Charter parties
A charter party (from the Latin carta partita — a divided document, each party keeping half as proof of the agreement) is the contract between a shipowner and a charterer for the use of a vessel or its cargo-carrying capacity. Charter parties come in three principal types — voyage, time, and bareboat — plus derivative structures such as contracts of affreightment and consecutive voyage charters. The type of charter determines who bears commercial risk, who operates the vessel, what authority the master has, and what happens if things go wrong.
The Baltic and International Maritime Council (BIMCO) is the principal body that produces and maintains standard charter party forms. BIMCO forms are not mandatory — parties are free to negotiate bespoke terms — but they provide a recognised baseline and reduce negotiation time. Almost all significant charter party disputes are resolved by London arbitration (LMAA) or New York arbitration (SMAR), with English law applying to the majority of commercial charters.
Charter party types
Voyage charter
VCShipowner operates vessel; charterer books cargo space
The shipowner agrees to carry a specified cargo from one port (or range of ports) to another for an agreed freight rate, typically expressed in US$/tonne or as a lump sum. The owner pays all running costs — bunkers, port charges, crew wages, insurance, and dues. The charterer is responsible for providing the cargo and ensuring it can be loaded and discharged within the agreed laytime. If loading or discharging takes longer than the allowed laytime, the charterer pays demurrage; if it is completed faster, the owner may pay despatch.
Typical standard forms
- ·GENCON 1994 (BIMCO general cargo voyage)
- ·ASBATANKVOY (tanker, US-origin)
- ·SHELLVOY 6/7 (Shell oil voyage)
- ·NORGRAIN (grain voyage)
- ·COAL-OREVOY (dry bulk)
Key point: Under a voyage charter, the master remains the shipowner's employee. The owner's duty is to proceed with reasonable despatch and carry the cargo safely to the named destination.
Time charter
TCCharterer directs commercial employment; owner operates vessel
The shipowner places the vessel at the charterer's disposal for a fixed period (or trip) in exchange for hire, expressed in US$/day. The charterer directs where the ship trades, chooses the cargo, and pays for bunkers and port charges. The owner pays crew wages, maintenance, and insurance. The distinction between 'employment' (charterer's instructions) and 'navigation' (owner's responsibility) is a recurring source of disputes — the charterer orders the ship; the master decides how to comply safely.
Typical standard forms
- ·NYPE 93 / NYPE 2015 (New York Produce Exchange — the most widely used time charter form)
- ·BALTIME 1939 / 2001 (BIMCO general purpose TC)
- ·SHELLTIME 4 (Shell tanker TC)
- ·BOXTIME 2004 (container vessel TC)
Key point: Under a time charter, the master is technically the owner's servant for navigation but must follow the charterer's lawful orders as to employment. The ship does not leave the owner's operative management — maintenance, crewing, and seaworthiness remain the owner's obligation.
Bareboat charter (demise charter)
BBCCharterer takes full possession and control of the vessel
The shipowner delivers the ship to the bareboat charterer, who takes complete possession for the charter period. The bareboat charterer appoints and employs the crew, manages maintenance and insurance, pays all running costs, and effectively operates as a disponent owner. The charterer may sub-let the vessel on a time or voyage charter basis. Bareboat charters are common in ship finance (where the finance company owns the vessel and the operator bareboat-charters it) and in flag-out arrangements.
Typical standard forms
- ·BARECON 2017 (BIMCO — the industry standard bareboat form, covering standard, newbuilding, and finance versions)
- ·SHIPSALE and BARECON combined (where bare-boat-in-purchase option is exercised at end of charter)
Key point: Under bareboat charter, the master is the bareboat charterer's employee. The owner has no day-to-day control. This is the only charter type that creates a 'demise' — a true transfer of possession and control — making the charterer in law equivalent to an owner for most operational purposes.
Contract of Affreightment (CoA)
CoAShipowner nominates vessels; charterer provides cargo over time
A CoA is a framework agreement under which the owner undertakes to carry a series of cargoes over an extended period (typically 1–5 years) at an agreed freight rate. The owner does not commit a named vessel — they nominate vessels as required. This gives the owner flexibility to use different ships and allows the charterer to secure forward freight at a fixed price. Common in dry bulk and tanker trades where large shippers (mining companies, oil majors) need to move consistent volumes.
Typical standard forms
- ·INTERCOA 80 (BIMCO CoA for tankers)
- ·GENCON 94 may be adapted as a CoA framework
Key point: A CoA is not itself a charter party for a specific vessel — it generates individual voyage charters as nominations are made. The freight rate in the CoA is fixed, so the risk of market movement is on the party that got the rate wrong at negotiation.
Consecutive voyage charter (CVC)
CVCAs voyage charter, but repeated on the same named vessel
A consecutive voyage charter binds a specific vessel to perform a series of voyages on the same route over a period. Unlike a CoA, the vessel is named. Unlike a time charter, the charterer pays per voyage (freight-based) rather than per day. CVCs are common in bulk trades where a shipper has regular cargo volumes and wants the predictability of a named ship.
Typical standard forms
- ·NUVOY form (BIMCO consecutive voyage)
- ·Adapted voyage forms such as GENCON
Key point: The key issue in CVC is the allocation of time between voyages — the ship must proceed with due despatch from the completion of one voyage to the commencement of the next. A poorly drafted CVC can create laytime disputes across multiple voyages.
