Many individuals own ships, boats, and other recreational vessels, often purchased as assets. They do not use these ships for shipping goods or ferrying passengers.

Instead, they often lend them out to third-party organizations that use them for various purposes. In maritime legal language, this lending method is known as chartering. Chartering is an important concept in the international maritime trade sector and has different types.

This article will examine the differences between two specific categories of charters: the journey charter and the time charter.

What is a Charter?

A charter is an agreement between two or several groups, known as charter parties, regarding leasing a vessel for a fixed set of conditions. The terms and rules stipulated in the charter are binding on all various parties in the agreement and cover various clauses and possible scenarios that may arise. It is considered an official document in legal things and is required by Admiralty Law to be made up in case of any vessel hiring or leasing.

The charterer may have cargo that he demands to transport or may lease the vessel to third parties.

The shipbroker links ship owners and charterers and aids in finalizing the agreement’s terms. These terms include the duration of leasing, fees, payment installments, regulations on usage, and detailed surveyor reports on the ship’s condition.

Payment is a freight rate and is remitted to the owner of the vessel at fixed intervals set in the agreement.

Surveyor reports are crucial in chartering, as they ensure that the vessel is seaworthy before being chartered. Similarly, after a charter agreement is completed and before final payout formalities, another survey report is conducted to make sure that the vessel has sustained no damage inside the lease period.

The charter agreement outlines each group’s responsibilities and stipulates the conditions under which the vessel will be maintained.

There are several main types of charters – voyage charter, time-based, and demise charter.

The demise charter, often known as a bareboat charter, grants the charterer ownership or possession of the vessel subject to certain time-bound conditions.

Terms and Features of a Voyage Charter

A voyage charter is one in which a vessel is leased out for a given voyage. The charter agreement notes the ports of call, destination, and cargo restrictions, if any.

Most voyage charters are undertaken by charterers with cargo that must be shipped. They contact ship owners through brokers and manage a ship for a particular voyage.

Voyage charters can be paid in two ways – on a per-ton basis or a lump-sum basis.

The per-ton basis is about paying the owner for each ton of cargo or freight transported on the ship. This is desired when the cargo tonnage is considerably less than the gross maximum cargo tons of the vessel.

On the other hand, when a higher cargo weight is carried, paying on a lump-sum basis is advisable. The shipowner must ensure that the cargo carried on board the vessel is inside the acceptable limits of the ship.

Contracts Are Critical

A contract agreement uses some important terms, laying out the time-based rules to be observed for the duration of the contract.

Layover refers to the time a charterer can complete the loading and unloading process at a port of choice. Since the owner pays duties and berthing costs at the port, they believe the charterer to hasten the process.

If the charterer exceeds the laytime set out in the contract, he is obliged to fork over a penalty known as demurrage. This handles the extra costs incurred by the shipowner due to the charterer’s delay.

On the other hand, if the ship can complete the loading and unloading operations before the given time, the charterer can pay the owner for a despatch.

The shipowner pays fuel, operation, and employment-related costs in voyage chartering. They are responsible for hiring the officers and other crew members for the voyage from a pool of individuals working for them or having brokers as middlemen to source mariners also seafarers.

Owner Pays for Berthing and Loading

To recoup these costs, all owners charge a higher rate than the charterer. Charterers transporting a one-off material prefer voyage charters despite the high cost because they are kept from the contract for a long period.

Simply put, a regular charter involves a charterer getting a vessel for a single voyage, in which the route and places have been pre-determined. The shipowner handles duty and other payments along with recruitment, while the cargo is the sole responsibility of the charterer.

Terms and Features of a Time Charter

A time charter is a time-bound agreement, unlike a voyage charter. The shipowner gets a vessel to a charterer for a given period, and they are free to sail to any port and move any cargo, subject to legal regulations.

Even though the charterer controls the ship, the vessel’s maintenance still falls under the owner’s purview. The owner is responsible for making sure the vessel meets internationally accepted business standards throughout the agreement. An owner regularly employs marine surveyors to prepare reports on the vessel’s seaworthiness and make repairs as and when required. The owner will face legal action if the vessel is found to have a major problem.

The time charter contract can span anywhere from a couple of days to a few years. This is a long-term agreement which works on a single rate of payment called the freight rate.

Payment Must Be Remitted Every Quarter

They must inform the owners of the planned route in advance. The payment is calculated on a daily basis, with penalties added later. The charterer will cover the cost of fuel, provisions, etc., while the owner will handle all maintenance-related expenses.

The charterer often does not sail on the vessel and instructs the master in their stead. This includes permissible cargo, routes and ports, required charter speed, etc.

Unlike voyage charters that utilize a rigid payment calculation, there are several provisions for unpredictable delays in time charters.

Since payment is made daily, the charterer may be delayed for certain reasons covered in the agreement.

Briefly, a time charter involves leasing a ship for a fixed period on a per-day rate. The charterer can use the vessel, and the owner only handles maintenance-related costs.

Clauses are inserted to defend the charterer from paying for hours spent due to events that could not have been foreseen.

How to Choose a Charter Type?

Voyage and time charters differ in their intended use and service conditions. Knowing when to choose each kind of charter can go a long way toward meeting the expectations of the charterer and shipowner.

A voyage charter is preferred when the charterer only requires the vessel for specific voyages that may be because different reasons. This could be the case when there is occasional cargo to transfer.

This can also happen when the charterer has already put into service its fleet of vessels, which forces it to hire a ship from a third party so that it may undertake a single voyage.

Voyage chartering can be tricky for new charterers since the crew and equipment must be handled correctly.

Most owners arrange to look after these needs, but it is mostly based on goodwill. Having a shipbroker finalize the terms can be very helpful in making sure that the occasional charterer is not inconvenienced. This happens due to having a ship without a crew to operate it.

Experienced Firms Using Time Charter.

A time charter is more often used by more experienced chartering firms when a long-term vessel requirement exists.

Instead of booking a ship whenever they wish to undertake a journey, they use time charters. So, for the duration of the agreement, they will have possession of the ship. Charterers are free to use it within the purview of the law. This is especially useful since a charterer often has a crew ready to take over the hired vessel.

Most ship owners desire time charters, as they guarantee financial returns for a fixed period at a fixed rate. This offers some protection against rapid changes in chartering rates. However, charterers prefer something other than this contract because it ties them down at a single rate for an extended period.

Thus, various factors influencing the shipping sector must be considered before choosing between a voyage and a time charter.