According to the latest data, international shipping transports nearly 11 billion tons of goods each year, making it the linchpin of global trade. Whether it’s bulk grain, liquid petroleum, or containerized consumer goods, ship chartering is a reliable way to move cargo as well as transport passengers from one port to another.
Those new to the shipping industry often lack an understanding of how to charter a vessel in the proper way. The tedious manual networking of older days has given way to data-driven decision-making as shipowners and logistics providers seek faster, safer, and cost-effective options to fulfil their logistics needs.
In this guide, we explain what vessel chartering actually is, the four main charter types, how the chartering process works from inquiry to fixture, what the key costs are, and how to find the right vessel for your cargo.
What Is Vessel Chartering?
Vessel chartering is a contractual agreement between two main players, namely a ship owner and a charterer. The charterer is usually a cargo owner or logistics provider who doesn’t have a fleet of ships at their disposal and engages the services of third parties.
The process is usually overseen by a shipbroker, an intermediary who matches the right vessel with the right cargo and ensures that both parties adhere to international maritime standards set by the International Maritime Organization (IMO).
The contract grants the charterer the right to use the vessel for carrying cargo for a specific voyage, a defined period, or a series of voyages in exchange for an agreed freight rate or payment. Chartering is distinct from owning a ship since the charterer is subject to the contractual terms for using it that mainly depend on the charter type.
The contract sets out the extent of operational control to be enjoyed by the charterer, as well as assigning who is to pay for the fuel and provide crew. The agreement defines how risk is to be distributed between the two parties in the event of any anomaly or exceptional circumstances that go against the agreed terms.
The Four Types Of Vessel Charter
When it comes to vessel chartering, the most important decision a charterer makes is to choose a charter type for carrying out their maritime operations. Ultimately, it all comes down to the level of control a charterer desires over a vessel and how they prefer to manage costs.
1. Voyage Charter
A voyage charter is the most common for one-off shipments. The shipowner agrees to transport a specific amount of cargo from one port to another for a pre-negotiated fee called freight. The amount is either payed lump sum or a fixed rate per metric tonne.
Under this arrangement, the owner retains full control of the ship’s operation while paying for all voyage expenses, including fuel, port fees, insurance, etc. Apart from the freight rate, the charterer is liable to pay an additional cost called demurrage in case the loading or discharging takes longer than the agreed-upon time.
Voyage charters are deployed in various situations, as in the case of a steel mill sourcing a one-off consignment of scrap or a commodity trader moving 50,000 tonnes of soybeans from Brazil to China.
Time Charter
A time charter is similar to a voyage charter except that the vessel is hired for a defined period, ranging from a few weeks to months to years. Here, the shipowner provides a functional vessel together with the crew, while the charterer decides the ports of call and pays for the “variable” costs, such as fuel (bunkers) and port charges.
Time charters are a suitable option for charterers involved in moving regular, predictable cargo volumes who benefit from having guaranteed tonnage rather than going back to the spot market for each shipment. Common use cases for time charters include a logistics company managing a regular supply chain corridor or any utility that depends on continuous deliveries.
Regardless of how the vessel is deployed, the shipowner receives a fixed daily hire rate, even when the vessel is idle. A key provision that is negotiated between the parties concerns off-hire periods or times when a vessel breaks down, or dry-docking occurs
Contract of Affreightment (COA)
A contract of affreightment is a specific agreement that designates a defined total volume of cargo to be moved across multiple voyages, rather than leasing a ship. The charter provides the cargo, while the ship owner designates individual vessels for carrying each shipment at an agreed freight rate.
COAs are a viable choice for charterers who wish to leverage large, recurring volumes at pre-determined freight rates without being bound to a single vessel. For example, a mining company might sign a COA to move 1 million tons of iron ore over a year. The shipowner gets to decide which specific vessels in their fleet will handle the individual shipments, as well as the route.
The negotiating power in a COA lies in committing to volumes so that the larger and fixed a volume is, the more certain the freight rates.
How The Chartering Process Works: From Inquiry To Fixture
Chartering a ship relies on a high-stakes negotiation that proceeds through a series of steps to keep costs under control and maximize opportunities.
Step 1: Define Your Cargo Requirements
If you seek to hire a vessel, you need to start out with a clear cargo brief that spells out your cargo type and quantity, your load port and discharge port, and your required loading date range (the laycan). You may also specify any other requirements, like stowage factor, draft restrictions, hazardous classification, and your estimated freight budget.
Vague requirements lead to vague offers, so it’s important to be forthright in communicating what you need.
Step 2: Approach The Market
Charterers can access the market through a ship broker who mediates the terms of agreement between the charterer and the shipowner. They help charterers source vessels as per their requirements, prepare the fixture recap, and ensure the successful execution of the charter party. In return, they charge 1.25% of freight fees from each side, for a total of 2.5% per shipment.
Step 3: Evaluate Vessel Offers
Once your detailed inquiry reaches the market, either directly or through your broker, shippers will respond with appropriate offers detailing the vessel name, her specifications (DWT, LOA, beam, draft, grain cubic capacity, last three cargoes), her current position, her open date, and the owner’s freight indication.
As you evaluate each offer, consider not only the price but the vessel size, its inspection record at ports, and cargo history to judge whether it’s the perfect fit for the job.
Step 4: Negotiate the main terms
Once you’ve identified a suitable vessel, the negotiation process involves working out the “main terms” or the core commercial parameters of the fixture
Freight rate: It is expressed per metric tonne for voyage charters or as a daily hire rate for time charters.
