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What is charter party bill of lading? Meaning, types, and benefits

Charter party bills of lading are specialized bills of lading that operate within the framework of a charter party agreement. Learn more about its types and format in this blog.

The global logistics and shipping industry is the backbone of international trade, facilitating movement of goods across borders. In this complex shipping ecosystem, various documents and agreements are important in ensuring smooth cargo transit from one port to another. One such document is the charter party bill of lading (CPBL).

What is charter party bill of lading?

Charter party bills of lading (CPBLs) are specialized bills of lading that operate within the framework of a charter party agreement. Unlike conventional bills of lading, CPBLs are specifically tailored for commodity or bulk shipment cargoes. To engage in a charter party shipment, the vessel owner and the charterer enter into a contract that outlines the legal terms and conditions of the arrangement¹.

Types of charter contracts

Following are a few types of charter contracts:

1. Full charter:

In this type of contract, the shipper charters the entire vessel, allowing them exclusive use of the ship’s capacity for their cargo.

2. Split charter:

Under a split charter, the shipper secures an unspecified portion of the ship’s loading space, which provides flexibility in accommodating varying cargo volumes.

3. Space charter:

This type of charter contract grants the shipper access to a specific cargo hold or specialized space within the vessel, such as a refrigerating hold for perishable goods.

4.Time charter:

The shipping company leases the entire ship to the shipper for a predetermined period, offering greater control and flexibility in scheduling shipments.

5. Bare boat charter:

In a bare boat charter, the shipper gains exclusive possession of the vessel without the crew, provisions, or fuel.

Advantages of a charter bill of lading

Below are a few advantages of a charter bill of lading³:

Economical freight costs for exporters:

A charter party can offer significant advantages to exporters, especially in scenarios where multiple shippers want to transport same goods to a common destination, utilizing the full loading capacity of a ship. This arrangement often results in more cost-effective pro rata compared to traditional freight contracts.

Cost benefits for importers:

Importers can also reap benefits through the charter bill of lading. For instance, when receiving goods from multiple suppliers for a project, all of which can be transported on the same chartered ship, the importer can consolidate the goods from various shippers onto a single vessel. By entering into a single charter party contract, the importer can enjoy cost savings compared to engaging in several individual liner shipping contracts. It also simplifies and streamlines the calculation of freight costs, offering additional benefits to the importer.

Risks associated with a charter bill of lading

Here are a few risks associated with a charter bill of lading:

Subordination of CPBL rights to vessel owner’s rights

The rights conferred by CPBL often take a secondary position to the vessel owner's rights, leading to potential complications and limitations. In cases of charterer payment defaults, the vessel owner may exercise their rights, such as imposing interest charges or selling the goods, potentially jeopardizing the integrity of the cargo.

Limited awareness of charter party clauses by issuing banks

Despite CPBL being issued ‘To the order of the issuing bank’, banks commonly have limited awareness of the specific clauses embedded within the charter party contract. The lack of awareness exposes the cargo to potential risks, as banks may not be equipped to safeguard the interests of goods during unforeseen circumstances.

Charterer liability and implications for issuing banks

Charterers may bear liability for pollution damages or claims related to damage to the hull (DTH), which can have implications for issuing banks. In situations where the recovery of such claims involves selling the goods carried on the chartered vessel, issuing banks providing credit facilities face heightened risk exposure.

Uncertainty surrounding CPBL and charter party clauses

The interplay between CPBL and the clauses within the charter party contract introduces uncertainty, impacting the legal rights of CPBL holders and posing additional risks to all involved parties.

Difference between bill of lading and charter party

Transferability:

A bill of lading can be transferred by endorsement and delivery, allowing for flexibility and facilitating the smooth transfer of ownership. In contrast, the charter party is not transferable, maintaining the contractual agreement between the ship owner and the shipper.

Title to the goods:

The bill of lading explicitly states the title to the specified goods, establishing ownership rights. On the other hand, the charter party does not declare the title of the goods being transported.

Contract and evidence:

The charter party is a contractual agreement between the ship owner and the shipper, outlining the vessel’s hiring terms. Conversely, the bill of lading acts as evidence of receiving the goods, serving as a receipt and a document of title.

Particular destination:

The bill of lading is directly associated with the destination of the goods, specifying the port of discharge. In contrast, a charter party may be specific to a particular voyage, outlining the details of the journey and the ports involved.

Leasing of ship:

While a charter party can effectively amount to a lease of the ship, as it outlines the terms and conditions of vessel hire, the bill of lading does not convey any intention regarding ship leasing.

Drawn in sets:

The bill of lading is typically issued in multiple sets, allowing for different parties to possess copies for various purposes. Conversely, a charter party is not drawn in sets.

Case of freight:

Regarding a bill of lading, freight payment is typically made in advance, ensuring financial arrangements are settled before shipment. On the other hand, in a charter party, freight payment usually occurs when the ship reaches the discharge port.

Charter party bill of lading serves as a fundamental document in the world of global shipping. It acts as a safeguard, fostering trust and facilitating smooth transactions between charterers, shipowners, and freight forwarders.

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Frequently Asked Questions

Is a charter party bill of lading acceptable under a letter of credit?

Yes, the acceptance of a CPBL under an LoC depends on the terms specified in the LoC itself.

How to recognize a charter party bill of lading?

A CPBL can be recognized by the following characteristics:
● The document typically mentions the term ‘Charter Party’ or ‘Charterer’.
● Specific clauses include details about the vessel, loading and unloading ports, laytime, and demurrage.
● CPBL is usually issued by the charterer or their agent.
● CPBL may indicate that the cargo is being carried under a charter agreement, and the terms and conditions of the charter party may be referenced or attached.

What is a charter party in shipping??

In the shipping industry, a charter party refers to a contractual agreement between the owner of a vessel and the individual or company seeking to hire it for a specific voyage or period.

What are the latest intermodal shipping trends?

The latest trends in intermodal shipping include increased digitization, sustainable practices, and use of specialized equipment for efficient handling.

Published on July 29, 2023.

Sources:
1.. https://www.tradefinance.training/blog/articles/a-guide-to-charter-party-bills-of-lading-and-a-ucp-issue/
2. https://logisticallyyours.wordpress.com/2012/04/22/charter-party-bills-of-lading/
3. https://logisticallyyours.wordpress.com/2012/04/22/charter-party-bills-of-lading/
4. https://www.linkedin.com/pulse/risks-associated-charter-party-bill-lading-muhammad-ali-haider/
5. https://studypoints.blogspot.com/2011/08/difference-between-charter-party-and_4390.html
6. https://www.bimco.org/Contracts-and-clauses/BIMCO-Contracts/CONGENBILL-2016

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