It is interesting to know that currently 90 percent of the world’s goods and shipments are transported by sea.

That is why we intend to familiarize you with ship chartering and its process and contract in this chapter.

What is a ship charter?

The word Charter is an old term that literally means a document issued by the ruler of a country or a country official. However, the term charter appeared in concepts related to maritime and air transportation almost 200 years ago.

In today’s terminology, the meaning of charter has not deviated much from its old translation, because charter still refers to a document that a competent person signs, but the space of its use has changed to the space of trade and business, and naturally its beneficiaries have also changed.

In fact, currently, charter means that a specific asset or right is provided by the charterer to the charteree for a specific period of time and for a specific purpose.

A definition that roughly corresponds to a lease agreement, in which the benefits of the property are transferred to the lessee for a specified period of time.

In the case of some properties, personal interests require that leasing the property be preferred to purchasing it. Various reasons such as the high price of the property, lack of permanent need for it, avoiding depreciation and repair costs can be the reason for this.

Ships are also one of the properties that usually change hands with a lease agreement.

That is, a natural or legal person owns it and, through multiple lease agreements, transfers its benefits and services to multiple persons throughout the life of the ship.

The purpose of renting a ship can be commercial or personal, transporting cargo or passengers, long-term or one-time, charter contracts include these items and other conditions of the contract, such as the obligations of each party, the duration of the contract, the amount payable, the method of payment, and the characteristics of the ship, from the period of operation and the health of the ship to the documents and documents related to it.

In order for the chartered ship and the agreements of the parties to be in a way that provides the greatest benefits to both parties and also corresponds to their real wishes, various types of expert reports have been considered for ships.

Reports that, in the most basic of them, state the health of the ship and also include other specialized matters.

Now, given that maritime transport is the first choice for transporting shipments in international transportation, and that numerous ships depart from different ports every day and transport all kinds of shipments, and given that the charter contract is one of the methods by which the benefits and functions of the ship can be obtained, we will discuss the advantages and disadvantages of ship chartering.

Pros of ship charter

As mentioned earlier, ship chartering means that the benefits and capabilities of the ship and the permission to use it for a specific period of time or a specific number of voyages are transferred from the ship owner to the lessor.        

We also learned that ship chartering is one of the common types of contracts in maritime transportation, which naturally has positive points and challenges compared to different types of contracts. In this section, we intend to discuss the benefits of a ship charter contract.

Using a charter contract brings positive points for both the ship owner and the ship lessor, including the following.

— Renting a ship has advantages for its owner, which we have briefly explained:

• The advantages of using a charter contract for the ship owner should be sought above all in the owner’s control over how to use the ship.

In other words, in the chartering contract, the conditions of use and deployment of the ships are fully described, and the shipowner has the right and privilege to include his desired conditions and items in the contract, considering the criteria and what is of primary importance to him.

The ship owner can even take over the maintenance of the ship directly and, as a result, trust his employees instead of the contractual obligations of the lessee.

Also, a businessman who intends to charter his ship and earn profit from the ship rental can, when ordering the ship, declare his desired design in such a way that, considering his target market and the usual conditions, the ship is firstly attractive for the chartering contract and secondly, its life and depreciation are suitable.

Of course, the owner, if he deems it necessary, can make structural changes to the ship during the use of the ship and in the intervals between lease agreements, for example, to enable the use of alternative fuels on the ship.

Finally, leasing a ship in the form of charter contracts allows the owner to make good use of the facilities and life of his ship and continue to provide services and, as a result, earn profit and income for himself.

Because arranging a lease agreement allows the owner to work with different merchants, while if he intended to use it for personal use, he would have to rely on market conditions and business conditions.

• The benefits of a charter ship lessor, like a ship owner, include many things, among which we should mention the type of this investment.

It is interesting to know that renting a ship instead of buying it, depending on the conditions and situation, can be considered a light investment strategy, which results in the least capital being converted into the most profit.

It should also be noted that the shipowner, from the time he orders his desired ship from the shipyard, must consider a waiting period of at least 2 to 3 years. Due to the changing conditions of the world markets during this period, it is possible that the merchant will suffer heavy losses instead of making a profit from the newly purchased ship.

Meanwhile, a person who takes possession of the benefits of a ship through a charter party can use the ship as soon as the contract is signed and the contract’s implementation period begins, which does not affect his investment as a result of the waiting period.

The conditions for termination and termination of the contract may allow the lessee to terminate the lease in the event of special and contractual conditions, which can significantly reduce the occurrence of potential losses in the future.

Of course, we should keep in mind that the cost of renting a ship through a charter party is usually a reasonable price and there may not even be a need to terminate the contract.

Cons of ship charter

In the previous paragraph, we learned about the advantages of ship chartering contracts, but we should not assume that these contracts are free from any challenges or flaws. Naturally, charter contracts, like any other legal entity, also face challenges in addition to their unique advantages.

Perhaps the most important weakness in charter contracts can be attributed to the lack of full awareness of the parties. In fact, we must consider that the ship charter contract is not only a contract with significant economic value, but also, contrary to initial perceptions, has unique complexities.

The first point to be considered is the conformity of the ship’s conditions with the tenant’s intentions. In fact, a person who intends to charter a ship must seek the help of expert reports and the opinions of experts in order to find a ship that meets his or her desired conditions.

Hiding defects in ships that are used by different people successively through a charter contract is another challenge that the tenant may face.

Resolving disputes arising from ship charter contracts not only takes a long time, but the costs imposed on the parties and, ultimately, the risks of enforcing a judicial decision are all challenges of charter contracts.