In many cases, the merchant stocking and controlling a cargo ship is not the actual owner of the ship itself. Often, these ships are leased on a single-trip basis, referred to as a voyage charter, or over a particular period of time, known as a time charter. These agreements are both referred to as a charter-party. These are written contractual agreements between the merchant and ship owner, which are legally binding according to the terms in the agreement. A Charter party is used to refer to the agreement for a commercial vessel and is not the same as a charter issued for a recreational boating excursion.
With a time charter, it is generally the merchant’s responsibility to provide the crew and maintain the ship. The responsibility for these duties in a voyage charter typically remains with the ship’s owner. Who becomes responsible for the legality of the cargo and adherence to maritime laws often varies according to what country the ship is delivering to. It is the responsibility of all involved to be certain of these laws and their requirements in the matter. Depending on where a breach of maritime law occurs, levies can be placed against either the cargo or the ship.
While each party can agree to make changes to a typical charter whenever they wish, basic clauses exist that are frequently included in charter-party agreements to protect in the occurrence of common events. Closed ports due to bad weather or ice, a negligence clause for damages caused by carelessness and a ship clause ensuring the ship is seaworthy at the time of the agreement are examples of these clauses.
These agreements are common for corporations or investors who purchase cargo ships as an outside investment rather than to run them for their own business needs. They are a means for residual profits only. For merchants, they are beneficial because they are able to avoid having a vessel that requires storage and maintenance all year when their shipping needs are only one-time or for a few months each year.
A Charter party can be a profitable agreement for both parties when they are written fairly, understood by all and followed correctly. It is important for any investor or merchant to fully understand their personal responsibilities before any agreement is made.