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1.6 Structure of Costs 1.6.1 INTRODUCTION The freight calculation depends on a lot of factors, especially under the voyage charter where not only the nature of the cargo plays a role, but also the voyage, the season, the port facilities and if the loading and/or discharging costs of the cargo are for the account of the ship or for the charterer's account. There is also a considerable difference between "freight" and "hire" and for the latter, also between "bareboat charter" (or demise charter) and the ordinary "time charter". To make this distinction clear, the costs in the shipping operations are classified in fixed costs or running costs, and variable costs. These costs will be discussed exhaustively later. (See also: Harbour Disbursements.) Summarized we can state that the costs in shipping operations are composed of the following sections: RUNNING COSTS - Running costs investment - capital - interests - depreciations - Operating costs - manning costs - stores costs - repairs and maintenance costs - insurance - administration VARIABLE COSTS - Vessel's voyage costs - fuel costs - Port voyage costs - ports and light dues - tugs and pilotage costs - canal dues - agency fees - costs linked to the arrival and the sailing of the ship.
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- Cargo handling costs - cargo handling costs - cost for stowing of cargo - claims 1.6.2 COSTS IN VOYAGE CHARTERS Under a voyage charter all fixed and variable costs are usually for the owner and included in the freight which is expressed in tons of loaded goods for a well defined quantity as stated in the charter party (for more details about the freight, see also The Voyage Charter). If this quantity is not loaded, the owner is entitled to the full freight for the missing quantity. This is called deadfreight. Usually the cargo handling costs, like at F.i., F.o., F.i.o., etc. are at the expense of the charterer. As already explained before, a fixed sum can also be agreed, namely the "lump sum". In order to defend the interests of the charterer and to have a supervision on the cargo, it is sometimes agreed to employ a supercargo, provided his accommodation expenses are paid for. 1.6.3 COSTS IN TIME CHARTERS Under the time charter the running cost are for the owner but the variable expenses are for the charterer. The freight will usually be lower and expressed per ton deadweight with respect to the summer load line. 1.6.4 COSTS IN BAREBOAT CHARTERS Under the bareboat charter the owner will exclusively bear the capital costs and possibly the insurance (it is customary that the insurance is concluded by the owner but that the bonus is paid by the charterer) and classification of the ship. All the other running cost and certainly the variable cost are for the charterer. He will equip and man the ship himself which gives him practically the complete control over the operation of the ship. 1.6.5 OVERVIEW TABLE See below a general overview of the breakdown of costs according to the different contracts of affreightment.
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Heading
Bare Boat Charter
Time Charter
Voyage Charter
Depreciations Interest on Capital Financial Charges Insurance of Hull and Machinery Survey Classification Maintenance and Repairs General Costs Stock, Supply Crew Wages Crew Lubricating Oil Fresh Water
Owner
Owner
Owner
Owner of Charterer
Owner
Owner
Owner or Charterer Charterer
Owner
Owner
Owner
Owner
Charterer Charterer
Owner Owner
Owner Owner
Charterer Charterer Charterer
Owner Owner Owner
Fuel Oil Harbour Dues Loading and Discharging Costs Stowage Material
Charterer Charterer Charterer
Owner Owner Owner or Charterer Charterer Charterer Charterer
Charterer
Charterer
Cleaning of Holds
Charterer
Charterer
Damage to Cargo
Charterer
Owner or Charterer (1)
Owner Owner Owner or Charterer Owner or Charterer Owner or Charterer Owner or Charterer (1)
(1) Either in total for the Charterer or one part for the Owner and the balance for the Charterer. 1.7 Obligations of the Parties 1.7.1 INTRODUCTION Regarding the compliance with the contract of affreightment a clear distinction must be made between the conditions and the warranties that appear in the contract. They both form the core of the contract of affreightment. A “condition” is a previously made restrictive provision and the inobservance of that condition will usually lead to a breach of contract. A typical example of a condition which has to be fulfilled is the delivery date or the cancelling date. If the ship is tendered after the cancelling date, the Charterer has the right to refuse the ship and consequently to break the contract of affreightment. (See also Analysis of the Printed Clauses, Clause 1.)
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An obligation or "warranty" is a guarantee which has been incorporated in the contract and which gives the right, in case of non-observance, on a damage or indemnity and therefore not to a breach of contract. A typical example of an obligation or warranty on the part of the Owner is the guaranteed fuel consumption. If the consumption is more than the agreed quantity then the Ship Owner must pay a compensation to the Charterer. The Charterer however will not have the right to break the contract of affreightment. 1.7.2 OBLIGATIONS OF THE OWNER a. The Ship Owner must provide the agreed ship as indicated in the charter party. The Ship Owner cannot replace the agreed ship by another ship unless the name of the ship is followed by the terms "or substitute". In that case the other ship must have the same characteristics and class (with the classification society) as the agreed ship. Some charter parties contain a clause called substitution clause, which gives the possibility to the Ship Owner to provide another ship than the agreed one. BIMCO drafted a typical substitution clause that reads as follows: "Owners have the option of substituting another vessel of same class (or equivalent) and similar size and, at the time of substitution expected ready to load within same laydays and cancelling dates". (See Clause no. 98 in the Forms or Approved Documents issued by BIMCO.) b. The Ship Owner must make the ship available in the indicated port and on the indicated date. If at the departure the Ship Owner holds up the ship through his own fault (or through the fault of the master) because for instance: - there is insufficient victualling on board; - a number of documents are not in order (e.g. the Cargo Ship Safety Construction Certificate has expired and has not been renewed in time); - the Ship Owner paid insufficient funds to the agent to pay the harbour dues so that the ship does not receive a "clearance"; - etc. Then, the Charterer has right on an indemnity in pursuance of non-compliance of one of the warranties namely that before and at the commencement of the voyage, the ship must be seaworthy (see also paragraph c below). If the stoppage or the delay is due to an Act of God, (e.g. fog or a heavy storm) or to a fault of which he has no knowledge, then the Ship Owner owes nothing at all. A delay in putting the ship at the disposal can have the breaking of the contract as a consequence in pursuance of non-fulfilling of a "condition". (See further Cancelling Clause.)
