What Is Affreightment? Forms, Duties, and the $500 Limit

Affreightment is the maritime contract under which a shipowner agrees to carry cargo by sea in exchange for a payment called freight. So when people ask what affreightment is, the short answer is that it covers every arrangement from hiring a whole tanker for one voyage to booking a handful of containers on a liner service. The carrier takes temporary custody of someone else’s goods and promises to deliver them to a named port, which makes the carrier a bailee for hire: legally responsible for the cargo while it is aboard, even though the carrier never owns it.

That bailee relationship is what pulls the deal out of ordinary sales law and into maritime law, with its own federal courts, its own liability caps, and centuries of precedent behind it. A dispute over a late grain shipment from New Orleans to Rotterdam will not be resolved under the Uniform Commercial Code. It will land in federal admiralty jurisdiction, and often in specialized maritime arbitration.

The Three Forms the Contract Takes

Charterparties

A charterparty is used when the shipper needs all or most of a vessel’s capacity. A voyage charter hires the ship for a single trip between named ports, with the shipowner operating the vessel and covering fuel and crew. A time charter gives the charterer control over where the ship goes for a set period, while the shipowner still manages the crew and maintains the vessel. Charterparties are the standard tool for bulk commodities like crude oil, iron ore, and grain, where the cargo fills the entire hold.

Bills of Lading

For smaller quantities, the contract usually takes the form of a bill of lading. This single document does triple duty. It is a receipt confirming the carrier took possession of the goods. It is the contract setting out the terms of carriage. And it is a document of title that can be transferred to a buyer while the cargo is still at sea. Containerized manufactured goods move almost exclusively this way.

Bills of lading carry stronger regulatory protections than charterparties. A charterparty is a negotiated private agreement between two commercial parties with roughly equal bargaining power. A bill of lading is often a take-it-or-leave-it form issued by a major shipping line to a much smaller shipper, so international conventions and federal statutes impose mandatory minimum standards to prevent carriers from disclaiming responsibility for the cargo.

Volume Contracts of Affreightment

A volume contract of affreightment sits between a single voyage charter and a long-term time charter. The carrier agrees to transport a specified total quantity of cargo across multiple voyages over a set period, often six months to several years. The charterer commits to providing cargo on a roughly even basis, and the carrier supplies suitable vessels for each voyage, substituting another ship if the originally planned one becomes unavailable. These contracts are common in commodity trades where a producer needs regular tonnage but does not want to lock up a whole vessel full-time.

What the Contract Must Specify

A workable affreightment agreement needs precise detail on a handful of core points. Vague terms in a maritime contract invite disputes, and they can also make the agreement harder to enforce in arbitration or leave insurance coverage uncertain.

The full legal names of the shipowner (or disponent owner) and charterer, matching their corporate registrations.
Vessel details, including the ship’s name, flag state, and deadweight tonnage, confirming the vessel can physically handle the intended cargo.
A specific cargo description, such as 50,000 metric tons of Grade A wheat or 200 twenty-foot equivalent units of containerized electronics.
The freight rate, either a dollar amount per metric ton or a lump sum for the voyage, with currency and payment timing stated explicitly. Whether freight is prepaid or due on delivery changes the risk allocation significantly.
The laycan, meaning the date window within which the vessel must arrive at the loading port ready to receive cargo. Miss the window and either party may have grounds to cancel.
A dispute resolution clause. Most U.S. maritime contracts call for arbitration in New York or London rather than litigation.

Which Law Applies

Two overlapping federal statutes govern a carrier’s obligations in U.S. waters, and which one applies depends on whether the cargo is moving internationally or domestically.

The Carriage of Goods by Sea Act (COGSA) applies to every bill of lading for cargo shipped to or from a U.S. port in foreign trade. It covers the “tackle-to-tackle” period from when goods are loaded onto the ship until they are discharged. COGSA sets mandatory duties for the carrier, limits liability, and lists specific defenses the carrier can raise when cargo is lost or damaged.¹

The Harter Act, now codified in Chapter 307 of Title 46, is older. It fills the gaps COGSA leaves open: the periods before loading and after discharge, when cargo is sitting on a dock or being transferred to an inland carrier. The Harter Act also governs domestic coastwise shipments unless the bill of lading expressly incorporates COGSA.¹ In practice, many domestic bills of lading incorporate COGSA voluntarily because its liability framework is well understood by insurers and arbitrators.

Outside the United States, most trading nations follow the Hague-Visby Rules. The convention imposes similar mandatory carrier obligations and voids any contract clause attempting to relieve the carrier of liability for negligence or to lessen the carrier’s responsibility below the convention’s minimum standards.

