A charter party is the written contract used to hire a commercial ship. It sets out who controls the vessel, what cargo it carries, how much the hire or freight costs, and who takes the loss when something goes wrong at sea. The name comes from the Latin carta partita, meaning a divided document, from the old practice of cutting a single agreement in half so each side held a matching piece. Today, charter parties govern nearly every commercial cargo movement on the ocean, and the specific terms vary widely depending on whether the deal covers one voyage, a stretch of months, or a multi-year lease of the entire ship.
The Three Main Types
Almost every charter party falls into one of three categories. The category determines who runs the ship, who pays for fuel, and who carries the risk when the vessel breaks down or sits idle.
Voyage Charter
A voyage charter covers a single trip between named ports to carry a specific cargo. The shipowner keeps full operational control, provides the crew, and pays for fuel. The charterer pays freight based on how much cargo goes aboard. This structure suits one-off bulk shipments: a company that needs to move 50,000 metric tons of grain from the Gulf Coast to Rotterdam, for instance, without taking on the overhead of running a ship day to day.
Time Charter
A time charter hands commercial use of the vessel to the charterer for a set period, anywhere from a few months to several years. The charterer decides where the ship goes and pays for fuel and port charges. The owner keeps responsibility for the crew, the hull, maintenance, and insurance. This arrangement suits companies that need reliable transport capacity without owning a fleet.
Bareboat (Demise) Charter
A bareboat charter, also called a demise charter, transfers the most control. The charterer takes possession of the vessel and effectively steps into the owner’s shoes for the length of the contract, often five to ten years. The charterer hires the crew, maintains the machinery, arranges insurance, and bears the full operating cost. The registered owner behaves more like a financier than an operator. BIMCO’s standard form, BARECON 2017, describes the arrangement as a lease where the charterer obtains “possession and full control of the ship along with the legal and financial responsibility for it.”1BIMCO. BARECON 2017
What Every Charter Party Specifies
Every charter party identifies the vessel by name and flag state, along with technical details like deadweight tonnage. These specifications let the charterer confirm that the ship can handle the intended cargo and route. The agreement also defines the cargo and the geographical trading limits, which protect the owner from exposure to war zones, sanctioned countries, or ports with inadequate facilities.
One of the most important timing mechanisms in a voyage charter is the laycan, short for “laydays and canceling date.” This is the window during which the vessel must arrive and be ready to load. If the ship fails to show up by the final canceling date, the charterer can walk away from the deal entirely. That right exists because late arrival can destroy the commercial value of a shipment, especially for time-sensitive commodities.
Notice of Readiness
When the vessel arrives at the loading or discharge port, the master tenders a Notice of Readiness (NOR) to signal that the ship is ready for cargo operations. The NOR starts the laytime clock, and it must be factually accurate at the moment it’s given. If the ship isn’t actually ready when the master hands over the notice, the NOR is invalid and laytime doesn’t begin to run.2Steamship Mutual. Notice of Readiness FAQs Failing to tender NOR within the agreed laycan can give the charterer the right to cancel the charter.
How Payment Works
Freight in Voyage Charters
In a voyage charter, the payment is called freight. It’s calculated either per metric ton of cargo loaded or as a lump sum for the vessel’s full capacity. If the charterer promised to fill the ship but doesn’t deliver enough cargo, the owner is entitled to deadfreight, which compensates for the earning potential lost on the empty space. Deadfreight is essentially damages for the charterer’s failure to load the agreed quantity.
Hire in Time and Bareboat Charters
Time and bareboat charters use a different payment called hire, typically calculated as a daily rate and paid in advance at regular intervals. The consequences of missing a hire payment are severe. Historically, an owner could withdraw the vessel from service the moment a payment was late, even by minutes.3BIMCO. Non-Payment of Hire Clause for Time Charter Parties 2006
Modern charter parties soften this through anti-technicality clauses, which require the owner to send a notice and give the charterer a short grace period (often a few banking days) to cure the default before the vessel can be pulled. Even with that protection, late hire remains one of the fastest ways to lose a vessel mid-charter. The payment clock in maritime contracts is unforgiving compared to most commercial agreements.
