1. What is a voyage charter agreement?

A voyage charter agreement is a specific type of maritime contract where the shipowner provides the charterer with space on a vessel for a single voyage.

There are two main possibilities under a voyage charter agreement:

1. Full vessel charter: In this scenario, the entire vessel is chartered for the exclusive use of the charterer, who utilizes all available cargo space for a specific voyage. This can be for:

• A single voyage to transport a full cargo from one port to another.
• Round-trip voyages where the vessel is chartered to carry cargo to a destination and then return with another cargo.
• Multiple voyages for a series of agreed trips within a set timeframe.
• Voyages with multiple ports where the charterer has the right to load and discharge cargo at different harbors according to the contract terms.

2. Partial vessel charter (part cargo): In a partial charter, the charterer only books a portion of the vessel’s cargo space. This option is suitable when the charterer does not need the entire capacity of the vessel. It is ideal for:

• Smaller shipments that do not occupy the full cargo space, such as specific machinery, vehicles, or other goods that need to be transported independently without waiting to consolidate a full load.
• Situations where the cargo volume or weight does not justify chartering the entire vessel.

In the case of a full vessel charter, the agreement is typically formalized through a detailed charter party contract, which specifies all the terms and conditions of the voyage, including the responsibilities of both parties. However, for a partial charter, while a standard charter party can still be used, the agreement may also be arranged through other means, such as freight contracts or even verbal agreements, depending on the jurisdiction and specific circumstances.

Read also: Charter Party Agreements

2. Common usage and application for this charter agreement

Types of cargo and common routes

The voyage charter agreement is versatile and can be used for transporting various types of cargo over a specific voyage. The main categories of cargo transported under this agreement include:

• Bulk goods: Grains, coal, ores, and minerals. These commodities are typically transported in large quantities and are ideal for voyage charters due to their volume and weight.
• Liquid cargo: Crude oil, refined petroleum products, and chemicals. These cargos often require specialized vessels, such as tankers, that are chartered for specific voyages between designated ports.
• Breakbulk cargo: Items such as machinery, construction materials, and vehicles. These are often transported on multipurpose vessels where space utilization is maximized based on the cargo dimensions and specific handling requirements of the cargo.

Common routes for voyage charters are determined by the type of cargo being transported and the demand in specific regions.

For instance, shortsea shipping within Europe is another example where voyage charters are commonly used. These routes often involve the movement of various bulk goods between ports in the Mediterranean, Baltic, and North Sea regions. These shorter routes benefit from voyage charters because they allow shippers to use a vessel for a single, well-defined trip without committing to long-term contracts. This flexibility is crucial for adjusting to varying cargo volumes and market conditions, making it an ideal choice for shortsea operations.

In the Atlantic trade, voyage charters are typically used for the movement of crude oil from West Africa to major refining hubs in the United States and Europe. The voyage charter party agreement allows oil companies to secure vessels on a per-trip basis, taking advantage of fluctuations in oil prices and demand. Similarly, in the Pacific region, Australia’s export of bulk commodities like coal and iron ore to China and Japan is better served by voyage charter agreement. This type of contract enables exporters to manage their shipping needs based on specific cargo volumes and shipment timing, aligning with production schedules and seasonal demand.

3. Advantages and disadvantages of voyage charter agreement compared to other charter types

Advantages

• More flexibility for a single voyage

Voyage charters allow the charterer to adjust various aspects of the journey according to specific needs at any given time.

For instance, if a shipment requires transporting a larger or smaller volume of cargo, the charterer can adjust the quantity without being bound by a pre-agreed volume or space, which is not possible with long-term commitments like time charters.

Additionally, the absence of long-term commitments allows charterers to adjust the frequency of using the vessel, providing the flexibility to utilize the ship for one-off or occasional shipments without long-term obligations. In time charters, the charterer must commit to using the vessel for a fixed period, regardless of the cargo volume.

Furthermore, voyage charter agreements offer significant flexibility in choosing the most suitable routes and ports for specific shipments. This is particularly beneficial for companies with irregular shipping needs or those responding to market changes. For example, an oil company shipping crude oil from Ras Tanura in Saudi Arabia to the Port of Houston in the United States can benefit from a voyage charter to accommodate sudden spikes in oil production or fluctuations in global demand, without being tied to pre-set routes.

• Better control over their transportation costs

Voyage charters provide charterers with a more predictable cost structure through the use of lump-sum or quantity-based freight rates, directly associated with the specific voyage and cargo being transported.

This cost model covers various expenses such as port fees, except stevedoring, fuel, and crew wages.

For instance, if a charterer needs to transport a large shipment of grain from Brazil to China, they can negotiate a freight rate for that specific voyage, allowing the charterer to have a clear understanding of their total expenses and to budget accurately for each shipment without being exposed to unexpected costs.

This arrangement is particularly advantageous compared to time charters, where the charterer is required to pay daily hire rates regardless of the cargo volume or the voyage duration.

