The difference between chartering and owning a vessel

Maritime shipping can be a complicated business when you don’t have a tight grip on the ins and outs of the industry. One of the fundamental decisions any marine trader has to make is whether they want to own vessels or hire a chartering vessel to transport their goods. In this article, I will go through the advantages and disadvantages of owning a vessel and chartering to help you make carefully planned decisions when it comes to your cargo logistics. 

Let me start with the basic definitions before moving on to the pros and cons. 

Difference between chartering and owning a vessel 

Chartering is basically when a ship is rented out with the aim of transporting goods or cargo, according to this Marine Insight explication. The most common type of chartering is voyage chartering and that is when the vessel is rented out along with its crew for a trip between two or more ports. 

Whereas the owner(s) of the vessel is the party that provides the means of transporting the cargo. 

So what are the advantages and disadvantages of each option? 

Advantages and disadvantages of owning a shipping vessel

Advantages

The main advantage of owning a shipping vessel is the control the carrier gets over the ins and outs of the cargo transportation. For example, the owner can decide to redeploy old vessels, or redesign ships to expand their carrying capacity as this is especially beneficial in generating revenue when the freight rates are high. Another example is when an owner decides to go for alternative fuels in order to meet strategic business objectives such as being environment-friendly and complying with maritime shipping environmental regulations. In addition to all that, the owner of the vessel has control over the maintenance processes and schedules and can thus carry out maintenance at their own discretion. 

This in turn gives the owner lower OPEX – operating expenses- and higher cash flows. 

Disadvantages 

Owning a boat is no piece of cake, it is a huge financial commitment. The vessel owner has a lot of monetary considerations to think of. They have to regard the high capital expenditure that comes with purchasing a shipping vessel; from loan interests to debts and everything in between. That means that the owner has to take into account the provisions for the depreciation and maintenance of the ships. And given the worldwide economic crisis and the current Ukrainian-Russian war and its impact on maritime trade, ship owners have to consider the higher fixed costs to be incurred  when there is not enough cargo and the markets are down. 

Contrarily, in chartering, the carrier could simply return the vessel and avoid high fixed costs in times of crises. This is one of the many advantages of chartering. Let me go through the rest of the advantages and disadvantages of chartering. 

Advantages and disadvantages of chartering

Advantages

To get straight to the point, chartering is less expensive, more flexible and requires less work. For a start, chartering involves minimal CAPEX – costs of the ship – and so it doesn’t require an investment strategy that is as hefty as that of owning a vessel. While ship owners have the room to construct or redesign their own vessels, maritime traders can choose to have carriers be immediately deployed into service. This gives maritime traders an edge as they can avoid the lag times involved in ship building which can take up to three years. Moreover, charter rates – though having increased during and after the COVID pandemic – are still somewhat reasonable, allowing carriers to avoid excessive financial expenses. 

Disadvantages

On the flip side, chartering gives the carrier less control over the deployment of vessels as the shipowner is the party that mostly handles this aspect of the operations. This means that the maritime traders have to take into consideration potential disputes regarding vessel maintenance or perhaps disputes that may disrupt the chartering services offered by the owner. And though chartering is less expensive than owning a vessel, it still requires high cash flows that are usually incurred by charter rates. 

However, if you are a maritime trader and want to send your cargo anywhere in the Black sea, Ageian sea, Adriatic sea, Baltic sea or the Mediterranean, you can count on us. We at MN Shipping and thanks to our lengthy experience dating back to 1982, have a deep understanding of the industry and can anticipate the requirements of your business. Our group of skilled engineers and crew members always strive at delivering first-class naval transportation and maritime services because they have a solid know-how of the intricate aspects of chartering: from cargo-moving contracts, freight rates and custom documentation to working closely with port authorities. Most importantly, we offer you punctual, reliable and affordable services. 

For all your business inquiries, please write to us on chartering@mnshippingsa.com.