When Freight Payable?
When Freight Payable question is answered in the Charterparty. Charterparty may specify that when the freight is going to be paid.
If Charterparty does not specify when the freight is payable, then it is legally interpreted that freight is a reward payable upon arrival of the goods at their destination, ready to be delivered in merchantable condition. If freight is not paid, then the receiver is not entitled to take delivery of the goods.
Voyage Freight may be paid:
- Fully Prepaid
- Upon reaching the destination, such as “upon right and true delivery”
- During a Ship’s Voyage, such as “within five banking days of signing and releasing bills of lading”
- At the destination but prior to discharge, such as “Before Breaking Bulk” (BBB)
Risk of Cargo Loss:
If Charterparty stipulates that
- Freight is deemed earned upon loading
- Freight is payable on shipment
then the risk associated with the loss of the cargo shifts to the charterer. Furthermore, charterer is also liable to pay the freight in full. In case the Charterparty stipulates that freight is to be paid as a single lump sum payment, the shipowner is entitled to full freight even upon delivery of a part cargo. Charterers are obliged to pay freight even when the ship failed to arrive at the discharge port due to perils of the sea.
In many cases, carriers insert a clause in the Charterparty “freight deemed earned upon loading, discountless and nonreturnable, cargo and/or ship lost or not lost”. Abbreviation for this clause:
FDEDANRSAOCLONL: Freight Deemed Earned, Discountless And Non-Returnable Ship And Or Cargo Lost Or Not Lost
This clause protects the interests of the carrier in the event of a total loss of the ship.
Freight is paid against the quantity of cargo loaded i.e. Bill of Lading (B/L) quantity on a tonnage basis and occasionally in accordance with cargo volume or ship capacity such as:
- available cubic capacity
- cubic quantity of cargo loaded
A margin is often negotiated to facilitate the maximization of the ship’s capacity by the shipowner.
For example, one hundred thousand tons of iron ore in bulk “10% More or Less Owner’s Option” (MOLOO). This wording gives the flexibility to the Ship Master to maximize cargo intake depending on the bunkers remaining on board. Sometimes the word about is inserted in the relevant charter party contract. The word about is legally construed to mean within the reasonable margin of 10 percent (10%).
If the word about is replaced by the phrase Without Guarantee (WOG), it means that there is no guarantee that the cargo can be of any size. If a margin is stated, such as 100,000/105,000 mtons, then the cargo to be loaded must be between one hundred thousand and one hundred five thousand mtons. If it is difficult to calculate the exact amount of the commodity to be loaded, freight may be paid on a lump sum basis according to the ship’s capacity.
The Physical Payment of Freight
In terms of the physical payment of freight, the money is paid in an account stipulated by the shipowner. The transfer must occur within the time period stipulated in the contract to avoid delays and possible complications.
Although in most occasions freight may be payable in advance, it is unlikely that the shipowner will receive the full sum prior to the vessel reaching its destination.
It is quite common for 90 percent of the freight to be paid before or during the voyage and the remaining 10 percent settled upon the completion of discharge together with adjustment for demurrage or dispatch owned by one party or the other.