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Contracts

Voyage charter vs time charter

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Every charter answers one question before anything else: who carries the risk that the voyage takes longer than planned? Under a voyage charter it is the owner, who is paid freight for moving a cargo. Under a time charter it is the charterer, who pays hire for every day they have the ship. Almost every other difference between the two contracts follows from that one point.

Freight per tonne, or hire per day

A voyage charter sells a service: this cargo, from these load ports to these discharge ports, for this amount of money. The owner quotes freight, usually per tonne of cargo and sometimes as a lumpsum for the whole ship, and pays the bunkers (fuel), port charges, canal dues and crew out of it. If the ship burns more fuel than the estimate assumed, or waits at anchor a week longer than the time the charterer was allowed, the owner bears the cost. If the ship performs well, the owner keeps the difference. The charterer’s risk is the freight plus any demurrage (the agreed payment for delay) they cause.

A time charter sells the use of the ship itself. The charterer takes the ship from delivery to redelivery and pays hire for each day in between, usually in advance. They decide how the ship is employed, within limits the contract sets: trading limits, excluded cargoes, safe ports, and sometimes a maximum length for the last voyage. They pay for the fuel they burn, the ports they send the ship to and, normally, the handling of their own cargo. The owner keeps responsibility for the ship: crew, insurance, maintenance, stores, class and surveys. The master still works for the owner, but follows the charterer’s orders on where the ship trades.

Notice what the owner no longer worries about. Hire is paid whether the ship is sailing, waiting for a berth or idle, so port delay is no longer the owner’s problem. What the owner still owes is a ship that works.

Who pays for what

CostVoyageTimeBareboat
BunkersOwnerChartererCharterer
Port charges, pilotage, towageOwnerChartererCharterer
Canal duesOwnerChartererCharterer
Cargo handlingDepends on termsChartererCharterer
Crew wages and victuallingOwnerOwnerCharterer
Hull insuranceOwnerOwnerCharterer
Maintenance, stores, classOwnerOwnerCharterer
Time lost in portOwner, until laytime is used upCharterer, hire keeps runningCharterer
Time lost to breakdownOwnerOwner, the ship goes off hireCharterer

These are the usual positions, and a negotiation often changes them. Cargo handling is the clearest example. On free in and out terms the charterer pays for loading, stowing, trimming and discharging, while on gross or liner terms the owner pays, so a freight figure means nothing until you know which terms it was quoted on. Time charters differ over hold cleaning, war risk premiums and who buys the fuel already on board at delivery. The charterparty you are working with decides these points, not the general rule.

Bareboat is a different kind of contract

A bareboat charter, also called a demise charter, is not really a freight contract. It is a lease of the ship as an asset. The charterer takes possession of the hull, puts their own crew on it, insures it, maintains it and is the operator in every practical sense for the whole term. Terms run in years, not voyages, and the arrangement is usually financial: one party owns the ship and another operates it, often with an option to buy at the end. Some registries let a bareboat charterer fly a second flag for the term. This is why a contract can show a hull under one registry while its stern shows another.

Listing bareboat as a third option next to voyage and time charters is misleading. The first two are ways to move a cargo, and the third is a way to hold a ship. A desk that sees a bareboat charter is dealing with finance, not freight.

Laytime belongs to one contract, off-hire to the other

Several terms that sound general belong to only one type of contract. If you use one of them in the other type, it almost always causes a dispute over the recap (the written summary of the agreed terms).

TermBelongs toWhy it cannot exist in the other
LaytimeVoyageThe time the charterer is allowed for cargo work before the owner starts losing money. Under a time charter the charterer already pays for every day.
Demurrage and despatchVoyageAgreed damages for going over laytime, and a reward for finishing early. There is nothing to compensate when hire is paid regardless.
Notice of readinessVoyageThe notice that starts the laytime clock. A time charter has delivery notices, which do a different job.
Off hireTimeHire stops when the ship cannot do the work it was chartered for. A voyage owner already carries that delay inside the freight.
Speed and consumptionTimeThe charterer buys the fuel and the days, so they need a stated performance. A voyage charterer buys a result and does not care how the ship achieves it.

