Most of the seafarers consider shipping business as a difficult subject.
Not that it is so much difficult. But because it is not something we deal with day in day out.
We know how much we need to know to get the days to go on.
And this was perfectly Ok until a few years back.
But now, each minute matters and each hour of off-hire need explaining.
That makes it so much important for we seafarers to understand shipping business.
Today in this blog, we will discuss about time charter and what seafarers need to be aware of when the vessel is under a time charter.
Shipowner buys a ship to earn a hire by letting someone (the shipper) use the space on their ship to carry cargo from one place to other.
In the ideal world, the shipper has the cargo and should directly contact a shipowner for transporting their cargo.
In the real world, it is difficult.
When we need to buy land, it is difficult to find a direct seller. Same goes for the seller for whom it is difficult to find a direct buyer.
We approach a property dealer who has a number of sellers as well as buyers for different properties.
Middleman is required quickly and easily find what we need.
In the shipping business, that middleman is called “Charterer”.
Of course, charterer does not just make the shipper meet shipowners.
In fact, they themselves hire the ship and arranges to fill the space of the ship with cargoes from one or many shippers.
And if a shipper manages to find a ship on its own then the shipper becomes the charterer too.
Different types of ship chartering
Irrespective of who the charterer is, there are different ways a ship can be hired.
- The ship can be hired for one voyage
- The ship can be hired for a particular time
- The ship can be owned for a particular time period
Every stakeholder has different responsibilities under each type of charter. Let us discuss each type of charter.
Under a time charter, the charterer hires the vessel for a particular period of time.
The time could be in years, days or months.
The shipowner receives the freight on per day basis which is settled every month or every quarter.
The time charter can be compared with the hiring a cab on per hour basis.
In this type of charter…
- The fuel cost is borne by the charterer
- The ship is managed by the shipowner
- The maintenance of the ship is shipowner’s responsibility
- The crew costs are paid by the shipowner
- Port dues are paid by the charterer
- Agents at ports are appointed by the charterer
Time charter party agreement
Similar to the voyage charter party agreement, for time charter the shipowner and charterer would have a time charter party agreement.
In most of the case, this time charter party agreement would be provided to the ship.
In the agreement copy provided to the ship, the figures and data like freight rate, etc may have been deleted to maintain confidentiality.
Alternatively, the ship may be provided with a different document which may be called “Charterer’s instructions to Master”.
The master must read these instructions carefully and highlight the key instructions for follow up.
At the minimum, the key instructions to look for are…
- The charter party speed as per time charter party agreement.
- Instructions for notification in case of ship-shore cargo discrepancy
- percentage of ship-shore cargo figure discrepancy allowed
- Instructions for notifications in case of an incident
Under a voyage charter, the vessel has been hired for the voyage.
The charterer would not be concerned about any delay because of the vessel as it is the vessel and shipowner that would lose that time.
Consider the case of hiring an Uber.
If you have hired the cab at a pre-agreed rate, you would not be so much worried about the time the cab takes to reach the destination.
But what if you have hired the cab on per hour basis?
You do not want the cab to stop in between unnecessarily.
Same goes for the time charter.
The charterer is paying the shipowner per day basis (pro-rata) and any delay by the ship is a loss for the charterer.
This loss of time because of the ship is called “off-hire”. This is the time for which the vessel is not on hire and so the name “off-hire”.
The off-hire time would be for
- any deviation from the original track (For example for a crew change, picking up stores or for some repairs, etc)
- Any stoppages at sea (For example for machinery breakdown etc)
- Cargo tanks failed by the cargo surveyor and declared not fit for loading
Our responsibility as seafarers is to keep the off-hires to as close as possible to the zero hours.
For any off-hire, the vessel needs to send the off-hire report which lists the total off-hire time and fuel consumed during this off-hire time.
Sometimes time charter party agreement may allow certain hours of off-hour per instance which will not be charged to the shipowner.
For example, it could be something like this in a time charter party agreement…
If the owners manage to keep the off-hire time for one instance to less than 3 hours, this would not count as off-hire and no reimbursement need to be paid to the charterers by the shipowner…
For example, if the cargo tanks were failed by the cargo surveyor and after corrective action by the ship staff if the tanks were passed within 3 hours then there would not be any off-hire.
In any case, the master needs to create an off-hire report for all the off-hires and send it to the shipowner/ship manager for approval.
Ship managers would then forward (or ask the master o forward) the off-hire report to the charterers.
Speed of the ship
If you hire a cab on per hour basis, you would not expect it to move slowly.
If it does, you would end up paying more money as it would take more time to reach the destination.
Similarly, under time charter, the charterer would want the ship to run at speed declared by the shipowner or agreed in the charter party agreement.
It is the master’s responsibility to ensure that the ship always maintains that speed.
But what if the vessel is experiencing rough weather and master is not able to maintain the charter party speed?
The time charter party also have clauses for the weather conditions.
So say, the vessel is required to maintain 13 knots of speed when the wind speed is less than BF 6.
