Many ships are chartered (hired) from their owners for specific periods. This is especially important in moving dry and liquid bulk cargoes and most bulk carrier and tankers are chartered from their owners by cargo owners to move specific cargoes.

Reasons for Chartering a Ship rather than buying a Ship

• Large amounts of capital are required to buy a ship. It may be better to charter a ship rather than making a large financial commitment to buy one.
• Trade might be uncertain. Therefore a ship on charter for a few months does not need the long-term capital investment that would be needed to build or buy a ship.
• To build a ship takes time – perhaps one or two years. A ship can be chartered within a much shorter time.
• The need for a ship might be short-term, or for a season. (See Seasonal Cargoes)
• A company might need to charter a ship for a short period to replace one of its ships that is out of service for a refit, or while undergoing repairs following a breakdown or collision.
• Additional cargo may be available for only one or two voyages, making it sensible to charter a ship for those voyages only.

Types of Charter

A ship may be chartered for a short period (a single voyage or a few months) or for a longer period, depending on the circumstances.

• Voyage Charter – This type of charter is for one voyage only (e.g. for a voyage from Richards Bay to China with 150 000 tons of coal). For a voyage charter, the charter rate is usually given in US dollars per ton of cargo (e.g. the coal might be shipped from Richards Bay to China at $22 per ton). While the ship is on a voyage charter, the ship’s owner remains responsible for crewing, insurance, maintenance, depreciation and other costs relating to the operation of the ship. The owner recoups these costs from the freight rate (e.g. $22 per ton). The charterer will be responsible for fuel costs, ports costs, any canal transit costs, and any other costs relating to the voyage.
• Time Charter – A ship may be chartered for a specific time (e.g. three months, six months, a year, or longer), and the charter rate is usually given as a daily rate (e.g. $10 000 per day). While the ship is on a time charter, the ship’s owner remains responsible for crewing, insurance, maintenance, depreciation and other costs relating to the operation of the ship. The owner recoups these costs from the daily rate (e.g. $10 000 per day). The charterer will be responsible for fuel costs, ports costs, any canal transit costs, and any other costs relating to the voyage.
• Bare-boat Charter – To charter a ship for longer time (e.g. for 3 years or 10 years) she may be taken on a Bare-boat Charter, e.g. chartered for 5 years at $12 000 per day. While the ship is on a bare-boat charter, the charterer is responsible for crewing, insurance, maintenance, depreciation and other costs relating to the operation of the ship. The charterer will also be responsible for fuel costs, ports costs, any canal transit costs, and any other costs relating to the voyage. The charterer operates the ship as if she belongs to the charterer. Once the charter period has expired, the ship has to be returned to the owner in the same condition that she was in on delivery to the charterer. Fair wear and tear are allowed for the time that the ship was on charter.

Freight Rates and Charter Rates fluctuate according to various Factors

Demand for Ships

• High demand for ships = Higher freight rates or charter rates
• Low demand for ships = Lower freight rates or charter rates

Volume of Cargo available for Shipment relative to the number of Ships available

• Much Cargo available = Greater Demand for Ships = Higher Freight/Charter Rates
• Little Cargo available = Less Demand for Ships = Lower Freight/Charter Rates