Charter Party

A charter party is the commercial contract at the centre of how ships are employed. The name comes from the Latin carta partita, a document once torn in two so each party held a matching half. Today it is the detailed agreement, usually arranged through shipbrokers, that sets out the terms on which a shipowner places a vessel at a charterer's disposal — the freight or hire to be paid, the cargo, the ports, the responsibilities of each side and the allocation of the many costs and risks of a voyage. Most charters are based on standard printed forms, such as GENCON for voyage charters or NYPE for time charters, amended by negotiated clauses.

The form of charter determines who controls and who pays for what. In a voyage charter the owner keeps control of the ship and its crew and undertakes to carry a cargo between named ports for a freight rate, bearing the running costs while the charterer's exposure centres on laytime and demurrage. In a time charter the charterer hires the ship for a period and directs its commercial employment, paying hire plus the voyage costs such as bunkers and port charges, while the owner still mans, maintains and insures the vessel. In a bareboat or demise charter the charterer takes the ship almost as if owner, crewing and operating it themselves for the period, with the owner simply providing the asset.

Because a charter party allocates large sums and many risks, its clauses are carefully drafted and frequently the subject of dispute, often resolved by arbitration in centres such as London or New York. Provisions on laytime and demurrage, on the ship's speed and fuel consumption, on off-hire when the vessel cannot work, on safe ports, and on liability for cargo damage are all heavily negotiated, and understanding them is vital to the chartering and operations side of the shipping business.