in Ship’s Gear- A normal clause in

dry cargo shipping specifying dry cargo shipping specifying that a vessel’s gear will be that a vessel’s gear will be maintained to a high standard maintained to a high standard and specifying what happens in and specifying what happens in the event of gear breakdown the event of gear breakdown resulting in extra expense. resulting in extra expense.

Page 34: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 14 & 15Clause 14 & 15 Grab discharge/Stevedore damage-Grab discharge/Stevedore damage- Owners normally confirm that a Owners normally confirm that a

vessel is suitable for grab vessel is suitable for grab discharge and formalities need to discharge and formalities need to be set out in the event that a vessel be set out in the event that a vessel suffers damage during the cargo suffers damage during the cargo handling processes.handling processes.

Page 35: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 17;Clause 17; Overtime who is to pay for overtime.Overtime who is to pay for overtime. Clause 18 & 19;Clause 18 & 19; Shifting/Seaworthy trim -Who is to Shifting/Seaworthy trim -Who is to

pay shifting costs(if any) between pay shifting costs(if any) between berths also whether time so used is berths also whether time so used is to count as laytime The vessel is to to count as laytime The vessel is to be left in safe seaworthy condition be left in safe seaworthy condition between the ports.between the ports.

Page 36: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 13 & 16;Clause 13 & 16; Cargo Separation and TallyingCargo Separation and Tallying Where a vessel is to carry various parcels Where a vessel is to carry various parcels

of cargo,it may not be possible for al of cargo,it may not be possible for al separations between individual parcels to separations between individual parcels to be natural.be natural.

The tallying (checking) of cargo as it is The tallying (checking) of cargo as it is loaded or discharged is frequently an loaded or discharged is frequently an expensive operation and cargo claims can expensive operation and cargo claims can arise for alleged short delivery ,bad arise for alleged short delivery ,bad condition etc. condition etc.

Page 37: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 20;Clause 20; Dues and Taxes –This clause specifies Dues and Taxes –This clause specifies

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

Clause 21;Clause 21; Port Agents- In any charter party it is Port Agents- In any charter party it is

advisable that reference be made as to advisable that reference be made as to which of the parties is responsible for the which of the parties is responsible for the selection of an agent. selection of an agent.

Page 38: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 22 & 34Clause 22 & 34 Bills of Lading-The of lading to Bills of Lading-The of lading to

be presented to the Master or be presented to the Master or his/her agent upon completion of his/her agent upon completion of the loading .Master or his/her the loading .Master or his/her agent to sign the bill of lading agent to sign the bill of lading indicating the apparent indicating the apparent condition of the cargo. condition of the cargo.

Page 39: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clause 23;Clause 23; Lightening- where cargo lightening Lightening- where cargo lightening

is necessary a comprehensive is necessary a comprehensive clause covering all facets of this clause covering all facets of this sometimes complex operation sometimes complex operation should be negotiated .The should be negotiated .The MULTIFORM and AWELSH clauses MULTIFORM and AWELSH clauses between them cover several of between them cover several of these facets but nearly all of them.these facets but nearly all of them.

Page 40: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 26;Clause 26; General Average;General Average; A clause specifying is to be adjusted A clause specifying is to be adjusted

and or paid irrespective of the ports of and or paid irrespective of the ports of call involved and the laws relating to call involved and the laws relating to GA.GA.

Clause 27;Clause 27; Strikes; Both parties to a charterparty Strikes; Both parties to a charterparty

have risks and liabilities in the event of have risks and liabilities in the event of a strike. a strike.

Page 41: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 28;Clause 28; Exception- The rights of contracting Exception- The rights of contracting

parties to cancel the charter parties in parties to cancel the charter parties in case of events making its performance case of events making its performance virtually impossible –eg Force Majeure or virtually impossible –eg Force Majeure or Acts of God.Acts of God.

Clause 31;Clause 31; Commission- Specifies the amount and to Commission- Specifies the amount and to

whom commissions and brokerages are whom commissions and brokerages are payable ,usually adding that payable ,usually adding that commissions/brokerages are payable on commissions/brokerages are payable on freight ,deadfreight and demurrage. freight ,deadfreight and demurrage.

Page 42: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Clauses 32 & 33Clauses 32 & 33 Protecting Clauses-A set of clauses Protecting Clauses-A set of clauses

commonly included in the printed commonly included in the printed form of a charterparty or as form of a charterparty or as additional clauses .This also includes additional clauses .This also includes P&I bunkering clause sets out P&I bunkering clause sets out owners rights to deviate for bunkers owners rights to deviate for bunkers during the contractual voyage.during the contractual voyage.

Page 43: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 24;Clause 24; Lien and Cesser- Most charterparties Lien and Cesser- Most charterparties

contain a cesser and lien clause and the contain a cesser and lien clause and the MULTIFORM and AWELSH (clause 26) MULTIFORM and AWELSH (clause 26) are no exceptions.are no exceptions.

Clause 33;Clause 33; Ice- Depending on the trade involved it Ice- Depending on the trade involved it

may not be necessary for an ice clause to may not be necessary for an ice clause to be included in a charter party ,but where be included in a charter party ,but where one is required ,great care should be one is required ,great care should be taken over its wording. taken over its wording.

Page 44: Charter Party

Type of CharterpartiesType of Charterparties Voyage CharterpartyVoyage Charterparty Clause 33;Clause 33; War Risks- War risks clauses should be War Risks- War risks clauses should be

examined in detail as some are unfair to examined in detail as some are unfair to shipowners ,others to charterers and/or shipowners ,others to charterers and/or patently unsuitable for the purpose patently unsuitable for the purpose intended.intended.

A war risk clause should provide a A war risk clause should provide a shipowner with the right to refuse to shipowner with the right to refuse to allow his vessel and her crew to enter or allow his vessel and her crew to enter or to remain in an area which has become to remain in an area which has become dangerous due to warlike activity. dangerous due to warlike activity.

Page 45: Charter Party

Type of CharterpartiesType of Charterparties

Voyage CharterpartyVoyage Charterparty Signature-No Charterparty is Signature-No Charterparty is

complete without the signatures complete without the signatures of or on behalf of the parties of or on behalf of the parties concerned.concerned.

Page 46: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Preamble ;The first page of the Preamble ;The first page of the

charterparty and covering a wide charterparty and covering a wide range of subjects within its range of subjects within its text ,not least the place where text ,not least the place where the contract is made ,the date of the contract is made ,the date of the charterparty and the names the charterparty and the names and domiciles of the contracting and domiciles of the contracting parties. parties.

Page 47: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Vessel Description ;Depending Vessel Description ;Depending

upon the complexity of the upon the complexity of the intended trade ,the description intended trade ,the description of the vessel may be more or less of the vessel may be more or less as for voyage charterparties ,with as for voyage charterparties ,with the important addition of speeds the important addition of speeds and bunker consumptions.and bunker consumptions.

Page 48: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Duration of period ;The duration Duration of period ;The duration

of a period time charter .The of a period time charter .The parties can agree an exact parties can agree an exact redelivery date ,but in practice redelivery date ,but in practice this is difficult to comply with this is difficult to comply with and ,in the event of legal and ,in the event of legal disputes.disputes.

Page 49: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 6;Clause 6; Trading Intentions/limits -The areas Trading Intentions/limits -The areas

of the world in which the vessel is to of the world in which the vessel is to be employed should be entered-eg be employed should be entered-eg worldwide but always within worldwide but always within Institute Warranty Limits and parts Institute Warranty Limits and parts of the world specifically excluded of the world specifically excluded from the permissible trading area. from the permissible trading area.

Page 50: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 12;Clause 12; Cargo Intention/exclusions- This Cargo Intention/exclusions- This

includes details of cargoes which can includes details of cargoes which can and those which cannot be carried.and those which cannot be carried.

Vessel condition-Just as for voyage Vessel condition-Just as for voyage charterparties an undertaking by the charterparties an undertaking by the vessel’s owners that the vessel is in vessel’s owners that the vessel is in good condition. good condition.

Page 51: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 1;Clause 1; Owner’s Responsibilities-Lists Owner’s Responsibilities-Lists

what an owner is to provide.what an owner is to provide. Clause 2;Clause 2; Charter’s responsibilities-Lists Charter’s responsibilities-Lists

what a charterer is to provide.what a charterer is to provide.

