A Layman’s Guide to Laytime, Charter

party Agreement and Voyage Charter

Written by Capt Rajeev Jassal on February 10, 2019

The word “Charterer” is probably as old as the word “Ship” itself.

Do you keep hearing this word so regularly?

Well, who doesn’t?

From seafarer’s point of view, it is so much important to understand

these terms.

Why?
From commercial point of view, it is the moral responsibility of the
seafarers to ensure that the ship owner profits from the ship operation.

And for this reason, we must understand when and where our loyalties
lies.

But sometimes it becomes difficult to get a hang of all of it.

Not anymore.

In this blog, we will discuss about the terms charterer and charter
party agreement.

Concept of Charter party agreement

It is all business.

And like in all kind of business, there are at least two parties involved,
one of which provide a service or product to the other for a price.

With respect to carrying the cargo onboard the ships, these two parties
are,

1) Ship owner who has the ship and provide the space on the ship to
carry the cargo.

2) Shipper who has the cargo and wants a ship to transport the cargo
Then where does the term charterer fits into this?

Charterer is the party that has chartered (think of simple word “hired”)
the ship.

If the shipper has chartered the entire ship then shipper will also be
the charterer.
In most of the cases, charterer is a kind of middle man between
shipper(s) and shipowners

This is particularly the case if there are more than one shippers.
For example, if the vessel is to load 50000 tons of cargo, there could
be 10 shipper, say each of them with 5000 tons of cargo.

Alone none of the shipper would want to hire the entire vessel of
50000 tons capacity for their 5000 tons of cargo.

So they contact a charterer for transporting their cargo.

The charterer’s job is to find a vessel for the cargoes they have from
different shippers and maximazing the space on ship they plan to hire.
 Charterers may not be the only person involved in filling the gap
between shipowner and shipper.

Sometime there are some other companies or persons who help

shipper, charterer and shipowner to connect with each other for a fees.

They are called “Brokers”.

So the shipper’s broker is the person or company that help shipper find
a charterer for a fees called brokerage.

And charterer’s broker is the person that help charterer find a ship to
hire.

The charterer may even have brokers for different purpose. For
example charterer may have a broker to find a cargo for the ship they
want to hire and they may have another broker to find a ship for the
cargo they have in hand.

Broker or no broker, the charterer and shipowner would agree on the

terms and conditions which would form “Charter party agreement“.
Charter party agreement is a detailed document which, apart from
various clauses, has informations such as
 When and where the vessel is required to be

 the freight agreed

 If the broker was used, who need to pay the brokerage fee and how
much

Even though shipowners is primarily dealing with the charterer, it does

not mean that the shipowner would have no relation with the shipper.

Shipper and shipowner are connected by the “carriage of cargo at sea

act”, also called COGSA.
And one of the main point of it is that shipowner is required to
issue bill of lading to the shipper for the cargo loaded onboard.
And with that each of the shipper have entered into an agreement with
the ship owner which is called “Contract of  carriage”.

While the “charter party agreement” is a formal agreement, the

contract of carriage is governed by various laws and regulations such
as Hague-Visby rule.
Charter party agreement supplement the contract of carriage.

Usually you would find a mention of the charter party agreement in the
bill of lading. The wording in the bill of lading could be something like
this.

This shipment is carried pursuant to charter party agreement between

“Charterer’s name” and “Carrier’s name” and all the terms, clauses,
conditions, liberties and exceptions whatsoever contained therein are
incorporated into this bill of lading.
But do the shipowners and charterers do this exercise of negotiating
the format of the charter party agreement each time they do the
business together.

Absolutely not. Hell, it would take a lot of time.

Instead they use pre-defined forms. These forms are developed by

Independent International stakeholders such as BIMCO and
INTERTANKO and are widely used in the shipping business.

There are different forms for different trades.

For example there is form SHELLVOY 6 for use in tanker trade and

then there is form AMWELSH 93 for coal dry cargo chartering.
Also if a charterer and ship owner have done the business before, they
use the same charter party agreement for the future shipments too.

