Overview of Vessel Charters and Charter Parties in Shipping Industry

1. Mdk 200 Ships Business Class #22 Charters Charter Parties

2. Ship Owners – Types of Carriers There are 3 general categories of Carriers: • Common • Contract • Private

3. Ship Owners – Types of Carriers • The 3 categories of Carriers: • Common: – Offers service to all (Liner Service) • Contract: – Offers service on a Contract Basis - Point to Point (Tramp) • Private: – Carries only their own cargos

4. Charters or Charter Parties Occasionally each of these 3 forms of Vessel Operator either: • has excess vessel tonnage for it’s needs, or • Requires more tonnage (vessels) to move cargos

5. Charters or Charter Parties Rather than Lay-up an excess vessel, or Forgo the profit of moving extra cargo tonnage Carriers will LEASE (Charter) vessels

6. CHARTER PARTY What is a charter party? Contract: Ship owner agrees to lease Charterer agrees to hire Vessel, all cargo space, or part of the cargo space

7. CHARTER PARTY 3 types of Charter Parties    a. Bareboat (demise charter) b. Time Charter c. Voyage Charter

8. BAREBOAT Charter The Charter Leases the entire ship  Charterer operates as though they own it  Charterer is the operator, pays all expenses  Fuel  Stores  Pilotage expenses  Harbor fees  Employs crew & pays them (Master & Chief may be subject to approval)

9. BAREBOAT CHARTER • Survey of vessel before charterer takes delivery, and again after end of charter • (delivered back in same good order excluding ordinary wear & tear) • Example – McKee Sons

10. TIME Charter Charterer hires vessel for a designated period of time – month, 6 months, year, 3 years etc. Charter pays a “per day rate” for use of the ship • Known as - HIRE – In effect charterer hires entire cargo carrying capacity of the vessel • Known as “Full reach and Burden”

11. Time Charter  Vessel owner is the operator Employs the crew, buys stores, pays upkeep, etc.  Charterer pays: Fuel, tugs, pilots, stevedore expenses, Entry /Clearance fees  Performance Warranty: (by ship owner to the charter) Speed Fuel consumption Cargo discharge rate  penalty vis bonus  O.T. for crew when dealing with cargo

12. Time Charter If the ship breaks down it goes - OFF HIRE – payment of HIRE ceases Grounding, breakdown etc. Given some grace period, usually 24 hours Deviation: breakdown requiring emergency repairs Vessel goes Off HIRE until voyage resumes or it returns to the same geographic area as the breakdown.

13. VOYAGE CHARTER  The Charterer hires the capacity of the vessel to move cargo from point “A” to point “B”.  This is the Most common type of charter  – many intricacies  Charter party for the carriage of 1 full cargo @ a stipulated rate / ton rate / ton = Freight  Charterer assumes no responsibilities for vessel operation other than stevedoring expenses

14. Voyage Charter • Dead Freight = payment for cargo NOT carried • Broken stowage = space not filled with cargo – charterer could claim

15. Since the charter is in charge of stevedoring, they can unnecessarily delay the ship. LAY TIME is the result. Lay Time = time allowed for loading & discharge of cargo • 1) working days • 2) weather working days • 3) running days • 4) excepted days

16. 1) working days hours worked per day excluding Sundays & Holidays usually an 8 hour day 2) weather working days normal working days – excluding foul weather days when it would be unreasonable to load or off load cargo

17. 3) running days 24 hour work days doesn’t matter what the weather is like 4) excepted days days No work is done because of the fault of the vessel. stoppage of cargo work that is NOT the fault of the charterer

18. If the charter takes less time than the allotted LAY TIME The charter earns – DISPATCH or Dispatch Money (Paid for Lay time saved or not used usually less than Demurrage by ½ to 1/3 If the charter takes more time than the allotted Lay Time The vessel earns - DEMURRAGE the charterer pays per day because of delays in cargo operations once demurrage begins it is an around the clock expense

19. Voyage Charters require: • Readiness Date: – Date the charterer accepts the vessel Vessel submits: Notice of Readiness Form stating the vessel is ready to load or discharge cargo

20. • Shipowners as well as charterers must be aware of what charter hire rates are being offered or accepted • the same way that traders in stocks and bonds must keep abreast of swings in the securities markets.

21. • Reports of vessel charters, or “fixtures,” • Are published in shipping journals • Presented in a technical language which conveys the essentials of the transactions in a minimum of words. • The fixture of the “MV Highlander”, • would be publicized in a paragraph like this:

22. fixture of the “MV Highlander” • U. S. Northern Range to coast of China. Motor ship Highlander, 27,000 tons, five percent, heavy grain, $36.50; option two ports China $37.50; $0.60 extra for U.S. Gulf loading option; FIOT; Feb. 1-12.

23. Motor ship Highlander, 27,000 tons, five percent, heavy grain, • This reports that the motor ship Highlander has been chartered to carry about 27,000 tons of heavy grain, plus or minus five percent at the master’s discretion to obtain a seaworthy load and still store and fuel the ship adequately without losing too much revenue.

24. U. S. Northern Range to coast of China. $36.50 • The grain will be loaded in a port between Cape Hatteras and Portland, Maine, and transported to the coast of China at a rate of $36.50 for each ton loaded.

25. option two ports China $37.50; • If the charterer elects to discharge the cargo in two ports, the rate will be increased to $37.50 per ton.

26. $0.60 extra for U.S. Gulf loading option; • Should the ship have to proceed to a United States port on the Gulf of Mexico to take on her cargo, the charterer will pay $0.60 additional per ton.

27. FIOT; Feb. 1-12. • FIOT (free in and out and trimmed) means that all expenses connected with loading, discharging, and trimming are for the account of the charterer. • The Highlander must report at the designated loading port not earlier than February 1 and not later than February 12.