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Commercial Aspects of Shipping Part -5By Jagmeet S Makkar, F.I.Mar.E., F.I.C.S.

The Anatomy of Charter PartiesVoyage Charters. You will find asample copy of ‘GENCON (1994)’charter party at http://www.bimco.dk/upload/gencon_94.pdf. For those whowould like to understand theconstruction of a voyage charter partywell, I would suggest that a copy isprinted out and read together with thefollowing notes but it is not necessary.This is the latest revision of a long seriesof GENCON charter parties dating backto the 1920s. In common with manyrecently revised charter parties, thisappears in what is known as “box form”.The required information to be insertedin each fixture is conveniently allocated“boxes” on the front page, so thatcompleting the charter party isrelatively straightforward and thesalient details can be seen at a glance.

The printed clauses, which are referredto in the top right hand corner of each“box”, all appear in Part II, and arenumbered 1 to 19.

It must be remembered that all charterparties emerge from negotiationsbetween Owners and Charterers,usually through one or more brokers,and the resulting agreement may wellrequire amendments to some of theprinted clauses. In addition, as theGENCON is designed for non-specialised trades, both parties to thecontract may well insist on certainadditional clauses particular to theirrequirements to this standard form.

As a general rule, all the details whichwill eventually be inserted in the boxesof Part I of the charter-party arenegotiable, and most will feature atsome stage in the offers and counter-offers which are traded back and forthduring the negotiations. Although themost fiercely contested area may bethat of the freight level, the dates andthe time allowed for cargo operations

may also be crucial to the fixture, as wewill see below.

Some of the information in theGENCON ’94 after the broker’s nameand address is the date and place ofwhen the ‘fixture’ (as a charteringagreement is called) was made. Next,there are boxes in which to enter thenames of the parties and of course, thename of the ship details of its registeredtonnages, dead weight, and any othercharacteristics important to the fixture,for example cubic capacity or perhapsthe size of the hatches.

Boxes 8 and 9 should not beoverlooked; they describe the positionof the ship relative to this particularcharter. We all know that “ships don’trun like trains” and there are manyfactors, which may affect the vessel’sexpected readiness to load.Nevertheless, this information shouldnot be taken lightly. Because of theimponderables in time for merchantships there is usually a span of somedays between which the vessel maybe presented for loading. If, however,an owner gives an expected readinessfor box 9 and then subsequently takeson some intervening business whichmakes the ship much later thanoriginally intended, he is guilty ofmisrepresentation. In extreme cases,such misrepresentation could begrounds for the charterer to cancel thecontract, and the date when this couldtake effect is shown in box 21. Boxes10, 11 and 12 take us to the loadingand discharging ports and the typeand quantity of cargo to be loaded.Note that the printed clause 1 to whichthese details relate qualifies the placesof loading and discharging by thephrase “or so near thereto as she maysafely get and lie always afloat”. Someloading or discharging berths,especially those in tidal rivers where

small coasters regularly load; do nothave enough water alongside at lowtide to allow ships to remain afloat.These are often referred to as“NAABSA” berths (Not Always AfloatBut Safe Aground). If the ship is fixedfor loading or discharging at such aplace, this must be specifically agreedin the charter party, otherwise theOwners have every right to refuse toput their vessel there.

As far as the cargo is concerned, thecharterers are expected to give fulldetails, and if they have fixed the shipfor “a full and complete cargo” theycan expect the Master and Owners todemand sufficient to bring the shipdown to its load-line or to fill the cargospace. If they fail to satisfy this requestthey will be liable to pay “dead freight”on the shortfall as if it HAD beenloaded.

Boxes 13 and 14 give details of thefreight payable, whether it be “so muchper tonne” or a “lump-sum” or on someother basis, and how, when and whereit should be paid. The options in theprinted clause 4 need to be carefullyconsidered in conjunction with thesedetails.

Then comes the all-important clausesetting out the rate of freight includinghow, when and where it is to be paid.

A crucial point in connection with the

Tutorship Copyright Material: Adapted for Marine Engineers’ Review (I), Institute of Marine Engineers (I) withpermission from the Director General, ICS, UK

Courtesy: Jagmeet Makkar, Education Officer, Institute of Chartered Shipbrokers – Hong Kong Branch.

MARINE ENGINEERS REVIEW (INDIA) March 20052

freight is the question of which partyshould be responsible for the costs(and risks) of loading and dischargingthe cargo. The GENCON 1994 charterparty only envisages a situation wherethe shippers pay for the loading andthe consignees for the discharging.These are known as FIO terms (Free Inand Out) implying that both loadingand discharging operations are free ofexpense to the shipowners. There arestill trades where it is customary forthe ship to pay for (or contribute to)the cost of loading and/or dischargingand if the GENCON 1994 form was usedfor such a cargo then a typed clausewould have to replace part of clause 5.Provision is made (in the case of a shiphaving its own cranes or derricks -cargo handling gear often simplyreferred to as “gear”); for charterers(or their shippers/receivers) to makeuse of it in loading or discharging -provided that this is expressly agreedin advance by a note in box 15. Notealso from the printed clause that theOwners expect the charterers to beresponsible for putting right anystevedore damage noted by theMaster during cargo handlingoperations.

