Chapter 1
Chartering
Chartering is the process of hiring a ship to carry cargo by sea. The contract by which a ship is hired is called a "charter".
The word "chartering" brings out many issues. Chartering terminology covers these issues, from the negotiation stage before the contract is made, to the contents of the document itself (the "charterparty" and its "clauses") -which is the physical form of the contract of carriage. Chartering terminology can also relate to issues connected with the periods after the contract is made. An example is "arbitration" which is one legal method of solving disputes arising from the contract.
Therefore the word "chartering" and the terminology connected with it are related to law and practice of entering into contracts for the use of a ship. Some of the terminology does have relevance to other sectors of the shipping business and these will be referred to in the other chapters of this book in which a more analytical discussion of the term or phrase is given. For example, the term "I.W.L" ("Institute Warranty Limits") is more relevant to marine insurance and will be discussed fully in that chapter. However, the term is appropriate to the trading limits governing the places to which the charterer can send the ship, especially under a "Time Charter" and will be briefly mentioned in this chapter on “Chartering”.
It must be stated here that one type of "charter" may not be for the purpose of carrying cargo but to establish a form of financial arrangement. This is the "bareboat" or "demise" charter where the ship is leased out or "demised" by the actual owner to a hirer or "demise charterer" and placed under his complete control. These phrases and terminology will be discussed in further detail below.
The main objective of this chapter is to explain chattering terms and terminology, and to give a reasonable, comprehensive description of clauses and words that may be found in charterparties. Other chapters, such as "Laytime and Timesheets" and "Bills of Lading" will also contain material relevant to chartering but the material will be related specially to those chapters.
Finally, some phrases can be abbreviated, for example in telex communications. The relationship between the full form of the phrase and its usual abbreviation will be indicated by brackets. Fox example; "Address commission" is usually abbreviated to "Adcom" and the full form of "B/L" is "Bill of lading". Both forms are generally given.
AA AA. Always afloat, always accessible.
Always afloat. In order to prevent a vessel from being ordered to proceed to a berth where she cannot load or discharge without touching the ground or which can only be reached safely after discharging part of the cargo into lighters or which can only be reached with spring tide, the so-called "always safely afloat clause'' is inserted in the charterparty.
This clause may read as follows (as in the GENCON voyage charterparty for dry cargo):
". .. the vessel shall proceed to . .. or so near thereto as-she may safely get and lie afloat . . . and being so loaded the vessel shall proceed to . . . or so near thereto as she may safely get and lie always afloat and there deliver the cargo . . ."
In some ports where the bottom consists of soft mud, it may be agreed that the vessel may lie safely aground at low tide ("Not always afloat but safely aground" or NAABSA).
Always accessible. The Charterer can send the ship to ports in which the ship can be reached for the purpose of handling cargo or carrying out any other activity with the shore and as required by the Charterer.
About. Many charterparties contain the word "about" when describing something, such as the speed of the vessel or its fuel consumption or the cargo to be loaded. The word tends to remove the strict responsibility that would be placed on the party making the statement that the description is absolutely correct if there was some departure from the description. The word "about" means "more or less" and gives some (uncertain) margin of accuracy or allows some (equally uncertain) tolerance.
A common use of "about" is in rime charterparties. An example is found in the New York Produce Exchange form in the Preamble describing the vessel to be chartered:
". . . of about . . , cubic feet grain capacity . . . and about . . . tons . . . deadweight capacity . . . inclusive of permanent bunkers, which are of the capacity of about . . . tons of fuel, and capable of steaming, fully laden, under good weather conditions about . . . knots on a consumption of about . . . tons . . ."
In a time charterparty, also using the NYPE as an example, the charter period can be qualified by "about":
". . . the Owners agree to let and the Charterers agree to hire the vessel from the time of delivery for about . . ."
In an arbitration in New York in I988, this issue of an approximate period under the time charter was dealt with. The vessel was fixed for a trip charter for a duration of "... about 80 days without guarantee ..." The owners claimed that the charterers had underestimated the voyage because the voyage occupied 97 days instead of the agreed 80 days. It was decided that the owner's claim for compensation for the overlap in period was unfounded because there was no misrepresentation by the Charterer of the voyage duration.
In a voyage charterparty , the speed and fuel consumption are not very significant but the deadweight is also qualified by "about" as it is m the MULTIFORM charterparty. In such a charter if the cargo quantity is to be qualified by some factor of tolerance, a percentage is used for the same effect as "about", for example "and there load a cargo of 50,000 metric tons, 5 per cent more or less in Owner's option".
