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Nature of a bareboat charter and lease arrangement- cargo ships employment procedure

A bareboat charter (sometimes called a charter by demise or demise charter, particularly by lawyers)
i) is a contract for the hire of a vessel for an agreed period during which the charterers acquire most of the rights of the owners.

ii) may be thought of as the marine equivalent of a long-term vehicle lease contract.

iii) is most usually on the BARECON 89 charter party form.

iv) is used by owners such as banks and finance houses who are not prepared to operate or manage ships themselves.

v) is often hinged to a management agreement. (e.g. where an oil company bareboat charters a tanker from an independent tanker owner but agrees that the owners will manage the ship on the oil company’s behalf during the charter period).

vi) may be hinged to a purchase option after expiry of the charter or during the hire period. (Hire payments may include instalments of the purchase price, and transfer of ownership may follow the final instalment. Many permutations are possible.)

In essence the vessel owners put the vessel (without any crew) at the complete disposal of the charterers and pay the capital costs, but (usually) no other costs. The charterers have commercial and technical responsibility for the vessel, and pay all costs except capital costs.

The “BARECON A” form, under which the owners bear responsibility for insurance premiums, was designed by BIMCO for short-period chartering (e.g. the summer hire of a passenger vessel).

The “BARECON B” form was designed as a long-period, financial type of contract, mainly for newbuildings although it can be modified for second-hand tonnage. The charterers are responsible for insurance premiums.

“BARECON 89” is an amalgamation of the “BARECON A” and “B” forms designed to reflect the growing use of bareboat charter registration. Part I contains the familiar BIMCO-style boxed details. Part II contains the standard clauses. Part III contains provisions applicable to newbuilding vessels. Part IV contains a hire-purchase agreement. Part V contains provisions to apply for vessels registered in a bareboat charter registry.

Benifits of lease arrangement in cargo ships employment

A lease arrangement is a means of financing the acquisition of a vessel that utilises a bareboat charter party as the vehicle for the loan repayment agreement. It is used as an alternative to a traditional ship mortgaging arrangement. The “sharing” of tax benefits available to the owner and charterer is sometimes the main purpose of a lease arrangement.

In a typical lease arrangement, the lessee or borrower already owns a vessel or has contracted a newbuilding from a shipyard. On entering into the lease agreement, ownership of the vessel is formally transferred to the lessor or lender, who then becomes the registered owner. The lessor then charters the vessel to the borrower on the terms of a bareboat charter party. The lessor retains ownership of the vessel for a (usually) lengthy period, following which ownership may pass to the lessee/charterer. The charter hire payments cover the instalments of a loan that represents the finance required to acquire the vessel. The lender’s tax benefits, which stem from ownership of the vessel, are passed on to the lessee/charterer by way of reduced charter hire payments. A vast set of financial documents is required in addition to the bareboat charter party.

Some of the terms of the bareboat charter party are designed to protect the lessor/charterer against the risks and liabilities normally associated with ownership of a vessel.

  • Contract between cargo seller and buyer

  • The contract of sale between the seller and the buyer of the goods is separate from the contract of carriage which one party or the other, or a third party (such as a freight forwarder), will make with the carrier.
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    Summarized below seagoing cargo ship various employment guide:
    1. Charty party forms

    2. defines the obligations, rights and liabilities of the shipowner and charterer. Recognised standard form (e.g. GENCON, BALTIME, NYPE)
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      Nature of a time charter
      The charterers agree to hire from the shipowner a named vessel, of specified technical characteristics, for an agreed period of time, for the charterer’s purposes subject to agreed restrictions.
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    3. Voyage charter advantages

    4. contract for the carriage by a named vessel of a specified quantity of cargo between named ports or places.
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    5. Terms of Bareboat charter and lease arrangement

    6. The vessel owners put the vessel (without any crew) at the complete disposal of the charterers and pay the capital costs, but (usually) no other costs.
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    7. Seaworthiness of vessel

    8. A vessel must be fit to encounter the “ordinary perils of the sea” (e.g. bad weather) and other incidental risks to which she will be exposed on the voyage..
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    9. International trade terms (INCOTERMS) in sea transportation

    10. INCOTERMS is a set of rules, published by the International Chamber of Commerce, for the uniform interpretation of the most commonly used trade terms used in international trade contracts.
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    11. Money transfer procedure in sea transport

    12. Money transfer system commonly used in overseas trade to enable sellers to obtain early payment, i.e. soon after shipment of the goods.
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    13. Contract between cargo seller and buyer

    14. The contract of sale between the seller and the buyer of the goods is separate from the contract of carriage which one party or the other, or a third party (such as a freight forwarder), will make with the carrier .
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    15. Parties involved in sea transportation of goods

    16. Forming links in the transport chain- Sea carrier, Freight forwarder, shipper, consignee,agent & banks
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    17. Carriage of goods by sea act 1992 (COGSA 92)

    18. Section 3 of COGSA 92 lays down guidelines establishing when liabilities under a bill of lading, sea waybill or ship’s delivery order will be transferred to a party who is not an original party to the contract of carriage (i.e. an endorsee or transferee). The party who takes or demands delivery of the goods to which a bill of lading, sea waybill or ship’s delivery order relate becomes subject to the same liabilities as the original shipper..
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    19. Laytime interpretation rules

    20. Rules, which were issued jointly by BIMCO, CMI, FONASBA and INTERCARGO, replace the Charter party Laytime Definitions 1980.
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    21. CIF ( Cost, Insurance and Freight ) used in international trade terms (INCOTERMS)

    22. “CIF” means Cost, Insurance and Freight (paid to a named place), e.g. CIF London.- is a contract based on the discharge port
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    23. FOB ( free on board ) used in international trade terms (INCOTERMS)

    24. “FOB” means Free On Board (named port of shipment), e.g. “FOB Newcastle NSW”. It is one of the most commonly used term (INCOTERMS) in sales contracts involving sea transportation of goods.
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    25. Ships employment baltic exchange

    26. Baltic Exchange members undertake to abide by a strict code of business practice, enshrined in the famous Baltic motto “Our Word Our Bond”.
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    27. Ships charter market place

    28. Most ships employed in the charter markets are dry bulk carriers, tankers, combination carriers (e.g. OBOs), or reefer vessels, although there is also a charter market for container ships and for vessels of various special purpose types
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    29. Common Chartering abbreviations

    30. Many terms commonly used by shipbrokers and others involved in ship chartering, mainly to save time and effort in communications. Shipmasters may come across many of the acronyms and abbreviations in documents relating to charters, e.g. in telexed voyage orders and market reports..
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    31. Tanker freight worldscale

    32. "Worldscale" is the code name for the “New Worldwide Tanker Nominal Freight Scale”, published by the Worldscale Association (London) Limited and the Worldscale Association (NYC) Inc
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