Trade through sea using ships is one of the oldest business to carry out the trade. Shipping is the most cost-effective mode of transport on earth. Unlike roads which require frequent maintenance, Earth is covered almost 71% with water does not require much of maintenance. Again unlike roads there is not fixed route to a destination for a ship, she can sail in any direction. The main purpose of a ship is to carry cargo, cargo can be anything, it can be crude oil, other oil products, minerals, grains, cars, containers loaded with products etc. Shipping itself is a complex supply chain model involving many different parties. So how the trade through the ship occurs. Whenever you hear any shipping related business one word is often heard that is ship chartering.
What is chartering?
When you ask Google the above question the top answer you get is like this. Chartering is an activity within the shipping industry. Chartering in shipping is the hiring of a ship and crew for a voyage between a load port and a discharge port. Wikipedia says something like this Chartering is an activity within the shipping industry whereby a shipowner hires out the use of his/her vessel to a charterer. All the above statements state the same. All this is gibberish to a layman. But since you are reading this article I assume you are a seafarer and have heard that name a lot of times but yet find it confusing to understand. This is my attempt to simplify it for you.
By now the whole world is aware of a certain cab company UBER or OLA if you are an Indian. Now Suppose I have to travel from my home to a theatre nearby, so I rent a cab through either UBER or OLA whichever is cheaper, of course, complete my ride and pay the driver. Now, in this case, the Cab is the Ship, I am the Cargo and in this case, the Cargo owner, UBER or OLA is the charterer and the cab driver assuming is the owner of the cab is like the Ship Owner. So chartering is an activity where the Cargo owner has a buyer for his cargo somewhere in the world but has no direct means to send his cargo to the buyer. He is in search of a Ship Owner who can ship his cargo to the nearest destination of the buyer. The Cargo Owner may or may not be aware of which ship is suitable for his need, so it is difficult for him to contact the right Ship Owner and get the right ship for his cargo. The Charterer or a broker is an agent who is aware of Ship Owners and their type of ships and the current location of their ships and their normal trade routes.
So now the Cargo Owner will approach the Charterer the common point of contact for the Ship and Ship Owner. The Charterer will suggest the desired Ship and Ship Owner. Then the Cargo Owner will negotiate the deal with the Ship Owner and rent his Ship for a particular voyage that will deliver his Cargo to his Buyer. The Charterer will charge a commission for introducing the Cargo Owner to the Ship Owner. This whole process is chartering. In shipping sometimes cargo owner can also be a charterer himself or a shipowner can be a charterer
- Simply, engaging for service under a contract. It is a type of hiring.
- Charter is the hiring a ship and charterer is who hires ships on behalf of Cargo Owner
There are different types of chartering in shipping, they are
Will discuss all 3 types of charters in another post in details.
Hope I was able to simplify the topic for you. Let’s discuss more in comments down below