What is a Charterparty in Shipping?

A charterparty is a legal contract used in the shipping industry to outline the terms and conditions for the hire or voyage charter of a vessel. It is a crucial document that establishes the rights and responsibilities of both the shipowner and the charterer, the parties involved in the chartering of a ship.

There are three main types of charterparties:

Time Charterparty

In a time charterparty, the charterer hires the vessel for a specific period, typically for several months or years. During this time, the charterer has more control over the vessel and may use it to transport goods to various locations as they see fit. The shipowner provides the vessel and crew, while the charterer pays a hire rate for the duration of the charter. The charterer is responsible for covering various operational costs, such as fuel, port expenses, and maintenance.

Voyage Charterparty

In a voyage charterparty, the charterer hires the vessel for a specific voyage or a one-way trip. This type of charter is often used for one-off shipments or when the charterer has specific cargo to transport. The shipowner typically provides the vessel, crew, and covers operational expenses, and the charterer pays freight for the transport of their cargo.

Bareboat Charterparty

The charterer hires the vessel for a period of time and has full control of the vessel. Apart from the capital cost of building the vessel, which is the owner’s responsibility, all other costs including fuel, crew, port charges, maintenance and insurance, are paid by the charterer.

The key terms in a charterparty can vary depending on the type of charter and the trades for which they are used.

However, some of the main terms typically included in a charterparty are:

Preamble: This is a general outline of the charterparty and includes the place where the contract is made, the date of the charterparty, the names and addresses of the contracting parties, and the name and description of the ship.

Main Terms (Printed Clauses): These are the standard terms and conditions that are printed in the charterparty and differ between varying types of charterparty. Much of the negotiation between shipowners and charterers is concentrated on which words to delete from the printed clauses, to be replaced by rider clauses.

Rider Clauses (Additional Clauses): These are additional clauses that have been specifically agreed upon by the shipowner and the charterer. If there is any conflict with the printed words in the main terms, the rider clauses will always prevail. Often rider clauses are defined by specific charterers, like Exxon, Shell, ThyssenKrupp, Tata etc.

Most important clauses in a voyage charter party

Below you will find the key clauses that are typically included in any voyage charterparty, but the specific terms will vary depending on the type of charter and the trades for which they are used.

Freight Rate: This specifies the amount of money that the charterer will pay to the shipowner for the use of the vessel. The freight rate might be in USD/mt, EUR/mt inWorldScale (tankers) or in lump sums.

Payment Terms: This specifies when and how the charterer will pay the freight to the shipowner.

Laytime: This is the amount of time that the charterer has to load and unload the cargo.

Demurrage: This is the amount of money that the charterer will pay to the shipowner if the cargo is not loaded or unloaded within the laytime.

Notice of Readiness: This is a notice given by the shipowner to the charterer indicating that the vessel is ready to load or unload the cargo.

Termination: This specifies the circumstances under which the charterparty can be terminated by either party.

When international politics are implemented in shipping, new clauses will be made to distribute the risk between the parties. Examples of such are pollution likeSOX, NOX and Carbon emissions, and related new legislation like ETS, and CII and FuelIEU Maritime.

Examples of voyage charterparties

Asbatankvoy: Most commonly used charterparty for tanker chartering.

Amwelsh: Often use for dry cargo vessels carrying coal.

Most important clauses in a time charterparty

The most important clauses in a timecharter party may vary depending on the specific agreement and the parties involved. However, some of the most common and critical clauses in a timecharter party include:

Description of the vessel: This clause outlines the technical specifications of the vessel, including its size, capacity, and condition. The speed and consumption is of special importance to the charterparty as it has a huge impact on the earning capacity of the vessel.

Laycan: This clause gives the dates that the vessel is to be ready to commence the timecharter.

Delivery and Redelivery: These clauses give the port and/or area and the terms and conditions for the vessel's delivery to the charterer and redelivery to the owner.

Period of hire: This clause specifies the duration of the charter party agreement, including the start and end dates.

Hire: This clause specifies the amount of money to be paid in hire by the charterer to the shipowner for the use of the vessel.

Notice of readiness: This clause specifies the requirements for the shipowner to give notice of readiness to the charterer, indicating that the vessel is ready to commence the timecharter.

Bunkers: This clause specifies how much bunkers and lube oil the vessel should have onboard at delivery and redelivery, and how to settle the associated costs.

Trading Limits: This clause specifies the geographical limits that the charter can order the vessel to while it is on time charter.

Examples of time charterparties:

Baltime: Popular time charterparty for dry cargo vessels.

NYPE (New York Produce Exchange): Often used for all types of vessels but very commonly for dry cargo vessels.

Shelltime: A standard time charter party for liquid cargoes and gas.

Most important clauses in a bareboat charterparty

A bareboat charter party will contain much the same clauses as a time charterparty.  Both contracts involve the owner renting out the vessel for a period of time, but in a bareboat charter party the charterer will also take over the crewing and the maintenance of the vessels, so there are additional clauses that describe their obligations with regard to this responsibility. There will be important clauses relating to which party that is responsible for the insurance of the vessel, the right of the owner to inspect the vessel during the charter, and clauses relating to the financing of the vessel.

Examples of bareboat charterparties:

Barecon: The most commonly used bareboat charterparty.

Examples of organizations working with maintaining charterparty and definitions in main terms clauses or rider clauses are Intertanko and BIMCO.

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