Port Operations
4.3 THE PORT AND CHARTER PARTY TERMS .1 Charter Party Types
One key difference between the liner and the tramp trade pertains to the types of con- tracts of affreightment they use. While the liner trade uses simple and concise documents such as bills of lading and booking notes, the tramp trade uses a more detailed, struc- tured, and legally complex document: The Charter Party. Table 4.1 demonstrates the principal differences between the liner trade and the tramp trade.
A charter party is a legal contract of affreightment common in the tramp trade, by which a shipowner designates one or more specified vessels to carry a charterer’s speci- fied cargo quality and quantity between designated ports, berths, or area ranges. Charter parties stipulate the legal system governing the agreement, which is usually under the US or British law. The incorporation of the C/P Arbitration clause provides that any dispute arising between the shipowners and the charterers can be resolved through arbitrators.
For centuries, charter parties have been the prevailing contractual documents in the tramp shipping trade. In fact, the term charter party derives from the Latin “Carta Partita,” which means “paper divided in two.” Its name signifies the customary act found in numerous centuries old contracts of writing the contract on a piece of paper and subse- quently tearing it into two irregular portions. Each contractual party would obtain half a piece of paper. The authenticity of the documents and their identical contents would be verified if the two torn pieces of paper fitted together.
TABLE 4.1 Differences between Liner Trade and Tramp Trade
Liner Shipping Tramp Shipping
Contract of affreightment Bill of lading Booking note Lump sum charter
Charter party and bills of lading
Carrier type Common carrier Private carrier Standardized contract of
affreightment clauses
Yes No
Charge and liabilities Freight charge only.
The carrier undertakes all charges and liabilities in case of delays, accidents, or third-party disputes, e.g., port authorities
As the charterers designate the ports/berths of load and discharge, they share liabilities and charges with the owners, as stipulated in the C/P Voyage route Scheduled and regular Flexible, agreed between the
two parties Option for multiple
charterers and parcel cargoes on a single carrier
Typical Less likely
Option for multiple ports of call on a single voyage
Typical Less likely
Source: M.G. Burns.
Charter parties are classified into three categories: (i) voyage C/P, (ii) time C/P, and (iii) bareboat or demise C/P. Three key elements will determine which charter party type is most appropriate for a fixture:
a. The element of time, that is, time duration and liabilities owing to delays b. The element of place
In voyage C/Ps, the nomination of loading and discharging berths or ports, will determine when the ship is an “arrived ship.” A berth C/P or a port C/P will determine each party’s liabilities in terms of place and time.
In time C/Ps and bareboat C/Ps, the charterers are free to trade in a wide range of global ports, with only a list of territorial exclusions and cargo exclu- sions as stipulated in the C/P. The owners receive the daily hire regardless of whether the port is at sea or at berth.
c. The element of control
In voyage C/Ps, the owners have a greater control over the ship as well as its commercial, financial, navigational, operational, and technical decisions, related to place, time, money, and cargo.
The element of control and decision making increases in time C/Ps, whereas in bareboat C/Ps, the charterers are considered as the ship’s disponent owners and therefore control most of the ship’s functions.
In detail, the three charter party types include the following:
i. A voyage charter party pertains to a contract for a particular voyage, where a predetermined freight payment is paid to the shipowners per metric ton of cargo (i.e., $30 PMT). In this short-term contract, the shipowners assume the greatest possible commercial, financial, and operational control over the vessel.
The ship must be redelivered to its owners within a certain time frame, after which the charterers should indemnify the shipowners with special reimburse- ment, the payment of which is calculated as per the C/P clause stipulations.
Because of its short duration, this contractual arrangement is suitable (i) when carrying irregular cargo volumes, and the future cargo flow cannot be pre- dicted, or (ii) in a volatile market that lacks visibility necessary for long-term planning.
ii. A time charter party (TCP) stipulates the terms and conditions in which the char- terers will hire the vessel for an agreed period—anywhere from a few months to multiple years. In this arrangement, the charterers assume a greater control of the ship’s operations and directly give operational and commercial orders to the master under copy to the owners. Under a TCP, the charterers typically under- take the voyage costs:
Voyage costs = ship’s bunkers (i.e., fuel and diesel oil) + port charges (i.e., port, light, and canal expenses; tugs and pilots; cargo handling; agency fees; etc.) Meanwhile, the shipowners cover the running—or fixed ship’s costs:
Running or fixed costs = overhead costs + crew wages, navigational + insurance + maintenance, spare parts, and repairs + bonded stores + lubricants
Needless to say, the shipowners’ administration and insurance costs are still covered by the company.
