Chartering
The act of hiring a ship to carry cargo is called chartering. Tankers are hired by four types of charter agreements: the voyage charter, the time charter, the bareboat charter, and contract of affreightment. In a voyage charter the charterer rents the vessel from the loading port to the discharge port. In a time charter the vessel is hired for a set period of time, to perform voyages as the charterer directs. In a bareboat charter the charterer acts as the ship's operator and manager, taking on responsibilities such as providing the crew and maintaining the vessel. Finally, in a contract of affreightment or COA, the charterer specifies a total volume of cargo to be carried in a specific time period and in specific sizes, for example a COA could be specified as 1 million barrels (160,000 m3) of JP-5 in a year's time in 25,000-barrel (4,000 m3) shipments. A completed chartering contract is known as a charter party.
One of the key aspects of any charter party is the freight rate, or the price specified for carriage of cargo. The freight rate of a tanker charter party is specified in one of four ways: by a lump sum rate, by rate per ton, by a time charter equivalent rate, or by Worldscale rate. In a lump sum rate arrangement, a fixed price is negotiated for the delivery of a specified cargo, and the ship's owner/operator is responsible to pay for all port costs and other voyage expenses. Rate per ton arrangements are used mostly in chemical tanker chartering, and differ from lump sum rates in that port costs and voyage expenses are generally paid by the charterer. Time charter arrangements specify a daily rate, and port costs and voyage expenses are also generally paid by the charterer.
The Worldwide Tanker Normal Freight Scale, often referred to as Worldscale, is established and governed jointly by the Worldscale Associations of London and New York. Worldscale establishes a baseline price for carrying a metric ton of product between any two ports in the world. In Worldscale negotiations, operators and charterers will determine a price based on a percentage of the Worldscale rate. The baseline rate is expressed as WS 100. If a given charter party settled on 85% of the Worldscale rate, it would be expressed as WS 85. Similarly, a charter party set at 125% of the Worldscale rate would be expressed as WS 125.
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