Part IV — Ocean Freight
Vessel Chartering
Hiring a whole ship instead of buying liner slots — voyage, time and bareboat charters, the charter party and broker, and the commercial terms (freight, hire, laytime, demurrage) that decide who pays what.
Everything earlier in this book assumed you book space on someone else’s scheduled service — a liner sailing, a flight. Chartering is the other half of shipping: instead of buying a slot, you hire the ship itself. For large, homogeneous, oversized or specialised cargo it is often the only sensible way to move — and it is a craft of its own, with its own contract, its own market and its own vocabulary. This chapter is the deep one: learn it well.
Chartering is the hiring of a vessel (or part of one) from its owner for a specific voyage or period, under a contract called a charter party, rather than booking slots on a liner service. The party hiring is the charterer; the contract is usually arranged through a shipbroker.
Liner vs charter — when to charter
| Liner (book slots) | Charter (hire the ship) | |
|---|---|---|
| Cargo | Containers, general cargo, part-loads | Bulk, project/heavy-lift, full shiploads |
| Schedule | Fixed, published sailings | You set the voyage and timing |
| Pricing | Per container / W/M + surcharges | Negotiated freight or daily hire |
| Control | Carrier controls the vessel | Charterer directs the employment |
Charter when: the cargo is a shipload of one commodity (dry or liquid bulk, Chapters 16–17); it is oversized / heavy-lift / project cargo needing a specific vessel (Chapter 14); no suitable liner service exists on the lane or timing; or the volume is large and regular enough that controlling the ship beats buying slots.
The three kinds of charter
- Voyage charter — the ship is hired for one specific voyage, port A to port B. The owner operates the vessel (crew, fuel, maintenance, port costs) and the charterer pays freight (a price per tonne of cargo, or a lumpsum for the voyage). The owner carries the operational risk; the charterer carries the cargo and the laytime/demurrage risk (below).
- Time charter — the ship is hired for a period of time (months or years). The charterer directs the commercial employment (where it trades, what it carries) and pays hire (a rate per day) plus the voyage costs (bunkers, port charges, canal dues); the owner still provides and pays the crew and maintenance. Risk of the market sits with the charterer; technical risk stays with the owner.
- Bareboat (demise) charter — the charterer takes the bare ship with no crew, and effectively operates it as if owner for the period — providing crew, insurance and management, paying hire to the owner. The longest, most committed form, closest to ownership.
A fourth arrangement, the Contract of Affreightment (COA), commits an owner to carry a series of cargoes over a period (e.g. so many tonnes a month) without tying the charterer to a named ship — useful for a steady industrial flow.
How a fixture is made
Chartering runs through brokers in a fast, market-driven negotiation:
- Order / enquiry. The charterer (or their broker) circulates the requirement — cargo, quantity, load and discharge ports, laycan (the arrival window), and terms.
- Negotiation of main terms. Owner and charterer, via brokers, negotiate the headline points: freight or hire rate, laycan, laytime, demurrage rate, load/discharge terms, charter-party form.
- The fixture (recap). When the main terms are agreed the deal is “fixed” — a recap summarises everything agreed. This is binding — a fixture is a contract, even before the formal document is signed.
- The charter party. The full charter party contract is drawn up from a standard pro-forma form, amended by the negotiated clauses.
Chartering uses recognised pro-forma contracts so parties aren’t drafting from scratch: GENCON (the classic general-purpose voyage charter for dry cargo), NYPE (New York Produce Exchange — the standard time charter), BALTIME (another time-charter form), and many trade-specific forms. The standard form is the base; the negotiated rider clauses tailor it to the deal.
The commercial terms that decide who pays — voyage charter
This is the heart of voyage chartering, and where money is won and lost:
- Freight — the charterer’s payment for the carriage: per tonne of cargo loaded (or discharged), or a lumpsum for the whole voyage regardless of quantity.
- Laycan (laydays / cancelling) — the window within which the vessel must arrive and be ready to load. Arrive before laydays open and the charterer needn’t take her yet; arrive after the cancelling date and the charterer may cancel the charter.