If the wind force is 6 or more, the speed for that period will not count as under-performance of the ship.
This makes it so much important to note down the weather conditions correctly in the deck log book as well as in the noon report.
At the end of an agreed period (each voyage, quarter, half yearly or yearly as agreed in charter party agreement) the performance of the vessel with respect to speed will be analyzed.
Under a time charter, the fuel costs are covered and paid by the charterer.
The fuel supply is arranged by the charterer.
When the ship is delivered to the charter, charterer/shipowner may carry out fuel oil survey to get the actual fuel oil onboard at the time of delivery of the vessel to the charterer.
This would be the fuel that shipowner has delivered to the charterers at the time of delivery of the ship.
When the charterer hands over the vessel back to the shipowner, the bunker survey is again carried out.
This will the fuel handed over by the charterer back to the shipowner.
So let us say that
- Bunkers at the time of delivery were HFO: 400MT and DO: 100 MT
- Bunkers at the time of re-delivery were HFO: 250MT and DO: 50 MT
In this case, charterer needs to pay the shipowner for 150MT of HO and 50MT of DO.
It would be another way around if the bunkers at the time of redelivery are more than the bunker that was handed over to the charterers at the time of vessel delivery.
Agents at load port and discharge port
When the vessel is under time charter, the agent at load port and discharge port would be appointed by the charterers.
Shipowner or manager would have no role and relation with the agents.
It is important for the master and ship staff to be aware of this.
Usually, the agents are there to help ship staff but if the vessel is on time charter, we need to be more cautious while handling with an agent.
In a time charter, the loyalty of the agents lie with the charterer and not with the ship staff or shipowners.
Masters must be aware that as the agent is being paid by the charterer and not the shipowner, they may not go out of their way to help the vessel.
This is particularly important in matters that lie under the responsibility of the ship staff, shipowners or managers.
For example, if the ship is detained by the PSC for some reasons, the agent may not be that enthusiastic to clear the vessel at the earliest as in this case the vessel will be off-hired and the agent’s employer (charterer) would not be loosing on anything.
This may not be the case with some professional agencies but nevertheless, masters need to be aware of this.
Under the time charter, the charterer may claim for under-performance of the vessel and seek compensation from the shipowner for loss in time.
The under-performance could be
- Delays in starting the cargo operation
- Loading of the cargo at less loading rate
- Discharging of the cargo at less discharge rate
- Stoppages during cargo operations from the ship staff
If the under-performance claim is justified and valid, then there is not much we can do.
But there would be occasions when it would actually be the delay from the shore and which is being claimed to be ship delay.
That makes it important to accurately issue these two documents
- Statement of facts
- Letter of protest for any delays
Apart from that accurately recording all the timings in the port log is important to support SOF and letter of protest.
For tankers, if any restrictions are put by the loading master on the vessel’s capability to load or discharge, a protest must be issued on this.
The restriction could be
- to maintain manifold pressure lesser than the vessel is capable to maintain
- to discharge (or load) at a rate lesser than vessel can load
- shore provided a number of hoses lesser than vessel can connect
The letter of protest would help the ship staff and shipowner to prove that vessel under-performed because of the shore side restrictions.
The time charter agreement (or the instructions to master) provided onboard may have the minimum loading or discharge rate vessel need to maintain.
This could be something like
Owners warrants that vessel can discharge at a rate of 500 m3/Hr and maintain 7 bars at the manifold in all conditions…
While the vessel needs to make sure that they comply with this but they must not over-rely on these instructions.
For example, at a discharge port vessel achieved discharge rate of 800 m3/Hr.
This does not mean that there is no need to issue a letter of protest for any restrictions from the shore side.
Unclear, unreasonable and unsafe instructions
While on time charter, the charterer may ask the master to perform some tasks which may be unsafe or is not as per the industry guidelines.
I will list here two of such instructions that I personally came across.
- Charterers asked to load a heated cargo adjacent to a cargo which is heat sensitive.
- Charterers asked to keep the original bill of lading on board during the voyage from load port to discharge port
You may come across other such requests. The master needs to decline these requests.
If at all required, Master need to oblige to the requests only when
- The charterer has provided a “letter of indemnity (LOI)” to the ship owners or managers
- Instructions have been received from the shipowner or manager to oblige the request
- It is safe to do so
From a commercial point of view, it is Master and ship staff’s moral responsibility to ensure that shipowner profits from owning and running the ships.
But there are no hard and fast written rules that hold good in all situations.
This is particularly the case when a ship is chartered in different ways.
It is important that we understand our responsibilities under each charter party.
And it is important that we understand where the loyalties of each party that we are interacting with lies.
About Capt Rajeev Jassal
Capt. Rajeev Jassal has sailed for over 20 years mainly on crude oil, product and chemical tankers. He holds MBA in shipping & Logistics degree from London. He has done extensive research on quantitatively measuring Safety culture onboard and safety climate ashore which he believes is the most important element for safer shipping.