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HMRC internal manual

VAT Transport

Chartering: Charter party contracts for shipping (examples)

A wide variety of ship charters exist. These notes describe the main types of contract (or “charterparty”) which may be concluded between a shipowner and a charterer. For the purpose of these notes “shipowner” denotes the party who is chartering or “hiring” a vessel to a “charterer”; the “shipowner” may himself have taken the ship on charter from another party.

The most basic characteristic of all whole-ship charters which distinguishes them from simple freight movement contracts is that the charterer assumes some degree of responsibility or control over the conduct or operation of the vessel. This concept is commonly expressed in such phrases as “take the ship on charter” and “redeliver the ship to the owner”.

Many charterparties are executed using internationally recognised standard performance terms - commonly under the auspices of the Baltic & International Maritime Conference (BIMCO), Copenhagen, and others by major cargo interests (particularly oil majors). A non-exhaustive list of the commonest types of charterparty is at the end of these notes, though equivalent charterparties may be negotiated on non-standard terms. It is common for chartering contracts to be agreed between parties, often by exchange of telex, with the standard terms and conditions of a standard charterparty being accepted by reference to its “codename”.

The main types of whole-ship charter are as follows.

Bareboat (or Demise) charter

The charterer assumes control and possession of a specifically named ship for the period of time agreed in the charter. The charterer effectively acts as the “owner” in all respects except legal ownership of the asset; he then operates the vessel in his own right and is responsible for all maintenance, crewing and trading arrangements.

Time (or trip) charter

The charterer hires the vessel from the shipowner for agreed commercial purposes either for a period of time - usually expressed in days or months - or for the duration of a given trip, eg “one round voyage Europe/Great lakes”.

Voyage charter

The charterer contracts for the use of an entire vessel, usually for a single voyage - often but not always for a specific cargo - but sometimes with an arrangement for several consecutive voyages, or voyages over a given period of time. The vessel may be nominated or the arrangements may provide flexibility for the owner to subsequently notify or change the nomination.

Contract of affreightment or serial contract

Despite its different name, this is effectively a contract for a series of voyage charters. It is normally for an agreed number of voyages over a given period of time to lift a specified amount of cargo. The vessel(s) will not necessarily be identified in the contract, but nominated later.