Page 52: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 3;Clause 3; Bunkers-It is common practice for time Bunkers-It is common practice for time

charterers to take over and pay the charterers to take over and pay the owner for the bunkers remaining on owner for the bunkers remaining on board a vessel upon delivery on to time board a vessel upon delivery on to time charter ,and for owners to act similarly charter ,and for owners to act similarly upon redelivery ,the quantities of upon redelivery ,the quantities of fuel ,diesel and/or gas oil ,and the prices fuel ,diesel and/or gas oil ,and the prices per tonne of each being negotiated when per tonne of each being negotiated when fixing. fixing.

Page 53: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 4,5 and 29;Clause 4,5 and 29; Hire-Amount when ,where and to Hire-Amount when ,where and to

whom hire is payable and whom hire is payable and arrangements for other payments arrangements for other payments ,less deductions for items such ,less deductions for items such as port expenses and cash for as port expenses and cash for master Agreement for procedure master Agreement for procedure incase of late payment of hire. incase of late payment of hire.

Page 54: Charter Party

Type of CharterpartiesType of Charterparties Time CharterpartyTime Charterparty Clause 15;Clause 15; Off-Hire- Provisions leading to off-hire Off-Hire- Provisions leading to off-hire

situations –eg poor performance ,strike situations –eg poor performance ,strike of crew ,drydocking etc- and of crew ,drydocking etc- and appropriate deductions form hire appropriate deductions form hire payments.payments.

Vessel performance-This includes Vessel performance-This includes range of speed and consumptions say range of speed and consumptions say from 8 knots to 15 knots in both laden from 8 knots to 15 knots in both laden and ballast conditionsand ballast conditions

Page 55: Charter Party

Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Cargo Claims ;For their mutual Cargo Claims ;For their mutual

benefit it is important that the benefit it is important that the timecharterers and owners of the timecharterers and owners of the time chartered vessels reach an time chartered vessels reach an undertaking on how cargo claims undertaking on how cargo claims will be handled. will be handled.

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Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 8 &9;Clause 8 &9; Master/Officers-The duties of a Master/Officers-The duties of a

ship’s master are defined and it ship’s master are defined and it is spelt out that although a is spelt out that although a Master is the owner’s legal Master is the owner’s legal servant he must act under the servant he must act under the orders of the charterers as far as orders of the charterers as far as the employment is concerned.the employment is concerned.

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Type of CharterpartiesType of Charterparties Time CharterpartyTime Charterparty Clause 11;Clause 11; Logbooks-The charterers normally add Logbooks-The charterers normally add

this clause that they have the right to this clause that they have the right to check a vessel’s performance by reference check a vessel’s performance by reference to a specialised weather routing company to a specialised weather routing company eg Ocean routes and in the event that the eg Ocean routes and in the event that the log books and the independent reports log books and the independent reports disagree the independent reports take disagree the independent reports take precedence over the log books .This is precedence over the log books .This is important in respect of off-hre claims and important in respect of off-hre claims and vessel’s performance. vessel’s performance.

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Type of CharterpartiesType of Charterparties Time CharterpartyTime Charterparty Clause 10;Clause 10; Supercargo/Victualling-Spells out charterer’s Supercargo/Victualling-Spells out charterer’s

right to appoint a supercargo and the costs of right to appoint a supercargo and the costs of exercising this right with regard to meals and exercising this right with regard to meals and accommodation.accommodation.

Clause 38;Clause 38; Pollution-Many states are becoming Pollution-Many states are becoming

extremely conscious of pollution of their extremely conscious of pollution of their waterways and coastlines and merchant ship waterways and coastlines and merchant ship owners must ensure that their vessels comply owners must ensure that their vessels comply with a host of international and national with a host of international and national legislation in connection with this subject.legislation in connection with this subject.

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Type of CharterpartiesType of Charterparties Time CharterpartyTime Charterparty Clause 19; Clause 19; Salvage-It seems fair that expenses and rewards Salvage-It seems fair that expenses and rewards

in cases of salvage should be shared and this is in cases of salvage should be shared and this is normal practice.normal practice.

Clause 37;Clause 37; Laying up-Unlike tanker time charterparties it is Laying up-Unlike tanker time charterparties it is

only rarely that dry-cargo owner and time only rarely that dry-cargo owner and time charterers consider the risks of a vessel laying charterers consider the risks of a vessel laying up through lack of employment .What most dry-up through lack of employment .What most dry-cargo time charterparties do include ,however is cargo time charterparties do include ,however is reference to what happens if a vessel is detained reference to what happens if a vessel is detained in port for periods in excess of 30 days in port for periods in excess of 30 days

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Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 17;Clause 17; Arbitration Arbitration –an essential part of –an essential part of

any contract For example incase any contract For example incase ASBATIME specifies New York since ASBATIME specifies New York since the charterparty is drafted and the charterparty is drafted and published by a body of resident in published by a body of resident in New York. New York.

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Type of CharterpartiesType of Charterparties

Time CharterpartyTime Charterparty Clause 18;Clause 18; Lien-Just as an element of voyage Lien-Just as an element of voyage

charters each party’s right of lien charters each party’s right of lien must be considered and must be considered and stipulated.stipulated.

Clause 16;Clause 16; Exceptions-Similar to the voyage Exceptions-Similar to the voyage

charter clause. charter clause.

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Type of CharterpartiesType of Charterparties Time CharterpartyTime Charterparty Clause 8;Clause 8; Bill of Lading-Specifies the manner in Bill of Lading-Specifies the manner in

which bills of lading are to be drawn which bills of lading are to be drawn up ,the signing of same and protection for up ,the signing of same and protection for an owner in case of paper inconsistencies.an owner in case of paper inconsistencies.

Clause 35;Clause 35; Stevedore damage-Provision for Stevedore damage-Provision for

notification of stevedore damage and notification of stevedore damage and repairs.repairs.

Signature ;Not to be forgotten. Signature ;Not to be forgotten.

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Type of Charter partiesType of Charter parties

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

few months to over a year and in certain cases few months to over a year and in certain cases for a number of years. In case of time charter the for a number of years. In case of time charter the charterer takes a ship on daily hire basis for a charterer takes a ship on daily hire basis for a specific time period and utilises it for number of specific time period and utilises it for number of voyages in declared geographical range of ports voyages in declared geographical range of ports but is not bound to operate the vessel on fixed but is not bound to operate the vessel on fixed routes. routes.

The charterer has to ensure that the vessel is not The charterer has to ensure that the vessel is not required to sail beyond the International required to sail beyond the International Warranty Limits or in war zones without the Warranty Limits or in war zones without the owner’s knowledge. owner’s knowledge.

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Type of Charter partiesType of Charter parties

Time CharterTime Charter Decision for such operations is entirely the owner’s Decision for such operations is entirely the owner’s

prerogative. The time charter hires are payable in prerogative. The time charter hires are payable in advance, generally on fortnightly basis. advance, generally on fortnightly basis. Performance clauses are incorporated in time Performance clauses are incorporated in time charter parties. charter parties.

Underperformance on account of speed, excessive Underperformance on account of speed, excessive fuel consumption and deficiency in cargo handling fuel consumption and deficiency in cargo handling rates make the owner liable for compensation to rates make the owner liable for compensation to the charterer. In some charter parties a certain the charterer. In some charter parties a certain time period may be allowed for the regular routine time period may be allowed for the regular routine maintenance, beyond which the vessel becomes maintenance, beyond which the vessel becomes ‘off hire’, and pro rata deductions are made from ‘off hire’, and pro rata deductions are made from the time charter hire. the time charter hire.

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Type of Charter partiesType of Charter parties

Page 66: Charter Party

Type of Charter partiesType of Charter parties

Hybrid Charter partiesHybrid Charter parties It is becoming increasingly common to It is becoming increasingly common to

see charters which combine some of the see charters which combine some of the aspects of both time and voyage charters aspects of both time and voyage charters ,e.g.,e.g.

(1) Trip Charters i.e. Contracts obliging (1) Trip Charters i.e. Contracts obliging the charterer to pay hire for the time the charterer to pay hire for the time taken by the ship to complete a specified taken by the ship to complete a specified voyage e.g. round Atlantic voyage. voyage e.g. round Atlantic voyage.

