In the world of maritime shipping, there are three major elements: vessels, cargo, and the contracts that determine how the two interact. When a vessel is needed to move cargo, it can be employed in several different ways.

A vessel can be employed on a (single) voyage basis, which means that the Charterers pay Freight to the Owner in order to perform their cargo transportation. Alternatively, a vessel can be employed on a Time Charter basis, which means that the vessel is hired by the Charterer for an agreed period of time against a payable hire rate to the Owner for the duration of the time charter period.

For the seasoned industry professional, these concepts are all too familiar. For the unfamiliar newcomer, the nuanced inner workings of the industry are strange and foreign. Regardless of your experience level, understanding and re-evaluating maritime shipping fundamentals, such as the elements of Time Charter, is crucial to better understanding your dynamic function and how it is changing within this ever-evolving industry.

In this blog post, we’ll review the elements of Time Charter and explore what factors impact the choice between Voyage and Time Charters.

Want to dive deeper into these fundamental concepts? Sign up for our free Elements of Time Charter course on Veson University!

Elements of Time Charter

A Time Charter (TC) is a type of vessel chartering and a vessel employment contract between two counterparties: the Owner and the Charterer. Each counterparty has different responsibilities and concerns, which are captured in the Charter Party Agreement.

Some key Time Charter contract terms to know are:

  • the vessel’s description
  • the time charter period
  • the delivery and redelivery range
  • the hire rate
  • bunker consumption costs

The details of these contract variables have a profound impact on the nature of the agreement and the decisions that key stakeholders make.

For example, from the beginning of the time charter negotiations, the Owner must provide the Charterer with the vessel’s full description, commonly called “Time Charter Description“. The detailed vessel’s description includes information such as the vessel’s speed and consumption rates, which are important for the Charterer to be aware of in order to accurately and efficiently plan the voyages which they need to perform during the Time Charter, and plan the cargo operations.

What Factors Impact the Choice Between Voyage and Time Charter?

This is a widely discussed topic and is one of the most common strategic decisions for both the Owners and Charterers. Some key factors affecting this decision making include market volatility, cargo availability, repositioning of the vessel, and financial reasons.

These factors create expectations from both parties, and these expectations are reflected in the market fluctuations and, essentially, on the freight rates. A low supply of vessels will result in higher freight rates, and low demand from the cargo side will result in lower freight rates. This is commonly called the spot market.

Counterparties’ perception of the market’s projection will be a very important factor in making a decision between voyage or TC. In this respect, and in an effort to avoid potential volatility or to control costs, the counterparties will consider fixing the vessel on a TC.

Another common business scenario is that a long TC may be part of a financial package with the purchase of the vessel. In other words, the financial and operational management of the fleet will impact this kind of decision.

Charterers who wish to take control of a vessel or a fleet to manage their own needs for cargo transportation and do not want to bear the purchase and running cost of the vessel will be in favor of the TC option. This means that the TC option is seen as a business opportunity with no asset burden for the Charterers.

Learning Industry Fundamentals with Veson University

At Veson Nautical, we believe in continuous learning, which is why we offer both product- and industry-based training opportunities based on our unique experience with over 300 diverse clients in the industry. A common technical and industry understanding across your team is critical to establishing shared priorities, foundational knowledge, and ultimate collaboration.

To provide a dynamic, deep-dive learning experience of what a Time Charter is about, we have created a Elements of Time Charter course offered through Veson University, which is the first of the three part series out of the Hire Management Basics course. Master the course for free now!