Laycan: The laycan defines the earliest date at which the vessel can be loaded at the load port, also known as the laydays. In case the charter doesn’t arrive, the charterer can
The charterer can cancel the charter if the vessel hasn’t arrived (the “cancelling date”). A tight laycan protects the charterer while a wide one gives the owner more flexibility.
Laytime: The amount of time or window allowed for loading and discharging cargo, as specified in the charter party. Laytime is typically expressed in days or hours, and defined as either SHINC (Sundays and Holidays Included) or SHEX (Sundays and Holidays Excluded).
Step 5: Execute the Charter Party
Once the main terms are agreed, the full charter party is set for final execution. Most voyage charters utilize standard BIMCO forms, with Gencon being the most widely used, which detail the obligations and cargo-specific requirements binding both parties, including port restrictions, liability caps, and dispute resolution mechanisms.
Make sure to read the contents of the charter party carefully before signing. Rider clauses vary enormously, and your broker’s expertise will help you maneuver the risks involved. Having a maritime lawyer review your standard clause set is worthwhile.
Step 6: Manage the Voyage
Monitor where your vessel is at a point and ETA against your laycan while confirming with the port agent whether your port has an available berth and is ready to take on your cargo. If you suspect port congestion is likely to delay your shipment, be quick to claim your demurrage exposure before an NOR or Notice of Readiness is activated.
If you are operating a time charter, it’s necessary to maintain oversight throughout the voyage, beginning from procuring bunkers and port selection to cargo scheduling and off-hire management.
Understanding the Charter Party Contract
The Charter Party is the formal legal document that binds the owner and the charterer. In international shipping, most parties use standardized forms to ensure clarity and reduce legal disputes.
The Role of BIMCO
The Baltic and International Maritime Council (BIMCO) is the world’s largest shipping association that prescribes the shipping standards to be applied across global maritime operations, such as the GENCON (for voyage charters) and BALTIME or NYPE (for time charters).
Its role is to ensure transparency and non-discrimination in the chartering of vessels on seas to protect the rights of key stakeholders in the shipping industry
Integration with Incoterms
When chartering, it is crucial to align the contract with your Incoterms (International Commercial Terms) to ensure smooth and complaint transactions.
Incoterms are internationally recognized rules that stipulate the conditions under which the risk and cost of the goods transfer from the seller to the buyer. For example, if you are buying goods FOB (Free on Board), you are responsible for chartering the vessel to pick up the cargo.
Key Costs In Vessel Chartering
Chartering is not just limited to the headline freight rate or daily hire. There are additional costs that every charterer should know before
Bunkers. In a voyage charter, bunkers are the owner’s cost, whereas the charterer pays for bunkers and manages the vessel’s fuel efficiency in time charters.
Demurrage. This is frequently the highest unplanned cost in a voyage charter when a vessel’s stay at the port exceeds the laytime. A vessel waiting two days at a congested port at a $20,000/day demurrage rate yields a cost of $40,000.
Port disbursements: These encompass a variety of charges like port dues, pilotage, towage, agency fees, and cargo-handling charges. These charges vary from port to port and typically fall upon the charterer in time charters.
P&I insurance (charterer’s liability): Charterers should carry charterer’s liability insurance, which covers third-party claims arising from cargo damage, pollution, and similar liabilities that fall to the charterer under the charter party.
Despatch: If loading or discharging is completed in advance of the agreed laytime, the owner pays a despatch fee to the charterer, typically at half the demurrage rate.
How to Find the Right Vessel Using ShipSearch
In the past, finding a vessel required interacting with various brokers until a reasonable deal was brokered. This “discovery” phase has now been digitized, leading to greater efficiency and unprecedented transparency across the global supply chain.
A vessel charter platform functions as a centralized intelligence hub for maritime logistics. It can help you search available tonnage directly, visualize vessel positions and open dates, and directly communicate with owners or their brokers.
This is particularly useful for charterers who seek broader visibility into operations or learn about available options before engaging a broker for the fixture itself.
Step 1: Filter by Vessel Type
Whether you need a Handysize bulker for grain or a VLCC for crude oil, use the vessel charter section to filter by deadweight tonnage (DWT), age of the vessel, and current location.
Step 2: Analyze Market Intelligence
Before entering negotiations, check the available cargoes and recent fixtures in your region. Understanding the current supply/demand balance helps you negotiate better freight rates.
Step 3: Verify Vessel Credentials
Check for IMO compliance and recent inspection records. If you are looking for long-term control rather than a temporary charter, you might even browse ships for sale to compare the cost of chartering versus purchasing it outright.
FAQ: 5 Common Questions
1. What does “Laycan” mean?
Laycan stands for “Laydays/Cancelling.” It is the window of time, e.g., from June 1st to June 10th, during which the shipowner must present the vessel at the port. If the ship arrives after the “cancelling” date, the charterer has the right to cancel the contract.
2. Is insurance included in the charter?
Usually, the shipowner provides Hull & Machinery (H&M) insurance. However, the charterer is often responsible for insuring the cargo and may need “Charterers’ Liability” insurance to cover risks not handled by the owner.
3. Who pays the port agents?
In a voyage charter, the shipowner typically pays. In a time charter, the charterer bears port agency fees as part of the voyage expenses.
4. Can I sub-charter a vessel?
In many time charter agreements, the charterer has the right to “sub-let” the vessel to another party if they don’t have enough cargo to fill it, provided the owner agrees to the terms.
5. What is a “Notice of Readiness” (NOR)?
The NOR is a formal document issued by the Captain once the ship has arrived at the port and is ready to load or discharge. The clock for laytime usually starts ticking shortly after the NOR is accepted.
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