Laytime, Demurrage, and Despatch
Laytime is the number of hours or days the charter party allows for loading and unloading cargo. The contract specifies exactly how this time is counted, often excluding weekends, holidays, or periods of bad weather, depending on which laytime terms apply.
When the charterer exceeds the allowed laytime, they owe demurrage to the owner. Demurrage functions as liquidated damages for tying up the ship beyond the agreed schedule.4The Shipowners’ Club. Laytime and Demurrage The daily rate is pre-negotiated. In the dry bulk market, rates of $10,000 to $15,000 per day are common, though they move with vessel size, trade route, and market conditions. Tanker demurrage rates tend to run higher.
The flip side is despatch money. If the charterer finishes loading or discharging before laytime expires, the owner pays despatch to the charterer as a reward for the time saved.5BIMCO. Laytime Definitions for Charter Parties 2013 By industry custom, the despatch rate is typically half the demurrage rate, though the contract can set any figure the parties agree on. This creates a real financial incentive for charterers to run efficient port operations.
Off-Hire in Time Charters
In a time charter, the charterer pays hire for every day the vessel is available. When the ship can’t perform because of something on the owner’s side, the off-hire clause suspends those payments. Under the widely used NYPE form, hire ceases during “loss of time from deficiency and/or default of men or deficiency of stores, fire, breakdown or damages to hull, machinery or equipment, grounding, detention by average accidents to ship or cargo, dry-docking for the purpose of examination or painting, or by any other cause whatsoever preventing the full working of the vessel.” In plainer terms, if the ship breaks down, needs emergency repairs, goes into drydock, or is short-staffed in a way that stops operations, the charterer stops paying until the problem is fixed.
Off-hire disputes are among the most common in maritime arbitration. The key question is usually whether a particular event actually “prevented the full working of the vessel,” which depends heavily on the specific clause wording and the facts. Charterers want a broad reading. Owners fight to keep the triggers narrow. Careful drafting here saves both sides money later.
Seaworthiness and Safe Ports
The Owner’s Seaworthiness Duty
The shipowner carries a fundamental obligation to provide a vessel fit for the voyage. Under the Carriage of Goods by Sea Act (COGSA), which governs most cargo carried to or from the United States, the carrier must exercise due diligence before and at the beginning of the voyage to make the ship seaworthy, properly crew and equip it, and ensure the cargo spaces are fit for safe storage.6Office of the Law Revision Counsel. 46 USC 30701 – Definition This is not an absolute guarantee that nothing will go wrong at sea. It is a duty to take all reasonable steps before departure. If cargo is damaged and the cause traces back to a seaworthiness failure, the owner bears the burden of proving they exercised due diligence.
The Charterer’s Safe Port Warranty
The obligation runs in both directions. Under most standard time charter forms such as NYPE and ASBATANKVOY, the charterer has an absolute duty to send the vessel only to safe ports and berths. A port is considered safe if the vessel can reach it, use it, and leave it without being exposed to dangers that good seamanship cannot overcome under normal conditions. If the charterer nominates an unsafe port and the vessel is damaged, delayed, or causes pollution as a result, the owner will look to the charterer to recover those losses.
Liens on Cargo
Most time charter forms give the shipowner a lien on the cargo aboard the vessel for any unpaid amounts under the charter. Under the NYPE form, for example, “the Owners shall have a lien upon all cargoes…for any amounts due under this Charter.” In practice, the owner exercises the lien by refusing to discharge the cargo and notifying all potentially interested parties, including the charterer, shipper, consignee, and any notify party named on the bill of lading.