Payment in time C/Ps is reimbursed by multiplying the daily hire by the months or years of the contract. Typically, the charterers pay a monthly hire to the own- ers. Because of its longer duration, this charter party is suitable (i) to carry large and regular volumes of cargoes, for example, within a trade agreement between governments, or import/export agreements and the subsequent distribution of raw materials, or manufactured goods. In this case, the charterers already have multiple year contracts with cargo buyers (importers) and are looking for a regu- lar, reliable means of transport.
iii. A bareboat or demise charter party enables the charterers to become the vessel’s disponent owners for an agreed time—typically multiple years.
In this agreement, the shipowner agrees for the ship to be administered, recruited, technically maintained, and run by its new disponent owners. The shipowners will not be informed about the ship’s operational or commercial activities and will not be informed about the ship’s itinerary and ports of call.
The charter party allows for certain exclusions, that is, (i) geographical areas where its actual owners wish to be excluded from the ship’s trade routes, for example, war zones, piracy zones, or areas of political or trade conflict; and (ii) cargo types to be excluded, either because of its potential safety hazards (i.e., HAZMAT cargoes) or because of the difficulty in properly cleaning the ship’s holds, and the future commercial complications (e.g., cement in bulk, whose residues are difficult to clean, and would disable the ship to carry edible bulk cargoes in the future, such as sugar, grains, etc.). Except for these two exceptions in cargo and ports, its new owners will be free to select any cargo type, berth, and port in the world.
The bareboat C/P is frequently associated with ship management agreements, new building contracts, and, more frequently, the sale and purchase option, dur- ing or at the end of the bareboat C/P contract. The C/P should stipulate which party, that is, the shipowners or the disponent owners, is in charge of the ship’s hull and machinery, protection and indemnity, crew, war, and piracy insurance.
Moreover, bareboat charterers frequently decide to undertake the ship’s safety (ISM), security (ISPS) and environmental (ISO 14001, VGP, BWST, etc.) man- agement as a means of controlling the ship’s performance.
This contractual arrangement is suitable for large-scale charterers, frequently terminal operators that wish to fully control the quality and performance of their BB fleet, with minimum external intervention or conflict. Other BB owners pur- sue this type of contracts in order to retain privacy as to their clients and cargoes loaded and discharged. A BB contract will enable them to trade with their own global clients in their own global terminals. Finally, the third reason why char- terers would pursue to bareboat a ship entails their potential to subhire the ship to other charterers, at a profitable hire.
The maritime industry can demonstrate a plethora of different contracts of affreight- ment for voyage, time charter and bareboat C/Ps, as well as forms used for new building contracts, repairs, ship lay-ups, demolitions, repairs, and so on. Table 4.2 shows the prevailing standard charter party forms, contracts of affreightment, and miscellaneous maritime contracts.
4.3.2 Charter Party Clauses and Areas of Dispute
Successful negotiations entail not only the direct financial benefits deriving from the hire, and not only in the long-term opportunities that the specific fixture may bring. Each and every clause among the standard forms and rider clauses of the C/P contract may be potentially ambiguous, with areas of potential dispute. It is important to remember that in case of a dispute, arbitrators and the court of law interpret the C/P clauses as a whole and never each clause separately.
Negotiating the amendment of a single clause may not be a commercial victory, if other clauses are conflicting. Adding a special rider clause may not be a commercial vic- tory; in fact, rider clauses are frequently ambiguous and conflicting with the main form TABLE 4.2 List of Standard Charter Party Forms, Contracts of Affreightment, and
Miscellaneous Maritime Contracts
Voyage C/Ps Time C/Ps BS/L, Waybills, CGO Receipts
Asbatankvoy Gentime Bimchemvoybill 2008
Gencon 94 NYPE 93 Cementvoybill 2006
Graincon Asbatime/NYPE 81 Coalorevoybill BHP Billiton Voy 2003 BHP Billiton Time 2003 Combiconbill
Shellvoy 6 Shelltime4 Congenbill 2007
Amwelsh 93 NYPE 1946 Conlinebill 2000
BPVoy4 Shell LNGTime 1 Ferticonbill 2007
Bimchemvoy 2008 Baltime 1939 (rev. 2001) Genwaybill Cementvoy 2006 Bimchemtime 2005 Grainconbill Norgrain 89 Boxtime 2004 Heavyconbill 2007 Ferticon 2007 BPTime 3 Heavyconreceipt 2007
Synacomex 2000 Gastime Heavyliftvoybill
Rio Doce Ore Supplytime 2005 Hydrobill
Austwheat 1990 Linewaybill
Cruisevoy Bareboat Multidoc 95
Gasvoy 2005 Barecon 2001 (revised) Norgrain Bill Heavycon 2007 Barecon 1989 (past edition) Yarabill
Heavyliftvoy Yarawaybill
Hydrocharter Newbuilding
Nipponcoal Newbuildcon Sale and Purchase
Nipponore Saleform 2012
Projectcon Ship Repair Bimcosale
Worldfood 99 Repaircon Nipponsale 1999
Yaracharter Saleform 1987 (past edition)
Coalorevoy Lay Up Saleform 1993 (past edition) Gencon 76 (past edition) Layupman
Heavycon (past edition) Demolition
Demolishcon
Source: M.G. Burns.
