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1.6 Structure of Costs

1.6.1 INTRODUCTION

The freight calculation depends on a lot of factors, especially under the voyage
charter where not only the nature of the cargo plays a role, but also the voyage, the
season, the port facilities and if the loading and/or discharging costs of the cargo are
for the account of the ship or for the charterer's account.

There is also a considerable difference between "freight" and "hire" and for the
latter, also between "bareboat charter" (or demise charter) and the ordinary "time
charter".

To make this distinction clear, the costs in the shipping operations are classified in
fixed costs or running costs, and variable costs. These costs will be discussed
exhaustively later. (See also: Harbour Disbursements.)

Summarized we can state that the costs in shipping operations are composed of
the following sections:

RUNNING COSTS

- Running costs investment

- capital
- interests
- depreciations

- Operating costs

- manning costs
- stores costs
- repairs and maintenance costs
- insurance
- administration

VARIABLE COSTS

- Vessel's voyage costs

- fuel costs

- Port voyage costs

- ports and light dues

- tugs and pilotage costs
- canal dues
- agency fees
- costs linked to the arrival and the sailing of the ship.
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- Cargo handling costs

- cargo handling costs

- cost for stowing of cargo
- claims

1.6.2 COSTS IN VOYAGE CHARTERS

Under a voyage charter all fixed and variable costs are usually for the owner and
included in the freight which is expressed in tons of loaded goods for a well defined
quantity as stated in the charter party (for more details about the freight, see also The
Voyage Charter). If this quantity is not loaded, the owner is entitled to the full freight
for the missing quantity. This is called deadfreight.

Usually the cargo handling costs, like at F.i., F.o., F.i.o., etc. are at the expense of the
charterer.

As already explained before, a fixed sum can also be agreed, namely the "lump
sum".

In order to defend the interests of the charterer and to have a supervision on the
cargo, it is sometimes agreed to employ a supercargo, provided his accommodation
expenses are paid for.

1.6.3 COSTS IN TIME CHARTERS

Under the time charter the running cost are for the owner but the variable expenses
are for the charterer. The freight will usually be lower and expressed per ton
deadweight with respect to the summer load line.

1.6.4 COSTS IN BAREBOAT CHARTERS

Under the bareboat charter the owner will exclusively bear the capital costs and
possibly the insurance (it is customary that the insurance is concluded by the owner
but that the bonus is paid by the charterer) and classification of the ship. All the other
running cost and certainly the variable cost are for the charterer. He will equip and
man the ship himself which gives him practically the complete control over
the operation of the ship.

1.6.5 OVERVIEW TABLE

See below a general overview of the breakdown of costs according to the different
contracts of affreightment.
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Heading Bare Boat Time Charter Voyage Charter

Charter

Depreciations Owner Owner Owner

Interest on Capital
Financial Charges
Insurance of Hull Owner of Owner Owner
and Charterer
Machinery
Survey Owner or Owner Owner
Classification Charterer
Maintenance and Charterer Owner Owner
Repairs
General Costs Charterer Owner Owner
Stock, Supply Charterer Owner Owner
Crew
Wages Crew Charterer Owner Owner
Lubricating Oil Charterer Owner Owner
Fresh Water Charterer Owner or Owner
Charterer
Fuel Oil Charterer Charterer Owner
Harbour Dues Charterer Charterer Owner
Loading and Charterer Charterer Owner or
Discharging Costs Charterer
Stowage Material Charterer Charterer Owner or
Charterer
Cleaning of Holds Charterer Charterer Owner or
Charterer
Damage to Cargo Charterer Owner or Owner or
Charterer (1) Charterer (1)

(1) Either in total for the Charterer or one part for the Owner and the balance for the
Charterer.

1.7 Obligations of the Parties

1.7.1 INTRODUCTION

Regarding the compliance with the contract of affreightment a clear distinction must
be made between the conditions and the warranties that appear in the contract. They
both form the core of the contract of affreightment.

A “condition” is a previously made restrictive provision and the inobservance of that

condition will usually lead to a breach of contract. A typical example of a condition
which has to be fulfilled is the delivery date or the cancelling date. If the ship
is tendered after the cancelling date, the Charterer has the right to refuse the ship
and consequently to break the contract of affreightment. (See also Analysis of the
Printed Clauses, Clause 1.)