Affreightment (from freight) is a legal term relating to shipping.
A contract of affreightment is a contract between a ship-owner and a charterer, in which the ship-owner agrees to carry goods for the charterer in the ship, or to give the charterer the use of the whole or part of the ship’s cargo-carrying space for the carriage of goods on a specified voyage or voyages or for a specified time. The charterer agrees to pay a specified price, called freight, for the carriage of the goods or the use of the ship.
A ship may be let, like a house, to a person who takes possession and control of it for a specified term. The person who hires a ship in this way occupies during the specified time the position of ship-owner. The contract under which a ship is so let may be called a charterparty but it is not, properly speaking, a contract of affreightment, and is mentioned here only to clarify the distinction between a charter-party of this kind, which is sometimes called a demise of the ship, and a charter-party that is a contract of affreightment.
Express stipulations
- It must not be supposed that even these primary obligations, which are introduced into every contract of affreightment not by express terms of the contract.
- It has now become common form to stipulate that the shipowner shall not be liable for any loss arising from the negligence of his servants, or that he shall not be liable for loss by the excepted perils even when brought about by the negligence of his servants.
- And with regard to seaworthiness, it is not uncommon for the shipowner to stipulate that he shall not be responsible for loss arising even from the unseaworthiness of the ship on sailing, provided that due care has been taken by the owner and his agents and servants to make the ship seaworthy at the commencement of the voyage.
- No rule of English law prevents a shipowner from exempting himself by the terms of the bill of lading from liability for damage and loss of every kind, whether arising from unseaworthiness or any other cause.
- In such a case the goods are carried at their owner’s risk, and if he desires protection he must obtain it by insurance.
- In this respect the law of England permits greater freedom of contract than is allowed by the law of some other states.
- The owners, agents and masters of vessels loading in the United States of America are forbidden by an act of Congress, commonly called the Harter Act, passed in the year 1893, to insert in their contracts of affreightment any clause exempting the shipowner from liability for the negligence of his servants; but it is at the same time enacted that, provided all reasonable skill and care has been exercised by the shipowner to make the vessel seaworthy and fit for the voyage at its commencement, the shipowner shall not be liable for any loss caused by the negligence of the master or crew in the navigation of the vessel, or by perils of the sea or certain other causes set forth in the act.
- It is now very usual to insert in the bills of lading of British vessels loading in the United States a reference to the Harter Act, incorporating its provisions so as to make them terms and conditions of the bill of lading.
Terms of Delivery
The rules clearly explain a set of three letter trade terms reflecting business practices in contracts of sale of goods. The terms describe mainly the tasks, costs, and risks involved for exporters delivering goods to their buyers.
The Incoterms rule is suited to the type of goods sold, the means of transport used, and other obligations of the seller and the buyer which could include insurance or customs clearance.
| A | Seller’s Obligations | B | Buyer’s Obligations |
| A1 | General obligations | B1 | General obligations |
| A2 | Licenses, authorisations, security clearances | B2 | Licenses, authorisations, security clearances |
| A3 | Contracts of carriage and insurance | B3 | Contracts of carriage and insurance |
| A4 | Delivery | B4 | Taking delivery |
| A5 | Transfer of risks | B5 | Transfer of risks |
| A6 | Allocation of costs | B6 | Allocation of costs |
| A7 | Notices to the buyer | B7 | Notices to the seller |
| A8 | Delivery document | B8 | Proof of delivery |
| A9 | Checking, packaging, marking | B9 | Inspection of goods |
| A10 | Help with information and related costs | B10 | Help with information and related costs |
Incoterm’s standards
Ex-work (Ex-‘CV): ‘Ex-works’ means that the seller fulfils his obligation to deliver when he has made the goods available at his premises (i.e., works, factory, warehouse, etc.) to the buyer. The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. This term thus represents the minimum obligation for the seller.
Free Carrier (FCA): Free carrier means that the seller’s obligations are fulfilled when the goods are delivered to the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. This term may be used for any transport.
Free Alongside Ship (FAS): This means that the seller fulfils his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the goods from that point. This term can only be used for sea or inland waterway transport.
Free On Board (FOB): This means that the seller fulfils his obligation to deliver when the goo& have passed over the ships rail at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the goods from that point. This term can only be used for sea or inland waterway transport.
CFR
Cost and Freight (named port of destination)
This rule has a critical point because the risk passes and the costs are transferred at different places. While the rule will always specify a destination port, it may not specify the port of shipment where the risk passes to the buyer.
The seller is obliged to:
- Deliver the goods on board the vessel.
- Contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
Cost Insurance and Freight (CIF): This means that the seller has the same obligations as under CFR, but with the addition that he has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The term can only be used for sea and inland waterway transport.
CPT
Carriage Paid To (named place of destination)
This rule is critical because risk passes and costs are transferred at different places. The risk passes when the goods have been delivered to the first carrier.
The seller must:
- Deliver the goods to the carrier or another person nominated by the seller at an agreed place.
- Contract and pay for the costs of carriage necessary to bring the goods to the named place of destination.
Carriage and Insurance Paid to (CIP): This means that the seller has the same obligation as under CPT but with the addition that the seller has to procure cargo insurance against the buyer’s risk of loss of or damage to the goods during the carriage. This term may be used for any mode of transport.
Delivered at Frontier (DM): This means that the seller fulfils his obligation to deliver when the goods have been made available, cleared for export, at the named print and place at the frontier, but before the customs border of the adjoining country. This term is primarily intended to be used when goods are to be carried by rail gr road, but it may be used for any mode of transport.
Delivered Ex-Ship (DES): This means that the. seller fulfils his obligation to deliver when the goods have been made available to the buyer on board the ship uncleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination. The terrh can only be used for sea or inland waterway transport.
Delivered Ex-Quay (Duty Paid) (DEQ): This means that the seller fulfils his obligation to deliver when he has made the goods available to the buyer on the quay at the named port of destination. The seller has to bear all risks and costs of delivering the goods thereto. This term can only be used for sea or inland waterway transport.
DDP
Delivered Duty Paid (named place of destination)
This rule has the most obligation for the seller, who must bear all the costs and risks connected with the transport of the goods at the place of destination. The seller must carry out both export and import customs formalities, and pay all the related duties and taxes.
The seller delivers when all three objectives below are achieved, namely when the goods are:
- Placed at the disposal of the buyer.
- Cleared for import on the arriving mode of transport.
- Ready for unloading at the named place of destination.
Delivered Duty Unpaid (DDU): This means that the seller fulfil his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation). The seller also bears the costs and risks of carrying out customs formalities. This tern can be used in all modes of transport.