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Type of Charter partiesType of Charter parties Hybrid Charter partiesHybrid Charter parties (2) Consecutive voyage charter parties (2) Consecutive voyage charter parties

e.g. four consecutive voyages between A e.g. four consecutive voyages between A and Band B

(3) Slot Charters space sharing (3) Slot Charters space sharing agreements i.e. agreements which enable agreements i.e. agreements which enable liner operators to utilize empty space on liner operators to utilize empty space on their ships by allowing other operators to their ships by allowing other operators to use some of the empty capacity in their use some of the empty capacity in their vessels in exchange for the right to use vessels in exchange for the right to use an equivalent amount of space on the an equivalent amount of space on the ships of such other operators. ships of such other operators.

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Type of Charter partiesType of Charter parties

Hybrid Charter partiesHybrid Charter parties Slot Charters This form of Slot Charters This form of

arrangement is common in the arrangement is common in the container trade and remuneration is container trade and remuneration is a complicated equation often a complicated equation often calculated with regard to the net calculated with regard to the net profit over a period by all the profit over a period by all the operators who are part of the operators who are part of the arrangement.arrangement.

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Ship Owner’s standpointShip Owner’s standpoint From the ship-owners point of view a charter From the ship-owners point of view a charter

provides income. However the owner has to decide provides income. However the owner has to decide his chartering strategy in order to maximize his his chartering strategy in order to maximize his income .If the ship is time chartered ,the income of income .If the ship is time chartered ,the income of the ship is guaranteed at a fixed period without the the ship is guaranteed at a fixed period without the need to repeatedly find new employment.need to repeatedly find new employment.

However during that period the market rate of hire However during that period the market rate of hire may go up or down .If the market rate goes down may go up or down .If the market rate goes down then the Owner will have benefited from the time then the Owner will have benefited from the time charter.charter.

However if the market rate has increased ,the time However if the market rate has increased ,the time charter will prevent the Owner from exploiting the charter will prevent the Owner from exploiting the higher market rate.higher market rate.

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Ship Owner’s standpointShip Owner’s standpoint

The Owner may therefore prefer-if The Owner may therefore prefer-if he feels that the market rate will he feels that the market rate will improve in the future –to avoid improve in the future –to avoid committing his ship to a time charter committing his ship to a time charter and fix his ship instead for a voyage and fix his ship instead for a voyage charter on the spot market and charter on the spot market and when lucrative fixtures become when lucrative fixtures become available.available.

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The Charterers The Charterers RequirementRequirement

The charterer is usually either a The charterer is usually either a speculator on the chartering market speculator on the chartering market who hopes to make a profit by a wise who hopes to make a profit by a wise strategy of chartering and sub-strategy of chartering and sub-chartering or is a trader who needs chartering or is a trader who needs transportation for his cargo.transportation for his cargo.

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The Charterers The Charterers RequirementRequirement

Example If the charterer is a trader who Example If the charterer is a trader who wishes to sell goods on CIF terms then ,if he wishes to sell goods on CIF terms then ,if he does not own a ship he will need to charter one does not own a ship he will need to charter one in order to satisfy his obligation under the in order to satisfy his obligation under the cargo sale contract to transport the goods to cargo sale contract to transport the goods to the buyer’s chosen port of delivery.the buyer’s chosen port of delivery.

He may either decided to secure transportation He may either decided to secure transportation for a period ( i.e. time charter) thereby for a period ( i.e. time charter) thereby knowing in advance what the transportation knowing in advance what the transportation cost element of his cargo sale will be for that cost element of his cargo sale will be for that period when negotiating the price of the goods period when negotiating the price of the goods or alternatively ,he may speculate on the or alternatively ,he may speculate on the market and secure transportation for a market and secure transportation for a particular cargo to a particular destination.particular cargo to a particular destination.

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The Charterers The Charterers RequirementRequirement

He will negotiating the sale of that He will negotiating the sale of that cargo ( i.e. voyage charter)cargo ( i.e. voyage charter)

Whether the charter is a time charter or Whether the charter is a time charter or a voyage charter the charter will be a voyage charter the charter will be looking for terms which provide him looking for terms which provide him with the maximum flexibility to control with the maximum flexibility to control the employment of the ship since his the employment of the ship since his transportation requirements may well transportation requirements may well change depending on the requirements change depending on the requirements of the cargo sale contract. of the cargo sale contract.

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Terms of the CharterTerms of the Charter

Conditions ,Warranties and In Conditions ,Warranties and In nominate Termsnominate Terms

Warranty is a term of less Warranty is a term of less importance ,the breach of which will importance ,the breach of which will normally allow the innocent party to normally allow the innocent party to claim damages but not to terminate claim damages but not to terminate the contract.the contract.

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Terms of the CharterTerms of the Charter Conditions ,Warranties and In nominate Conditions ,Warranties and In nominate

TermsTerms Condition is a term of such importance that Condition is a term of such importance that

any breach of it will entitle the innocent any breach of it will entitle the innocent party to terminate the contract forthwith.party to terminate the contract forthwith.

Example;Example; (a) A statement that the ship is fully classed(a) A statement that the ship is fully classed (b) The duty to proceed on a voyage without (b) The duty to proceed on a voyage without

deviation.deviation. (c ) A statement that the vessel is expected (c ) A statement that the vessel is expected

ready to load by a certain date.ready to load by a certain date.

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Terms of the CharterTerms of the Charter

Conditions ,Warranties and In Conditions ,Warranties and In nominate Termsnominate Terms

Conditions;Conditions; Example;Example; (d) A statement relating to the (d) A statement relating to the

ship’s flag in wartime.ship’s flag in wartime. (e) A statement that no dangerous (e) A statement that no dangerous

on unlawful goods will be shipped on unlawful goods will be shipped

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Terms of CharterTerms of Charter Conditions ,Warranties and In Conditions ,Warranties and In

nominate Termsnominate Terms In nominate ( or Intermediate terms)In nominate ( or Intermediate terms) In general it appears that terms In general it appears that terms

relating to the vessel’s description will relating to the vessel’s description will be treated as intermediate terms in be treated as intermediate terms in which case the question of whether or which case the question of whether or not the charter can be terminated will not the charter can be terminated will depend upon the seriousness of the depend upon the seriousness of the effect of the breach.effect of the breach.

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Terms which are implied Terms which are implied by lawby law

Even when the charter is silent on a particular Even when the charter is silent on a particular issue ,the law may imply a term if it is necessary issue ,the law may imply a term if it is necessary to do so it give business efficacy to the contract.to do so it give business efficacy to the contract.

The court will not be over ready to do so and The court will not be over ready to do so and will certainly not do so merely to save one of the will certainly not do so merely to save one of the parties from a bad deal or to make the contract parties from a bad deal or to make the contract fairerfairer

Prima facie that which in any contract is left to Prima facie that which in any contract is left to be implied and need not be expressed is be implied and need not be expressed is something so obvious that it goes without saying something so obvious that it goes without saying so that if while the parties were making their so that if while the parties were making their bargain ,an officious bystander were to suggest bargain ,an officious bystander were to suggest some express provision for it in their agreement. some express provision for it in their agreement.

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Terms which are implied Terms which are implied by lawby law

ExamplesExamples (1) That the ship is seaworthy(1) That the ship is seaworthy (2) That the owner will proceed with (2) That the owner will proceed with

the voyage with reasonable dispatchthe voyage with reasonable dispatch (3) That the charterer will not ship (3) That the charterer will not ship

dangerous cargo.dangerous cargo. (4) That the port nominated by the (4) That the port nominated by the

charter will be safe for the vessel charter will be safe for the vessel

Page 80: Charter Party

Chartering OperationsChartering Operations

LinerLiner TrampingTramping

Page 81: Charter Party

Chartering OperationsChartering Operations

Liner OperationsLiner Operations Liner shipping is associated with fixed Liner shipping is associated with fixed

sailing schedules of vessels, providing sailing schedules of vessels, providing predetermined sailing frequencies, range predetermined sailing frequencies, range of the sailing dates, fixed routes and range of the sailing dates, fixed routes and range of ports that are covered on the voyages. of ports that are covered on the voyages.

