Keeping the ship moving: Step-in agreements and what they mean for charterers in Marine Insurance P&I Club News 20/01/2026 Most charterers spend their time thinking about ships, cargo, and freight, not about financing structures. Yet behind many vessels today lies a complex web of ownership and lending arrangements. When something goes wrong in that chain, it can directly affect the charterer’s ability to perform under their own contracts. Consider a charterer with a time charter for grain shipments. Three months in, the owner becomes insolvent. Without protection, the charter terminates, the vessel is arrested, and the charterer faces claims for non-delivery. A step-in agreement could have entirely changed this outcome. What is a step-in agreement A step-in agreement is a tripartite contract between the shipowner, its financiers (usually banks or leasing companies), and the charterer. It grants another party the right to assume the owner’s obligations under the charterparty if certain trigger events occur. These triggers typically include: The owner’s insolvency or administration Material breach that would justify charter termination Mortgage default or threatened enforcement action Failure to maintain insurance or class When triggered, the stepping-in party (usually the lender, but sometimes the charterer itself) assumes operational control while the underlying charterparty remains in effect. The vessel continues to trade, cargo continues to move, and the commercial chain remains intact. Why this matters to charterers Charterers often sit in the middle of commercial chains. A time charter may underpin multiple voyage fixtures, and a COA may depend on a specific tonnage. If the vessel suddenly disappears because of the owner’s financial problems, the charterer still faces downstream obligations. The consequences can be severe: Liability for non-delivery or delay to cargo buyers Scrambling for replacement vessels at spot rates Loss of preferred tonnage in a tight market Reputational damage with cargo interests Step-in rights provide continuity and control. They allow the charterer to keep operating the vessel while ownership or financing issues are resolved in the background. For traders with just-in-time supply chains or seasonal cargo commitments, this can be the difference between manageable disruption and commercial disaster. Why step-in clauses exist Two market factors explain the use of step-in clauses. First, vessel ownership structures often involve single-purpose companies financed by banks or leasing houses. These structures isolate risk but also mean that owner insolvency or mortgage default can happen suddenly. Banks want legal mechanisms to protect their security and ensure vessels continue to earn income. Step-in rights provide that framework. Second, charterers and traders increasingly face contractual chains where timely performance is critical. Even a short disruption can trigger substantial claims. A step-in right provides charterers with a practical tool to maintain operations while background financial or ownership issues are resolved. How step-in rights work: Legal mechanics The legal structure of the step-in matters because it determines liability, rights, and insurance coverage. Novation approach If the step-in operates as a novation, the original charterparty is extinguished and replaced by a new contract between the charterer and the stepping-in party. This provides a clean break. The new party is not liable for