In maritime trade, contracts are often invisible but act as the skeleton that keeps the entire operation running. One of the most critical parts of this skeleton is the charter party, or ship charter agreement. In the complex world of international shipping, a properly understood charter party reduces the risks for both the cargo owner and the shipowner, clarifies the operation, and prevents potential disputes.
What is a Charter Party?
A legal contract governing the chartering of an entire vessel or a specific section thereof for a specific period or voyage. This contract is concluded between the shipowner (armator) and the charterer and details the rights and obligations of the parties. This type of contract, widely used in maritime trade, is one of the fundamental instruments of international cargo transportation.
The critical point here is that a charter party is not merely a transport agreement; it is also a ship lease agreement. In other words, the agreement covers numerous commercial and legal details, including how the ship will be used, who will cover the expenses, and who will be liable for delays. There are different types, such as voyage charter, time charter and bareboat charter, each tailored to different usage scenarios.
What is Charter Transport?
Another frequently asked question in the logistics world is what charter shipping is. Charter shipping is a transport model that uses vessels chartered specifically for a particular cargo or project, without being tied to scheduled routes. This flexible solution is preferred especially when standard methods are insufficient. Charter shipping is primarily used in the following situations: it offers an ideal solution for large-volume cargo where standard container lines are insufficient, for project cargo (power plant equipment, wind turbines, etc.), for shipments with high time pressure, and when special routes or ports are involved.
What are the Types of Charter Parties?
Charter party agreements are categorised into different types according to the manner in which the vessel is used. Each serves different commercial needs.
Voyage Charter
Voyage Charter is a widely used chartering method in maritime transport. In this type of charter, a vessel is chartered to transport a specific cargo from one port to another. The voyage, not the duration, is the basis. Freight is usually calculated according to the quantity of cargo transported. The most significant advantage of this type of charter is that operational risks are limited for the charterer. The shipowner bears the costs of fuel, crew and maintenance. However, it should be noted that additional costs such as demurrage may arise in the event of port delays. If loading and unloading times are exceeded, the charterer is liable to pay these costs.
Time Charter
A time charter is a widely used method of chartering a vessel in maritime transport. Under a time charter, the vessel is chartered for a specific period. This period is usually determined in months or years and is regulated by a contract between the parties. The charterer manages the commercial use of the vessel during this period; however, technical management mostly remains with the shipowner. Under this system, the charterer controls the cargo routes and commercial operations, while the shipowner's personnel remain responsible for technical matters such as crew, maintenance, and repairs.
Bareboat Charter
Bareboat Charter refers to the chartering of a vessel completely empty and un-equipped. In this type of charter, the charterer uses the vessel as if they were the owner and assumes operational responsibility. One concept that is often confused in practice is the charter party bill of lading. A bill of lading is a valuable document certifying that the cargo has been transported and will be delivered. However, bills of lading issued under a charter party differ from standard liner shipping bills of lading. A charter party bill of lading usually refers to the contract, and the main legal relationship between the parties is based on the provisions of the charter party. Therefore, in the event of a dispute, the bill of lading is not evaluated on its own but together with the charter party to which it is attached.
Critical Clauses in a Ship Charter Agreement
When drafting a ship charter agreement, there are some vital clauses that must not be overlooked: The method of calculating laytime and demurrage regulates the ship's time in port and the associated delay charges. The sharing of port expenses and the responsibilities for loading and unloading must be clearly defined between the parties, otherwise it may lead to disputes. Force majeure and war clauses protect the rights of the parties in unforeseeable circumstances, while arbitration and applicable law clauses clarify the dispute resolution mechanisms. These clauses determine the fate of the agreement. Particularly in international shipping, a small difference in wording can have serious financial consequences.
Why is a Charter Party a Strategic Tool?
A charter party is not merely an operational document; it is also a strategic trade tool. With a properly structured contract, companies can make transport costs predictable and gain a competitive advantage. It manages capacity risk, ensuring preparedness for sudden changes in demand. It provides flexibility against market fluctuations, enabling businesses to continue operations even in times of economic uncertainty. The charter party is a strategic issue in maritime trade that not only lawyers but also managers and logistics planners need to be well versed in.