The system comprises sharing of cargo The system comprises sharing of cargo capacities of member shipping lines on capacities of member shipping lines on agreed tariff rates to organise reliable and agreed tariff rates to organise reliable and regular sailing patterns. regular sailing patterns.

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Chartering OperationsChartering Operations

Liner OperationsLiner Operations The ships operating on liner terms may be general The ships operating on liner terms may be general

cargo ships carrying break bulk cargo, container cargo ships carrying break bulk cargo, container vessels, Ro-Ro vessels etc. Liner vessels carry a mix vessels, Ro-Ro vessels etc. Liner vessels carry a mix of smaller parcels of different types of cargoes during of smaller parcels of different types of cargoes during the same voyage. the same voyage.

When vessels are operated under liner terms the When vessels are operated under liner terms the applicable freight rates are normally those that are applicable freight rates are normally those that are negotiated and decided by the Liner Conferences. negotiated and decided by the Liner Conferences.

The conferences publish the schedule of freight rates The conferences publish the schedule of freight rates and conditions for carriage. These freight rates and conditions for carriage. These freight rates remain in force for long periods and have provisions remain in force for long periods and have provisions of adjustments e.g. surcharge for fuel prices, undue of adjustments e.g. surcharge for fuel prices, undue delays in some ports etc. delays in some ports etc.

Page 83: Charter Party

Chartering OperationsChartering Operations

Liner OperationsLiner Operations Marketing;Marketing; In context of shipping it refers to marketing In context of shipping it refers to marketing

of the ship’s services (space for cargo). of the ship’s services (space for cargo). Securing cargo for ships involves continuous Securing cargo for ships involves continuous market survey, advertising ship’s voyage market survey, advertising ship’s voyage schedules and direct contact with the clients. schedules and direct contact with the clients.

Shipping company may have a marketing Shipping company may have a marketing department with professionals dedicated to department with professionals dedicated to canvassing for cargo and related canvassing for cargo and related documentation. documentation.

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Chartering OperationsChartering Operations

Operations on Tramping TermsOperations on Tramping Terms Vessels operating on tramping terms are Vessels operating on tramping terms are

mostly those carrying bulk cargoes which mostly those carrying bulk cargoes which may be dry bulk cargoes like ore, coal, grain may be dry bulk cargoes like ore, coal, grain etc. or liquid bulk cargoes like crude oil, etc. or liquid bulk cargoes like crude oil, petroleum products, chemicals etc. petroleum products, chemicals etc.

Tramping terms normally mean carriage of Tramping terms normally mean carriage of one commodity of cargo involving one one commodity of cargo involving one shipper, one consignee and one bill of lading. shipper, one consignee and one bill of lading. Although at times there may be more number Although at times there may be more number of consignees and cargo parcels carried of consignees and cargo parcels carried under different bills of lading.under different bills of lading.

Page 85: Charter Party

Chartering OperationsChartering Operations

Operation on Tramping TermsOperation on Tramping Terms The freight rate or hire rate of a vessel The freight rate or hire rate of a vessel

is agreed upon, between the ship owner is agreed upon, between the ship owner or operating owner and the cargo or operating owner and the cargo owner or shipper. Negotiations are owner or shipper. Negotiations are made through intermediaries known as made through intermediaries known as the owner’s brokers and charterers’ the owner’s brokers and charterers’ agents who match requirements of agents who match requirements of cargoes with the ships and vice a versa. cargoes with the ships and vice a versa.

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Chartering OperationsChartering Operations

Operations on Tramping TermsOperations on Tramping Terms They get paid for their services by way of They get paid for their services by way of

brokerage and address commission brokerage and address commission respectively. respectively.

The agreements for carriage of cargo The agreements for carriage of cargo between the owners and the charterers are between the owners and the charterers are known as charter parties. There are known as charter parties. There are different types of charter parties for different different types of charter parties for different types of cargoes, geographical locations, types of cargoes, geographical locations, terms for carriage, handling of cargoes etc. terms for carriage, handling of cargoes etc.

The standard formats of charter parties The standard formats of charter parties facilitate faster agreements as most terms facilitate faster agreements as most terms and conditions are known to both the parties.and conditions are known to both the parties.

Page 87: Charter Party

Chartering OperationsChartering Operations

Operations on Tramping TermsOperations on Tramping Terms There are different types of charter There are different types of charter

parties for different types of cargoes, parties for different types of cargoes, geographical locations, terms for geographical locations, terms for carriage, handling of cargoes etc. carriage, handling of cargoes etc.

The standard formats of charter The standard formats of charter parties facilitate faster agreements as parties facilitate faster agreements as most terms and conditions are known most terms and conditions are known to both the parties.to both the parties.

Page 88: Charter Party

Chartering OperationsChartering Operations

Operations on Tramping TermsOperations on Tramping Terms

Standard formats have been developed or approved Standard formats have been developed or approved by internationally reputed institutions like Baltic by internationally reputed institutions like Baltic and International Maritime Council (BIMCO); and International Maritime Council (BIMCO); International Association of Independent Tanker International Association of Independent Tanker Owners (INTERTANKO); General Council of British Owners (INTERTANKO); General Council of British Shipping (GCBS); Institute of Chartered Shipping (GCBS); Institute of Chartered Shipbrokers; Association of Shipbrokers and Agents Shipbrokers; Association of Shipbrokers and Agents USA etc. USA etc.

Amendments in a charter party is made as Amendments in a charter party is made as necessary for a specific voyage by necessary for a specific voyage by inclusions/replacements/removal of clauses on the inclusions/replacements/removal of clauses on the basis of agreements between the two parties for basis of agreements between the two parties for

Page 89: Charter Party

Operations on Tramping Operations on Tramping Terms:Terms:

Voyage estimating:Voyage estimating: Voyage estimating is an important function Voyage estimating is an important function

under chartering and operations. It is a under chartering and operations. It is a process of estimating viability of a voyage. process of estimating viability of a voyage.

It involves estimation of expected revenue and It involves estimation of expected revenue and expenses that will have to be incurred for expenses that will have to be incurred for making a prospective voyage and is an making a prospective voyage and is an essential exercise to find the best option out essential exercise to find the best option out of different alternatives that may be available of different alternatives that may be available for a ship’s employment.for a ship’s employment.

Offers for prospective employment are Offers for prospective employment are compared on a common datum of earnings, compared on a common datum of earnings, which may be either daily Gross Operating which may be either daily Gross Operating Profit (GOP) also called Gross Daily Surplus, Profit (GOP) also called Gross Daily Surplus, Nett Daily Surplus, the TC Rate or Daily YieldNett Daily Surplus, the TC Rate or Daily Yield

Page 90: Charter Party

Operations on Tramping Operations on Tramping Terms:Terms:

When whole ship is fixed on a voyage charter and the When whole ship is fixed on a voyage charter and the freight rates are applied on the basis of per tonne of freight rates are applied on the basis of per tonne of cargo it becomes desirable to load maximum amount cargo it becomes desirable to load maximum amount of cargo. Then it becomes necessary to calculate the of cargo. Then it becomes necessary to calculate the maximum quantity of cargo that can be carried for maximum quantity of cargo that can be carried for the purpose of voyage estimation. the purpose of voyage estimation.

This calculation involves taking into consideration This calculation involves taking into consideration the DWT, hold capacities, stowage factor, available the DWT, hold capacities, stowage factor, available depths of water in the loading and discharging ports, depths of water in the loading and discharging ports, geographical areas the ship is required to trade, geographical areas the ship is required to trade, seasonal draught restrictions, variation of draught seasonal draught restrictions, variation of draught that may be encountered due to the change in water that may be encountered due to the change in water density, quantity of fuel and water needed for the density, quantity of fuel and water needed for the voyage and ship’s constantsvoyage and ship’s constants

Page 91: Charter Party

Operations on Tramping Operations on Tramping Terms:Terms:

.On the expense side the costs and .On the expense side the costs and time for cargo handling, costs for time for cargo handling, costs for river or canal transit as applicable, river or canal transit as applicable, cost of fuel, vessel’s standing cost of fuel, vessel’s standing charges etc. are calculated to assess charges etc. are calculated to assess the voyage viability.the voyage viability.

