Some may ever think that shipping is such a complex world having so many terms, which some are really confusing and some time conflicting each other, the idea of serving this Note is to help one to understand better The General Shipping terms in a much easy way.
The basic economic motive of shipping is providing service to deliver/transport goods from one point of pick up (point of origin) to the point of delivery (destination point), involving two main parties i.e. The Shipper, in this case is the owner of the goods (cargo) as well as The Carrier, The one who virtually delivers the goods (cargo) to the destination, in this case is The Ship’s Owner/Operator. There are several ways of shipment i.e. Air-freight, Sea-freight and Land based-freight (trucking, train, etc). This note will serve to elaborate more on the Sea-freight, even though some basic principles might be similar and also applicable for the other 2 shipment ways.
There are two main types of Shipping, first is Liner Shipping, where sailing time is scheduled and freight rates are based on certain standard tariff, mostly for passenger, general cargoes and containers. The second one is Tramp Shipping, where sailing time is not scheduled; freight rates are negotiated and formed individually, type of cargo might be vary from general cargoes up to specific industrial cargo such as chemicals, oil & gas, coal, and other project cargoes.
In term of operating / running a Ship in the Shipping business, herewith are several basic/major shipping contract types (Charter parties), commonly used and quite popular in the market, complete with each explanations as;
- Voyage charter - It is a contract between Ship owner and charterer for transportation of a specified amount of commodity from loading port to a destination, where The Ship Owner is responsible for all the cost incurred. Normally rates are sets on a Dollar per-Ton basis of cargoes carried (Dollar per-unit cargo weight carried)
- Contract of Affreightment (CoA) - It is a contract between Ship Owner and charterer for transportation of a specified amount of commodity from loading port to a destination over a certain agreed period of time (i.e. 1 – 2 years) where The Ship Owner is responsible for all the cost incurred. Normally rates are sets on a Dollar per-Ton basis of cargoes carried (Dollar per-unit cargo weight carried)
- Trip / Tramp Charter – The contract which set and only valid for one Trip, where The Charterer is responsible for all the Voyage Costs incurred such as fuel-bunker cost, fresh water cost, ports & agency costs, etc. Freight rates are normally set on the basis of Dollar per-day throughout the no of day’s charter.
- Time Charter (T/C) - Charterer hires the vessel for a specified period of time and takes the commercial control over the vessel, where The Ship Owner is responsible for operation and capital costs, whilst Charterer is responsible for all the voyage costs. Rates are normally set on a Dollar per-day basis throughout the days of the charter period.
- Bareboat Charter - Charterer hires the vessel for a very long (specified) time, normally the whole economic life of the vessel, where Ship Owner is responsible for the capital cost only, and Charterer is responsible for all other costs. Rates are normally set on Dollar per-day basis throughout the days of the charter period. Used to be quite popular on the Energy sector market.
Along the way, some other types of lately developed contract/charter are also introduced in to the market, thus basically are the latest developed / modified version of the above mention basic types i.e.;
- Back – to – back Charter – Basically is a modified type/version of a T/C contract where the Ship owner deals with the Charterer through someone else’s, upon an agreed marginal fee’s.
- Modified Bareboat Charter – Basically is a modified type/version of a Bareboat Charter where The Ship Owner is not only responsible for the capital cost, but also some other Operational Cost (Opex) i.e. crewing cost, P&I Insurance, H&M Insurance, etc
Diagram as shown below will show the detailed flows of thought on Ship owner’s perspective with regard to the split up responsibilities and cost sharing composition amongst several types of basic contract that the ship might have upon its operation.
*Figure diagrams taken from one of slide presentation from Navigate Consulting, June 2008
Thus obviously seen the distinction amongst several areas of shipping businesses over Owning, Running and Operating a Ship or a fleet of ships, complete with each borne cost responsibilities.
That’s all what I can share on this first chapter, hopefully it could be useful and come of your help in understanding better the basic of shipping business. Insya’Allah will continue with Ship Asset Procurement & Selection on the next chapter, on some other time.
June, 2011
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