This cost structure is especially beneficial when shipping needs are variable or when market conditions are unpredictable, as it provides flexibility and cost efficiency for the charterer, making voyage charters an appealing choice for companies with fluctuating cargo volumes and shipping requirements.

Disadvantages:

• Less operational control for the charters

The shipowner retains control over the vessel’s operations, including scheduling and navigation, which can limit the charterer’s influence over the voyage. This can be challenging if the charterer’s requirements or preferences conflict with the shipowner’s operational decisions.

• Potential for higher initial costs for the charters

The upfront costs associated with voyage charters can be significantly higher compared to time charters, particularly when considering the route, type of cargo, and prevailing market conditions. This is especially true during peak demand periods.

Unlike time charters, which distribute costs over a longer period, making them more predictable and manageable, voyage charters expose the charterer to the full impact of market volatility. Fluctuations in freight rates, fuel prices, or other variables during the contract period can significantly affect overall costs.

Moreover, unforeseen events such as adverse weather conditions, or port congestion can further escalate expenses for the charterer, who is typically responsible for these risks under a voyage charter.

This contrasts with time charters, where the fixed nature of the agreement provides more stability and cost predictability, reducing the financial uncertainty associated with each voyage.

For instance, charterers are required to adhere to the agreed laytime for loading and unloading the cargo. Exceeding this allotted time results in demurrage charges, which can lead to unexpected additional expenses and potential disputes between the parties involved.

• Increased potential for contractual disputes

The flexibility of voyage charters can lead to disputes over delays, cargo damage, or unexpected costs. Without clearly defined responsibilities, disagreements between shipowners and charterers can escalate, especially if the charterer is inexperienced or unfamiliar with the specific requirements of the voyage.

• Challenges for inexperienced charterers

Voyage charters require careful coordination of crew, equipment, and other logistics. Inexperienced charterers may struggle with these aspects, leading to operational inefficiencies. Engaging an experienced shipbroker can mitigate these risks, but the overall complexity remains higher compared to time charters.

A time charter is more commonly used by more experienced chartering firms when there is a long-term requirement for a vessel. Instead of having to specify the ports and routes undertaken by the vessel in the charter agreement, the charterer simply hires the boat for a fixed period of time and takes complete control over the vessel in all but name.

4. Responsibilities of the shipowner and charterer

The use of the voyage charter agreements involves a series of obligations for the parties.

The requirements of these contracts are sometimes negotiated through intermediaries, acting on behalf of one of the parties (shipowner or charterer), brokers connect shipowners with companies that need to transport goods, or freight brokers usually participate.

Obligations of the shipowner

• Delivering a seaworthy vessel on the agreed date, ensuring it is in a condition suitable for navigation and appropriate for the type of cargo to be transported. This includes making sure that the vessel is fit for the specific type of cargo and that all necessary certifications and documents are in order. Charterers, or their designees, may inspect the vessel at any time during the term to verify that it meets the requirements of the charter contract. Such inspections are subject to the owner’s prior approval, which shall not be unreasonably withheld. Inspections should be conducted without undue interference or hindrance to the vessel’s safe and efficient operation.
• At the end of the voyage, the shipowner must deliver the cargo in good condition. They are responsible for the cargo while it remains on board the vessel.
• The selection of the most appropriate nautical route.
• Hiring and paying the crew, and covering all significant costs associated with the journey.
• The shipowner must also have adequate insurance coverage for liability, crew, and any other required aspects to cover potential risks during the charter period.

Obligations of the charterer

• Pay the freight charges and any other associated costs as specified in the terms of the charter contract. Timely payment is essential to maintain contractual obligations and prevent disputes.
• Ensuring that the cargo is ready for loading at the agreed time and place. This includes providing all necessary documentation and coordinating with port authorities and the shipowner to facilitate loading operations.
• Cover the costs of loading and unloading operations or services as negotiated.
• Arrange any additional insurance required for the cargo, beyond what is typically covered by the shipowner’s policy, to ensure comprehensive coverage against potential risks during the voyage.
• Comply with all customs and port regulations, if applicable, at both the loading and discharge ports. This includes securing any necessary permits or clearances to avoid delays or legal issues.

5. Contractual details

Many standard-form voyage charter parties are in current use. These standard forms cover a wide spectrum of cargoes, with most of them being designed with specific terms to address the characteristics of particular trades and commodities such as iron ore, coal, grain, and oil.

While these standard forms provide a basic framework, they are often subject to amendments according to the specific requirements of the contracting parties.

Various types of forms facilitate maritime business operations, such as the Gencon, the Baltimore Form C, the Centrocon, and the Amwelsh, among others.

Key clauses in a voyage charter party agreement

Depending on the circumstances, other questions and clauses can be very important in the negotiations between shipowners and charterers.