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Operations on Tramping Operations on Tramping Terms:Terms:

Operating ExpensesOperating Expenses:: The expenses involved in ship operations are The expenses involved in ship operations are

generally classified in two types. First are generally classified in two types. First are those that are incurred when the ship those that are incurred when the ship actually makes a voyage, whether it is actually makes a voyage, whether it is loaded with cargo or is on ballast. loaded with cargo or is on ballast.

The expenses are termed as direct operating The expenses are termed as direct operating expenses (DOE). The second types are those expenses (DOE). The second types are those that need to be incurred irrespective of that need to be incurred irrespective of whether the vessel is sailing or not. whether the vessel is sailing or not.

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

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Operations on Tramping Operations on Tramping Terms:Terms:

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

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

Apart from providing a standard, the use of forms Apart from providing a standard, the use of forms provides and assurance to the estimator that no provides and assurance to the estimator that no details are left out. The forms are also helpful in details are left out. The forms are also helpful in assessing the actual value of the estimations after assessing the actual value of the estimations after the voyage has been completed as well as serve as the voyage has been completed as well as serve as a reference for future estimationsa reference for future estimations

Page 94: Charter Party

Operations on Tramping Operations on Tramping Terms:Terms:

Computer Programmes:Computer Programmes: Custom built computer software programmes Custom built computer software programmes

are now available for the purpose of voyage are now available for the purpose of voyage estimation. The computer database holds the estimation. The computer database holds the ships’ particulars including fuel consumption at ships’ particulars including fuel consumption at different speeds that in the normal range of different speeds that in the normal range of operations. Based on the essential parameters operations. Based on the essential parameters programmed into it, the system provides programmed into it, the system provides available deadweight capacity once information available deadweight capacity once information such as draught; density of water and bunker such as draught; density of water and bunker remaining on board are entered while it picks remaining on board are entered while it picks up the constants form database and provides for up the constants form database and provides for these in the calculationsthese in the calculations

Page 95: Charter Party

Operations on Tramping Operations on Tramping Terms:Terms:

Computer Programmes:Computer Programmes: The programme provides shortest distances between The programme provides shortest distances between

link ports like Singapore, Suez, Panama etc, requiring link ports like Singapore, Suez, Panama etc, requiring only additional distances to be entered in. The only additional distances to be entered in. The programme also calculates the ship’s draughts programme also calculates the ship’s draughts applicable to the load line zones deduced from the applicable to the load line zones deduced from the dates of the prospective voyage. dates of the prospective voyage.

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

In case programmed for tankers it can provide tank In case programmed for tankers it can provide tank wise capacities taking into consideration the volume wise capacities taking into consideration the volume variations due to temperatures as well as corrections variations due to temperatures as well as corrections for list and trim.for list and trim.

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Operations on Tramping Operations on Tramping Terms:Terms:

Computer ProgramsComputer Programs The programme provides a number The programme provides a number

of figures for TC rates based on of figures for TC rates based on small step variations (10 cents per small step variations (10 cents per tonne) of freight rates.tonne) of freight rates.

Page 97: Charter Party

" BIMCO NEWS RELEASE MONDAY " BIMCO NEWS RELEASE MONDAY 29TH JULY 2002“29TH JULY 2002“

BIMCO, the world's largest shipping BIMCO, the world's largest shipping organisation, has just added NORGRAIN organisation, has just added NORGRAIN '89 to its innovative Internet Document '89 to its innovative Internet Document Editing Application (idea), officially Editing Application (idea), officially launched a year ago in Beijing.launched a year ago in Beijing.

The number of companies using idea The number of companies using idea now exceeds 200 and includes not only now exceeds 200 and includes not only ship-owners and shipbrokers, but also ship-owners and shipbrokers, but also ship management companies, port ship management companies, port agents and law firmsagents and law firms

Page 98: Charter Party

In addition to numerous In addition to numerous conventional voyage and time conventional voyage and time charter parties, idea offers charter parties, idea offers electronic versions of ship and crew electronic versions of ship and crew management agreements, towage management agreements, towage contracts, bills of lading and contracts, bills of lading and statements of fact. statements of fact.

Page 99: Charter Party

BIMCO's idea comes with free BIMCO's idea comes with free access to a comprehensive library of access to a comprehensive library of popular standard shipping forms, to popular standard shipping forms, to which BIMCO will add new forms on which BIMCO will add new forms on a regular basis. Among the a regular basis. Among the documents currently available on the documents currently available on the system are:system are:

Page 100: Charter Party

Various BIMCO Contracts;Various BIMCO Contracts; AMWELSH 93AMWELSH 93 BALTIME 1939BALTIME 1939 BARECON 89BARECON 89 BIMCO STANDARD BUNKER CONTRACT BIMCO STANDARD BUNKER CONTRACT

20012001 BOXTIMEBOXTIME BPTIME 3BPTIME 3 CONGENBILL 1994CONGENBILL 1994

Page 101: Charter Party

Various BIMCO ContractsVarious BIMCO Contracts;; CONLINEBILL 2000CONLINEBILL 2000 CONLINEBOOKING 2000CONLINEBOOKING 2000 CREWMAN ACREWMAN A CREWMAN BCREWMAN B FUELCONFUELCON GENCON 94GENCON 94 GENTIMEGENTIME HEAVYCONHEAVYCON

Page 102: Charter Party

Various BIMCO Contracts;Various BIMCO Contracts; HYDROCHARTERHYDROCHARTER NORGRAIN 89NORGRAIN 89 SALEFORM 87SALEFORM 87 SALEFORM 93SALEFORM 93 SHIPMAN 98SHIPMAN 98 SLOTHIRESLOTHIRE Statement of Facts (short form)Statement of Facts (short form) SUPPLYTIME 89SUPPLYTIME 89 SYNACOMEX 2000SYNACOMEX 2000 TOWCONTOWCON TOWHIRETOWHIRE VOLCOAVOLCOA WORLDFOOD 99.WORLDFOOD 99.

Page 103: Charter Party

More information about BIMCO's More information about BIMCO's idea can be obtained from idea can be obtained from BIMCO's web site BIMCO's web site at at www.bimco.dk/ideawww.bimco.dk/idea..

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

Lading Lading In the vast majority of cases a charterer is In the vast majority of cases a charterer is

either a trader who is selling or buying goods either a trader who is selling or buying goods or is someone acting for such a party or is someone acting for such a party vis-à-vis vis-à-vis the ship-owner and the main purpose of a the ship-owner and the main purpose of a chartered ship is to carry goods to the chartered ship is to carry goods to the satisfaction of a contract for the International satisfaction of a contract for the International sale of goods. sale of goods.

The ability of the charterer to obtain a bill of The ability of the charterer to obtain a bill of lading from the ship is a fundamental lading from the ship is a fundamental requirement since without a bill of lading ,the requirement since without a bill of lading ,the trader will have great difficulty in selling the trader will have great difficulty in selling the goods. goods.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Important points to rememberImportant points to remember The seller often knows nothing of the The seller often knows nothing of the

fundamental standing of the buyer and is fundamental standing of the buyer and is taking the risk in considering his good unless taking the risk in considering his good unless he can reasonably certain of being paid for he can reasonably certain of being paid for them.them.

The obvious solution that of demanding The obvious solution that of demanding payment in advance is unlikely to appeal to payment in advance is unlikely to appeal to the buyer ,who may have no reason to trust the buyer ,who may have no reason to trust the seller to ship goods of the promised the seller to ship goods of the promised quantity and descriptionquantity and description. .

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Important points to rememberImportant points to remember The buyer is not usually present or The buyer is not usually present or

represented at the load port and is not represented at the load port and is not therefore in a position to inspect the therefore in a position to inspect the goods.goods.

Furthermore even after the shipment so Furthermore even after the shipment so long as the cargo remains at sea its long as the cargo remains at sea its quantity and condition cannot be quantity and condition cannot be inspected by any further potential buyer.inspected by any further potential buyer.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Important points to rememberImportant points to remember The cargo whilst at sea cannot be The cargo whilst at sea cannot be

physically transferred to a new physically transferred to a new buyer.buyer.