For this reason, many a times even for a voyage in 2019, you may find
the mention of charter party dated in 2016 or even before. In the bill
of lading issued even in 2019 , it may read something like,

The shipment is carried pursuant to charter party agreement between

“Charterer’s name” and “Carrier’s name” dated 01 January 2016…..
Now that we understand the concept of chartering, let us understand
the different ways in which the ships can be chartered.

Voyage Charter, Time charter, Demise charter

There are different ways in which a charterer can charter (Hire) the
vessel.

Charterer can charter the vessel for one voyage (Voyage charter), for
a particular time period (time charter) or they can hire and run the
vessel as if they are the owner of the vessel (Demise or bareboat
charter).
In each type of charter, charterers and shipowners have different area
of responsibilities.

Each type of charter is a subject in itself. So in this blog we will explore

the voyage charter.

Voyage Charter

It should be clear from the name.

Under the voyage charter, the ship is hired from the ship owner for
one voyage.
One voyage could consists of multiple load ports and multiple
discharge port.

The best analogy to the term voyage charter is that with hiring an Uber
for a ride from one place to the other, sometimes with multiple stops
in between.

So when we hire an Uber, we hire just the cab. The cab driver is still
under the instructions of Uber.

Similarly, under the voyage charter, the charterer has hired the ship’s
cargo space. But the Master and crew still remains under the disposal
and instructions of ship owner and  ship managers.

When we hire a cab for a ride, we just pay the hire (pre-agreed or by
the meter). We do not pay for or are not concerned about the fuel
costs or the amount of fuel consumed.

Similarly, under the voyage charter, charterer is not concerned about

the fuel consumption. The fuel costs are for the ship owners.

And when we hire an Uber, we do not pay for maintenance of the cab.

Similarly, under the voyage charter it is the ship owner who pays for
the maintenance of the ship.

Whenever we have any doubt about anything under voyage charter,

just think of this analogy of hiring the cab.

Most likely you will get the answer.

Laytime, Demurrage and despatch

Lord Diplock during one of the leading cases on Laytime described

the voyage charter party comprising of four stages.
 Stage 1 is the loading voyage: The voyage from wherever the ship is
to the loading port specified in the voyage charter party

 Stage 2 is the Loading operation: The loading of the cargo at the port
of loading

 Stage 3 is the carrying voyage: The voyage from load port to the
discharge port specified in the voyage charter party.

 Stage 4 is the discharging operation: The discharging of the cargo from

the ship to the port of discharging as specified in the voyage charter
party.

In the first and third stage, it is only the ship owner that need to
perform. For example. ship owner is required to adjust the speed of
the ship to arrive at the loading port within the agreed dates (Laycan).
And in the third stage, the ship owner is required to instruct the vessel
to maintain the charter party speed.

However it is the second and fourth stage where most of the disputes
take place.
Because in these two stages it is mutual reponsibility of the two parties
to ensure that cargo loading and discharging is done without any
delays.

In case of delays, each one can accuse the other for delays.

It is definately not commercially profiting for the shipowner if the

voyage is extended beyond their expectations.

For example, what if the loading of the cargo took 15 days in

comparison to just 2 days that shipowner had expected?

Or what if the ship could not berth at load port or discharge port for
many days because of other ships ahead in line up?

Too many uncertainties.

But ship owner’s freight (and profits) cannot depend upon so many
uncertainties.

So the shipowner and charterers agree on the factors like allowed

number of days for loading and discharging.

In chartering terms this is called “Laydays” or “Laytime”.

The laydays is mentioned in the voyage charter party agreement

between ship owner and charterer.

It could be mentioned as number of days and hours or as tons per

hours or per day.

If the charterer uses more time for loading and discharging than the
allowed laydays as per charter party agreement, then charterer is
supposed to pay for extra time used.

The chartering term for this additional payment is “Demurrage”.

So we can say that if charterer uses more time for loading/discharging
than laydays, they need to pay demurrage to the ship owner.

But if the charterer uses less time than laydays then ship owner need
to pay the charterer for the time saved.

The chartering term for this is “despatch”.

Usually the agreed amount of despatch is about half of the agreed

amount for demurrage.

Finally at the end of the voyage, a statement is made to shows the

time saved and/or extra time taken at different ports.