In addition to the agreed clauses, the basic information that the contract should include is as follows:

1. Basic contract details:
   • Place, date, and names of contracting parties.
   • Personal or company information of the shipowner and charterer, including the captain’s details if applicable.
   • Description of the vessel, including type, name, and tonnage.
   • Vessel’s flag and port of registry.
2. Voyage and cargo details:
   • Loading and discharging ports: Specific ports or range of ports for loading and discharging cargo.
   • Cargo description: Type and quantity of cargo, stowage factor, and any special conditions such as deadfreight liability.
   • Loading and discharging terms: Conditions for loading and discharging, including who is responsible for costs and which party arranges the operations.
   • Minimum/maximum cargo quantity: Specified range and whose option it is to choose.
3. Freight payment terms:
   • Freight rate and payment method: Per-ton basis or lump sum payment, with applicable penalties for non-compliance.
   • Deadfreight: Compensation payable if less cargo is delivered than agreed, preventing full utilization of the vessel’s capacity.
4. Laytime and demurrage.
   • Laytime calculation: Specific time allowed for loading and discharging, including excepted periods where time doesn’t count.
   • Demurrage: Penalty for exceeding laytime. Once demurrage starts, it continues until completion of loading or discharging.
   • Despatch money: Compensation for completing loading/discharging faster than agreed laytime, if previously agreed.
5. Safe port and safe berth clauses. The charterer must nominate safe ports and berths. The vessel must remain afloat unless otherwise agreed (e.g., safely aground).
6. General average. Cost-sharing for extraordinary expenses as per the York/Antwerp Rules.
7. War and ice clauses. Provisions for navigating war zones or areas with ice. Potential to cancel or modify the voyage under dangerous conditions.
8. Force majeure events. Conditions under which the contract can be terminated due to unforeseen events like war, port blockades, or government intervention.
9. Arrest clauses. Rights and responsibilities in the event of vessel arrest, including termination rights and risk allocation based on the “sphere of responsibilities” approach.
10. Bills of lading and liens. Legal aspects of cargo documentation and the right to lien on cargo for unpaid freight.
11. Shifting costs and seaworthy trim. Responsibility for shifting costs between berths and ensuring the vessel remains in seaworthy condition.
12. Cargo handling costs. Allocation of costs for loading and discharging cargo.
13. Dues and taxes. Responsibility for taxes on the vessel or cargo.
14. Port agents. The shipowner is typically responsible for port costs and agency fees, though the charterer may negotiate the right to nominate the agent.
15. Special clauses:
    • Lightening clause: Conditions for cargo lightening if necessary.
    • Strikes clause: Rights of parties in the event of labor strikes affecting the voyage.
    • Protecting clauses: Including New Jason Clause, P&I Bunkering Clause, and Both-to-Blame Collision Clause.
16. Contract termination. Conditions under which the contract can be terminated, such as vessel unseaworthiness, war declaration, or failure to meet laydays.
17. Exceptions and commissions. Rights to cancel the charter party in case of impossibility and terms for commission payments.
18. Signatures. The charter party must be signed by or on behalf of the contracting parties to be valid.

Common issues and how to resolve them

1. Disputes over laytime calculations

Disputes over laytime calculations typically arise due to disagreements on when laytime starts and stops, the interpretation of laytime exceptions, and periods when loading or discharging is delayed due to factors like bad weather or port congestion.

Additionally, misunderstandings regarding the notice of readiness (NOR) and whether a berth is reachable can further complicate these calculations.

Resolution tips:

• Ensure all parties have a clear understanding of the laytime clauses outlined in the voyage contract agreement.
• Use standardized forms for reporting NOR to avoid disputes.
• Maintain clear and accurate records of loading and discharging times.
• Consider including a mutually agreed upon weather warranty clause to address bad weather delays.

2. Vessel delay

If a vessel is delayed or the voyage is canceled, disputes may arise regarding the liability for resulting costs, such as lost cargo sales or additional storage fees, as outlined in the voyage contract agreement.

In some cases, delays can also trigger penalty clauses or lead to contract termination, depending on the severity and reason for the delay.

Resolution tips:

• Review the force majeure clause in the contract to understand exemptions.
• Communicate delays promptly and transparently to all stakeholders.
• Consider mediation or arbitration to resolve disputes without resorting to lengthy litigation.
• Analyze the root cause of delays and implement preventive measures in future contracts.

3. Cargo damage and claims

If the cargo is damaged during the voyage, the responsibility typically depends on the cause of the damage and the terms outlined in the voyage charter agreement and the bills of lading.

It’s crucial to differentiate between inherent cargo defects and damage caused by external factors, such as rough seas or improper stowage.

Resolution tips:

• Conduct a thorough pre-loading inspection to document the cargo’s condition.
• Ensure that all parties involved have adequate insurance coverage to cover potential losses.
• Use a cargo surveyor to inspect the cargo and provide an independent report on the extent and cause of damage.
• If disputes arise, refer to the arbitration clause in the voyage contract agreement for resolution procedures.