stipulations. A single word may alter the significance of a clause, and an oversight is pos- sible during the long hours of intensive negotiations.
The most common areas of potential dispute focus on safety, time, and money:
a. Safety: Port-related claims related to the port’s safety. The interpretation varies between a “port” charter party and a “berth” charter party. Frequently, safety issues are related to time delays and, consequently, money.
b. Time: The time of the ship’s delivery to her charterers and redelivery to her own- ers is critical.
Furthermore, voyage charter parties, in particular “berth” C/Ps, may increase the shipowners’ liability pertaining to timely arrival at berth, and so on. In a charter party, the element of time is crucial (a) in determining the time that a ship is an “arrived ship,” (b) in estimating when laytime commences, and (c) in deter- mining whether time delays are due to port congestion, ship’s mechanical failure, navigational or operational issues, severe weather conditions, act of war, etc.
On the other hand, in time C/Ps and bareboat C/Ps, the charterers are in charge of the time, schedule, and delays from the contractual time of the ship’s delivery, until its redelivery.
The off-hire clause in TCPs signifies the period when the vessel is unable to perform (and time is lost) due to reasons pertaining to the ship’s side, such as equipment breakdown, or time lost because of deviation from the course of the voyage. In this case, the vessel is officially “off-hire,” and time stops to count until the problem is rectified and the vessel is “on-hire” again. The hire payment is not estimated or reimbursed for the “off-hire period.”
Piracy and “off-hire” have been a critical area of concern, with recent legal disputes that seek to answer whether a ship that is seized by pirates is under “off- hire” or not.
c. Money: Safety and time disputes always have an impact on money, that is, the payment of hire, off-hire issues, demurrage claims, accidents and negligence lia- bilities, and withdrawal and payment deductions.
The two focal points of a charter party agreement are as follows: (i) the ship’s deliv- ery and redelivery, that is, the time when a vessel is delivered to her charterers and is redelivered to her owners. All three charter party types are focused on the relevant clause.
(ii) In voyage charter parties, the ship’s arrival at her designated loading and discharging areas (berths or ports), where time commences for the ship’s loading and discharging operations.
4.3.3 The Port and Charter Party Terms
Generally speaking, port-related claims are the most common type in the maritime indus- try, as the port is an area where most maritime accidents occur—because of congestion, stress, and the simultaneous operations taking place. Hence, a port is an area where time counts for the cargo to be handled with utmost efficiency, and an area where financial claims can arise, because of time or safety issues.
Among the three different C/P types, it is the voyage charter and the time charter parties that mostly relate to port clauses and claims. The bareboat charter party is the
type where the charterers have undertaken the operational, financial, and commercial management of the ship. Since the owners’ control over the ship is minimum, the number of disputes between charterers and shipowners would be eliminated. Disputes would arise because of (i) hire payment disruptions, (ii) the ship’s deterioration owing to lack of maintenance or crew inefficiency, and finally (iii) breach of the cargo exemption or area exemption clauses.
This subsection examines the most critical clauses and wording pertaining to (a) the ship being an “arrived ship,” (b) the distinction between a port and berth charter party, and (c) the elements of ship safety while at port.
Arrived Ship, Port C/P, and Berth C/P
In voyage charter parties, the charterer designates ports, sets itineraries and fur- nishes cargoes, and is allowed to load and discharge the cargo within a specific period, that is, laytime. Demurrage is paid once laytime is exceeded. In an ideal scenario, the ship arrives at her port(s) with no delays. In real maritime business, delays and misunderstandings as to the C/P wording are quite common. In voy- age charter parties, the ship’s master needs to ascertain at which point the ship has become an “arrived ship” as defined in the contract’s terms. This is deter- mined from the C/P stipulations, and the distinction between a “port C/P” and a “berth C/P.”
