There are two basic business models used when transporting crude oil. First, the owner of the crude oil also owns the tankers and, therefore, transports crude oil in their own tanker. The second method is to “charter” a tanker. A charter is somewhat similar to renting or leasing an apartment or a house. The owner of the crude oil rents or leases (charters) a tanker from an independent tanker owner.
There are two basic types of charters, called charter parties. They are a voyage (or spot) and a time charter. When using the voyage or spot charter, the crude owner rents the tanker for a specific voyage. The voyage will be from a loading port A to a discharge port B. The tanker owner is paid by the amount of cargo (in tons) that the ship transports from port A to port B. The tanker owner is responsible for all costs of the voyage.
When using a time charter (similar to a lease), the owner of the crude charters the tanker for a specific period of time. The timeframe could be as short as 3 months or as long as 10 years, or any amount of time required. In the time charter case, the owner of the crude charter can direct the tanker to any port for either loading or discharge as they deem appropriate. The tanker owner is paid by the carrying capacity of the tanker on a monthly basis until the time period is completed. The crude owner (charterer) pays for all the fuel and port fees, while the tanker owner pays all the remaining cost for operating the tanker.
Chartering is the business part of transporting crude. Safety, however, is the absolute responsibility of the tanker owner. The charterer (crude owner) can influence the safe operation of the tanker but only through the terms of the agreement, called the charter party.
The selection of the method of transportation is solely based on the cost of transportation and the availability of tankers.