This gets complicated when cargo on board belongs to a third party who bought it from the charterer. The lien is only enforceable against the bill of lading holder if the lien clause was incorporated into the bill of lading contract. If it wasn’t, an innocent cargo receiver could find their goods held for a debt they know nothing about, and the owner might lose the right to hold the cargo at all. Getting the incorporation language right matters enormously when cargo is traded during transit.
Charter Parties and Bills of Lading
A charter party and a bill of lading serve different purposes, and their relationship trips up people new to maritime trade. The charter party governs the deal between the shipowner and the charterer. The bill of lading is the document the master signs when cargo comes aboard, and it functions as a receipt, as evidence of the contract of carriage, and as a document of title that can be endorsed and transferred to a buyer.
Between the original charterer and the owner, the charter party controls. The master’s signature on a bill of lading doesn’t modify or override its terms. Once the charterer sells the cargo and endorses the bill of lading to a third-party buyer, that buyer’s rights are governed by the bill of lading, not the charter party, unless specific charter party terms were expressly incorporated into the bill. This is why charter parties and their companion bills of lading, such as CONGENBILL for GENCON, are designed to work together, and why incorporation clauses deserve close attention during negotiation.
Standard Forms
Most charter parties aren’t drafted from scratch. The industry relies on standardized forms published by organizations such as BIMCO (the Baltic and International Maritime Council) and ASBA (the Association of Ship Brokers and Agents). These templates set the baseline, and the parties negotiate amendments or add rider clauses to fit the deal.
For voyage charters in dry bulk, the most widely used form is GENCON, first developed in 1922 and most recently updated as GENCON 2022, with its companion bill of lading CONGENBILL 2022.7BIMCO. GENCON 2022 For tanker voyages, the standard is ASBATANKVOY, originally published in 1977 and revised jointly by ASBA and BIMCO as ASBATANKVOY 2025.8BIMCO. ASBATANKVOY 2025 For time charters, the New York Produce Exchange Form (NYPE 2015) dominates dry cargo.9BIMCO. NYPE 2015 Knowing which form governs your charter matters because each one handles critical issues like withdrawal rights, off-hire, and lien clauses differently.
How Disputes Get Resolved
Charter party disputes almost always go to arbitration rather than court litigation. The two dominant seats are London and New York. London handles more maritime arbitrations than any other city in the world, with disputes governed by the Arbitration Act 1996 and typically conducted under London Maritime Arbitrators Association (LMAA) Terms.10LMAA. About LMAA New York arbitrations are administered under the rules of the Society of Maritime Arbitrators (SMA), which maintains its own rules and offers a shortened procedure for smaller claims.11Society of Maritime Arbitrators. Society of Maritime Arbitrators
Which seat applies depends on the arbitration clause in the charter party. The clause determines not just where the hearing takes place but which country’s arbitration law governs procedural questions and any challenge to the award. Getting this clause right at the negotiation stage is far cheaper than litigating about jurisdiction later. Both LMAA and SMA publish model arbitration clauses designed for insertion into charter parties.
Who’s Who in a Charter Party
The shipowner holds legal title to the vessel or manages its commercial deployment. Their core obligation is delivering a ship that meets the technical requirements and keeping it in that condition throughout the contract. The charterer is the party paying to use the vessel, with obligations that range from loading cargo on time to paying hire punctually.
A shipbroker acts as the intermediary who negotiates the deal between the two sides. The broker helps reach what the industry calls a “fixture,” the point at which all principal terms are agreed and the parties are committed. The broker’s work doesn’t end at the fixture; they often handle the back-and-forth on subsidiary details that follow. Brokers typically earn a commission based on a percentage of the freight or hire, paid by the owner.
In time and voyage charters, the owner’s Protection and Indemnity (P&I) club provides liability insurance covering third-party claims like cargo damage, pollution, and crew injury. Charterers can obtain their own P&I coverage for risks specific to their role, including liabilities for breach of the contract of carriage and extended cargo claims.12The American Club. Protection and Indemnity Insurance In a bareboat charter, the charterer arranges all insurance, since they are effectively operating the vessel as if they owned it.