Introduction
The chartering market offers a variety of options for business ventures seeking to transport goods internationally. The company under consideration, an Argentina-based meat exporter, has a long-standing relationship with a British supermarket chain. After reaching a collaborative agreement with another exporter and securing a 10-year contract with the chain, a decision was made to switch to chartering vessels for product transportation in lieu of using liner services. The company seeks to become a charterer or an organization that charters transportation for commercial purposes. The organization is considering chartering vessels to fulfill its contractual obligations in the United Kingdom. Time and bareboat charters can be defined as lease agreements allowing the lessee to use marine vessels (Dimitrakieva, Kostadinov and Atanasova, 2021).
There are legal distinctions between different charter contracts, with the obligation of ship owners and charterers differing substantially. Therefore, for the decision to be made, the legal and financial commitments of the meat explorer, as well as its ability to fulfill its contractual obligations of supplying the supermarket chain with meat, should be considered.
Differences Between Time and Bareboat Charters
Time and bareboat charters are different types of contracts that outline the use of maritime transport to move goods or people via sea routes. A time charter is a lease agreement that gives the charterer access to transportation services and the power of commercial control over the leased crafts (Adland and Alizadeh, 2018). Under time-based contracts, the ownership of the ship is retained by the lessor. Meanwhile, a bareboat charter is a finance lease under which legal possession of a vessel is granted to the charterer (Albarenque and Romea, 2020).
It can be argued that different services are contracted in time and bareboat agreements. In time-based contracts, the charterer hires the vessel’s services granted by the owner and fulfilled by the ship master and crew contracted by the owner (Cha et al., 2021). Whereas in bareboat charters, the ownership of a vessel is transferred to the charter in return for payment with the crew being hired by the charterer (Gilabert Gascón, 2021). Overall, the ownership issue distinguishes a time charter from a bareboat contract.
It should be noted that bareboat charters offer different opportunities for the lessee compared to other contracts. For example, vessels rented under a time charter are utilized for the transportation of goods as the owner provides the space on the vessel space and crew to the charterer (Dimitrakieva, Kostadinov and Atanasova, 2021). Meanwhile, bareboat charters can be used as investments and not used for transportation (Dimitrakieva, Kostadinov and Atanasova, 2021). Bareboat contracts can be written to allow the purchase of the vessel upon the termination of the contract (Dimitrakieva, Kostadinov and Atanasova, 2021). Therefore, the obligations of the owner and the charterer account for charters with or without a sale.
Legal and Commercial Obligations of the Charterer
The field of maritime transportation services is highly segmented, with numerous nuanced contracts developed to control the market risk. These contracts regulate the relationship between the owners and the entities chartering the vessels, defining the responsibilities of each side as well as the legal ownership of the ship for the duration of the agreement. Before the company makes a decision, its obligations as a charterer are to be considered.
Time Charters
When the contract is signed between the ship owner, the lessor, and the charterer, the lessee, the latter is granted operational control of the maritime transport. The charterer compensates the owner for the daily hire of the vessels as well as the work of the personnel employed and assigned to the ship (Rehmatulla and Smith, 2020). The legal owner of the ship agrees to manage the capital and technical costs associated with the operation of the vessel. As the operational rights to the craft are given to the charterer, they accept the responsibility of operational costs for the voyages made under the contract (Dimitrakieva, Kostadinov and Atanasova, 2021).
In addition, the fuel costs are borne by the charterer (Rehmatulla and Smith, 2020). Other costs related to the handling and insurance of the cargo are endured by the charterer, with the shipowner responsible for the vessel insurance (Dimitrakieva, Kostadinov and Atanasova, 2021). The character is accountable for the market risk and delays in deliveries caused by adverse meteorological conditions (Dimitrakieva, Kostadinov and Atanasova, 2021). Overall, the charterer is obliged to carry all costs associated with the operation of the vessel.
Bareboat Charters
Under a bareboat contract, the obligations of the charterer are more extensive compared to a time charter. The charter is responsible for most of the costs associated with owning and operating a maritime transport, including operational, technical, and fixed costs, as well as Bessel insurance (Dimitrakieva, Kostadinov and Atanasova, 2021). Capital costs may be borne by the charter if the contract has the option to acquire the chartered vessel upon the completion of the contract (Dimitrakieva, Kostadinov and Atanasova, 2021). It should be noted that the vessel insurance is drafted in favor of the owner. The lessee endures cargo handling costs, market risk, and delivery delays (Dimitrakieva, Kostadinov and Atanasova, 2021). Additionally, the charter is responsible for the hire and payment of the ship master and the crew.
Recommendation to the Company
The company can employ both time and bareboat charters to continue delivering meat products from Argentina to the United Kingdom. The company’s needs, cargo volume, costs, and ability to secure new contracts for meat delivery should be considered in the decision-making process (Plomaritou and Menelaou, 2020).
Considering the length of the new contract signed with the British supermarket chain and a collaborative agreement with another exporter, it would be most beneficial to hire a bareboat charter with the sale. Although bareboat charterers carry greater costs than time charterers, the company is in an excellent position to afford a bareboat charter. As there is a collaborative agreement with another exporter, the operational and other costs can be split. Ownership of a maritime vessel is an investment that can help increase the company’s revenue in the future via leasing room on the vessel to fellow exporters. Moreover, the cargo volume can be expanded through the charter of several vessels, allowing the company to deliver products to other supermarket chains.
Conclusion
In summary, a bareboat charter with the sale is recommended to the exporter under consideration. The proposed contract is the most beneficial for the company as it will allow it to deliver large quantities of products and fulfill its obligations to the supermarket chain and the partner exporter. It will result in additional revenue for the company if vessels are acquired and leased to other organizations.
Reference List
Adland, R. and Alizadeh, A. (2018) ‘Explaining price differences between physical and derivative freight contracts’, Transportation Research Part E: Logistics and Transportation Review, 118, pp. 20–33. Web.
Albarenque, J. and Romea, S. (2020) ‘Rethinking bareboat charter agreements in the wake of the Covid-19 pandemic’, International In-house Counsel Journal, 13(53), pp. 1–6. Web.
Cha, J. et al. (2021) ‘Legal disputes under time charter in connection with the stranding of the MV Ever Given’, Sustainability, 13(19), pp. 1–25. Web.
Dimitrakieva, S., Kostadinov, O. and Atanasova, C. (2021) ‘Comparative analysis of the contracts for maritime transport services. Chain of charter parties’, Pedagogy, 93(6s), pp. 51–62. Web.
Gilabert Gascón, A. (2021) ‘Insurance related problems in bareboat charter agreements’, Journal of Shipping and Trade, 6(1), pp. 1–18. Web.
Plomaritou, E. and Menelaou, A. (2020) ‘Charter market segmentation in response to trade’s needs’, Journal of Economics, Management and Trade, 26(1), pp. 78-87. Web.
Rehmatulla, N. and Smith, T. (2020) ‘The impact of split incentives on energy efficiency technology investments in maritime transport,’ Energy Policy, 147, pp. 1–15. Web.