Affreightment – Definition

Cite this article as:"Affreightment – Definition," in The Business Professor, updated June 9, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/affreightment-definition/.

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Affreightment Definition

A contract of affreightment is a binding agreement signed with a ship-owner to hire his/her ship, or part of it for the purpose of carrying goods. The carrier who hires the ship is called the charterer. The owner of the ship provides the cargo carrying space to the charterer to carry goods on a specified voyage or voyages, or for a specified time in exchange for money. The price paid by the charterer is known as freight. The charterer needs to 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, they are required to render a fine for being late.

A Little More on What is Affreightment

A contract of affreightment sets forth the obligations and rights of the shipowner and the charterer. This is an important document in the global business scene. One of 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.

(i)                Bill of Agreement

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.

(ii)              Charter Party Contract

In charter party contract, a full ship or some parts of it is rented 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, and the charterer has the right to choose the ports of call.

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

  • The bareboat charter contracts

In this type of charter party contract, the charter effectively acts as the shipowner for the time specified in the contract. Under this type of contract, the charterer takes over the control of the navigation of the ship. 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 takes every decision regarding the navigation. In ordinary commercial practice, bareboat charter contracts are less frequently used. 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.

  • The voyage charter contracts

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 amount to be paid if the ship is detained beyond the lay days. A charter contact makes the charter 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.

  •   The time charter contract

On time charter contract, 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. Under this type of affreightment contract, the charterer holds the commercial operation of the ship and the nautical management falls under the administration of 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.

On the occasion of any dispute, the document of the affreightment contract is subject to scrutiny and interpretation by a court of law. In practice, however, most disputes are submitted to arbitration.

References for Affreightment

Academic Research on Affreightment

The Proper Law of a Contract and Affreightment, Kahn-Freund, O. (1954). The Modern Law Review, 17(3), 255-259.

Volume Contracts of Affreightment-Some Features and Principles, Gorton, L. (2004). Scandinavian Stud. L., 46, 61.

Port charging practices, Thomas, B. J. (1978). Maritime Policy and Management, 5(2), 117-132.

Maritime Contract Liens, Ray, L. Y. (1972). Tul. L. Rev., 47, 587.

On the affreightment risk and how to perfect the affreightment legal system, PANG, C. X., & WANG, Y. (2001). Learned Journal of Heilongjiang Financial College, 6, 038.

Admiralty: Maritime Lien for Breach of an Executory Contract of Affreightment, McG, V. (1923). California Law Review, 347-349.

An Overview on the Implied Obligations in a Contract of Affreightment, Adăscăliţei, O. (2013). Procedia-Social and Behavioral Sciences, 92, 7-15.

The right of suit under the contract of affreightment, Megat Latif, H. (2013). UUM Journal of Legal Studies, 2013(4), 99-117.

The Contract of Affreightment in Private International Law, Yiannopoulos, A. N. (1962).

Affreightment. Unseaworthiness. Causation, Grunfeld, C. (1949). The Modern Law Review, 12(3), 372-375.

THE RIGHT OF SUIT UNDER THE CONTRACT OF AFFREIGHTMENT, Latif, H. H. H. M. (2013). Journal of Legal Studies, 4, 99-117.

 

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