Learn about the main types of maritime charter contracts

Companies that are entering or looking for new opportunities in foreign trade need specialized companies to deal in the most efficient and economical way possible with port logistics and the transport of these products to their destination.

It is because of this need that there are several types of charter parties available to those who want to import and export.

Want to better understand what they are and when they should be used? We invited Tatiane Sirqueira, General Manager – Head of South America at Weco Bulk Brasil, to participate in this conversation and detail how this process works. Check it out.

Learn about the main types of maritime charter contracts

With globalization, especially since the last century, driven by the development of agile communication, operational infrastructure and modernization of ships, foreign trade has opened up impressively.

Today, even small businesses have the resources to take part on the global stage and expand their foreign exchange outside their home country.

However, all this growth brings other factors to the routine of charterers, shipowners and customers. The complexity of planning and executing these transports becomes an important focus for commerce, as the speed and efficiency of freight results in more profit for those who sell and lower prices for those who buy.

It is to facilitate this process that there is the role of the maritime agency and different types of charter contracts. The idea is to create different parameters for each situation and standardize the relationship between all agents in this journey — from departure to arrival at the destination.

Tatiane tells us that there are three main types of maritime chartering contracts. Namely:

• Bareboat;
• Time Charter;
• Voyage Charter.

Choosing one of these three is very important to ensure the most efficient transport model, make more sense for both ends of the process and simplify logistics management in the route between them.

Understand the differences between these types of maritime charter contracts

The biggest differences in these contracts have to do with responsibilities during transport and who assumes costs/risks at key points in the process. Just so you have a better idea, we have separated the main characteristics of each one showing their differences. Check it out.

Bareboat

The Bareboat contract is also called Demise Charter Party — a name that gives an idea about its main characteristic of the contract.

In this case, the ship is leased by the owner to the charterer for a specified period of time. That is, whoever controls the vessel during the term of the agreement is the company that owns the product to be transported. “The charterer takes responsibility for the crew and maintenance of the chartered vessel,” explains Tatiana.

Time Charter

The Time Charter has a similar contract model, in which the customer can use that vessel for a specified period of time.

However, the biggest difference is in the responsibilities. “The shipowner remains responsible for the crew and maintenance of the ship, and the charterer only controls what concerns the voyage in question.”

In other words, while on Bareboat the company receives a ship and needs to deal with the inclusion of equipment and crew on its own, in Time Charter these human and technological resources are already available. The charterer only handles the end-to-end operation with a daily hire payment.

Voyage Charter

The Voyage Charter (the contract can be made for multiple trips regardless of the name), is the other extreme of these previous possibilities that we mentioned.

In this case, there is no responsibility of the charterer on the ship. He contracts the ship’s space and the shipowner agrees to take the cargo to its destination. It is a freight more similar to what we have in road transport.

Know in which cases each contract must be used

This decision depends on some factors, such as the amount of cargo to be transported, its nature, the need for control over transport and storage, and the size of the investment.

Smaller businesses will naturally opt for the Voyager Charter model, as they do not need to deal with direct and indirect freight operations.

Large businesses, which transport large volumes of cargo and want more control over how this product reaches its destination, can opt for the other two options depending on their objectives.

But even so, there are no rules. It all depends on the needs of those who transport it and on the well-developed negotiations with shipowners.

See what should be taken into account when drafting contracts

Choosing the best contract for each case is just one of the steps in the negotiation stages of vessel chartering. It is a planning that starts from defining the volume and nature of the product to some legal determinations, international standards and destination country.

Anyway, there are some points to be analyzed in the contract itself. First, the names such as “charter” (company contracting the service) and the difference between “owner”, who is the owner of the ship, and “shipowner”, who is the entity that sets up the cargo for transport.

It is also interesting to go after standardized contracts so as not to make mistakes at this time, some designed for specific transport, such as:

• Main Charter Party form – NYPE (NY Produce Exchange);
• Main Voyage Charter Party forms – Gencon (steels);
• Norgrain (grains);
• Sugar Charter Party (sugar);
• Americanized Welsh Coal Charter (petcoke).

The process as a whole may seem complex for those who have little experience in the area and, above all, do not seek specialized help.

“As in any other negotiation, I think it is important that both sides have legal advice to analyze the duties, responsibilities and exposure of each contract in question”, concludes Tatiane.

Therefore, shipping agency is crucial for efficiency, cost optimization and agility in this process. It is an opportunity for any business, regardless of size or sector, to win the world.

How about, then, learning more about the different types of chartering contracts, having a specialized opinion and getting into foreign trade? Visit Wilson Sons website now and contact us!