The only way in which the seller can The only way in which the seller can effect a transfer of any part of such effect a transfer of any part of such cargo is by transferring instead a cargo is by transferring instead a document of title which is accepted document of title which is accepted as being the documentary equivalent as being the documentary equivalent of that cargo.of that cargo.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading The Bills of lading was invented to cure these The Bills of lading was invented to cure these

difficulties and has the following functions;difficulties and has the following functions; (1) It is a receipt given by the carrier for the (1) It is a receipt given by the carrier for the

goods which describes the apparent order and goods which describes the apparent order and condition and quantity or weight of the goods condition and quantity or weight of the goods on shipment ;andon shipment ;and

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

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

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Payment for the goods can therefore Payment for the goods can therefore

be made against the bill of lading be made against the bill of lading and bill can be negotiated ( provided and bill can be negotiated ( provided it has been made out to order) from it has been made out to order) from one holder to another ,thereby one holder to another ,thereby transferring from one holder to transferring from one holder to another the right to obtain delivery another the right to obtain delivery of the goods from the ship. of the goods from the ship.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading A sea waybill-otherwise known as a waybill is A sea waybill-otherwise known as a waybill is

also a receipt and a contract of carriage.also a receipt and a contract of carriage. However it is not treated as a document of However it is not treated as a document of

title since unlike Bill of Lading it not title since unlike Bill of Lading it not negotiable and remains at all times a contract negotiable and remains at all times a contract with the shipper.with the shipper.

Since the sea waybill is neither negotiable nor Since the sea waybill is neither negotiable nor a document of title it is not well suited to a document of title it is not well suited to transactions involving documentary credits transactions involving documentary credits because banks tend to place great importance because banks tend to place great importance on security. on security.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Sea waybill should therefore be used Sea waybill should therefore be used

only when there is no intention of only when there is no intention of on-selling the goods during the on-selling the goods during the course of the voyage.course of the voyage.

For this reason they are used most For this reason they are used most often in the container tradeoften in the container trade

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-Which is the governing contract of carriage-

The Charter Party or the Bill of Lading?The Charter Party or the Bill of Lading? Since the bill of lading is a receipt for the Since the bill of lading is a receipt for the

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

However if the vessel has been chartered it However if the vessel has been chartered it will probably come into operation as a result will probably come into operation as a result of orders which have already been given by of orders which have already been given by the charterer under the charter party. the charterer under the charter party.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-The Which is the governing contract of carriage-The

Charter Party or the Bill of Lading?Charter Party or the Bill of Lading? However since the Bill of Lading is also a contract of However since the Bill of Lading is also a contract of

carriage of goods a potential conflict arises between carriage of goods a potential conflict arises between the two contracts.the two contracts.

It would be commercial nonsense for there to be two It would be commercial nonsense for there to be two contracts between the same two parties for the contracts between the same two parties for the carriage of the same goods on the same voyage.carriage of the same goods on the same voyage.

Accordingly the law has adopted a common sense Accordingly the law has adopted a common sense approach and has held that when a bill of lading is approach and has held that when a bill of lading is held by a party who already has a charterparty held by a party who already has a charterparty contract with the person who is the carrier under the contract with the person who is the carrier under the bill of lading ,the bill is to be treated as a receipt and bill of lading ,the bill is to be treated as a receipt and a document of title-but not as a contract of carraige.a document of title-but not as a contract of carraige.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of Which is the governing contract of

carriage-The Charter Party or the Bill of carriage-The Charter Party or the Bill of Lading?Lading?

However once that Bill of Lading is However once that Bill of Lading is endorsed to a party who is not a party to endorsed to a party who is not a party to the charter party then in his hands ,the the charter party then in his hands ,the bill of lading operates not only as a bill of lading operates not only as a receipt and a document of title but also receipt and a document of title but also as a contract of carriage between him as a contract of carriage between him and the carrier. and the carrier.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-Which is the governing contract of carriage-

The Charter Party or the Bill of Lading?The Charter Party or the Bill of Lading? This is explained by Evans LJ in the case of This is explained by Evans LJ in the case of

Island ArchonIsland Archon Legal relations between shipowner and Legal relations between shipowner and

charterer are governed by their contract charterer are governed by their contract contained in the charterparty.contained in the charterparty.

When a bill of lading is issued or is When a bill of lading is issued or is transferred to the owner or person entitled transferred to the owner or person entitled to possession of the cargo who is not the to possession of the cargo who is not the charterer ,then it contains or evidences a charterer ,then it contains or evidences a separate contract between the shipowner separate contract between the shipowner and that other person.and that other person.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-Which is the governing contract of carriage-

The Charter Party or the Bill of Lading?The Charter Party or the Bill of Lading? Example 1Example 1 A is a seller of goods on CIF terms to A is a seller of goods on CIF terms to

B .Under that contract it is the duty of A to B .Under that contract it is the duty of A to arrange the transportation of the goods to B arrange the transportation of the goods to B and in order to perform his duties under the and in order to perform his duties under the sale of contract.sale of contract.

A charters a ship from her owner CA charters a ship from her owner C Once the cargo has been shipped a bill of Once the cargo has been shipped a bill of

lading is signed by the ship’s master on lading is signed by the ship’s master on behalf of his owner as carriers and released behalf of his owner as carriers and released to A as shipper.to A as shipper.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-Which is the governing contract of carriage-

The Charter Party or the Bill of Lading?The Charter Party or the Bill of Lading? Example 1Example 1 Whilst the bill of lading is held by A it does Whilst the bill of lading is held by A it does

not operate as a contract of carriage not operate as a contract of carriage between A and C since there is already a between A and C since there is already a Charterparty contract between those two Charterparty contract between those two parties.parties.

When the bill of lading is endorsed by A to When the bill of lading is endorsed by A to B pursuant to the contract of sale then ,in B pursuant to the contract of sale then ,in the hands of B it operates as a contract of the hands of B it operates as a contract of carriage between B and C since there is no carriage between B and C since there is no charter party contract between B and C. charter party contract between B and C.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-Which is the governing contract of carriage-

The Charter Party or the Bill of Lading?The Charter Party or the Bill of Lading? Example 2Example 2 A sells B on FOB terms .In this case the duty A sells B on FOB terms .In this case the duty

to provide the transportation falls on B and to provide the transportation falls on B and he charters the ship C .Once the cargo has he charters the ship C .Once the cargo has been shipped the master releases the bill of been shipped the master releases the bill of lading to A as shipper.lading to A as shipper.

Whilst the bill of lading is held by A it Whilst the bill of lading is held by A it operates as a contract of carriage between A operates as a contract of carriage between A and C since there is no charter party contract and C since there is no charter party contract between A and C.between A and C.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Which is the governing contract of carriage-Which is the governing contract of carriage-

The Charter Party or the Bill of Lading?The Charter Party or the Bill of Lading? Example 2Example 2 Once the bill of lading is endorsed by A to B Once the bill of lading is endorsed by A to B

the bill of lading will not operate as a contract the bill of lading will not operate as a contract of carriage between B and C since there is of carriage between B and C since there is already a charter party contract between B already a charter party contract between B and C.and C.

Once the bill is further endorsed by B to D it Once the bill is further endorsed by B to D it operates as a contract of carriage between D operates as a contract of carriage between D and C since there is no charter party contract and C since there is no charter party contract between D and C.between D and C.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Conflicting duties under the Charter Conflicting duties under the Charter

Party and the Bill of LadingParty and the Bill of Lading Once the cargo has been shipped under a Once the cargo has been shipped under a

Chartered vessel it is clear that the ship Chartered vessel it is clear that the ship owner can be a party to different owner can be a party to different contracts( the charter party and the bill of contracts( the charter party and the bill of lading) with two different contracting parties lading) with two different contracting parties (the charterer under the charter party and (the charterer under the charter party and the consignee under the bill of lading).the consignee under the bill of lading).

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

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Conflicting duties under the Charter Party and Conflicting duties under the Charter Party and

the Bill of Ladingthe Bill of Lading Example 1Example 1 Employment orders given by the charterer under the Employment orders given by the charterer under the

charter party may put the owner in breach of his charter party may put the owner in breach of his obligations to the cargo owner under the bill of obligations to the cargo owner under the bill of lading.lading.

