It is usual for freight and hires to be paid by means of a transfer of funds from the charterer’s bank to the owner’s. Even this can take time and so it is important for the charter party to state where as well as when the funds have to be credited to the shipowner’s bank account.
Many charterparties leave it to the contracting parties to incorporate the Freight Payment arrangements they require. For example, the AMWELSH Clause 2, but others demand more specific information. For example, the OREVOY Box 29.
When Freight is Payable?
- Freight may be payable in advance – e.g. Fully Prepaid
- Freight may be payable upon reaching its destination – e.g. Upon Right and True Delivery
- Freight may be payable at some time during a vessel’s voyage – e.g. Within Seven (7) Banking Days of Signing and Releasing Bills of Lading
- Freight may be payable at the destination but prior to discharge – e.g. Before Breaking Bulk (BBB)
Freight is also frequently paid in stages. It is commonplace for a majority of the freight – say 90% – to be paid during a voyage, with the balance within a set period after discharge has been completed, together with adjustment for demurrage or despatch owed by one party or the other.
For example: ‘Ninety percent (90%) of freight to be paid within five banking days of signing and releasing bills of lading marked – “Freight Payable as Per Charterparty” – balance (10%) to be paid within one month of completion of discharge, duly adjusted for laytime used during loading and discharging operations’.
How Freight is Calculated: Freights are paid usually against the quantity of cargo loaded, often on a tonnage basis, but occasionally in accordance with cargo volume or ship capacity. Therefore, freight for a bulk cargo, such as coal, will very likely be paid at a rate of US$ per long ton or per metric tonne (AMWELSH, lines 15/16). However, it is important to specify how the cargo quantity is to be established.