Seaworthiness, deviation and cargo liability under the bills of lading apply on both sides, and how they are shared is one of the harder parts of any charterparty. The voyage or time split does not settle them.

Trip charter and contract of affreightment

Two other forms sit between these two. A trip time charter, written TCT, is hire per day for one defined trip, with redelivery on dropping last outward sea pilot within an agreed range of ports. The charterer takes the time risk and buys the fuel, as under any time charter, but the commitment ends when the trip ends. Owners use it to move a ship into a better area, and charterers with one large cargo use it when they would rather run the voyage themselves than pay freight.

A trip also links the two markets. Take a voyage’s freight, subtract the voyage costs the owner will pay, and spread what is left over the days the round voyage takes. That daily figure is the time charter equivalent, and it is the only fair way to compare a freight idea with a hire rate. The TCE calculator on this site does that sum with your own figures.

A contract of affreightment is a different mix. Instead of one voyage, it is a promise to carry a stated quantity over a period, in shipments spaced by rules the parties agree. The owner names a ship for each shipment, and each shipment runs on voyage terms with its own laytime and demurrage. A COA moves volume risk rather than time risk: the charterer secures transport without committing to a named hull, and the owner secures a programme of work without yet knowing which ship will do it.

The forms a recap will name

Nobody writes a charter from scratch. A fixture starts from a printed standard form with a rider of negotiated clauses added on top. Most of the negotiation is about the rider. For voyage charters, GENCON is the general dry cargo form, while grain, coal, ore and tankers each have long established forms of their own. For time charters, NYPE (the New York Produce Exchange form) and BALTIME are the two names a dry cargo broker hears most, with separate forms for containers, tankers and offshore work. Bareboat has BARECON.

Each form exists in more than one edition, and the year printed on the form changes what the parties agreed. A recap that names a form with no year and no rider has not recorded the contract. What a given clause says depends on the version you are working with. Once there is money in dispute, it also depends on how a lawyer reads it.

Choosing what to propose

A broker holds two things: a cargo and a list of positions. Which contract to propose depends on which side is more worried about time.

If you are the cargo owner rather than the broker, how to charter a ship for your cargo explains the steps in order, and cargo owners can post a stem (a cargo ready to ship) to owners and brokers directly.

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Hulls in the register that have an IMO number but no deadweight on file at all. Freight is quoted per tonne of cargo, so you cannot estimate a voyage for a ship whose cargo intake is unknown. That figure has to come from the position or the particulars before any freight number means anything.

The practical work is the same whichever contract is proposed: the ship has to fit the cargo, be free in the window, reach the load port in time and pass the charterer’s vetting. The contract type is the last of these four decisions, and it is the one that decides who loses money when the berth turns out to be occupied.

References

Time charter equivalentFreight per tonne cannot be compared with hire per day until you divide it by the voyage. This is the arithmetic that does it. How to calculate laytime and demurrageWhen the clock starts, what stops it, how the demurrage figure is worked out, and why most claims fail on the paperwork, not on whether they were right. Chartering terms and abbreviations, A to Z177 chartering terms and short forms from a circular, an enquiry and a recap, each expanded and defined in a sentence or two. The fixture recapThe e-mail that says what was agreed. Written in minutes, read by a tribunal years later, and the contract until the charterparty is drawn up. Charterparty formsNobody writes a charterparty from a blank page. People name a printed form, change it, and then disagree about which part of the document applies.

Neptune Atlas

Neptune Atlas records a fixture as voyage, trip or period, keeps the laytime and demurrage calculation on the voyage side where it belongs, and estimates a voyage against a position so a freight idea can be held next to a daily hire rate. It does not price your bunkers: the fuel figures in an estimate are the ones you put in. Every paid plan starts with 7 free days. A card is needed to start them, and cancelling before they end costs nothing.

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