Chartered Vessels

What Are Chartered Vessels?

Chartered vessels are ships that are rented or leased to transport goods or people. The charterer uses the vessel for a specified time or journey, depending on the agreement between the parties. Typically, the ship’s owner is responsible for providing the crew and covering capital costs, although different types of charters have different financial arrangements. 

It is important to vet charter vessels and perform the necessary due diligence, to ensure that potential charter vessels haven’t been sanctioned or recently engaged in deceptive shipping practices (DSPs). 

What Are the Different Types of Charter Vessels?

There are primarily three types of charter vessels. The following table defines each type and highlights some of the differences between them.

How Common is the Practice of Chartering Container Vessels?

Chartering container vessels is a common practice, especially among shipping companies that need flexible capacity to meet fluctuating demand in global trade. Many container shipping lines do not own their entire fleet; instead, they charter vessels to supplement their capacity during peak seasons, or specific trade routes. 

The practice became even more prevalent during the COVID-19 pandemic, when supply chain disruptions led to significant shifts in container demand and shipping rates. Chartering allows companies to scale their operations without the long-term financial commitment of owning ships, making it a key strategy in the container shipping industry.

What Are Some of the Benefits and Risks Cargo Shippers Face When Working With Chartered Vessels?

Here are the benefits and risks for cargo shippers when dealing with a chartered vessel:

Benefits

• Cost flexibility: chartering offers flexibility in shipping costs, allowing shippers to choose the most cost-effective option for specific needs
• Capacity on demand: shippers can access additional capacity during peak periods without owning vessels
• Route customization: voyage charters, in particular, allow shippers to tailor shipping routes to specific destinations or cargo needs, optimizing delivery
• Operational efficiency: shippers avoid the hassle of vessel maintenance and crew management, as these responsibilities are usually handled by the vessel owner
• Faster shipping: chartering vessels can lead to faster shipping times – the shipper can prioritize cargo or routes according to their requirements

Risks

• Legal and liability concerns: shippers may face legal and financial risks if issues arise during transport, such as knowingly or unknowingly using a sanctioned vessel for chartering. Cargo damage or delay issues can also occur, depending on the terms of the charter contract
• Cost variability: charter rates can fluctuate based on market conditions, especially during high-demand periods
• Limited control: in voyage and time charters, the shipper has limited control over the vessel’s management, crew, and operations, potentially leading to delays or operational issues
• Performance risk: if the chartered vessel or its crew underperforms or experiences technical issues, it could affect delivery schedules and cargo safety
• Legal and liability concerns: shippers may face legal risks if issues arise during transport, such as cargo damage or delays, depending on the terms of the charter contract
• Contractual obligations: bareboat charters require the shipper to manage the vessel fully, which includes hiring a crew, maintaining the vessel, and ensuring compliance with regulations, adding operational complexity and risk

What Tools Can Security Teams Use to Mitigate Chartered Vessel Risks in Shipping?

Security teams have a number of tools at their disposal to help mitigate risks caused by chartered vessels: 

• Vessel tracking systems: Global navigation satellite systems (GNSS) and Automatic Identification Systems (AIS) provide real-time tracking of vessels, allowing security teams to monitor a vessel’s location and respond quickly if it deviates off the route
• Risk intelligence platforms: Maritime Domain Awareness (MDA) platforms, including Windward’s Maritime AI™ tools,  and security threat intelligence tools offer insights on piracy zones, weather hazards, and political instability, enabling security teams to plan safer routes
• Contractual and legal safeguards: Charter party agreements help mitigate risks while due diligence tools can be used to vet vessel owners, crews, and operators to ensure that ships comply with maritime laws
• Cargo insurance: comprehensive insurance policies can protect shippers against risks of theft, damage, and loss
• Route planning and risk assessment: risk modeling tools and predictive analytics, both of which are also part of Windward’s Maritime AI™ solution, help shippers recommend safer travel routes, predict potential disruptions, and avoid high-risk zones

What Is the Regulatory Environment for Chartered Vessels? 

Chartered vessels are subject to regulations from a number of different agencies and organizations: 

• International Maritime Organization (IMO) standards: chartered vessels must comply with IMO regulations governing safety, security, and environmental protection, including conventions like Safety of Life at Sea (SOLAS) and Marine Pollution (MARPOL)
• Flag state regulations: vessels must adhere to the specific maritime laws, including safety standards, crew qualifications, and inspection requirements, published by the flag state
• Charter party agreements: legal contracts outline obligations between the vessel owner and the charterer, including compliance with applicable laws
• Customs and port regulations: chartered vessels must adhere to local customs, port authority rules, and import/export regulations
• Environmental compliance: environmental regulations, such as emissions control areas (ECAs) and ballast water management standards, apply to chartered vessels

These regulations ensure safe, legal, and environmentally responsible maritime operations.