Contract of Affreightment

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Contract of Affreightment

A Brief Introduction About the Contract of Affreightment

Contract of affreightment or COA is a service contract in an international commercial by which marine consignments are shipped. This kind of contract is utilized in the perspective of contemporary trade. They are volume contracts that cater to the delivery of a specific quantity by a specific number of shipments over a specific period (“What is a contract of affreightment? definition and meaning”, 2019).

The transportation could be via sea, air, rail or road and the legalities vary based on the transportation mode. Since this kind of contract is a contract that is long term, it can be customized to both the party’s specifications. Hence they are not very standardized completely. There are two kinds of COA, bills of lading and charter parties (“Steamship Mutual – Contracts of Affreightment”, 2019).

Though such contracts show that the trips are not just restricted to a particular vessel. The freight or the prices of this transportation is dependent on the volumes of goods to be transported and also involve fines on the carrier if they are any delay. The vessel owner bears the risk of delay.

Who Takes the Contract of Affreightment?– People Involved

The contract of affreightment is signed between the vessel owner and the charterer. The vessel owner is responsible for the transportation of goods, and the charterer is the one whose goods need to be transported (“Steamship Mutual – Contracts of Affreightment”, 2019). The vessel owner guarantees the transportation on his conditions, and the charterer is liable to pay the freight or the agreed price for the transportation.

Purpose of the Contract of Affreightment – Why Do You Need It?

The purpose of this contract of affreightment is to put the responsibility of the transportation of the goods on the carrier in a specified time as agreed in the contract (“Contract of Affreightment – LONANG Institute”, 2019).

It comes along with many implied obligations like; it obligates the vessel owner to provide a vessel which is worthy to carry the goods across safely, to transport the goods in reasonable dispatch time, to adhere to the route as agreed upon in the contract with the charterer, it also obligates the vessel owners to chose a safe port with regards to various factors like the kind of vessel being used, the port it is destined to, etc.

Contents of the Contract of Affreightment

The contract of affreightment template includes the following contents (“Contract of Affreightment – LONANG Institute”, 2019):

  1. Place and Date of the Contract
  2. Details of the owner – Name, address and contact details required
  3. Details of the Charterers – Name, address and contact details required
  4. Description of the cargoes being transported
  5. Loading ports or ranges
  6. Discharging ports or ranges
  7. Contract Period
  8. Total Quantity – Maximum and minimum quantities
  9. Quantity per shipment
  10. Final Shipment – Give minimum quantity
  11. Declaration of loading ports
  12. Declaration of discharging ports
  13. Performing vessels
  14. Vessel nomination
  15. Freight Rate
  16. Freight Payment – Currency, account details and details of when and where payable
  17. Commission and payable to whom
  18. Name and addresses for nominations by the owner
  19. Name and addresses for nominations by the charterer

How to Draft the Contract of Affreightment?

  1. Choose the correct contract sample
  2. Understand the purpose of the contract
  3. Confirm if it is a domestic or an international contract
  4. Name of the parties involved, contract duration, payment, implied warranties must be included
  5. Clear and simple English must be used
  6. Ensure important clauses are mentioned
  7. Final proofreading is very critical and must be done

Negotiation Strategy

Contract of affreightment is a negotiation-based contract between the vessel owner and the charterer. It is a prerequisite to have good faith from both ends. Negotiation happens on the terms and conditions of the contract, be it on freight, the vessel being used, the number of vessels, etc. (“What is contract negotiation? definition and meaning”, 2019).

Benefits & Drawbacks of the Contract of Affreightment

Benefits – It is beneficial to both the vessel owners and the charterers in the following ways:

  1. These contracts help the vessel owner by providing them employment security for the contract duration
  2. It benefits the charterers financially; they have transportation security (“Contracts of affreightment |”, 2019)
  3. Reduces the risk of misinterpretation and disputes
  4. It simplifies the negotiation process

Drawback – The only drawback that can be thought of is if the contract is not drafted after putting a lot of thought into it if it does not have important details and clauses. Then there will be a risk of money, time and efforts.

What Happens in Case of Violation?

A contract of affreightment comes along with certain obligations for both parties. These obligations if not met, have consequences. There might be a violation from the vessel owner’s side like, the vessel used for transportation is not the one stated in the contract or vessel is an old one and has functional troubles which might cause a delay (“Contracts of affreightment |”, 2019).

Contract breach could happen from charterers’ end. Also, he must provide the shipment plan well in advance to the owner and to pay the freight in time any violations to these could be a contract breach. In such scenarios, either contract is terminated, the lawsuit is filed(1), or compensation claimed.

The contract of affreightment is an essential tool for consignment owners and vessel owners to work together with solutions to the issues revolving around shipment transportation. It assists the charterers with a guarantee of these goods being transported under a period, and the vessel owners get guaranteed consignments.

[ Also Read: Charter Agreement ]