Introduction
In a time charter, the terms of the agreement within a contract are restrictive for the charterer. The charterer agrees to take the vessel for a specified period, to a particular trip, and return it within a specified time. On the other hand, a bareboat charter is a freer contract, as it allows a charterer to determine their path and actions. This essay analyses the differences between the time charter and bareboat methods of contracting boats for a company that supplies meat to the UK. The second section analyses the legal and financial repercussions of each chartering system to the charterer, and the third part is recommendations on the appropriate method for the company.
Time Charters vs Bareboat Charters
A bareboat charter is akin to ownership of a vessel, with the formal handover of the ship being the only remaining step. A time charter allows the ship’s owner to remain abreast of the operations undertaken by their vessel through control of certain aspects of movement (Cha et al., 2021). A bareboat charterer can hire their own sea master and crew, unlike a time charter. A time charter is mostly used for short-term voyages, with the charters required to return the vessel upon completion of the agreed period.
A bareboat contract permits a charterer to make many trips with the ship before returning it to its owner, as the contract has a longevity basis. A bareboat charter sometimes escalates and amounts to the purchase of the ship by the charterer. This occurs upon completion of the long lease period, payment of the agreed fees to the owner, and legal handover. The time charter has no provision for a permanent transfer of ownership of the ship (Łapko and Lučić, 2019).
A bareboat charter absolves a ship owner of liability, unlike the time charter, which ensures the owner has the biggest liability if anything happens to the ship or its crew (Talley, 2012). The liability held by each party is determined by the extent of control they have on the ship, with a charterer in a bareboat agreement acquiring charge for most operations of the ship. A bareboat charter is vital for businesses with long-term plans for expansion and vision, compared to time charters that prioritize short-term outcomes.
Legal and Commercial Obligations of the Charterer
In both bareboat and time charters, it follows that the party with the most control over the ship and its operations has greater legal obligations. The commercial obligations are established in the contracts signed by both parties. In a bareboat charter, a charterer is given the entire boat and allowed to operate it as they wish (Wilson, 2010). They must, therefore, be required to account for the trading warranties to the latter.
Trading warranties prescribe where the vessel will likely go during the agreed business operation (Todd, 2015). Insurance of the ship and its crew is also a vital component of the charter agreement, and a specific party is required to take responsibility for the ship’s operations. A bareboat charter requires the charterer to take on these duties, while a time charter still retains these obligations upon an owner.
If anything happens within the bareboat charter, liability for the ship mostly falls on the charterer, as established by various precedent cases. The Guzman v. Pichirilo case of 1962 by the U.S. Supreme Court determined that if the owner has relinquished full control, the charterer bears full liability (Justicia, 2022). The Deal v. A.P. Bell Fish Co case of 1985 illustrated the importance of relinquishing power when determining liability, as the owner was held culpable for having substantial control (Casemine, 2022). He was thereafter compelled to compensate the family of the crew member who had lost their life.
Financial and commercial obligations fall on the charterer as they are required to pay the owner their royalties as stipulated in the contract, in both the bareboat and time charters. The charterer is also responsible for any collisions that may affect the ship and pay for its repair (Forcellati et al., 2020). The pollution damage accrued by the ship is the responsibility of the entrepreneur who leases the ship (Todd, 2015). In a time charter, the owner might be in direct control of the ship, but the work they perform is delegated mostly by the charterer, hence their obligation to pay their wages.
Recommendations
The bareboat time charter is the best alternative for the company in the long run, but the time charter is the safest alternative when starting. It follows that despite starting with the time charter for the meantime, the management of the company must set its sights on getting a bareboat venture. A time charter is a cheap option in the short term as the owner of the ship will dedicate their crew to servicing the ventures. This means that the company can monitor the progress of the time venture before making bigger commitments that are ultimately more expensive. The liability of the ship also belongs to the owner when a time charter is employed, meaning the risks likely to become accrued are paid for by the owner. This includes any maritime disputes, alterations with law, and injuries or death of staff. The time charter option is also reasonable, given the 10-year period the operations are likely to run.
A bareboat charter usually culminates in total ownership of the boat, and this requires long-term business operations. It is illogical for the management of the meat company to prepare the purchase of a ship without plans for its use in the long term. The long-term recommendation means that the company can negotiate longer contracts with their purchasers in the UK to enable long-term planning. The bareboat venture will require the company to take greater responsibility in its meat transportation business through the payment of insurance and hiring of the crew. This is likely to strain the profits accrued in the venture, hence the need for preparedness when taking this heavier option.
Conclusion
In conclusion, a bareboat charter is riskier for a charterer compared to a time charter due to the resources required and the liability taken. A bareboat charter is also more expensive as a charterer is sometimes obliged to purchase the vessel in the long term. The most reasonable course of action for the company exporting meat to the UK from Argentina is a time charter, given its cheap nature and minimal liability. A bareboat charter is a future desire for the company as it would give the institution the opportunity to own a vessel.
Reference List
‘Casemine. (Deal v. A. P. Bell Fish CO, 674 F.2d 438 | 5th Cir., Judgment, Law)’ (2022) CASEMINE. [online]. Web.
Cha, J., Lee, J., Lee, C. and Kim, Y. (2021) ‘Legal disputes under time charter in connection with the stranding of the mv ever given’, Sustainability,13(19), pp.10559-10564.
Forcellati, C.L., Georgeson, C., Lind, M., Singh, S., Sjöberger, C., Woxenius, J. (2021) Support for financial decision-making In: Lind, M., Michaelides, M., Ward, R., T. Watson, R. (eds) Maritime informatics. Progress in IS. Springer, Cham.
Gilabert Gascón, A. (2021) ‘Insurance related problems in bareboat charter agreements’, Journal of Shipping and Trade, 6(1).
‘Justicia, (Guzman v. Pichirilo, 369 U.S. 698 (1962))’ (2022) JUSTICA LAW. [online]. Web.
Łapko, A. and Lučić, L. (2019) ‘The functioning of yacht charter companies in Croatia and Poland – a comparative perspective’, Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu, 63(2), pp.197–206. Web.
Talley, W. (2012) The Blackwell Companion to Maritime Economics, Chichester: Blackwell Publishing
Todd, P. (2015) Principles of the carriage of goods by sea (1st ed.), Routledge. London.
Wilson, J. (2010) Carriage of Goods by Sea, (7th edn) Harlow: Pearson