Introduction
In today’s highly competitive business environment, to remain profitable and successful, it is vital for companies to have their processes and to adjust them effectively to the current operating conditions. One of the parameters that can significantly affect a business’s performance and profitability is how products are delivered. The choice of chartering method can have a significant impact, and both open up new opportunities for the company and create several complexities. For this reason, it is essential to study all the company’s features, duties, and responsibilities for each charter method and choose the most optimal between time charters and bareboat charters.
Differences Between Time Charters and Bareboat Charters
There are several distinctions between time charters and bareboat charters in terms of essential transportation factors such as obligations, rights, responsibilities, liabilities, risks, earnings, expenses, and profits between the contracting parties. Under the agreement, the shipowner undertakes to place the ship at the disposal of the cargo owner company for the transportation of goods by sea from one port to another (Talley, 2012). If the company chooses a time – charter, it will receive the rights to transport the meat goods for a certain period for rent to the owner. Although the owner will hold the vessel, other factors will be determined and paid for by the company. An example is determining the destination where the ship should sail and the respective ports. The company will pay all related expenses, such as port dues, canal dues, and handling activities.
The company will also be responsible for organizing and paying for bunkers. The exception is any bunkers remaining on board when the ship is turned over, as well as lubricants, which are the owner’s responsibility (Todd, 2015). The crew will be appointed by the owner, however, if necessary, the company can hire its crew or make the necessary changes, having coordinated them with the owner.
In bareboat charters, the owner gives the charterer complete control and management of the vessel. If the company chooses a bareboat charter, it will be responsible for hull insurance and all other costs associated with the operation of the charter, such as crew fees, various port charges, and fuel costs (Ma, 2020). The owner will transfer the vessel into the company’s ownership, and the company will independently hire its captain and crew. All legal and financial responsibility is also assigned to the charterer (Wilson, 2010). The owner is responsible for the depreciation of the vessel and capital costs only. Everything else is the responsibility of the company: provision of supplies, bunkers, and lubricants, repair of the vessel, drydocking, as well as all the same expenses as for a time charter. This type of collaboration is less prevalent than the time charters.
Legal and Commercial Obligations of the Charterer
The charterer has certain legal and commercial obligations, which are defined by some examples of practice and case law. Setting a specific date is the usual way of specifying a time charter date. The vessel must be delivered by the charter agreement and on time. The charterer is obliged to return the vessel in the same good condition in which it was transferred to him. Liability extends to any damage to the ship caused by the charterer (Cha et al., 2021). A time charter also requires the charterer to trade the vessel only between safe ports and always within agreed trading limits.
When analyzing the legal and commercial obligations of the charterer, it is also important to consider that trade and cargo must be legal not only in the countries where the loading and unloading take place but also in the country in which the vessel is registered. The charterer loads, stows, and unloads the cargo at his own expense, under the supervision and responsibility of the captain (Nikaki, 2021). The charterer is responsible for paying the rent to the shipowner in advance or on time.
In Gard Marine and Energy v. China National Chartering (The Ocean Victory), the United Kingdom Supreme Court ruled in 2017 that in bareboat charters on the form “BARECON 89,” if a CASCO insurance covers both the owner and the charterer, losses incurred by the charterer to the ship cannot be recovered by the insurer in the sequence of subrogation after reimbursement for owner damage (Gascon, 2021). The reading of the charter leads to the conclusion that the parties’ liability is eliminated. In response to a Supreme Court judgment, the Baltic and International Maritime Council (BIMCO) established a new standard bareboat charter contract, the ‘BARECON 2017’ form, which alters insurance conditions.
In bareboat charters, the charterer’s liability is wider. The charterer is responsible for the vessel’s crew, maintenance, repair, insurance, navigation, and use, as well as other charges related to vessel operation, journey costs, and cargo handling fees. The charterer may also face cargo penalties, claims for cargo loss or damage, and liability for death or bodily harm caused during the loading, transportation, and unloading of dangerous commodities.
Recommendation for the Best Course of Action
After analyzing the responsibilities and characteristics of each of the chartering methods, also considering the ten-year term of the supply contract and the fact that the volume of cargo is sufficient, the most advantageous for the company at the moment will be to choose a time charter. It provides less freedom for the company in vessel handling compared to bareboat charter. However, the obligations and risks of this type are more acceptable for the company. Considering the current energy crisis and the associated demand for maritime transport, it would not be appropriate to conclude a contract for a long period, as prices may change over several years (Albarenque and Romea, 2020). In addition, while the company does not have enough experience in maritime deliveries and a reliable captain and crew, the bareboat charter may carry too high risks since the safety of the ship, people, and cargo depends on these factors.
Conclusion
Each of the chartering methods has its advantages and disadvantages, and each of them can be used by the company depending on the current circumstances. The powers and responsibilities of the parties also differ. Considering all these characteristics and features of each of the types, at the moment, a time charter is the most suitable for the company. Thus, it would be advisable to charter the vessel by time charter for a maximum period of 2 years. After this period, the company will get acquainted with various details, nuances, emerging risks, and maritime transportation management.
Reference List
Albarenque, J. F. and Romea, S. F. (2020) ‘Rethinking bareboat charter agreements in the wake of the COVID-19 pandemic’, International In-House Counsel Journal, 13, p. 6787.
Cha, J., Lee, J., Lee, C. and Kim, Y. (2021) ‘Legal disputes under time charter in connection with the stranding of the MV Ever Given’, Sustainability, 13(19), p.10559. Web.
Gascon, A. G. (2021). ‘Insurance related problems in bareboat charter agreements’, Journal of Shipping and Trade, 6(1), pp.1-18. Web.
Ma, S. (2020) Economics of maritime business. New York: Routledge.
Nikaki, T. (2020) ‘The loading obligations of voyage charterers’ in Thomas, R. (ed.) The evolving law and practice of voyage charter parties. Taylor & Francis, pp. 59-77.
Talley, W. (2012) The Blackwell companion to maritime economics. Chichester: Blackwell Publishing
Todd, P. (2015) Principles of the carriage of goods by sea. London: Routlelige
Wilson, J. (2010) Carriage of goods by sea, (7th ed). Harlow: Pearson