Deadfreight

When the charterers fail to provide the agreed quantity of cargo the owners will typically be entitled to compensation for their loss of earnings which is known as deadfreight. For example where the cargo quantity has been described in the charterpartyas: 30,000 mt 10% MOLOO (more or less in owners Option) the master will calculate the loadable quantity with reference to any draught restrictions at the intended ports, rivers and berths to be used, the vessel’s cubic capacity and SF of the cargo. Within the above cargo description, the master may call for any quantity between 27,000 mt and 33,000 mt. Suppose 32,000 mt is called for, but only 30,000 mt is supplied, the charterer will pay deadfreight on 2,000 mt shortfall. This is known as deadfreight.

Deadfreight calculation: Master declares vessel can load 32,000 mt. Charterers supply 30,000 mt. Freight rate US$40.00 per mt. Owners will invoice for a total of 32,000mt as follows:

Freight (on cargo loaded) 30,000 mt x US$40.00 per mt = $1,200,000.00 Deadfreight (on cargo not supplied) 2,000mt x US$40.00 per mt = $80,000.00 Total = $1,280,000.00

In the tanker trades the quantity is often described as a minimum quantity with charterers having the option to load up to a full cargo. To reduce the risk of paying deadfreight a clause such as follows may be agreed: ‘Minimum 30,000 mt, charterers option up to full cargo, no deadfreight for charterers account provided minimum quantity supplied.’ Using the figures from the previous example, the master calls for 32,000 mt, however only 30,000 mt is supplied, no deadfreight is payable because the minimum cargo has been supplied. Under this clause deadfreight is only payable when a quantity less than 30,000 mt is supplied. Thus where 28,000 mt is loaded deadfreight would be payable on the 2,000 mt shortfall. Freight calculation: overage at 50%. In the tanker trades where a minimum cargo quantity has been agreed, for example: ‘minimum 130,000 mt, 1-2 grades no heat crude oil, within vessel’s natural segregation, charterers option up to full cargo, no deadfreight for charterers account provided minimum quantity supplied.’ There is often a phrase included in the freight payment clause which in total will state ‘Freight WS120, overage at 50%’. This means that supposing the vessel loads 140,000mt, the freight on 130,000mt will be at WS120 (120% of the Worldscale flat rate) and the freight on the ‘overage’ (i.e. 10,00 mt)will be at 50% of WS120 (i.e. WS60). Supposing therefore that the Flat Rate is US$12.50 per mt the freight will be calculated on the quantity loaded as follows: Flat Rate US$12.50 per mt and WS120 = US$15.00 per mt therefore WS60 = US$7.50 per mt
therefore rate payable = $15.00 per mt x 130,000mt = $1,950,000.00 overage 10,000mt x WS60 = $7.50 = $75,000.00  Total Freight payable =$2,025,000.00. The reason why ‘overage at 50%’ is included is probably to encourage the charterer to supply more cargo if that can be arranged. The charterer has the benefit of a reduced freight rate on the additional cargo and the owner will earn additional freight over the minimum originally anticipated. The carrier must take care when it appears that all the cargo will not be provided by the shippers, leading to the possibility of a deadfreight claim. The charterer must be made aware of the situation, so that, perhaps, more cargo can be produced from another source. If possible the master should, enter a remark on the bills of lading, to the effect that deadfreight will be payable so that a third party bill of lading holder, who may be paying the freight, will be aware that freight will be payable on a quantity greater than that shown on the bill of lading.