Charter Party, Freight, Bill of Lading, Laytime and Demurrage Explained for Seafarers

Chief Mate
Master
MEO Class 1

times asked: 59; times asked
questions: 13; questions
last asked: 2026; last asked

Understand the main commercial shipping documents, charter types and cargo payments used in merchant shipping. Learn how freight differs from hire, what a bill of lading proves, and why the Notice of Readiness and laytime clauses matter before calculating demurrage or despatch.

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AI-drawn illustration. Simplified to explain the idea, not to scale.

Slide 1 · A charter party sets out the terms under which a vessel or agreed carrying capacity is…

A charter party sets out the terms under which a vessel or agreed carrying capacity is made available to a charterer. Cargo documents and payment clauses define important aspects of the carriage arrangement. Understanding these documents helps officers identify contractual responsibilities and record cargo information accurately.

Slide 2 · A charter party is a contract governing the use of a vessel or its carrying capacity

A charter party is a contract governing the use of a vessel or its carrying capacity. Under a voyage charter, the vessel is engaged for a specified voyage. Under a time charter, the vessel is hired for an agreed period, and the owner generally retains responsibility for the crew and technical management. Under a bareboat or demise charter, the vessel is delivered without crew or provisions, and the charterer assumes operational responsibility under the agreement. The charter-party clauses determine the applicable responsibilities and expenses.

Slide 3 · Freight is payment for the carriage of goods under the applicable contract

Freight is payment for the carriage of goods under the applicable contract. Hire is payment for the use of a vessel under a time charter. Under a voyage charter, freight may be calculated by cargo quantity or agreed as a lump sum. The payment method and allocation of expenses depend on the contract. Freight pays for carriage, whereas hire pays for the chartered use of the vessel.

Slide 4 · A bill of lading has three principal functions

A bill of lading has three principal functions: it acts as a receipt for goods, provides evidence of the contract of carriage and can serve as a document of title when it has the required transferable character. A clean bill contains no express clause or notation declaring the goods or their packaging defective. A claused bill records an adverse observation or reservation about their apparent condition. The bill should accurately reflect the condition recorded at shipment or receipt.

Slide 5 · Laytime is the agreed period during which the vessel is made available for loading or d…

Laytime is the agreed period during which the vessel is made available for loading or discharging without additional payment beyond freight. Before calculating when laytime begins, officers must check the vessel's arrival and readiness, the Notice of Readiness requirements and the actual charter-party wording. Demurrage is an agreed amount payable for qualifying delay after laytime expires. Despatch is an agreed amount payable by the owner when loading or discharging finishes before laytime expires. The contract determines how the time and payments are calculated.

What it is

A charter party is a contract for hiring a vessel or making its carrying capacity available under agreed conditions. The arrangement may cover a particular voyage, an agreed period or a bareboat hire without crew. Each form gives the parties different responsibilities, so the charter type must be identified before interpreting its commercial terms. (HMRC TTM15100, TTM15110–TTM15130)

A bill of lading serves a different documentary purpose. It records the receipt or shipment of goods and provides evidence relating to their carriage. Depending on its legal character, it can also function as a document of title. The charter party and bill of lading may operate together within the same carriage arrangement, so an officer should examine the relevant documents rather than assume that they serve entirely separate contractual roles. (Carriage of Goods by Sea Act 1992, sections 1–2 and 4)

Why it matters

The charter type affects how the vessel is hired and which party carries particular responsibilities. Under a voyage charter, the vessel is engaged for a specified voyage. Under a time charter, the charterer hires the vessel for an agreed period. Under a bareboat charter, the charterer takes the vessel without crew or provisions and assumes operational responsibility under the agreement. (HMRC TTM15110–TTM15130; BIMCO, Commercial: Who's Who)