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To protect oneself against a possible delay, the delivery date in the charter party is given with a certain margin. If e.g. 15 - 21 October is mentioned then the Charterer is not obliged to accept the ship before 15 October and the charter party can, if need be, be cancelled if the ship is delivered after 21 October. This is the so-called lay/can (see paragraph Lay/can). c. The ship must be in a good state of seaworthiness. The law does not say exactly what must be understood under good state of seaworthiness. Article III, paragraph 1, sub a of the Hague-Visby Rules writes the following: 1. The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to: (a) Make the ship seaworthy. (b) .............. According to the jurisdiction, under seaworthiness must be understood, the state in which the finds itself, which must be able to face the normal dangers of the sea and to undertake the planned voyage without obstacles. This includes especially: -
the nautical capacity of the ship; the technical capacity of the ship (engines, auxiliary engines, deck equipment, etc.); the stores; the crew; the fuel; the aptitude to transport the agreed goods (the so-called cargoworthiness); the ship’s documents; etc.
The ship must follow the shortest route (see also the Gencon, Clause 3, Deviation clause) and at a convenient speed or at the minimum speed which is mentioned in the charter party (exclusively under the time charter or the bareboat charter). All those obligations, which in fact are obvious and must therefore be applied tacitly, are called the implied warranties. Sometimes those "implied warranties" are incorporated explicitly in the contract of affreightment: “… that the said vessel being tight staunch and in every way fitted for the voyage, shall with convenient speed proceed to….” The ship must always be delivered back in the same state as the state in which it was received, ordinary wear and tear excepted. This is especially important under the time charter and the bareboat charter. To materialize this, at the delivery of the ship a description of the condition of the vessel (the on-charter survey report) will be established by two surveyors, one for the Ship Owner and one for the Charterer (the
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so-called defended survey). When the ship is delivered back to the Ship Owner an "off-charter" survey report will then be established. The possible incurred damage during the chartering period will be compensated for by a fixed sum. At the "on" and "off-charter survey", the remaining fuel on board must also be taken into account. d. The Ship Owner must place the agreed tonnage at the disposal of the Charterer. e. The Ship Owner is not allowed to load other goods without the consent of the Charterer. 1.7.3 OBLIGATIONS OF THE CHARTERER In principle, the Charterer has two main obligations: 1. he must load the goods he committed himself to; 2. he must pay the agreed freight. a) In the first place, the Charterer must load the agreed goods. The Ship Owner can refuse the goods if the Charterer wants to load heavier or more dangerous goods, but not if the goods are of the same type i.e. the same facility of loading and discharging, the same volume, the same weight, etc. b) the Charterer must also load the agreed quantity of goods. Several possibilities can occur: i. the Charterer loads less than the quantity agreed in the charter party. In that case he is nevertheless obliged to pay the whole freight for the complete cargo for which he engaged himself. The freight which is paid on the quantity which was not loaded is called deadfreight. The Charterer who loads less and who is due to pay the total gross freight, may deduct from the freight, the possible expenses which the Ship Owner saved in the port of loading or discharging, such as possible cargo handling costs and a number of laydays. In case of deadfreight, the burden of proof lies with the Charterer. ii. the Charterer loads more than the quantity agreed in the charter party. In that case, the Charterer pays the freight for the extra cargo in accordance with the price which was stated in the charter party. iii. the Charterer loads absolutely nothing. In that case, before the departure of the ship, the Charterer renounces to the charter party, and he is than obliged to pay half of the agreed freight. c) finally, the Charterer must pay the freight, even if on arrival the goods are damaged, except if it concerns barrels containing wine, oil or honey and other fluids, which have ran out in such a manner that they are empty or almost empty (art. 122 of Book II, of the Commercial Code - Belgian).
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1.7.4 A LIEN ON THE CARGO For the payment of the freight, the deadfreight, the demurrage and claims for damages the Owner has a lien on the cargo. (See also the Gencon, Clause 8, Lien Clause.) IMPORTANT REMARK Re the contract of affreightment there are no conventions or law s of public order. The parties involved in such a contract are at liberty to agree to whatever they want, provided they don’t make agreements which are contrary with the uses and customs of a place and which are usually incorporated in a national or local legislation. For the negotiable bill of lading (and which has been negotiated) we have the HagueVisby Rules which are of public order and from which the parties concerned may not depart. For the charter party we don’t have such a law but in many countries the charter party negotiations and/or procedures are incorporated in Commercial Codes. It is therefore important to find out what law regarding the contract of affreightment apply to the country of a party one is dealing with (or of the harbour where the goods are being loaded or discharged). So, according to the Belgian law (Book II of the Commercial Code) and with regards to the lien on the cargo, the following can be of importance: 1. for payment of the freight, the Owner may ask the court to sell part of the cargo or to take possession of the cargo 2. for payment of the freight, the master does not have the right to hold the goods in his ship; 3. for the freight, the Owner is a privileged creditor.