The next clause (clause 6, boxes 16, 17and 18) introduces a word, which isexclusive to the world of chartering -‘laytime’. A word of which the precisedefinition is almost lost in history butfor our purposes refers to the timeallowed for loading, respectivelydischarging. This clause may seemsurprisingly long but in simple terms itmeans when the ship is ready to load/discharge and how long the operationsmay take. There are many ways inwhich laytime can be expressed. Interms of hours or days, as so manytonnes per day, as separate periods forloading and discharging or a total timespan for both operations, whether ornot time stops counting for badweather and so on.

The ‘GENCON’ clause has beenrefined over the years in the light ofsuccessive legal and commercialdisputes to avoid all the usual pitfallsbut in reality there will always be scopefor further argument.

Linked to when time commences tocount and the amount of time allowedfor loading and discharging is thepenalty for exceeding the agreed limits.A ship is only earning income whenshe is on the move, not when she islying idle in a port. A shipowner is,therefore, anxious to keep the timespent in loading and discharging to aminimum. If the charterers take too longover it, then the owner wantscompensation which is covered byincluding a rate of ‘demurrage’ forevery day or part of a day by whichthe agreed time is exceeded. The sumnegotiated for this is inserted in box 20and governed by clause 7.

In some dry cargo trades the conversemay also apply, in that the chartererscan earn a bonus if they load/dischargethe ship in less time than agreed. Thisis termed ‘despatch money’ and if suchan agreement is made it must beinserted as a typed clause in theGENCON 1994 form.

So clauses 5, 6 and 7 cover this dispute-prone area of time in port. Within thesethere are perhaps a few words andexpressions which may be new to thereaders such as: -

Trimming applies to bulk cargoessuch as coal, where the surface of theloaded cargo needs to be levelled outto make best use for the space availableand to minimise the danger of the cargoshifting in the hold during the voyage.

Dunnage is timber used to preventmetal to metal contact between cargoand the ship’s hold or between (forexample) steel plates, and to stop looseitems from moving around in the holdduring the voyage.

Tallying, is the name given to theprocedure of checking the number ofpackages, as they are loaded/discharged.

Stevedores, although technically thename for those working on the shipitself during the loading/dischargingis often used to describe all theloading/discharging labour.

The Agents referred to in Clause 6(boxes 18 and 19) are not the PortAgents who will be appointed by the

Owners to look after the ship’sinterests at the loading and dischargeports. But the agents of the chartererswho will be responsible for co-ordinating the cargo operations at eachend. The Appointment of Port Agentsis dealt with in clause 14, and they maybe named in a typed clause attachedto the charter party.

Clause 8 (the Lien Clause) is designedto protect the shipowner from non-payment of freight, demurrage andother such sums due to him.

Remember the date given in box 5 whenthe ship was expected to be ready toload? The cancelling date (Box 21,clause 9) defines the other end of thisperiod known as the “laydays” afterwhich the Charterers have the optionto cancel the charter party if the shiphas still not presented herself forloading. Cancellation tends to be a lastresort in most instances, as thecharterers are then faced with havingto find another suitable vessel to carrytheir cargo, probably at short notice.Similarly the owners will have to findother employment for their ship, whichmay already be on its way to theexpected loading port, but excessivedelays may force the charterers to usethis sanction.

The remaining clauses deal with sucheventualities as collisions, strikes, warand ice, and establish the jurisdictionwhich will apply in the case of legaldisputes or arbitration - an importantconsideration in international trading.

Please also note that clause 12 coversGeneral Average. Another expressionwith a long history and now coveredby an international convention (TheYork-Antwerp Rules). In essence,General Average is the procedurewhereby if the ship is involved inextraordinary expense in order to avoiddamage to the ship and her cargo thenthe cargo as well as the shipownercontributes to that expenditure; theformal wording reads ‘.... preservingfrom peril the property involved in thecommon maritime venture’. The York-Antwerp Rules lay down how thevarious parties’ contributions will becalculated, a procedure known as

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Average Adjusting. All prudentmerchants are careful to includeGeneral Average in their insurancecover.‘Brokerage’ (see clause 15) is thecommission due to the broker orbrokers involved in the fixture, and isthe reward for the Brokers forsucceeding in bringing thenegotiations to a satisfactoryconclusion. The amount of brokerageinvolved is usually between one andquarter (1¼%) and two and a half(2½%) percent of the gross freight,

depending on whether one or morebrokers are involved. Most charterparties, including GENCON 94 nowinclude brokerage on demurrage andon ‘dead freight’ (freight paid on cargonot supplied by the charterers whichshould have been).To sum up, a voyage charter will havea ‘skeleton’ the bones of which are: -• Date• Names of the parties• Name of the ship with some

description

• Loading port• Cargo nature and quantity• Discharging port• Lay days and Cancelling dates• Rate of freight and manner of

payment• Loading/Discharging costs• Speed of Loading and Discharging

(laytime)• Demurrage rate• Brokerages (Commissions)

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