Below is the simplified version of the laytime summary calculated at

the end of the voyage.
 This statement would also show the final amount due and to whom it is
due. Means if the final amount is demurrage or despatch and how
much.

Notice of readiness and statement of facts

For calculation of laytime, it is important to know when the laytime

counting and calculation would start.

This information is also provided in the charter party agreement.

In most of the cases, the laytime would commence to start when the
vessel has arrived at the port. In chartering term, this is called
“Arrived Ship“.
Legally, a ship is considered as an ‘Arrived Ship” only when

 Ship has arrived at the port of loading or discharging (port voyage

charter) or at the designated berth (Berth Voyage charter).

 Ship is ready in all respects to commence loading (or discharging) or

the cargo, and

 Master has sent the notice of readiness to the all parties concerned
The charter party agreement contains the information if the voyage
charter is a port voyage charter or a berth voyage charter.

Irrespective if it is port or berth voyage charter, from the ship’s point

of view it is important that the master of the vessel send the notice of
readiness.

Notice of readiness need to  state that the vessel has arrived and she
is ready in all respect to commence loading (or discharging ) of the
cargo.

The laytime would start to commence at this time or sometimes few

hours later if specifically mentioned in the charter party agreement.
 Since one of the condition for the laytime to start is for the master to
send the notice of readiness, it makes it so much of an important
aspect.

Statement of Facts
The vessel and the master of the ship are the owner’s representative
at the action site (loading port or discharging port).

Ship Owner would know only know the information that we provide
them. They would use this information for calculation of any
demurrage due to the charterers.

But for the correct demurrage calculation, the information we provide

must be correct and we must not miss any important information such
as any delays.

That make the statement of facts (commonly called SOF) an important

document.

At the least, statement of facts must include

 any delays from shore side or from ship’s side and reason of delay

 any delays because of weather conditions

 Timings for the movement of the ship (such as times for anchoring,
anchor aweigh, pilot onboard, NOR Tendered etc)

 Timings related to cargo operations (Commenced cargo operation and

completed cargo operation
Master’s actions during voyage charter

Master and ship staff may not see the actual charter party agreement
between the charterer and the ship owner.

And it is for their own benefit too.

Because there would be so many things in that which we seafarers are
not concerned about.

But when the  ship is fixed for the voyage charter, master will receive
“Voyage instructions” from the charterer through the ship owner’s
commercial team.

The voyage instructions contains the information from the charter

party agreement that requires master’s attenstion and subsequent
actions.

Master must not miss the points in the voyage orders that requires his
actions.

One of the way to do it is to highlight the text of the voyage

instructions that require his attention for easy follow up.
Once Master reads the voyage instructions, he may come across
insufficient information that need more information or clarification.

Like this one in one of the voyage orders.

Clarification must be sought from the ship operator for any of such
information in the voyage orders.

After all it just takes a simple email to get everything in place.

And once everything is clear and in place, it is just about following

that.
Conclusion

There are may be only a handful of shipowners that do not rely on the
charterer to find the cargo for their vessel.

Having the vessel on charter is so common.

And vessel can be chartered in different ways. Vessel can be on a

voyage charter, time charter or demise/bareboat charter.

With respect to voyage charter, master and ship staff must understand
few thing

First, when is the laycan for the vessel. This is period in which vessel
must arrive at the load port.

If master thinks that vessel may not be able to make it to the loadport
in laycan period, the commercial operator must be informed who can
then try to extend the laycan.

Second, when the notice of readiness need to be tendered.

If the voyage charter is a port charter, NOR can only be tendered when
vessel is at least within the port limits. Usually in this case NOR is
tendered when pilot boards the vessel.

If the voyage charter is berth charter, the NOR can only be tendered
when the vessel is alongside the designated berth.

Wrong tendering of NOR can make the Notice of readiness null and
void and shipowner may loose tons of money.

Lastly, the ship staff need to be make sure that a correct record of
statement of facts is kept. This is the document that is used for laytime
calculations.
If the charterer uses more time than agreed for loading or discharging
the cargo, the ship owner is supposed to get a pre-agreed
compensation called demurrage.