"About" can be an uncertain factor in assessing the tolerance allowed to either an owner or a charterer. In early decisions, factors of between 3 and 5 per cent seemed to be the norm but today this would no longer be the case. Judges and arbitrators would take into account various other factors, such as the weather conditions, the agreed quantity of cargo, any port restrictions and commercial margins allowed in certain trades. In some cases, the charterparty may give the owner the option to load more or less cargo than a specified amount (see MOLOO) and if the master gives an "approximate" quantity in his Notice of Readiness, this may be the same as "about".
With regard to a speed description in a time charter, it was assumed in the past that a margin can be allowed of about 0.5 knot or 5 per cent. In The Al Bida, 1987, it was decided that this assumption was no longer acceptable. In this case, the vessel was described as being "capable of maintaining under normal working conditions an average sea speed of about 15.5 knots . . .". On delivery, the vessel's bottom was fouled so that for some time it was unable to reach the described speed on the agreed fuel consumption. It was decided that the owners failed to make the ship fit on delivery. It was also stated in the English Court of Appeal that the word "about" was not restricted to a definite margin of 0.5 knots or 5 per cent but depended on the vessel's size, draught and trim. With regard to fuel consumption, "about" meant 3 to 5 per cent but this must also be reconsidered in the light of the above legal decision, the weather conditions may always be relevant to the margin.
"Act of God''. When some events take place preventing one party from fully carrying out his obligations under a charterparty and that event occurs without any human intervention, this person is relieved from any liability to compensate the other party to the contract. This exception to liability is generally implied in the law and practice of shipping but the exception can also be found as an express term in a charterparty. For example, in the New York Produce Exchange (NYPE) time charterparty, clause 16 states:
"16. Should the vessel be lost, money paid in advance and not earned . . . shall be returned to the Charterers at once.
The act of God, enemies, fire . . . always mutually excepted . . . ."
This means neither party is liable if loss or delay is caused by extraordinary circumstances, for example, accidents caused by force of weather beyond human power or other circumstances which could not possibly be foreseen or prevented.
It must be mentioned here that not every cause of loss, damage or delay can be considered an "act of God" thus relieving one person from liability. For example, unexpected cold weather is an act of God but if cargo is damaged because of pipes or tanks bursting because the water was negligently and carelessly allowed to stay in them, freezing and expanding, and then cargo was damaged by the water from the burst pipes or tanks, the damage would be caused more by the negligence of the shipowners servants (the crew) than by the very cold-conditions.
Address commission (Adcom). In some charterparties a certain percentage of commission is due to charterers on the amount of freight or hire. Address commission is almost equivalent to a reduction in the rate of freight, as few special services are performed by charterers in return. However, the charterer will deduct the amount before paying the shipowner what is due. The commission is like a rebate for the business from the charterers.
If no address commission is due, the vessel is "free of address''.
Advance freight. As a rule the freight on cargo shipped under a charterparty is payable at destination upon delivery to consignees.
If the ship or cargo is lost before the destination, the shipowner is not entitled to freight. (However, under some legal systems he can claim that a part of the freight has been earned-and he has a right to it-in proportion to the distance covered from the loading port.) To protect the shipowner's right to freight even if he cannot deliver the cargo to its agreed destination an express clause in the charterparty may provide for the whole or part of the freight to be payable in advance. The time when the advance freight is payable and the entitlement of the carrier to keep it can vary. For example, it may be stated:
"The freight is to be paid at the rate of . . . per ton of 1000 kilos on gross bill of lading weight and is to be paid in the following manner:
. . . The freight shall be deemed earned as cargo is loaded on board and shall be discountless and non-returnable, vessel and/or cargo lost or not lost."
and,
"Freight is payable within five days of master signing bills of lading."
Once the freight is paid in advance it is not generally recoverable by the charterer or the shipper even if the cargo is lost.
This risk can therefore be covered by charterers or shippers by insurance.
The position is different if charterers or shippers advance money in order to meet ship's disbursements at port of loading. Such a payment for account of shipowners constitutes a normal loan, which is recoverable from shipowners irrespective whether the cargo is actually delivered at destination, or not.
For example, the GENCON charterparty states, in cl. 4:
"Cash for vessel's ordinary disbursements at port of loading to be advanced by charterers if required at the highest current rates of exchange, subject to two percent to cover insurance and other expenses."
The deduction of 2 per cent of the amount to cover insurance and other expenses almost seems to suggest that the cash is an advance on freight which is not recoverable if the cargo is not delivered. However, the same clause in GENCON clearly states elsewhere that "The freight to be paid in the manner prescribed in cash . . . on delivery of the cargo . . . ". Therefore it is likely that the cash for disbursements at the load port is in the nature of a "loan" to the owner, insurable in case the owner cannot repay it.
Affreightment. (See also COA.) This term is a somewhat old form of describing a contract to carry goods by sea, that is a "contract of carriage". Such a contract is now more correctly and simply referred to as a "charter". "Affreightment", comes from French and means "the hiring of a ship to carry cargo".