Freight and hire must also be distinguished. Freight is payment associated with the carriage of goods. Hire is payment for using a vessel under a time charter. Under a voyage charter, freight may be calculated according to cargo quantity or agreed as a lump sum. The charter-party terms determine the payment arrangement and allocation of expenses. (HMRC TTM15100–TTM15130; BIMCO, Commercial: Who's Who)

How it works on board

The Master and deck officers must ensure that shipping documents accurately reflect the cargo information and condition recorded during cargo operations. A bill of lading may acknowledge receipt of goods or record that they have been shipped on board. Its statements must be considered in the context of the actual cargo condition and the applicable contractual requirements. (Carriage of Goods by Sea Act 1992, section 4)

A clean bill of lading contains no express clause or notation declaring the goods or their packaging defective. A claused bill records an adverse observation or reservation about their apparent condition. The distinction matters because the bill is a commercial document on which parties may rely. Officers should therefore ensure that any required condition remarks are accurate and supported by the observations made during cargo operations. (Carriage of Goods by Sea Act 1992, section 4)

Laytime requires equally careful documentation. The officer responsible for cargo-time records should check the applicable laytime clause, the vessel's readiness and the requirements for tendering the Notice of Readiness. The relevant times and events must be recorded consistently with the contractual method of calculation. A notice being tendered does not, by itself, establish that laytime has commenced in every charter arrangement. (BIMCO, Laytime Definitions for Charter Parties 2013, definitions 5 and 25)

The rules

The following contractual principles should guide the review of chartering documents:

Identify whether the vessel is engaged under a voyage, time or bareboat charter. Confirm the allocation of responsibilities from the actual agreement. (HMRC TTM15110–TTM15130)

Distinguish freight for carriage from hire for the use of a vessel. Check the agreed payment basis and relevant clauses. (HMRC TTM15100–TTM15130)

Check the bill of lading against the cargo information and condition recorded at receipt or shipment. Do not treat a clean bill as a guarantee against hidden defects. (Carriage of Goods by Sea Act 1992, section 4)

Confirm the laytime definition and the Notice of Readiness requirements that apply under the charter party. BIMCO's Laytime Definitions for Charter Parties 2013 apply for laytime purposes when incorporated into the agreement. (BIMCO, Laytime Definitions for Charter Parties 2013, preamble and definitions 5 and 25)

Apply the agreed demurrage clause when qualifying delay continues after laytime expires. The BIMCO definition describes demurrage as an agreed amount payable for delay for which the owner is not responsible, subject to the contractual wording. (BIMCO, Laytime Definitions for Charter Parties 2013, definition 30)

Check the despatch clause before calculating payment for early completion. The BIMCO definition describes despatch as an agreed amount payable by the owner when loading or discharging finishes before laytime expires. (BIMCO, Laytime Definitions for Charter Parties 2013, definition 31)

Common mistakes

A frequent mistake is treating voyage, time and bareboat charters as though they allocate control and expenses in the same way. The vessel's charter type and the contract's specific clauses must be read together. (HMRC TTM15110–TTM15130; BIMCO, Commercial: Who's Who)

Another mistake is assuming that a bill of lading is merely a receipt. Its functions may extend to evidence of the contract of carriage and, where the required transferable character exists, a document of title. An officer should also avoid treating a clean bill as proof that no concealed defect exists. (Carriage of Goods by Sea Act 1992, sections 1–2 and 4)

A final mistake is calculating demurrage or despatch without first establishing the applicable laytime terms. Arrival, readiness, notice requirements and the contractual commencement provisions must be checked before the time calculation is completed. The agreed definitions and clauses determine how qualifying time is counted and which payment applies. (BIMCO, Laytime Definitions for Charter Parties 2013, definitions 5, 25, 30 and 31)

In exams

Asked 59 times across 13 different questions, most recently in 2026. Asked most in Chief Mate (26), Master (25), MEO Class 1 (8).

Sources

Drafted by SailR from the regulations cited. AI-drawn illustration. Simplified to explain the idea, not to scale. Last updated 29 Oct 2026.

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