An order given by a charterer to change the port of An order given by a charterer to change the port of discharge from Port A to B after the Bills of lading discharge from Port A to B after the Bills of lading have been released for Port A would if the have been released for Port A would if the shipowner complied with them make him guilty of shipowner complied with them make him guilty of deviation under the bill of lading contract.deviation under the bill of lading contract.

This could seriously prejudice his P&I cover This could seriously prejudice his P&I cover ( Insurance)( Insurance)

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Conflicting duties under the Charter Conflicting duties under the Charter

Party and the Bill of LadingParty and the Bill of Lading ExampleExample The issue of a bill of lading may seriously The issue of a bill of lading may seriously

diminish the effectiveness of rights which diminish the effectiveness of rights which the owner may have under the charter.the owner may have under the charter.

For example an owner has the right under For example an owner has the right under Clause 5 of the NYPE form of charter to Clause 5 of the NYPE form of charter to withdraw the vessel from the charterer’s withdraw the vessel from the charterer’s employment if hire has not punctually employment if hire has not punctually been paid.been paid.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Conflicting duties under the Charter Party Conflicting duties under the Charter Party

and the Bill of Ladingand the Bill of Lading ExampleExample However if a bill of lading has been issued in the However if a bill of lading has been issued in the

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

These obligations include the duty to proceed to These obligations include the duty to proceed to and deliver the cargo at the port specified in the and deliver the cargo at the port specified in the bill of lading even though the bill of lading bill of lading even though the bill of lading freight may already have been pre-paid to the freight may already have been pre-paid to the charterer and even though no further hire will charterer and even though no further hire will be payable under the time charter.be payable under the time charter.

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Relationship between the Relationship between the Charter party and Bills of Charter party and Bills of

LadingLading Conflicting duties under the Conflicting duties under the

Charter Party and the Bill of LadingCharter Party and the Bill of Lading ExampleExample Indeed the owner may even have to pay Indeed the owner may even have to pay

out of his own pocket port out of his own pocket port expenses ,stevedoring charges and expenses ,stevedoring charges and other costs which should have been for other costs which should have been for the time charterer’s account under the the time charterer’s account under the time charter if the charter had not time charter if the charter had not been terminated by the withdrawal.been terminated by the withdrawal.

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Oil Tanker Freights Oil Tanker Freights AVERAGE FREIGHT RATE ASSESSMENT (AFRA)AVERAGE FREIGHT RATE ASSESSMENT (AFRA) IntroductionIntroduction AFRA and its Terms of Reference was originally AFRA and its Terms of Reference was originally

laid down and sponsored by Shell and laid down and sponsored by Shell and subsequently BP for their internal use.subsequently BP for their internal use.

In 1982, shell and BP stopped sponsoring it. In 1982, shell and BP stopped sponsoring it. It is now compiled by the London Tanker Brokers It is now compiled by the London Tanker Brokers

Panel and is based on information relating to Panel and is based on information relating to transport agreements supplied by various oil transport agreements supplied by various oil companies and also from all known fixtures companies and also from all known fixtures concluded on the open market. concluded on the open market.

It is recognized by tax authorities in many It is recognized by tax authorities in many countries for pricing of intra-company oil countries for pricing of intra-company oil movements. movements.

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Oil Tanker FreightsOil Tanker Freights AVERAGE FREIGHT RATE ASSESSMENT (AFRA)AVERAGE FREIGHT RATE ASSESSMENT (AFRA) Principle Principle To establish an average transportation cost per To establish an average transportation cost per

ton in a given month for vessel in different size ton in a given month for vessel in different size categories. categories.

To represents the cost of all chartered tonnage To represents the cost of all chartered tonnage actually operating in the month being assessed, actually operating in the month being assessed, irrespective of when the vessel was fixed. irrespective of when the vessel was fixed.

Fixtures concluded during the period of Fixtures concluded during the period of assessment will not affect the result unless such assessment will not affect the result unless such vessel is actually performing a voyage during vessel is actually performing a voyage during the assessment month. the assessment month.

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Oil Tanker FreightsOil Tanker Freights

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

costs so that the rate paid by the affiliate costs so that the rate paid by the affiliate reflects the cost of chartered tonnage reflects the cost of chartered tonnage operating in the month being calculated. operating in the month being calculated.

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

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

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Oil Tanker FreightsOil Tanker Freights

AFRA rate DWT categories AFRA rate DWT categories General purpose – 16,500/24,000General purpose – 16,500/24,000 Medium range – 25,000/44,999Medium range – 25,000/44,999 Large range 1 – 45,000/79,999Large range 1 – 45,000/79,999 Large range 2 – 80,000/159,999Large range 2 – 80,000/159,999 VLCC – 160,000/319,999VLCC – 160,000/319,999 ULCC – 320,000/549,999ULCC – 320,000/549,999

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Oil Tanker FreightsOil Tanker Freights Vessels not included in the assessmentVessels not included in the assessment Government-owned vessels except when on Government-owned vessels except when on

commercial chartercommercial charter Vessels employed in specialized trades such as the Vessels employed in specialized trades such as the

carriage of clean oils, petrochemicals, lube oils, carriage of clean oils, petrochemicals, lube oils, bitumen, etc. bitumen, etc.

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

Components in each size category Components in each size category Company vesselsCompany vessels Vessels on long term charter (>18 months)Vessels on long term charter (>18 months) Vessels on short term charter (<18 months)Vessels on short term charter (<18 months) Vessels on single voyage charterVessels on single voyage charter

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Oil Tanker FreightsOil Tanker Freights The mechanics of AFRA The mechanics of AFRA The calculations are made for the period from The calculations are made for the period from

the 16th of a month to the 15th of the next the 16th of a month to the 15th of the next month, both dates inclusive. It is the month, both dates inclusive. It is the weighted average of commercially chartered weighted average of commercially chartered tonnage as employed in the international tonnage as employed in the international transport of oil during the period considered. transport of oil during the period considered.

Vessels fixtures for each of the above four Vessels fixtures for each of the above four vessel categories are supplied by member vessel categories are supplied by member companies who use AFRA and from report of companies who use AFRA and from report of fixtures concluded on the market for loading fixtures concluded on the market for loading in the period under assessment. in the period under assessment.

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Oil Tanker FreightsOil Tanker Freights AFRA Assessment steps AFRA Assessment steps The carrying capacity of each vessel The carrying capacity of each vessel

operating during the assessment period is operating during the assessment period is calculated using a standard voyage. calculated using a standard voyage.

The weighted average rate in US dollars per The weighted average rate in US dollars per ton for carrying a ton of oil on that standard ton for carrying a ton of oil on that standard voyage is estimated for each of the four voyage is estimated for each of the four vessel oil on that standard voyage is vessel oil on that standard voyage is estimated for each of the four vessel types. estimated for each of the four vessel types. For vessels that are on time charter, the For vessels that are on time charter, the TCH/DWT /month is converted into cost per TCH/DWT /month is converted into cost per ton of cargo for the standard voyage. ton of cargo for the standard voyage.

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Oil Tanker FreightsOil Tanker Freights AFRA Assessment stepsAFRA Assessment steps An overall weighted average is calculated An overall weighted average is calculated

for each size group as follows: for each size group as follows: (Total carrying capacity of each size (Total carrying capacity of each size

category) x (Weighted average rate for category) x (Weighted average rate for that size category)that size category)

The values arrived are in US dollars per The values arrived are in US dollars per ton and are converted into WS index on the ton and are converted into WS index on the basis of the standard voyage used and are basis of the standard voyage used and are published as a WS Index Figure for each published as a WS Index Figure for each size category. size category.

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Oil Tanker FreightsOil Tanker Freights WORLD SCALEWORLD SCALE The WORLDSCALE Associations of London The WORLDSCALE Associations of London

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

The book is revised yearly to take account The book is revised yearly to take account of changes in bunker prices and port dues, of changes in bunker prices and port dues, amendments are also published from time amendments are also published from time to time throughout the year.to time throughout the year.

These “base” rates are given in US$ per These “base” rates are given in US$ per tonne of cargo and take into account bunker tonne of cargo and take into account bunker prices, canal transit times and port charges.prices, canal transit times and port charges.