In case of a “berth C/P,” the vessel is an “arrived ship,” and laytime com- mences once it arrives at its designated berth.
Characteristics of a Port or Berth Charter Party
In a port C/P, a named or unnamed port is cited as the vessel’s stipulated loading or discharging area. In a port C/P, the ship can only be considered as “arrived”
and consequently eligible to submit notice of readiness (NOR) and commence her cargo operations once she has arrived at the port while awaiting for her berthing or instructions from charterers.
On the other hand, in a berth C/P, a named or unnamed berth is cited as the ves- sel’s loading or discharging area. Hence, for the ship to be considered as “arrived,”
and hand the NOR, she must arrive at the designated berth. This suggests that the vessel may have arrived at its port and be subjected to tremendous delays and conges- tion until it reaches its designated berth. Any time delays are incurred due to conges- tion while waiting for berthing; they are for the owners’ account.
It is favorable for owners to recognize that most voyage C/Ps are “port” con- tracts, and yet the slightest clause amendment can change this. Although the wording in the newly amended clause might be straightforward, problems arise when conflicting clauses create ambiguity.
The elements of ship safety while at port
The element of ship’s safety while at port encompasses the moment the ship has officially entered the port’s limits, throughout the ship’s stay at port, until the ship’s departure. Numerous claim cases have arisen among shipowners and charterers on the grounds of breach of contract, determined by the ship being an “arrived ship” at a “safe berth” or a “safe port.” During the charter party negotiations, the charterers need to nominate a safe loading berth or port and a safe discharging berth or port.
Shipping practice requires the ship to safely get into the port, commence its cargo operations, and depart, without its structural integrity being jeopardized.
An accurate characterization of port safety was provided in the “Eastern City” case of 1958 (Leeds Shipping Co v Société Française Bunge. 2 Lloyd’s Report 127–131) as formulated by LJSellers:
A port or berth will not be safe unless, in the relevant period of time, a particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship.
From a legal and arbitration standpoint, there is a significant distinction between naming designated ports (e.g., Houston) and providing a wide geographic region (e.g., US Gulf). The latter option of providing a safe port warranty is most favorable for the owners, since the charterers are obliged to load and discharge at safe ports or berths among all the ports in the region, while offering multiple alternatives in case their nomination at a later date is not accepted as safe by the owners. In the first option, once both parties consent to specific named ports or berths, the shipowners are obliged to carry out their contractual obligation and proceed to these ports, even if safety issues arise at a later date.
The general safety rule in most cases (other than war, etc.) is that a port may be per- fectly safe for most ships, but unsafe for one particular ship. Hence, each charter party contract should reflect the conditions pertaining to the one particular ship that is desig- nated within the contract.
Typical issues of safety pertain to the ship’s larger size in proportion to the nomi- nated port, including the following:
i. Draft restrictions, maneuverability, and overall ship’s size while at port are com- bined with port, canal, or berth restrictions. Many claim that cases have been associated with the ship’s particulars or technical specifications that are perfectly safe, legal, and suitable for most global ports, yet could be unsuitable for a par- ticular port.
ii. Tidal ports may be temporarily unsafe, or to be precise, increased safety mea- sures are required.
iii. Negligence gives rise to safety liabilities, that is, in cases where the port’s safety issues pertain to navigational negligence and equipment failure. Furthermore, safety may include metal objects left at the seabed by other ships, such as anchors, and so on.
iv. The act of God, that is, extreme weather conditions beyond the master’s control.
Hence, safety issues may impose ships’ delays or deviations, and the shipowners need to prove that time lost and pertinent deviation are closely associated to the extreme weather conditions.
v. Ship security is frequently associated to safety, when events of war risk and ship seizure, political turmoil, social unrest and strikes, and port and canal closures occur. Numerous port closures have occurred during wartimes, invasions, gue- rilla warfare, and even protests. The more strategic the position of a port or canal, the more serious its impact is. A renowned canal closure is the Suez Canal closure during the Suez Crisis of 1956, as well as its numerous closures during the 1960s and the 1970s.
Legally speaking, ship security frequently involves lack of safety. Maritime security is distinguished into (a) piracy, whose motive is predominantly finan- cial, and (b) terrorism, which intends to generate fear and is based on politi- cal, religious, or ideological motives. Pursuant to maritime legislation and