However in modern shipping terminology, a "Contract of Affreightment" (COA) has a specialised meaning. It is now a contract to move a (large) volume of cargo over an agreed period of time. Examples are VOLCOA and INTERCOA 80.
Under the Hague Rules or Hague-Visby Rules, a "contract of carriage" also means a bill of lading or any similar document of tile insofar as such document relates to the carriage of goods by sea.
Agency fee. The agency fee is the remuneration for the agents who have attended to the ship's business during its stay at their port. In most maritime countries fixed scales of charges covering agency work and the clearance of tramp vessels have been agreed between the local shipbrokers or their organisations. For example, the Institute of Chartered Shipbrokers in London, England, recommends minimum agency fees for different services and publish a list of these. BIMCO (The "Baltic and International Maritime Council") also publishes a book "Port Costs" which contains disbursements from shipowners and agents from many ports in the world. This shows the likely costs for shipping agency services. Also in BIMCO's regular periodical, BIMCO Bulletin, a section entitled "Around the Ports" occasionally covers agency fees recommended by different organisations and purr authorities.
The fees may vary according to the size and nature of the cargo, as well as the ship's tonnage, but the basic principle is that a fixed sum is allowed. Sometimes a fixed amount is inserted in the charterparty as the total agency fee.
"Agency fee" is different from commission paid to brokers or "brokerage". (See Brokerage.) ,
Regular liner companies may grant a certain percentage of freight on outward and inward cargo as commission, in addition to the regular agency fee. It is not customary to pay to the ship's agents any commission on the freight on cargo carried by tramp vessels, although efforts to claim a certain percentage of the gross freight as an agency fee, in addition to the normal agency fee, may sometimes be made.
Aground. The bottom of the ship may touch the ground in a loading or discharging port because of tidal changes in the water level. If a charter allows the Charterer to send the ship to a pert where it can safely touch the ground it will contain a clause describing the ship as being ". . . not always afloat but safely aground . . ." (NAABSA)
AG (Arabian Gulf). This suggests a range of ports in the Arabian Gulf (Iranian or Persian Gulf) where a ship can load or discharge cargo.
AH range. A range of ports between Antwerp and Hamburg in Europe. If the owner agrees with this range of ports he accepts that Antwerp and Hamburg are warranted by the Charterer as being "safe" but he may have to dispute the "safety" of any other port nominated within the range. This description of a range of ports is sometimes abbreviated to "AH.R".
All time saved (ATS). This expression is used in conjunction with despatch money (See Chapter 2, under Despatch.).
All told. In some charterparties the deadweight capacity of the vessel is shown with the addition "all told" (DWAT), which means the capacity mentioned in the charterparty represents the total deadweight capacity including bunkers, water, provisions, dunnage, stores, spare parts, crew, passengers and their effects. In order to arrive at the deadweight capacity for cargo (DWCC) deductions have to be made for bunkers, water, etc.
Always accessible. The charterers can send the ship to ports in which the ship can be reached for the purpose of handling cargo or carrying out any other activity with the shore and as required by the Charterer.
Always accessible berth(s). The berth must be capable of being approached in the sense of having an unobstructed way or means of approach. This expression describes the berth only and not the ship and means only that the berth is capable of being approached. It is relevant to the ship's being an "Arrived ship". In The Kyzikos, 1989, when it went before the first judge before it reached the House of Lords, the phrase "always accessible berths" had to be decided. The vessel was chartered to carry cargo to one or two ". . . always accessible berths . . . ". In the dispute about demurrage, the judge held that the shipowners would be entitled to succeed in their claim for demurrage if they could show that the charterers were in breach of their obligation to provide a berth that was always accessible. The judge stated that the word "accessible" meant simply that the berth was capable of being approached. This required it to be unobstructed by a physical obstruction. In the case, the vessel was prevented from reaching the berth because of fog. This was not a physical obstruction end therefore the berth was always accessible.
Always afloat. In order to prevent a vessel from being ordered to proceed to a berth where she cannot load or discharge without touching the ground or a berth which can only be reached safely after discharging part of the cargo into lighters or which can only be reached on spring tidal conditions, the so-called "always safely afloat clause" is inserted in the charterparty.
This clause may read as follows (as in GENCON):
“ . . . the vessel shall proceed to . . . or so near thereto as she may safely get and lie afloat . . . and being so loaded the vessel shall proceed to . . . or so near thereto as she tray safely get and lie always afloat there deliver the cargo, . . ."
In some ports where the bottom consists of soft mud, it may be agreed that the vessel may lie safely aground at low tide that is "Not always afloat but safely aground" (NAABSA).
AMWELSH (Americanised Welsh Coal Charterparty). A standard-form voyage charterparty for the carriage of coal, published by ASBA in 193 and amended in 1979. (See ASBA.)