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Oil Tanker Freights Oil Tanker Freights World ScaleWorld Scale The rate is based on a standard vessel of 75,000 The rate is based on a standard vessel of 75,000

tonnes cargo capacity costing $ 12,000 per day fixed tonnes cargo capacity costing $ 12,000 per day fixed hire and performing a round voyage load/discharge hire and performing a round voyage load/discharge and back to load port at 14.5 knots on 55 tonnes of and back to load port at 14.5 knots on 55 tonnes of fuel oil per day. It must be emphasized that these fuel oil per day. It must be emphasized that these rates are nominal rates, in practice the ship-owner rates are nominal rates, in practice the ship-owner and charter will negotiate a rate for the particular and charter will negotiate a rate for the particular voyage is question as a percentage of the nominal voyage is question as a percentage of the nominal rate.rate.

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

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Oil Tanker FreightsOil Tanker Freights

World ScaleWorld Scale This has proven to be a remarkably successful This has proven to be a remarkably successful

compromise between the charterer’s desire for compromise between the charterer’s desire for flexible discharge options and the owners need for flexible discharge options and the owners need for a fair predictable income for his vessel, however a fair predictable income for his vessel, however there are problems. WORLDSCALE is based upon there are problems. WORLDSCALE is based upon an average vessel earning an average rate with an average vessel earning an average rate with average rate with average costs. average rate with average costs.

The further your vessel is away from the The further your vessel is away from the WORLDSCALE average and the further away the WORLDSCALE average and the further away the market is from WS 100 then the greater the market is from WS 100 then the greater the potential for distortions. potential for distortions.

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Oil Tanker FreightsOil Tanker Freights World ScaleWorld Scale This is why when looking at fixture reports you This is why when looking at fixture reports you

may see a VLCC fixing at WS 60 whilst a may see a VLCC fixing at WS 60 whilst a product tanker is fixed at WS 200, the cost per product tanker is fixed at WS 200, the cost per tonne of cargo moved on a VLCC is much lower tonne of cargo moved on a VLCC is much lower than the cost per tonne of cargo moved on a than the cost per tonne of cargo moved on a product tanker, product tanker, thus the product tanker will thus the product tanker will attract a higher attract a higher WORLDSCALE percentage. WORLDSCALE percentage. Prudent owners will be aware of any Prudent owners will be aware of any distortions their particular vessel specifications distortions their particular vessel specifications and the state of the market may cause and will and the state of the market may cause and will adjust their figures accordingly. adjust their figures accordingly.

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Oil Tanker FreightsOil Tanker Freights World ScaleWorld Scale The new worldwide tanker nominal freight scale The new worldwide tanker nominal freight scale

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

The responsibility of the associations is limited to The responsibility of the associations is limited to providing subscribers with rates for voyages providing subscribers with rates for voyages calculated in accordance with the basis of a calculated in accordance with the basis of a calculation and to revising WORLDSCALE from calculation and to revising WORLDSCALE from time to time. time to time.

The nominal rate for a voyage does not in The nominal rate for a voyage does not in itself have any significance as representing a itself have any significance as representing a fair or reasonable rate for the standard fair or reasonable rate for the standard vessel or any other size and/or type of vessel vessel or any other size and/or type of vessel at any particular time.at any particular time.

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Oil Tanker FreightsOil Tanker Freights World ScaleWorld Scale Market levels of freight are to be expressed in terms Market levels of freight are to be expressed in terms

of a percentage of the nominal freight rate. Thus of a percentage of the nominal freight rate. Thus WORLDSCALE 100 would mean the rate for the WORLDSCALE 100 would mean the rate for the voyage in question as calculated and issued by the voyage in question as calculated and issued by the associations, while WORLDSCALE 175 would mean associations, while WORLDSCALE 175 would mean 175 per cent of that rate and WORLDSCALE 75 would 175 per cent of that rate and WORLDSCALE 75 would mean 75 per cent of that rate.mean 75 per cent of that rate.

Rates are calculated and quoted only in USD per Rates are calculated and quoted only in USD per tonne. However, freight may of course by payable in tonne. However, freight may of course by payable in any currency and the contracting parties should any currency and the contracting parties should specify clearly the currency of payment and the specify clearly the currency of payment and the method to be used to determine the rate of exchange method to be used to determine the rate of exchange to apply if the currency of payment is to be other than to apply if the currency of payment is to be other than USD.USD.

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Oil Tanker FreightsOil Tanker Freights World ScaleWorld Scale Basis of calculation Basis of calculation All rate calculations, which are made in USD, are per All rate calculations, which are made in USD, are per

tonne for a full cargo for the standard vessel based tonne for a full cargo for the standard vessel based upon a round voyage from loading port or ports to upon a round voyage from loading port or ports to discharging port or ports and return to first loading discharging port or ports and return to first loading port using the under-mentioned factors. port using the under-mentioned factors.

All of the factors shown are purely nominal and for All of the factors shown are purely nominal and for rate calculation purposes only. In particular, the fixed rate calculation purposes only. In particular, the fixed hire element of USD 12,000 per day is not intended to hire element of USD 12,000 per day is not intended to represent an actual level of operating costs, nor to represent an actual level of operating costs, nor to produce rates providing a certain level of income or produce rates providing a certain level of income or margin of profit, either for the standard vessel or for margin of profit, either for the standard vessel or for any other vessel under any flag. any other vessel under any flag.

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Oil Tanker FreightsOil Tanker Freights World ScaleWorld Scale Standard vessel Standard vessel Total capacity Total capacity 75,000 75,000

tonnes tonnes (i.e. the vessel’s capacity for cargo plus stores, (i.e. the vessel’s capacity for cargo plus stores,

water, and bunkers, both voyage and reserve; water, and bunkers, both voyage and reserve; also see section 5 (2) of part A of the also see section 5 (2) of part A of the preamble). preamble).

Average service speed Average service speed 14.5 knots 14.5 knots Bunker consumption steamingBunker consumption steaming 55 55

tonnes per day tonnes per day Purposes other than steaming Purposes other than steaming

100 tonnes per round voyage 100 tonnes per round voyage

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Oil Tanker FreightsOil Tanker Freights

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

during the voyage. during the voyage. Grade of Fuel Oil 380 CSTGrade of Fuel Oil 380 CST Port Time 4 days for a voyage from one Port Time 4 days for a voyage from one

loading port to one discharging port.loading port to one discharging port. Additional 12 hours allowed for extra Additional 12 hours allowed for extra

port involved on a voyage.port involved on a voyage.

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Oil Tanker FreightsOil Tanker Freights

World ScaleWorld Scale Fixed Hire Element USD 12,000 Per Fixed Hire Element USD 12,000 Per

dayday Bunker price 149,75 per tonneBunker price 149,75 per tonne This price represents the average This price represents the average

worldwide bunker price for fuel oil (380 worldwide bunker price for fuel oil (380 cst) during the period 1st October 1999 cst) during the period 1st October 1999 to 30th September 2000 as assessed by to 30th September 2000 as assessed by Cockett marine oil limited (of London) Cockett marine oil limited (of London)

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Oil Tanker FreightsOil Tanker Freights World ScaleWorld Scale Port costs Port costs Port costs used are those assessed by the associations Port costs used are those assessed by the associations

in the light of information available to them up to the in the light of information available to them up to the end of September 2000, the rate of exchange used for end of September 2000, the rate of exchange used for converting costs in a local currency to USD being the converting costs in a local currency to USD being the average applicable during September 2000. average applicable during September 2000.

Canal transit time Canal transit time 24 hours is allowed for each transit of the Panama 24 hours is allowed for each transit of the Panama

canal. canal. 30 hours is allowed for each transit of the Suez 30 hours is allowed for each transit of the Suez

Canal. Canal. Mileage is not taken into account in either case. Mileage is not taken into account in either case.

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Oil Tanker FreightsOil Tanker Freights

World ScaleWorld Scale

Examples of Wet Fixtures Examples of Wet Fixtures Source Fair Play October 2008Source Fair Play October 2008

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Examples of Time Examples of Time ChartersCharters

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Baltic Dry Index;Baltic Dry Index;Source Fairplay October Source Fairplay October

20082008

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Thank You & Any Thank You & Any QuestionsQuestions