“Shippers want to be able to buy or sell large or small quantities at short notice with knowledge that shipping space will be available. They want their goods to be carried in large or in small lots, regularly or irregularly, in season or out of season, at ordinary temperatures, or chilled, or frozen or deep-frozen. Their shipments may be dry or liquid, dirty or clean, safe or dangerous, live or dead, animal, vegetable or mineral. They want the goods to be delivered at a reasonable and stable freight rate that is fixed by many factors. The shippers also want freedom of choice of carrier. ”
Anyway, the shippers can choose any type of the cargo they wish to ship their goods to any particular port at a time according to the fixed liner ship schedule, which is normally advertised publicly.
In contrast with ship owners operating regular liner-services with fixed freight rate for a variety of commodities, there is no fixing rate in the tramp trade, which is also called general trade (Branch, 1997). In fact, the tramp shipping, by its very nature, is subject to greater fluctuations as compared with liner shipping. The tramp trade has no fixing sailing schedule, but merely trade in all parts of the world in search of cargo, primarily bulk cargo. Moreover, the tramp trade business demands an intimate knowledge of market conditions. The level of the open market rates is governed by the law of supply and demand or, in other words, by the ratio between tonnage available and cargoes obtainable at a given moment (BES, 1960).
Thus, the shipping market in tramp trade is highly volatile that causes each party experience a high risk. Under this circumstance, a tramp ship owner has two optional choices of employment for his ships: Demise charter and non—Demise charter.
Demise charter, which is also called Bareboat charter, arises when the charterer is responsible for providing the cargo and crew, whilst the ship owner merely provides the vessel (Branch, 1997). Under this form of charter party the charterer hires the ship merely as a ship, and is taking over full responsibility for manning and provisioning it, which means the operating costs and voyage costs, and only the ownership and capital costs rest with the ship owner. Sometimes the owner may arrange hull insurance and sometimes he has a right to influence maintenance, repairs and choices of senior officers. All other components are left for the charterer.
In such circumstance, during the period of charter, the charterer stands in relation to the ship in precisely the same position as if he were her owner. For convenience, he may continue to employ the same crew and officers, as well as other personnel, who were engaged by the ship owner, but their contract of employment will be with him, and he as bareboat charterer will be responsible for the payment of their wages. Of course, the terms of the particular charter party will determine the relationship between ship owner and charterer and their respective rights and responsibilities. As the law allows almost complete freedom of the contract between ship owner and charterer, it is undesirable to be dogmatic in relation to the interpretation of the term “bareboat charter” without reference to the instrument in which the contract was expressed (Dover, 1952).
A demise charter party is for a period of time, which may vary from a few weeks to several years. However, this type of charter party is seldom used in commercial practices nowadays. Dover (1952) commented that the bareboat charter is only used in times of war does it find a common use.
The other type of charter is non—Demise charter. A non—Demise charter arises when the ship owner provides the vessel and her crew, while the charterer merely supplies the cargo. It may be a Voyage charter for a particular voyage, either for single voyage or consecutive voyages. Alternatively, it may be a Time charter for a stated period or voyage for a remuneration known as hire money, either for a single voyage, round voyage or for a certain period “general trading”. As it defined by Drewry Shipping Consultants (1995) that time charter is a period charter where a vessel is taken for a specified length of time, to be used at the discretion of the charterer (subject to agreed restrictions).
However, the main difference between bareboat charter and time charter is that in time charter the owner, in addition to his components in bareboat charter, is also responsible for manning of the vessel and maintenance, repairs and arrangements and costs of the vessel’s insurance (mainly hull and/or P. and I.). In other words, the charterer only needs to take over of the voyage expenses, which consist of bunkers, port charges, payment of stevedores and hold cleaning, as well as canal dues. Nonetheless, time risks and other risks, costs and functions directly connected with the commercial operation of the vessel. Gorton & Ihre (1990) has already summarized the basic idea, which is that the ship owner is responsible for the technical operation and navigation of the vessel, but the time charterer is responsible for the employment (commercial operation) of the vessel.
Nevertheless, the main difference between time charter and voyage charter is that in the form of voyage charter the owners also take over the commercial operation of the vessel and the functions, risks and costs connected therewith. The charterer retains responsible for certain functions, risks and costs connected with loading and discharging and also part of the harbour dues.
In practice, the majority of tramp cargo shipments are made on a basis of voyage charter. On the other hand, it is quite common for liner companies to supplement their services by taking tramp ships on time charter (Branch, 1997). However, whether a ship owner prefers to employ his vessel on time charter or voyage charter mainly depends upon his views as to the future trend of the freight market. But it is difficult to foresee over a long period whether the general level of the open market rates will go up or go down and from the viewpoint forward fixing is always a gamble for both ship owners and charterers. What’s more, it is obvious that the integrity and financial statue of a time charterer is a very important consideration when deciding to fix a ship on time charter basis.
Conclusion
Accordingly, these two employment methods of ships are both widely used in the shipping industry. For the liner ships, the ship owners need to take over the full responsibilities for all costs of the ships and experience high risks because the liner ships are kept running on the fixed schedule basis whether or not adequate commercial inducements offer. The freight rate, however, is always fixed, which is really good for shippers. On the other hand, in chartering we also know different levels of services such as bareboat (or demise) charter where the ship owner merely provides the ship, which is then operated by the charterer, and non-demise charter where the ship owner also provides the crew and other resources either for a voyage or over a period of time. And the freight market in tramp shipping is highly volatility, and whether or not choosing one type of charter rather than the other one is like a gamble for ship owners and charterers. (1,578 words)
Reference
BES, J (1960) Chartering Practice. Lodon: Barker & Howard Ltd
Branch, A (1997) Elements of Shipping. 7th edn. London: Chapman & Hall.
Drewry Shipping Consultants (1992) The Tanker Charter Market: Structure, Participants & Trend. London: Drewry Shipping Consultants.
Farthing, B., & Brownrigg, M. (1997) Farthing on International Shipping. 3rd edn. London: LLP Limited
Gorton, L. & Ihre, R. (1990) A practical Guide to Contracts of Affreightment and Hybrid Contracts. 2nd edn. London: Lloyd’s of London Press Ltd.
Gorton, L., Ihre, R. & Sandevarn (1989) Shipbroking and Chartering Practice. 3rd edn. London: Lloyd’s of London Press Ltd.
Bibliography
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