Roles in the charter chain
- Registered owner — the entity on the ship's certificate of registry. Holds the mortgage. May or may not operate the vessel commercially.
- Disponent owner — an intermediate party (often a time charterer) who then sub-charters the vessel. A disponent owner has contractual rights as owner under the sub-charter but faces upward obligations under the head charter. Freight disputes often cascade up the charter chain.
- Charterer — the party paying hire (time charter) or freight (voyage charter) in exchange for use of the vessel or its capacity. May be a cargo shipper (trading for its own account) or a tonnage trader (chartering to sub-charter at a profit).
- Sub-charterer — a party that charters from the charterer rather than the owner. The registered owner's lien rights against sub-charterers depend on the contract — an ETA (Employer's Time Charter Arbitration) clause or non-lien clause may affect the chain.
- Shipbroker — the intermediary who negotiates the charter party and receives a commission (typically 1.25% of freight or hire from each side, or 2.5% total). Main brokering centres: London, Piraeus, Singapore, New York.
Key clauses
- Laytime
The agreed number of hours or days the charterer has to load and discharge. Expressed as running hours, weather working days (WWD), reversible (can be traded between ports) or non-reversible. Calculation starts when Notice of Readiness (NOR) is tendered by the master, accepted by the terminal, and the ship is at berth (or in some forms, once she is in port).
- Demurrage
The payment owed to the shipowner when the charterer exceeds the agreed laytime. Expressed in US$/day, pro-rated for partial days. Demurrage is a liquidated damages clause — the owner does not need to prove loss. Common rates for a Panamax bulk carrier are US$7,000–12,000/day; for a VLCC US$30,000–60,000/day. 'Once on demurrage, always on demurrage' — exceptions apply only as expressly stated.
- Despatch
If the charterer loads/discharges faster than the allowed laytime, the owner pays despatch (typically half the demurrage rate). Despatch encourages efficient port operations and compensates the charterer for early completion. Not all charter parties include a despatch clause.
- Off-hire
In time charters, periods when the ship is unable to perform the agreed service (dry-docking, breakdown, deviation for owner's purposes) are off-hire — hire ceases for that period. The off-hire clause lists the triggering events. Disputes frequently arise where a vessel is partially functional: is a slow-steaming ship on hire at reduced rate, or off-hire entirely?
- Lien
The owner's right to hold cargo as security for unpaid freight or demurrage (contractual lien). The cesser clause extinguishes the charterer's liability once cargo is shipped, in exchange for the owner retaining a lien on the cargo. The master must not release cargo against an LOI from a party other than the bill of lading holder without owner's authority.
- Deviation
Under the Hague-Visby Rules (and most voyage CPs), the carrier may deviate to save life but not to save property without consent. Deviation for any other purpose is a fundamental breach. The liberty clause in the CP may expand permitted deviations (bunkering ports, intermediate ports).
- War risk & sanctions
Modern charter parties include war risk clauses (BIMCO CONWARTIME 2013 for time charters, VOYWAR 2013 for voyage), permitting the master to refuse entry to dangerous zones and placing additional freight costs on the charterer. Sanctions clauses (BIMCO Sanctions Clause 2020) address OFAC/EU/UN restrictions on charterers, cargo, or ports.
- Ice clause
BIMCO Ice Clause for voyage charters (ICEWARRANTY) requires the ship to have ice class appropriate to the intended route, and addresses what happens if ice prevents access to the load/discharge port. The master has the right to decline to proceed if the ship is not classed for ice navigation.
- BIMCO 2020 standard clauses
The BIMCO 2020 suite includes standardised clauses for: Infectious or Contagious Disease (Infectious or Contagious Disease Clause 2020), Law and Arbitration (London or New York), Electronic Bills of Lading, and Cyber Security Clause 2019. These are negotiated into charter parties by incorporation.
Master's authority across charter types
The master's contractual and legal position changes significantly depending on the type of charter in place:
- · Voyage charter: the master is unambiguously the owner's servant. The charterer has no employment authority over the master. The master follows the voyage instructions in the CP and bills of lading; the owner is responsible for the master's acts and omissions. The master should take instructions from the charterer's agents as to port scheduling but is not obliged to follow unlawful or unsafe orders.
- · Time charter: the master follows the charterer's orders as to the employment of the vessel (where to go, what cargo to carry, berth instructions) but remains the owner's employee for navigation and seamanship. The oft-quoted phrase is "the charterer directs the ship, the master sails her." Signing bills of lading on charterer's instructions can expose the owner to liability if the cargo description is inaccurate — many owners instruct masters to sign only "as presented" and to refer indemnity letters to the owner before signing clean bills for damaged cargo.
- · Bareboat charter: the master is the bareboat charterer's employee in every respect. The owner has divested control entirely. The owner cannot give the master any commercial or operational orders during the bareboat period. If the bareboat charterer sub-charters on a time basis, the master then takes employment instructions from the time charterer.
See also
- · Tonnage measurement — DWT cargo intake calculations are central to voyage CP freight.
- · P&I clubs & marine insurance — cargo liability, collision liability, and off-hire insurance are all relevant to charter party disputes.
- · MLC 2006 — crew wages and conditions cannot be compromised by charter party arrangements; the owner remains responsible under bareboat charter to ensure compliance.
- · Classification societies — class maintenance is an owner's obligation; off-hire often results from drydock or class survey.
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