What is Affreightment?

A contract of affreightment is a binding agreement signed between a charterer and an ocean or water vessel carrier to secure space for shipping goods. The carrier who hires the ship is called the charterer. The owner of the ship supplies cargo space to carry goods on a specified voyage or voyages. The price paid by the charterer is known as freight. The charterer will pay the freight even if the goods are not ready to be shipped at the specified time. On the other hand, the shipowner is responsible for taking the goods to a specific destination at a specific time. If they fail to reach the destination on time, the carrier will be subject to a penalty for being late.

How is Affreightment Used?

A contract of affreightment sets forth the obligations and rights of the shipowner and the charterer. The main purposes of this document is to put the onus on the carrier to transfer a certain amount of goods at a certain time. 

There are mainly two forms of a contract of affreightment used in the business: bill of lading and charter party. 

What is a Bill of Agreement (Bill of Lading)?

A bill of the agreement is receipt of goods taken on board for carrying to a specified destination. The ship owners or their agents sign this document acknowledging the shipment of a parcel of goods is received for transportation. This agreement explains the terms and conditions under which the shipment will be carried to a pre-decided destination. The bill of lading document assumes a triple identity. It works as a receipt of freight services, an agreement between a freight carrier and shipper, and a document of title. This document is important for moving a freight shipment. It provides all the details that are needed to process the freight shipment and invoice it correctly. 

What is a Charter Party Contract?

In charter party contract, the charter rents an entire ship or some parts of its cargo space for one or more voyages or for a fixed period. It is like a lease agreement where the owner rents out his/her space to a third party in exchange for money. In a charter agreement, generally the control of the navigation and management of the ship remains with the shipowner. The charterer has the right to choose the ports of call. 

What is an Affreightment by Chartering?

An affreightment by chartering can of three types: the bareboat charter, the voyage charter, and the time charter.

What is a bareboat charter contract?

In this type of charter party contract, the charter effectively acts as the shipowner for the time specified in the contract. The owner of the ship rents out the ship to the charterer for an agreed period without the Captain and crew, stores, insurance policy, or any other provision. The charterer appoints the Captain and crew, takes control of the administration of the ship and makes every decision regarding the navigation. 

This type of agreement is most commonly used in relation to financial agreements for the purchase of ships. The ships are rented out under the bareboat charter contract with an option to purchase. The charterer makes successive payments of the freights and when the total price of the ship is completed, the ownership of the ship transfers from the owner to the charterer.

What is a voyage charter contract?

The voyage charter is the most common form of affreightment contract. Under this contract, the ship is hired for a one-way voyage between specific ports with a specified cargo at a negotiated rate of freight. Here, the shipowner is responsible for all the significant aspects of the operation of the ship. He/she takes care of the administration and commercial management, and also responsible for transportation of the cargo to an agreed upon destination. This type of contract contains clauses that specify the among of freight to pay and the method and timing of payment. It may specify the duration, described as lay days, for loading and unloading the shipment, and the amount to be paid if the ship is detained beyond the lay days. 

A charter contract makes the charterer responsible for the risks and expenses of bringing the cargo to the ship and collect it on delivery. The clauses of the voyage charter make it mandatory for the shipowner (or their agent) to sign bills of lading for the shipment. The clauses of the contract may vary according to the specific need of that particular transaction.

What is a time charter contract?

In a time charter contract, the charterer carries out the commercial operation of the ship, while the sailing or nautical management remains on the shipowner. The wages of the Captain and crew are generally paid by the owner of the ship, and the charterer provides coal and pays port charges. The Captain is required to follow the instruction of the charterers concerning the use of the vessel.

The shipowner rents out the ship to a charterer for a stated period of time to transport goods. This contract generally mentions a place where the ship must be redelivered to the owner at the end of the term, and the freight is payable until that point of time.