Freight Prepaid

Freight is the remuneration payable to the carrier for the carriage of goods by sea under a voyage charter-party.

In voyage charter, charterer is concerned with the carriage of the goods and not the use of the ship itself.

If there is no provision to the contrary, freight is payable on the delivery of the goods and freight is calculated on the amount actually delivered.

In some cases, parties agree that a lumpsum freight shall be paid irrespective of the amount of cargo carried.

In some cases, parties agree that freight is to be paid in advance such as on signing bills of lading, in that case, the freight will be paid on bill of lading quantity and the original bills of lading (B/Ls) will not be handed to the charterer until freight is received. The clause will continue by stating ship lost or not lost which may seem onerous but simply shifts the burden of insuring the freight from the shipowner to the charterer.

There are many variations on the payment of freight before delivery:

  • “within X days of signing freight prepaid bills of lading” which involves the shipowner granting credit to the charterer.  The purpose of such a clause is to allow the charterer to collect payment under a letter of credit (LC). 
  • “freight payable before breaking bulk (BBB)” which gives the charterer all the voyage time up to the ship’s arrival at discharging port before paying freight.

In these variations on the payment of freight before delivery, it is customary to include the words “freight deemed earned on signing bills of lading” which again shifts insurance to the charterer.  Cargo quantity to be loaded being within certain limits at shipowners option in order to allow the captain (master) to assess how much the ship is able to take to bring the ship down to the permitted draft. Having declared that quantity to the charterer, if the full cargo is not provided, the shipowner may claim damages in the form of deadfreight. Deadfreight is the freight due for the missing quantity less any savings as a result of its not being loaded.

There must always be right and true delivery of the cargo which gives the owners of the cargo the right of action against the shipowner for damages in circumstances where the goods may arrive at the destination in a damaged condition. However, owners of the cargo are not entitled to refuse payment of freight unless the goods have lost their total commercial monetary value.