Charterparty

A charterparty is a contract under which a shipowner hires out a whole vessel, or its carrying capacity, to a charterer for a particular voyage or for a period of time. Charterparties are the standard way to move bulk cargoes such as grain, ore, coal and oil, and they set out the freight or hire, the time allowed for loading and unloading and the duties of each side.

The term comes from the medieval Latin carta partita, a divided document whose halves were kept by each party. A charterparty differs from a bill of lading, which covers individual consignments on a scheduled liner service of the kind built around containerization, although bills are often issued for cargo carried under a charter. Most charters use standard forms published by BIMCO, the shipowners' association founded in Copenhagen in 1905.

Consider the difference between buying a bus ticket and hiring the whole bus. A ticket buys a seat on a route the bus company has already planned. Hiring the bus means you choose where it goes, agree how long you can keep it, and pay a penalty if your group keeps the driver waiting past the agreed time.

A charterparty is the contract for hiring the whole ship. A grain trader who needs to move a full cargo from one port to another charters a ship for that trip, while a company that needs shipping capacity for months may rent a ship by the day. In the most complete version, the hirer takes over the empty ship and supplies its own crew, much like leasing a bus with no driver.

• Voyage charter. The owner carries a stated cargo between named ports for freight, usually per tonne or as a lump sum. The owner runs the ship and pays its operating and voyage costs, while the contract fixes laytime for loading and discharge.
• Time charter. The charterer hires the ship and crew for a period, or for one trip, and pays hire per day, usually in advance. The charterer directs the commercial employment and pays for fuel and port costs, while the owner keeps responsibility for navigation and crewing.
• Bareboat or demise charter. The charterer takes possession of the ship itself, appoints the master and crew and bears almost all running costs. Bareboat charters are often used as financing structures, sometimes with an option for the charterer to buy the vessel.

Most fixtures are agreed on printed forms amended by typed clauses. BIMCO's GENCON, first issued in 1922 and most recently revised as GENCON 2022, is the best-known general voyage charter, and it comes with its own bill of lading, CONGENBILL 2022. The NYPE form, named after the New York Produce Exchange and now in its 2015 edition, dominates dry-cargo time chartering, and BARECON 2017 is BIMCO's current bareboat form. Tanker owners and oil companies use specialist forms such as SHELLTIME for time charters.

Charters are usually agreed through shipbrokers rather than freight forwarders, and disputes most often go to arbitration in London, New York or Singapore. Freight levels respond to supply and demand for tonnage, to disruption at a maritime chokepoint and to trading patterns on the commodities market, which is why traders hedge freight with derivatives that resemble a forward contract.

Under a voyage charter, the charterer is allowed a set laytime for loading and discharge. If the ship is kept longer, the charterer owes demurrage at a daily rate agreed in the charterparty:

• $D$ is the demurrage owed.
• $T_{\text{used}}$ is the laytime actually used, in days, after allowed exceptions such as weekends or bad weather where the charter excludes them.
• $T_{\text{allowed}}$ is the laytime permitted by the contract, in days.
• $R$ is the agreed demurrage rate per day.

Suppose a charter allows 3 days of laytime and loading and discharge take 5.5 days, with a demurrage rate of $20,000 a day. The ship is on demurrage for 2.5 days, so the charterer owes $2.5 \times 20{,}000 = 50{,}000$, or $50,000. Some charters also pay despatch, a reward for finishing early, often set at half the demurrage rate.

When cargo is shipped under a voyage charter, the master or owner usually still issues bills of lading. Between owner and charterer the charterparty governs, and the bill serves mainly as a receipt. Once the bill is transferred to a third party, such as a buyer holding an order bill of lading, it becomes the contract between that holder and the carrier, which is why charter bills usually incorporate the charter's terms, including its law and arbitration clause. A straight bill of lading can be issued in the same way.

The Hague-Visby Rules do not apply to charterparties as such, but they do apply to bills issued under a charter once those bills govern the relationship with a holder. Under a letter of credit, UCP 600 Article 22 sets the rules for a charter party bill of lading and states that banks will not examine the charter contract itself. Owners also commonly keep a lien on cargo for unpaid freight and demurrage, and digital versions of these documents are developing alongside the electronic bill of lading.

• BIMCO
• London Maritime Arbitrators Association