Charter Party Finance 101: Decoding Clause 31 on Hire Payments, Bank Changes & Bunker Deductions

 💰 Charter Party Finance 101: Decoding Clause 31 on Hire Payments, Bank Changes & Bunker Deductions

 

 

❓ Ever wondered if missing a hire payment by just one day can cost you the vessel?
❓ Are you confident your team’s oversight in verifying bank details won’t trigger a fraud or payment delay?
❓ Do you fully understand your rights when deducting bunker values from the last hire?

 

🔍 Clause 31 – Hire / Hire Payment: A Practical Breakdown for Ship Operators

Clause 31 isn’t just another payment term—it’s the financial engine room of the Charter Party. Poor handling here can jeopardize relationships, revenue, and even the vessel’s service.

Let’s unpack its key elements:

 

🧾 1. First Hire + Bunkers: Frontloaded & Fast

“First hire of 15 days with value of VLSFO and LSMGO to be paid within 3 banking days after delivery.”

📌 What it means:
Immediately after vessel delivery, Charterers must pay:

• 15 days’ hire in advance
• Full value of VLSFO and LSMGO onboard

🛠️ Use case:
If a vessel delivers with 500 MT of VLSFO and 100 MT of LSMGO, Charterers must include that value in their first payment (based on agreed bunker prices). Quick remittance keeps cash flow moving for Owners.

💡 Pitfall:
Delay in this initial payment can delay vessel performance or create a default scenario before voyage even begins.

 

🔁 2. Bunker Value Deduction Option (for Charterers)

“Charterers to have the option to deduct value of VLSFO and LSMGO paid from last sufficient hire payment.”

📌 What it means:
Instead of treating the bunker value as a final cost, Charterers can deduct it from the final hire invoice—provided it’s a "sufficient" amount.

💡 Tip:
Clear mutual documentation of this offset is essential to avoid end-of-charter disputes.

 

🏦 3. Changing Bank Details—Now Comes with Protocol

“Owners' option to change bank details… with Charterers’ permission not unreasonably withheld...”

📌 What it means:
Owners may change bank account details during the charter, but:

• They must request permission
• The request must be in writing on letterhead, signed by two directors
• A Zoom/Teams verification call is mandatory

💥 Why it matters:
This clause protects Charterers from payment fraud or cyber-risk—a real problem in shipping today.

🧠 Example:
A payment gets diverted due to a spoofed email address mimicking the Owner. With this clause, such fraud is preventable.

 

📅 4. Payment Dates, Holidays, and Grace Periods

“Hire shall be received every 15 days in advance… if due on a weekend/holiday, must be received the prior banking day.”

📌 What it means:

• Hire must reach the Owner’s bank, not just be sent.
• If a due date falls on non-working days, Charterers must remit before.

“Failure to pay… grants Owners the right to withdraw the vessel… or suspend obligations.”

💣 Risk:
Non-payment—even if administrative—can lead to:

• Vessel withdrawal
• Suspension of services (at sea or in port)
• Continuous hire accrual during suspension

🧯 Grace clause added:
If failure is due to error, omission, or negligence, Charterers have 3 banking days to fix it after notice from Owners. If done, it counts as “punctual”.

 

🏦 5. EU ETS Allowance Information

Details of allowance beneficiary (XYZ, as Technical Manager) are clearly outlined.

📌 Why it matters:
This ensures clarity on who is authorized to handle EU carbon allowances under Emissions Trading obligations—especially as emissions-related liabilities become more prevalent.

 

✅ Actionable Steps for Stakeholders

👨‍✈️ For Ship Owners / Managers:

• Use standard templates for bank change requests on letterhead
• Always conduct video verification for bank changes—even outside this clause
• Remind Charterers of hire due dates in advance, especially before holidays

📋 For Charterers:

• Automate reminders for 15-day hire cycles + holiday offsets
• Conduct a secondary verification for every change in payment details
• Maintain an audit trail of bunker value deductions and agreed calculations

🧾 For Operators/Accounts Teams:

• Keep accurate breakdowns of hire remittances
• Train on red flags for phishing/fraudulent emails regarding bank changes
• Reconcile hire received vs. hire invoiced regularly to catch discrepancies early

 

🔚 Final Thoughts & Call to Action

Clause 31 isn’t just about numbers—it’s about trust, timing, and transparency.

🚢 Whether you're on the bridge or at a desk, understanding this clause protects your cash flow and compliance. It prepares you for due diligence, shields you from fraud, and fosters stronger charter relationships.

 

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