Shipping Explained
COA vs Time Charter
vs Voyage Charter
January 2025 · 10 min read
By Calmwaters Maritime Team · Published January 2025
Choosing the right charter structure is one of the most important decisions a cargo owner or trader can make. The three main options, Contract of Affreightment, Time Charter, and Voyage Charter, each serve different purposes and carry different risks. This guide explains how each works, when to use them, and the trade-offs involved.
The Three Main Charter Types
Before diving into comparisons, it helps to understand what each charter type involves.
1. Voyage Charter
A voyage charter is the simplest form of vessel hire. The charterer engages a vessel for a single voyage between named ports. The owner operates the vessel and bears all voyage costs, including fuel, port charges, and crew wages. The charterer pays a freight rate per tonne of cargo loaded.
Think of it like booking a taxi. You tell the driver where you want to go, agree on a fare, and pay for the journey. Once the trip is complete, the arrangement ends.
2. Time Charter
A time charter hires a specific vessel for a defined period, typically 3 to 24 months. The charterer pays a daily hire rate and controls the vessel's trading routes. The charterer also bears all voyage costs, including fuel, port charges, and canal dues. The owner provides the crew and maintains the vessel.
Think of it like leasing a car. You have the vehicle for a set period, you decide where it goes, and you pay for running costs. The lessor maintains the car and provides insurance.
3. Contract of Affreightment
A COA is a middle ground. The charterer commits to shipping a defined volume of cargo over a period, usually 6 to 36 months, at a fixed freight rate or rate formula. The owner manages the fleet and nominates appropriate vessels for each lifting, subject to the charterer's approval. The charterer does not hire a specific vessel.
Think of it like a subscription delivery service. You commit to a certain volume over time, the provider guarantees capacity, and each delivery is scheduled as needed.
Side-by-Side Comparison
| Feature | Voyage Charter | Time Charter | COA |
|---|---|---|---|
| Duration | Single voyage | 3-24 months | 6-36 months |
| Vessel | Any suitable | Specific vessel | Owner nominates |
| Rate | Per tonne | Per day | Per tonne or formula |
| Fuel costs | Owner pays | Charterer pays | Per agreement |
| Port costs | Owner pays | Charterer pays | Per agreement |
| Risk | Owner bears | Charterer bears | Shared |
| Flexibility | Low | High | Medium |
| Best for | One-off shipments | Flexible requirements | Regular cargo flows |
When to Use Each Charter Type
Use a Voyage Charter When:
- -You have a one-off shipment to move
- -The trade route is irregular or infrequent
- -You want minimal long-term commitment
- -Spot market rates are favourable
- -You are testing a new trade route
Use a Time Charter When:
- -You need a dedicated vessel for a period
- -You have flexible routing requirements
- -You want control over vessel scheduling
- -You are operating in a specific area for a defined period
- -You need to supplement your owned fleet
Use a COA When:
- -You have regular, predictable cargo movements
- -You want rate certainty for budget planning
- -You need flexibility on timing and vessel type
- -You are trading on established routes
- -You want protection against spot market volatility
Risk Comparison
Each charter type carries different risk profiles for the charterer and owner.
Voyage Charter Risk
Owner bears most operational risk including delay, demurrage, and weather. Charterer's risk is limited to cargo and freight payment. Simple but inflexible.
Time Charter Risk
Charterer bears significant operational risk including fuel costs, port charges, and scheduling. Owner's risk is limited to vessel maintenance and crew. High flexibility but high exposure.
COA Risk
Risk is shared. Charterer bears deadfreight risk if under-lifting. Owner bears vessel nomination risk. Rate volatility risk is mitigated through fixed pricing.
Real-World Example: Nigerian Crude Oil Export
Let us consider a practical example. A trading company exports 2 million barrels of Bonny Light crude per month from Nigeria to refineries in Europe and Asia.
Voyage Charter Approach
Book each Suezmax shipment on the spot market. Risk: rates can spike 50% or more during peak demand. Budget unpredictability. No guarantee of vessel availability during tight markets.
Time Charter Approach
Hire two Suezmax vessels on 12-month time charters. Risk: committed to daily hire regardless of whether cargo is available. High upfront commitment. Vessel may not always suit cargo requirements.
COA Approach
Enter a 12-month COA for 24 million barrels at a fixed Worldscale rate. Benefit: rate certainty, vessel flexibility, monthly liftings. Risk managed through volume commitment and rate formula.
Can You Combine Charter Types?
Yes. Many companies use a combination of charter types to optimise their freight portfolio. For example, a company might cover 70% of its cargo requirements under a COA for rate certainty, and use voyage charters for the remaining 30% to maintain flexibility. This approach, known as freight portfolio optimisation, balances risk and flexibility across different market conditions.
Summary
The right charter type depends on your cargo requirements, risk appetite, and market outlook. Voyage charters suit one-off shipments. Time charters suit flexible, ongoing requirements. COAs suit regular, predictable cargo flows on established trade routes. Most successful operators use a combination of all three to optimise their freight costs and manage risk.
Need Help Choosing?
Speak to Our Chartering Team
We can help you assess your cargo requirements and recommend the most suitable charter structure. Our brokers have experience across all charter types on West African trades.