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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.
Shipowner 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$/tonne or as a lump sum. The owner pays all running costs — bunkers, port charges, crew wages, insurance, and dues. The charterer is responsible for providing the cargo and ensuring it can be loaded and discharged within the agreed laytime. If loading or discharging takes longer than the allowed laytime, the charterer pays demurrage; if it is completed faster, the owner may pay despatch.
Key point: Under a voyage charter, the master remains the shipowner's employee. The owner's duty is to proceed with reasonable despatch and carry the cargo safely to the named destination.
Charterer directs commercial employment; owner operates vessel
The shipowner places the vessel at the charterer's disposal for a fixed period (or trip) in exchange for hire, expressed in US$/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.
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.
Charterer 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.
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.
Shipowner 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.
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.
As 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.
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.
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).
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.
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.
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?
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.
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).
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.
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.
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.
The master's contractual and legal position changes significantly depending on the type of charter in place: