Ship operations

Learning Outcomes

Upon the successful completion of this module, you should be able to:

 Identify different aspects of ship operations in carrying maritime logistic processes.

 Discuss the different chartering agreements.

 Outline the different classifications of the charter.

 Explain the concept of voyage chartering.

 Discuss the registration processes for ships.

chartering a ship

Aspects of Ship Operations

During the 1960s, the liner shipping became increasingly unable to cope with the escalating volume of world trade. It is
the advent of palletization and containerization that changed this scenario, and in doing so, opened the flood gates
for rapid development of the global economy.
Maritime Logistics is involved in carrying cargo in palletized, bulk and sealed containers. The development of these
types of cargo carriage has resulted in reduced damage, loss and pilferage of cargo during transportation. This topic
will deal with different aspects of ship operations in carrying maritime logistic processes.

Own vs. Charter

The option to either buy a ship or charter is very fundamental to the shipping business. Buying a ship can be very
expensive with modern container ships and VLCC new-builds costing over $100 million. An alternative to this is to charter
a ship. Chartering agreements typically consist of bareboat charter, time charter, and voyage charter. Sample
chartering forms can be found in the resource section.
The decision to own a ship or charter is more of an art than a science! In certain shipping markets like liner shipping, it is
more common to find owned ships whereas in some other markets like dry bulk and liquid bulk, chartering is more
common. Whereas ship owners typically used to borrow funds from commercial banks to purchase their ships, a new
trend is to raise funds through an IPO (Initial Public Offering).
Charter Party

The primary function of a ship is the safe and efficient transport of goods and people. Normally, a shipowner owns and
provides a ship for use by a charterer, who uses the ship for the transport of goods.
The terms of a business contract between the shipowner and the charterer are spelled out in the Charter party. This
agreement specifies, among several other details, the amount of cargo that the ship can load, the speed at which it
will perform the voyage or voyages, the amount of fuel that she will consume every twenty four hours, both for the main
engine and the auxiliary engines, the lifting capacity and cycle times of the cranes for a dry cargo or a container ship,
the pumping rate of the cargo pumps on a tanker and ballasting/deballasting time.

Charter parties may be classed into four types:

Voyage Charter; A contract for the use of a vessel for a specific voyage in which the vessel owner pays substantially all
of the vessel voyage costs and operating costs

Time Charter; A contract for the use of a vessel for a specific period of time during which the charterer pays substantially
all of the vessel voyage costs, but the vessel owner pays the operating costs.

Bareboat Charter; A contract for the use of a vessel for a specified period of time where the charterer pays substantially
all of the vessel voyage costs and operating costs, including the manning of the vessel.

Contract of Affreightment; A form of voyage charter in which the owner agrees to carry a specific type and quantity of
cargo in two or more shipments over an agreed period of time.

Different Types of Charter

A Charter Party (C/P) is defined as a contract between a ship owner and charterers for the use of a ship or her cargo
space. --Employment Contract
There are several methods available in today’s freight market to employ vessels. Some of them are short term contracts
while others are for the longer term. The main employment methods for vessels are as below:

 Voyage chartering

 Consecutive voyages

 Time chartering

 Contracts of affreightment

 Bareboat chartering

 Joint ventures

 Parceling

 Shipping pools

 Project cargoes

 Slot chartering

Types of Charter

The Voyage Charter

A voyage charter or spot charter involves the carriage of a specific amount and type of cargo from a load-port and
carry to discharge-port. It is subjected to various cargo handling terms. Most of these charters are of a single voyage
nature, as trading patterns do not encourage round voyage trading. The payment received by the owner of the vessel
is derived by multiplying the tons of cargo loaded on board times the agreed-upon freight rate expressed on a per-ton
basis. The owner is responsible for the payment of all expenses including voyage, operating and capital costs of the
vessel.
Chartering on a single voyage or a trip charter basis may be also referred to as spot charter. It is a contract for the use
of a vessel for a specific voyage in which the shipowner pays substantially all of the vessel voyage costs which includes
bunkers, port charges, stevedores charges and operating costs such as crew costs, insurance, stores, spares, lubes,
repairs and maintenance.

The freight is earned and accrued on completion of the contracted voyage or the voyage has been substantially
performed. Generally, freight is paid on "right & true delivery".
Specimen Documents

As superintendent, you are expected to have a working knowledge of voyage charter parties, describing the carriage
of different types of cargo. Typical voyage charter parties in use are given below.

 Norgren: governs the carriage of grain by vessels

 Multiform: a charter party format for a variety of cargoes

 Austwheat: governs conditions of carriage of Australian wheat

 Amwelsh: the Americanized Welsh Coal Charter, widely used for shipment of coals from U.S. ports to all
destinations, also commonly used for shipments of petroleum coke from U.S. Gulf and U.S. West Coast ports to
various destinations

 Orevoy: Orevoy has been the predominant charter used in the ore trades since 1980; as the primary end-users
of the Orevoy charter are steel mills, the ability to use the same charter for iron ore and coking coal shipments
adds considerable value to the form and expands the user base, thus, the Coal-Orevoy Charter was
developed in 2000

 Africanphos: used for the carriage of rock phosphate, generally from Morocco but applicable to another
phosphate carriage as well

Voyage Chartering

In a voyage charter, vessels are employed for a single trip, loading cargo from one or more load ports and discharging
to one or more discharge ports. The ship owner’s reward on completing the contract successfully is the payment of
freight for the cargo carried.

Freight can be paid on a lump sum basis; more commonly, it is pro-rated1. Lump-sum freight does not depend on cargo
quantity (this is generally the norm for packaged cargo), but pro-rated freight depends on the exact amount of cargo
loaded (usually the norm for bulk cargoes).

As the vessel’s earning capacity is fixed in this type of employment contract, the charterer is only allowed a negotiated
amount of time called ‘laytime’ for loading and discharging the vessel. If laytime is exceeded, the charterer pays
demurrage as a penalty; this is a pro-rated amount, as negotiated. However, if the charterer completes loading and
discharging before laytime finishes, he is entitled to ‘despatch’ a reward.

The vessel is given a date window to present itself at the load port at the beginning of the charter, to start the contract.
This ‘window’ is called ‘lay/can’. ‘Lay’ stands for ‘laytime not to commence before’, while ‘Can’ is the cancelling date.
The days that fall in between this time window from the ‘lay’ date to the ‘can’ date are called ‘lay days’. A vessel must
present itself at the load port within this time window when starting a voyage contract.

Voyage Charter Contract

In a voyage charter, the owner retains operational control of the vessel and is responsible for all operating expenses
such as port charges, bunkers, extra insurance (required if the vessel is to sail outside the limits of her insurance policy in
the negotiated voyage contract), taxes, etc. The charterer’s costs are those relating to cargo. Loading and discharging
costs are negotiated and could be to either the charterer’s account or the owner’s account.
It is a contract to carry a specified quantity of cargo (normally full cargo) by a named vessel between a named ports at
an agreed freight rate.

 The shipowner remains responsible for the operations of the ship and the cost involved but the charterer
sometimes pays for the stevedoring rates

 The contracts are normally drawn up using standard charter party forms amended as required by alterations
and additional clauses by the brokers representing each party. The additions are called 'rider clauses' or 'side
clauses'. And the two parties are referred to as owners and charterers. If the owners are not the actual owners
but a party already hiring ship from another party then they are called "Disponent owners"

Charterers normally make arrangement for bringing cargo forward and for payment of all discharging and loading cost
in which case, C/P terms are called FIO (Free In and Out).
Definitions

Lay Days

This refers to the range or spread of days between which the owners must present the vessel for loading

Lay Time

The time allowed to the charterers for loading and or discharging by the owners without paying additional to freight. In
this period the owner is to make and keep the vessel available for loading or discharging. There are three types of
laytime:
- Definite Laytime: Is stated in the C/P as a definite period of time e.g. on tankers it may be 48 running hours or for cargo
ships it may be 6 days etc.
- Calculable Laytime: Is determined by making a calculation from the information in C/P e.g. A cargo weighing 20,000 t
to be loaded at the rate of 10,000 t / day, Laytime is 2 days
- Indefinite Laytime: In this, the charter party states that the cargo is to be loaded with "Customary despatch" or
"Customary quick despatch" OR As fast as the vessel can receive

Thus laytime starts to count when the following condition is fulfilled:

- When the vessel is an "ARRIVED SHIP' as per C/P
- A vessel is in all respects ready to load or discharge
- NOR is served on charterer or their agents and in a few cases when the NOR in accepted

Cancelling Date

Is a date beyond which if the vessel is not presented for loading, the charterers may reject her. This is found in the
cancelling clause in C/P agreement.

Lay Can

It is a period of lay days plus cancelling date. During this period vessel must arrive and be presented at the agent
port/place.
If the vessel arrives before that date the charterer need not accept her until the commencement of the agreed lay
days. If she arrives after the last day of the period, the charter can reject the vessel and cancel the charter.

Notice of Readiness (NOR)

It is a notice given when a ship arrives as per charter party and is in every respect ready to commence cargo
operations. NOR is given by:
- Before laytime commences
- Within the Lay Can period
- In accordance with the procedure in the notice clause or laytime clause in the C/P
- May usually be tendered during office hrs. usually from Monday-Saturday (But check C/P for instructions)
- Need only be tendered at the first of two load ports by the C/P should be checked for any special requirements
- May be tendered orally but as mostly all C/P require should be given in writing. NOR may be tendered by delivery of a
printed form or letter or by telex, fax, or cable etc. unless C/P provides otherwise
- Should be addressed to charterers or their agents and not to owners agent
- In duplicate with a request that the 2nd copy with time and date of acceptance completed it should be returned to
the ship

- If not acknowledged on the 1st day of the notice, daily/frequent attempts should be made to have it accepted.
However please check terms of the charter party for acceptance of NOR. If the ship is not ready to receive cargo,
whether alongside or not, by the cancellation date the charterer may cancel the charter
- The charter party normally states what time the laytime commences (a certain number of hours or days after NOR is
tendered or as soon as NOR is tendered or when NOR is accepted). If the cargo work starts earlier than that then it
counts as laytime as per charter party.
Arrived Ship

Is also determined from the C/P. There are two types of C/P: a Port C/P, Berth C/P. For example, Port C/P: a port is
defined as the place for loading without specifying a particular berth. Further a C/P may state in a port C/P that she has
arrived if:-

- She has entered port limits or

- In port at charterers disposal or
- Fully ready to load in waiting area of a particular port

e.g. Berth C/P: a particular berth will be mentioned and it is necessary for her to be alongside this berth to be
considered (ARRIVED).

Please note: The Port C/P is beneficial for the owner as berthing delays will be on charterers account. In order to protect
themselves, the owner may add waiting for berth clause. This will mention that lay time will count whether in berth or not
(WIBON)

Stoppage in Transit

 A seller is legally allowed to stop his goods while in transit to the buyer after it becomes known that the buyer is
bankrupt and has failed to pay for the goods (As per Indian B/L act 1836)

 Three conditions must be satisfied to exercise this right of the seller:

- The purchaser must be insolvent
- The seller must be unpaid
- The goods must not yet have come in the possession of the buyer (i.e. in transit)

 The seller must give the ship written instructions, for example by telex, fax etc. which should be retained by the
master as evidence

 The carrier is then obliged to have the goods returned to the port of shipment, the seller being liable for back
freight and other expenses

 As this concept is time-consuming and a lot of money may be wasted in the process, the seller may
alternatively opt for litigation in court

Consecutive Voyages

When a vessel is employed for two or more consecutive voyages from, for e.g., port “A” to port “B”, the contract is
called ‘consecutive voyages’.
The modus operandi in this ship employment method is as follows: a vessel loads at Port “A’ and discharges at port “B”,
and then proceeds directly back to port “A” to load again. This load/ discharge sequence continues till the number of
consecutive voyages as negotiated is completed.
A vessel is not allowed to renege on her commitment. Reneging would mean going to port “C” to load cargo, and then
discharge at port “D”, before going to port “A” to load again; this is not allowed.
The reward for completing each contract voyage successfully is by payment of freight. Demurrage/despatch payments
are calculated for each voyage separately, as is freight, which could vary as the freight amount could sometimes be
negotiated separately for each voyage. The cargo quantity loaded for each voyage could also vary.

The Time Charter

A time charter is a contract for the use of a vessel for a specific period of time during which the charterer pays
substantially all of the vessel voyage costs such as bunkers, port charges and stevedores charges. But, the vessel owner
pays the operating costs including crew costs, insurance, stores, spares, lubes, repairs and maintenance.
At the beginning of a time charter, the vessel is handed over by the shipowner to the time charterer, who is then called
a disponent owner. This process is called the delivery of the vessel.
At the end of the time charter, the vessel is handed back to the shipowner. This process is called "redelivery".
The time charter party will state when and where the delivery and redelivery of the vessel will take place and the terms
will include wording to the effect that the vessel must be re-delivered from the time charterer to the owner "in like good
order and condition, fair wear and tear excepted".
Conditions for Delivery and Redelivery

Thus, the condition of the ship has to be established at the time of delivery and redelivery. Professional surveyors carry
out these inspections. These surveys are called On-Hire and Off-Hire surveys.
At delivery, the surveyor will inspect the vessel to check:

 Overall condition of the vessel’s cargo handling gear

 Any hold, hatch or deck for damage apparent prior to commencement of the time charter

 Amount of fresh water and fuel/diesel oil bunkers onboard

 All class and statutory certificates are in order

 The vessel is properly manned and in accordance with the minimum manning certificate

At redelivery, the surveyor will again check:

 Amount of fresh water and fuel/diesel oil bunkers onboard

 Any damage to cargo hold, hatch or deck, or cargo handling gear during the period of the time charter

It is the time charterer’s responsibility to resolve any defects before redelivery of the vessel to the owner. Alternatively,
the time charterer may agree to pay for the repairs.

Time Chartering

It is a contract for the hire of a named vessel for a specified period of time. A time charter is normally a long term
contract where vessels are employed for a fixed period of time. The commercial risk of finding cargo and earning
revenue transfers from the shipowner to the charterer in a time charter. The charterer appoints port agents, purchases
bunkers, etc. The shipowner is responsible for crewing, maintenance, insurance etc.
The shipowner is rewarded for contract performance by the payment of regular amounts of hire money, normally paid
in advance as negotiated in the contract. This could be either monthly or bi-monthly. However, non-performance of the
vessel could lead to her being put ‘off-hire’. When a vessel is off-hire, hire money will no longer be paid or might be paid
at a discounted rate. A vessel is considered to be ‘off-hire’ when in dry dock or for non-performance. An example of
non-performance in a time contract would be, when the vessel’s engine breaks down at sea or when cargo gear
breaks down for a geared vessel when in port.
When vessels are employed on a time charter for a single trip (from a load port to a discharge port), this type of charter
party is called a trip charter. A trip charter is a short term employment contract and is similar to a voyage charter but
payment is ‘hire money’ and not freight.
In some time chartering contracts the charterer may negotiate with the owner to change a vessel’s flag and/or name
so that the vessel is identifiable with a particular route. This is normally the case when a vessel is employed by a liner
company on a long term basis.
Sometimes vessels are time chartered as replacement vessel(s) by liner shipping. This might happen when a vessel
normally employed on a liner route is no longer available, because the said vessel is laid up for repairs or is in dry
dock. Vessels could also be time chartered to ply on a liner route when there is an increase in cargo traffic on that
route.

Division of Time Charter Responsibilities

 Shipowner

 Charterer

 Crewing

 Employment

 Repairs

 Bunkering

 Maintenance & spares

 Port expenses

 Classification

 Canal Tolls

 Surveys
  Stevedoring

 Lubricating oils

 Cargo handling

 Freshwater

 Insurance of cargo

 Insurance of vessel

 Insurance of bunkers

 Stores & provisions

 Heating & cooking

Responsibility of a Charterer in Time Charter

In a time charter, the charterer retains the responsibility of stevedoring, cargo handling and insurance of cargo unless
negotiated otherwise.

 The charterer agrees to hire from the owners a ship which is generally named of their required specifications for
a period of time stated subject to agreed exclusions
 The period of Time Charter may be one voyage (Trip charter) or up to several years (Period charter)
 The charterers may use the vessel for any voyage that he wants within the trading area agreed in C/P
 The charterer pays for the "commercial expenses" of the ship i.e. bunkers, cargo loading & discharging, port
dues, canal dues and pilotage
 The owner pays for the "'liming expenses" of the ship i.e. manning, repairs, maintenance, stores, master/crew
wages, hull & machinery. insurance, provisions etc
 The time charterers usually use their own stationery, fly their own flag and paint their own colours on the ship
 C/P contains a description of the ship including its speed and fuel consumption. In case of non-performance
with these specifications, the owner has to forfeit a part of his hire charges
 In case the ship is unable to maintain the warranted speed or bunker consumption as per C/P as a result of
heavy weather or any other cause, it should be clearly substantiated by entries in the log book.
 Off-Hire Clause:
 - This gives the circumstances in which the payment of hire stops during time lost to the charterer. Normally this
comes into effect after the vessel has been unavailable for a stated period of time, e.g. 24 Hrs & 48 Hrs
 - Examples of Off Hire: machinery breakdown, crew strikes, drydocking, or other reasons beyond the owner's
control
 A Dry Deck clause makes the ship available to the owner without cargo after a stated period of notice. During
the dry-docking the ship is off-hire
 Deviation Clause: If deviating for owners purpose, e.g. landing sick seamen, repairs, dry docking etc. The vessel
is off-hire from the moment of the deviation until she is ready to resume service in a position as favourable to the
charterer as before. A deduction from hire is calculated on the basis of fuel used including FO and DO at the
port deviated to. But if the deviations are for the charterer's purposes e.g. weather conditions etc., the vessel
will remain on hire
 Charterers are expected to redeliver the vessel in the same good order as when delivered to the charterer, fair,
wear & tear expected. In case this is not so then the charterer is liable for the cost of its repairs. A charterer can
be given the option of "redelivery dirty" in which case compensation will be paid to the owners
 An on-hire survey and a redeliver survey are held before hire and before redelivery respectively
 The master is usually required to sign the bill of lading as presented to him by the charterer or the charter party
may give the charterer the right to sign them on his behalf
 Stevedore damaged clause also called Grab damaged clause. This clause describes the methods of the
survey to be held in case of damage caused to the vessel by the Stevedores and how payment for repairs is to
be made.
The Bareboat Charter

The bareboat or demise charter is the contract for the lease of a vessel, whereby the owner charters the vessel to
another party, who runs it as if that party were the owner. In a Bareboat Charter, the vessel is under the complete
control of the bareboat charterer, who supplies everything for the vessel, including the master.

The true owner assigns to the bareboat charterer all responsibility for operating the vessel, and thus entitlement to any
profits (or losses) the vessel may make. In return, the charterer pays a regular hire to the owner.

The bareboat charterer can register the vessel under the flag of his own country, even if this is different from the flag of
the original owner.

Bareboat Chartering

It is a leasing arrangement between the charterer and the actual owner in which the charterer operates the ship as if it
is his own for an agreed period. Bareboat chartering is also called ‘demise’ chartering. The charterer in this case runs the
ship as though he is the owner. He, therefore, has greater responsibilities in running the vessel, including looking after a
vessel’s commercial and manning responsibilities. The shipowner receives lower hire payment, because of lower
exposure to risk.
In a ‘demise’ charter the shipowner provides the crew of the vessel, while in a bareboat charter, the crew is provided by
the charterer. Demise and bareboat chartering are financial tools, designed to help investors purchase ships. These
investors then leave the operation and management of their ships to the experts in the shipping business.

 The master and crew are employed by the charterer and they are responsible to him as if he were the owner

 Most often it is in the form of the BARECON standard charter party form

 May have a purchase option at the end of the contract

 Only the capital cost is for the owner's account. The charterer has a commercial and technical responsibility of
the vessel and all costs, except capital cost.

Please note: A charterer of a bare-boat charter party if he has the infrastructure to commercially and technically
operate the ship but does not have the capital necessary to actually own the ship.

Charter Party Clauses

In the fiercely competitive field of international shipping, delays of any kind translate into a loss of several thousands of
dollars. It is important to understand the significance of the terms used in charter parties to counter claims made by the
charterer for underperformance and over consumption
As an example, the word "about" in the charter party, qualifying the shipping speed, allows for a drop in speed of 0.5
knots without attracting penalty clauses. Various other details, such as geographical range of operations, type of cargo
to be carried, amount of cargo, port rotation, ports of ship delivery and re-delivery, on-hire/off-hire surveys, hire
payment, etc. are described in the charter party.

Cost of Delays in Cargo Loading/Discharge

These will be calculated on a pro-rata basis of the daily charter hire. If cargo loading has to be stopped or slowed to
accommodate the ship’s needs, the additional hours would be considered off-hire, and the charter hires accordingly
reduced.

Cost of Delays in Ballasting/Deballasting

Excess hours over the permitted number of hours for ballasting/deballasting will be considered for charter hire
deduction on a pro-rata basis.

Cost of Administrative Delays

Any delays are discounted from the charter hire on a pro-rata basis. This means any factor, which could contribute to
the disruption of the steady flow of the ship’s operating processes must be avoided. Ship-arrest or detention by Port
State or Flag State, for any of several reasons, will immediately translate into losses for the shipowner.
However, any time lost due to delay of payment by the charterer to port or cargo interests is to be for charterers’
account and the vessel will remain "on-hire" during this delay period.

Did you know? The basic data that is required daily is comprised of factors such as particular wind speed (Beaufort
Scale), sea state(Douglas Scale), changes in course, effect of tidal waters and currents. These are normally recorded on
a watch-by-watch basis in the vessel’s Deck Log Book. Data recorded by a Routing Company can provide expert
evidence when a dispute arises about the effect of weather on a voyage.
Contract of Affreightment (COA)

A contract of affreightment is a long term contract, where the cargo and not the vessel is central to the contract. As
the cargo quantity is large, a shipowner contract with the cargo owner to carry a negotiated quantity of cargo
regularly between named ports, on agreed voyage chartering terms, over several voyages, using several vessels. These
vessels could be his own or, could be chartered in specially for the contract.
The advantage of such a contract is that a shipowner obtains security of employment for his vessel(s) for the duration of
the contract. COA contracts could be tailor-made to suit cargo and/or route, voyage contracts could be amended to
suit the cargo to be carried, or a standard COA document that incorporates a voyage charter party for vessel
performance could be used.
COAs are normally negotiated for long periods of time, for e.g. for two to three years, and therefore are particularly
useful when a shipowner wants a regular, stable income. Cargoes carried are commodities in great demand. Some
examples of common COA cargoes are iron ore and Liquefied Natural Gas (LNG).

 Also called Tonnage contract and is used when the shipper needs to transport large quantities over a long
period

 The contract does not mean particular ships and the shipowner is free to use any suitable ship, his own or
chartered for each shipment

 Loading dates are specified and punctual performance is very necessary

 Each individual Shipment is normally subject, to the terms of a conventional charter party

Joint Ventures /Shipping Pools /Parceling /Project Cargo

Joint Ventures

A joint venture is a method of employment where a shipping company and a cargo owner come together to produce
and then export cargo. In this method, the role of the shipping company is to transport the cargo, while the cargo
owner produces the goods for export. The goods are sold after export and the profit earned or the loss incurred is
distributed between the cargo owner and the shipping company. This distribution will be based on a weighting system
as negotiated.
A joint venture could either be for a short duration, or for a long period of time.
An example of a joint venture is the liaison between the shipping company Klaveness group and the Guinean
Government in the production, transportation and marketing of the ore ‘bauxite’.

Shipping Pools

As most contracts of affreightment and joint ventures require a large pool of ships to transport cargoes, sometimes a
group of ship owners band together to ‘pool’ their tonnage and collectively market their combined fleet to secure
these employment contracts. This method of employment, where a group of ship owners collectively market their fleet
to secure an employment contract, is called a ‘shipping pool’. The income collected from vessels in the pool is called
pool income.
Running costs are deducted from the collected pool income, and the residual income is determined. Residual income
is then distributed among members of the pool by a ‘weighting’ system. This ‘weighting’ system will be based on vessel
characteristics etc.
This system has several advantages and these include lower overhead costs and fewer risks for the shipowner.

Parceling

some ship operators specialise in transporting smaller parcels of a commodity by grouping them together in a vessel
sailing from one or more ports in a particular region to one or more ports in another area.
These operators group these parcels in one vessel. Freight rates that cargo owners are charged for these parcels are
competitive and lower than if the cargo owner were to ship these parcels as a single quantity on, say, a liner vessel. The
operator makes a profit by time chartering a vessel at a lower hire than the total freight that he receives from all the
parcel owners.
Parceling is quite common in Australia and the Far East.

Project Cargoes

These types of contracts are normally secured by heavy lift vessels to transport what is known as ‘project cargoes’.
These could be large prefabricated structures like turbines and other forms of machinery and/or material that is required
for the construction of a power plant, for e.g.
In this venture, a marine specialist undertakes complete responsibility to transport materials and equipment.
Slot Chartering

Slot chartering is common in the containerized trade. Slot chartering is a method where a Non-Vessel Operating
Common Carrier (NVOCC)2 buys slot space on ships operated by a large container line (called the head owner), using
a standard SLOTHIRE contract. They then sell this space to their customers on their own terms and issue their own bills of
lading.
The head owner may have several SLOTHIRE contracts with several NVOCCs.
Most SLOTHIRE contracts have fixed rates for each twenty-foot equivalent (TEU) slot, with premiums to be paid for
hazardous cargo slots. The NVOCC who signs a SLOTHIRE contract with a head owner acts as the vessel operator for bills
of lading (B/L) issued to their customers.
These B/Ls will have terms similar to B/Ls that are issued by the head owner (to their customers). In SLOTHIRE contracts the
NVOCC will be responsible for cargo claims of their customers.

Registration, Crewing, and Operations

Registration

In order to operate internationally, a ship must be registered in a country, which will then permit the vessel to fly its flag.
The country of registration will then become the ship’s "Flag State".
Registration is the process, whereby the ship entitled by the law of a Flag State is entered in the official register of the
State, in the name of the Owner or Owners or the Bareboat Charterer.
Registration of ships began as a practice to control the ships entitled to carry cargoes within the seaborne empires of
Europe.
However, in recent times, it has proved a convenient means of establishing title to the property in a vessel and serves to
determine which country's law governs the operation of the vessel. Advantages of registration are many as shown in the
concept map.

Factors Influencing the Choice of Registry

How will a shipowner choose a registry for his / her ships, given the many choices that exist today? Many factors are to
be considered including but not limited to:

 Initial and annual fees/taxes

 Additional charges
 if any Flexibility in hiring crew members
 Service provision - how responsive is the registry to the owner's needs
 Longstanding relationships
 Ease of operation
 Political ramifications
 Financial aspects such as tax benefits, mortgage security
 Secrecy and confidentiality
Each Flag State has developed its own procedures and requirements for registration. The registration process varies from
flag state to flag state. For example, here is a flow chart which shows the registration process of the Hong Kong flag.

Classification of Ship Registry

Ship registries are classified under different categories listed below:

 Traditional: There is a genuine link between the ship and the flag it flies. Typically, in this case, shipowner is
domiciled in the country where the ship is registered and its crew members hold the same nationality as the ship
and its owner.

 Open: These are ship registries with a very liberal shipping policy and allow ship-owners from anywhere in the
world to register their ships under those flags. Typically, there are no crewing restrictions in these cases. Open
registers could fall under one of the following three types:
- Flag of Convenience (or Flag of Necessity). Example: Panama, Liberia, Cyprus
- International Registry. Example: Norwegian International Ship Registry (NIS)
- Alternative Registers. Offshore / Dependency Registers: Here, general administration is with the parent state
while detailed regulations are established locally. Example: Isle of Man, Cayman Island, Bermuda

Open registers offer many benefits for the ship owners. However, the benefits of choosing an open registry must be
contrasted with the associated risks and costs.

Ship Crew

Every ship must have a certain number of crew members, approved by the national authority. The crew complement
consists of certified navigating and engineering officers and the unlicensed staff. In general, they are classified as deck,
engine, and catering staff.
The cost of crewing ships is often the largest component of ship operating cost. One way to lower this cost is by hiring
crew members from developing countries rather than from the developed countries where they are more expensive to
hire. A primary reason for many ship owners choosing a foreign flag operation is to facilitate hiring in the open market.
A maritime logistician must have a good understanding of the global supply and demand for merchant mariners and
the trends in crewing ships. There are third party agents that specialize solely in crew management; most of these
companies are located in the Far East.
Apart from the costs alone, there is the issue of crew capability. The IMO-STCW defined certification standard specify
the minimum competency to operate a vessel and is not specific for the type of ship to be operated. There are vast
technological differences between ships and that requires the quality of officers of different capabilities and this is ill-
defined under the STCW. The interpretation and implementation of STCW standard differ widely across the certifying
nations, and many of the crew supply nations that are cheaper to hire from, are lagging in quality of their certification.
This has resulted in the hiring of the cheaper crew for bulk carriers and cargo freighters; in contrast, for sophisticated
vessels like oil tankers, LNG/LPG carriers, Chemical carriers, Refrigerated ships and modern supersize container vessels,
crewing has largely been from traditional sources from Europe and India.
The Efficiency of Operation and Safety of Vessels

The efficiency of operation and safety of vessels are equally important for a shipowner as the operating costs; one ship
accident can wipe a shipping company off, depending on the nature of the incident. Thus, crewing from a cheaper
supply nation may turn out to be not-so-attractive a model for all kinds of ships and their operations.
This is reflected in the following table (from a Deloitte Survey in the year 2010), where while the engagement of Filipino
officers is high, the European and Indian officers remain a significant source, especially for ships that require a higher
level of competency in dealing with sophisticated automation, control and in handling dangerous cargoes.
Many shipping companies have resorted to additional value-added in-house training for their crew, and for recruitment
from the Philippines have seen substantial growth of such company-based training before the crew is allowed to step
onboard. This process has improved the level of competencies for crew and officers recruited from the Philippines and
other such countries.