Anti-pollution clauses. These are clauses inserted in a charterparty and generally place responsibility .on the shipowner to ensure that he obtains suitable insurance cover or can provide alternative security for compensation he may become liable to pay for pollution, by oil (or similar substances) and for clean-up costs. These clauses are common in charters for oil tankers. An example is the "TOVALOP Clause" in the TANKERVOY 87 voyage charterparty. The owner agrees that he is and will remain a "Participating Owner" in TOVALOP (the "Tanker Owners' Voluntary Agreement Concerning Liability for Oil Pollution"). The remainder of the clause deals with limits of liability for payment of damages for oil pollution and clean-up operations.
Another, slightly different, example can be found in cl. 38 of the ASBATIME charterparty which can be used for tankers and also for non-tankers. The clause states that:
"The vessel shall be off hire during any time lost on account of vessel's non-compliance with government and/or state and/or provincial regulations pertaining to water pollution. In cases where vessel calls at a U.S. port, owners warrant to have secured and carry on board the vessel a Certificate of Financial Responsibility as required under U.S. law."
Even more stringent clauses, imposing severe obligations on shipowners, came to be used in 1990 after a number of oil tankers experienced casualties in and near United States' waters causing severe escape of oil and pollution or threats of pollution. One clause, for example, required shipowners to maintain insurance cover (from P. & I. Associations) for US$700 million to meet liability for oil pollution caused by the owner's ship. The International Group of P. & I. Associations became very concerned because such large liabilities would be uninsurable or insurable at excessive cost to the owner.
In 1990, legislation was introduced in the U.S.A: to control such pollution from ships. This imposes severe liabilities in the oil tanker trades to and from U.S. ports. In order to reduce their own liabilities, charterers of vessels in these trades attempted to impose very wide obligations on shipowners. These mainly concerned the suitability of the vessels in the trades and the certification and insurance of liabilities for oil pollution.
Charterparties can contain clauses as follows:
"Financial Responsibility Concerning Oil Pollution
Owners warrant that throughout the currency of this charter they will provide the vessel with the following certificates:
(a) Certificates issued pursuant to the Civil Liability Convention 1969" (CLC).
(b) Certificates issued pursuant to the U.S. Federal Water Pollution Control Act.
(c) Certificates which may be required by, U.S. Federal legislation at any time during the currency of this charter provided always that such legislation incorporates the CLC as amended by the 1984 Protocol or contains equivalent provisions.
Notwithstanding anything whether printed or typed herein to the contrary:
(i) Save as required for compliance with the above, Owners shall not be required to establish or maintain financial security or responsibility in respect of oil or other pollution damage to enable the vessel lawfully to enter, remain in or leave any port, place, territorial or contiguous waters of any country, state or territory in performance of this charter.
(ii) Charterers shall indemnify Owners and hold them harmless in respect of any loss, damage, liability or expense (including but not limited to the cost of any delay incurred by the vessel as a result of any failure by Charterers promptly to give alternative voyage orders) whatsoever and howsoever arising which Owners may sustain by reason of the vessel's inability to perform as aforesaid.
(iii) Owners shall not be liable for any loss, damage, liability or expense whatsoever and howsoever arising which Charterers and/or the holders of any Bill of Lading issued pursuant to this Charter may- sustain by reason of the vessel's inability to perform as aforesaid.
Charterers warrant that the terms of this Clause will be incorporated effectively into any Bill of Lading issued pursuant to this Charterparty."
Anti-technicality clause. In a time charter the charterer is obliged to pay hire for the vessel in the agreed manner, for example, in U.S. currency, semi-monthly in advance, in a prescribed bank on or before the end of a specified number of "banking days". The charterparty also allows the owner to withdraw the vessel if the punctual and regular payments of hire are not made. To be fair to charterers, an "anti-technicality clause" can also be inserted in the charterparty. This can state:
"Where there is any failure to make `punctual and regular payment' due to oversight or negligence or error or omission of Charterers' employees, bankers or agents or otherwise, for any reason where there is absence of intention to fail to make payment as set out, Charterers shall be given by Owners three bank working days notice to rectify the failure. Where so rectified, the payment shall stand as punctual and regular payment. Charterers' bankers to send a direct telex to Owners' bank confirming said hire/monies paid with value date and appropriate references."
Such a clause giving the Charters a "grace period", can also contain a provision to compensate the owners with interest. These words can be added to the above clause:
"Payment received by Owners' bank after the original due date will bear interest at the rate of 0.1 percent per day which shall be payable immediately by Charterers in addition to hire."
APS (Arrival Pilot Station). This expression is used to identify the point at which a time-chartered ship is "delivered" to the charterer or "redelivered" to the shipowner. The place of delivery and redelivery axe the places where the time charter commences or comes to an end. Normally, the place of actual deliver...
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