- NOR (Notice of Readiness) — the master’s notice that the vessel has arrived and is ready to load/discharge. A valid NOR starts the laytime clock.
- Laytime — the time allowed, free of charge, for the charterer to load and discharge the cargo (e.g. “72 running hours”). How it counts is set by terms like SHINC (Sundays/holidays included) or SHEX (excluded), and WIBON (whether in berth or not).
- Demurrage — if the charterer takes longer than the laytime to load/discharge, they pay the owner demurrage — a daily penalty for detaining the ship. Demurrage runs continuously once laytime is used up (“once on demurrage, always on demurrage”).
- Despatch — the reverse reward: if the charterer finishes faster than the laytime, the owner pays despatch money back (often half the demurrage rate).
A second, vital question on a voyage charter is who pays to load and discharge the cargo. The terms:
- Liner / gross terms — the owner bears loading and discharge costs.
- FIO (Free In and Out) — the charterer bears both loading and discharge; FIOS adds stowed, FIOST adds stowed and trimmed. Bulk and project fixtures are usually FIO-type, so the charterer controls (and pays for) the stevedoring.
The commercial terms — time charter
On a time charter the rhythm is different:
- Hire — paid per day (traditionally in advance, e.g. every 15 days), for the whole period whether the ship is working or idle — as long as she can perform.
- Off-hire — if the vessel can’t perform through the owner’s fault (breakdown, drydocking, crew issue), she goes off-hire and the charterer stops paying for that time. The off-hire clause is one of the most negotiated in the contract.
- Delivery / redelivery — where and when the charterer takes and returns the ship; bunkers on board at delivery and redelivery are bought and sold between the parties.
- Trading limits & cargo exclusions — where she may trade and what she may (not) carry.
The market
Charter rates are not published tariffs — they are set by supply and demand, ship type by ship type, and they move fast.
The Baltic Exchange (London) is the historic hub of the chartering market, and publishes the benchmark indices that the trade watches daily: the Baltic Dry Index (BDI) for dry-bulk rates (with sub-indices Capesize / Panamax / Supramax / Handysize by ship size), and tanker indices for wet cargo. Rates can be taken on the spot market (one voyage, today’s price) or for a period (locking a rate for months). A charterer who understands the index knows whether today’s offer is rich or cheap — which is exactly the judgement a chartering operator is paid for.
The risks a charterer carries
- Market risk — fixing at the wrong moment; rates can double or halve in weeks.
- Demurrage exposure — slow ports/stevedores eat laytime fast; demurrage can dwarf the freight saving on a tight fixture.
- Laycan / performance — missing the laycan, or off-hire disputes on a time charter.
- The charter party itself — these are detailed contracts; an unread clause (e.g. how laytime counts, who pays a shifting cost) is a real liability.
Chartering is where WorldZone steps up from booking space to commanding a ship — for dry bulk (Chapter 16), liquid bulk by tanker (Chapter 17), and project / heavy-lift cargo (Chapter 14), especially in the oil & gas and construction verticals (Chapter 29). On these jobs WorldZone acts for the charterer (the cargo interest): defining the requirement, working brokers to fix the right vessel at the right rate and laycan, negotiating laytime and demurrage that the ports can actually meet, and reading the charter party so a clause doesn’t cost the customer later. The single most expensive mistake is agreeing laytime the operation can’t keep — and then paying demurrage every day until it’s done. Master laytime and demurrage and you have mastered the commercial core of chartering.
What to take from this chapter
- Chartering = hiring the ship (via a broker, under a charter party) instead of booking liner slots — for bulk, project and shipload cargo.
- Voyage charter (owner operates, charterer pays freight), time charter (charterer directs, pays daily hire + bunkers), bareboat (charterer runs the bare ship); plus the COA for a series of cargoes.
- A deal is fixed at the recap (binding), then written up on a standard form (GENCON, NYPE).
- The commercial core is laytime, demurrage and despatch (voyage) and hire and off-hire (time) — and who pays to load/discharge (liner terms vs FIO).
- Rates are market-set — watch the Baltic indices (BDI); the charterer’s great risk is demurrage from laytime they can’t keep.