Seafarer Supplier

The 2010 BIMCO research ( table below) indicates that while an important source of officers remains the OECD
countries, but a great number of officers are recruited from the Far East and Eastern Europe. If we take a look at the Far
East, China is also one of the major suppliers of seafarers in the world. But most of them work on the Chinese fleet.
The major global market for seafarer supply is from countries of the Philippines, Indonesia, China, Russia, USA, Japan,
and South Korea. According to Accreditation of Seafarer Manning Agencies (APEC) estimates from 2003, in addition to
the Philippines, Indonesia, China and Russia, the other big suppliers of seafarers are, Turkey and India. As you can see,
the major sources of seafarers are the poorer countries.
The reason for the decline of seafarers from developed countries and an increase of seafarers from poorer countries
depends on the price of labour. For example, the average monthly wage of a first mate in the U.K. can never be the
same or even close to the one that a Filipino first mate receives.
Factors Influencing Choice of Nationality

Price, of course, is one of the main factors, but there are other factors that ultimately influence the choice of certain
nationalities. Some of these factors are:

 The current relationship between supply and demand

 Training
 Loyalty and reliability
 Statistics of accidents and irregularities during the cruise
 The possibility of education and training and the number of potential candidates
 Maritime tradition
 Distance of the ship (fleet) of residence
 National restrictions
 Trade unions and other protection of seamen, etc.

Shipping Costs, Crew Costs, and Manning Levels

A typical European shipping company with a large fleet of bulk carriers and employing about 1500 seafarers (80%
Russian and rest from East Europe) the crewing costs remain a major portion (>30%) in ship operating costs as shown. The
table also shows the charts which show current statistics on crew costs and manning levels

Ship Operating Costs

Crew Costs (A)

Crew Costs (B)

Total Manning Levels

Example of Manning Level Differentials

Operations

There are two aspects of maritime operations, commercial operations and technical operations. The commercial
aspects are typically handled by the shipowners themselves whereas technical ship management is sometimes
outsourced to a ship management company. This is particularly the case with tanker and dry bulk operators who often
restrict their role in handling the commercial aspects.
Take a look at the graphical illustration given which shows the important elements of ship management.

From a maritime logistics perspective, the challenge is to have the ships ready as required at the right time at the right
cost, staffed by the right crew members.
Ship Management Operations

Ship management companies are typically based in maritime centres and contribute towards the maritime "milieu" of
that country, state, city, or port. Major centres of ship management operations include Hong Kong, Singapore,
Shanghai, Mumbai, and Manila. The location characteristics of a ship management centre are as shown below:

Reasons Shipowners Use Ship Management Companies

Some of the reasons why ship owners use ship management companies:

 Reduce operating cost

 Access to new sources of manpower
 Flag-out to open registers
 Take advantage of the ship manager's buying power
 Take advantage of the expertise of the ship manager
Lesson Summary

 Maritime Logistics is involved in carrying cargo in palletized, bulk and sealed containers. The development of
these types of cargo carriage has resulted in reduced damage, loss and pilferage of cargo during
transportation.

 Charter parties may be classed into four types:

- Time charter
- Voyage charter
- Bareboat charter
- Contract of affreightment

 A Charter Party (C/P) is defined as a contract between a ship owner and charterers for the use of a ship or her
cargo space.

 A voyage charter or spot charter involves the carriage of a specific amount and type of cargo from a load-port
and carry to discharge-port.

 A time charter is a contract for the use of a vessel for a specific period of time during which the charterer pays
substantially all of the vessel voyage costs such as bunkers, port charges and stevedores charges.

 The bareboat or demise charter is the contract for the lease of a vessel, whereby the owner charters the vessel
to another party, who runs it as if that party were the owner.

 A contract of affreightment is a long term contract, where the cargo and not the vessel is central to the
contract.