What the Shipowner Owes You

Seaworthiness

Before and at the beginning of every voyage, the carrier must exercise due diligence to make the ship seaworthy. The hull and machinery must be fit for normal ocean conditions, the crew must be competent and adequate in number, and the cargo holds must be clean and structurally sound enough to receive and preserve the goods.¹ This is the foundational obligation. Almost every carrier defense depends on it. A carrier that fails to exercise due diligence in making the vessel seaworthy cannot rely on the navigation-error defense or any other statutory protection, even if the actual cause of the loss was something entirely different.²

A ship that sails with a known structural defect is the clearest case of unseaworthiness. If cargo is lost because a hull plate the owner knew was corroded finally gave way, the carrier faces full liability with no cap and no defenses. Many cargo claims are won or lost here: shippers probe whether the carrier actually inspected the vessel, and carriers try to show the defect was latent and undetectable through reasonable diligence.

Reasonable Dispatch

The carrier must deliver the cargo within a reasonable time, which courts define as the usual and customary transit time for similar shipments between the same origin and destination. Unexplained delays can give rise to damage claims, especially for perishable cargo or goods tied to seasonal demand where late arrival means a lower market price.

Staying on Route

COGSA draws a clear line on deviation. Detouring to save life or property at sea is always permitted, and any other “reasonable deviation” is also protected. Deviating to load or unload cargo or passengers at an unscheduled port is presumed unreasonable.¹ An unreasonable deviation is treated as a fundamental breach, and courts have historically held that it strips the carrier of its statutory defenses and liability limits. Stopping at an unscheduled port for the owner’s private commercial purposes can also void the vessel’s insurance coverage.

Defenses When Things Go Wrong

If the carrier has met the seaworthiness obligation, it can invoke statutory defenses for losses caused by perils of the sea, acts of God, seizure under legal process, inherent defects in the goods, insufficient packaging, or errors in navigation and vessel management by the crew.² The navigation-error defense is unusual in transportation law; in virtually no other mode of carriage can the carrier escape liability because its own employees made a mistake.

What the Shipper or Charterer Owes

Providing the Agreed Cargo

The charterer must deliver the type and quantity of cargo specified in the contract. Falling short triggers a dead freight claim: the shipowner can recover damages equal to the freight it would have earned on the missing cargo, minus any costs saved by not carrying it. In a voyage charter priced on quantity loaded, the owner is paid for the empty space the charterer failed to fill.

Laytime and Demurrage

Under most voyage charters, the charterer bears the cost and risk of loading and discharging the cargo within a set number of days called laytime. Before laytime begins, the vessel must tender a valid Notice of Readiness, confirming it has arrived at the agreed location, is physically ready to begin cargo operations, and has cleared customs and port formalities.

If loading or discharging runs past the allotted laytime, the charterer owes demurrage for every extra day the ship sits idle. Rates vary dramatically by vessel type. Smaller bulk carriers typically run $5,000 to $15,000 per day. Capesize vessels can exceed $30,000, and large tankers can hit $50,000 to $80,000 daily. The rate is fixed in the charterparty, so both sides know their exposure before the voyage starts.

Nominating a Safe Port

When the charterparty gives the charterer the right to choose the loading or discharge port, the charterer warrants that the nominated port is safe. Under standard charterparty forms this is an absolute obligation: the charterer is liable if the port turns out to be unsafe regardless of whether the charterer knew about the danger. A port fails the safety test if the vessel cannot reach it, use it, and return from it without being exposed to a danger that good seamanship alone cannot avoid. Damages from an unsafe nomination can include physical harm to the vessel, delay costs, and pollution liability.

Paying the Freight

The charterer’s most basic obligation is paying freight in the agreed currency and on the agreed schedule. Whether freight is due before the voyage, on delivery, or in installments changes the risk profile for both sides. Prepaid freight generally cannot be recovered even if the cargo is lost en route, while freight payable on delivery is not earned until the goods arrive.

The $500 Package Limit and How to Beat It

COGSA caps the carrier’s liability at $500 per package, or $500 per customary freight unit for goods not shipped in packages. For high-value cargo, this can be devastating. A container of electronics worth $2 million that is lost at sea gets the shipper only $500 if the bill of lading does not declare the cargo’s actual value.¹

To avoid the cap, the shipper must declare the nature and value of the goods before shipment and have that value inserted into the bill of lading. The declaration becomes presumptive evidence of the cargo’s worth, though the carrier can still challenge it. The carrier and shipper can also agree to a different maximum, so long as it is not less than $500.¹ Shippers of valuable cargo routinely declare the higher value and pay a correspondingly higher freight rate, or they purchase separate marine cargo insurance to cover the gap.

Under the Hague-Visby Rules the cap is significantly higher: 666.67 Special Drawing Rights per package or 2 SDR per kilogram of gross weight, whichever is greater. For heavy or moderately valuable cargo, that can be several times the COGSA figure.

Carriers sometimes try to insert bill-of-lading clauses that cut their liability further. Federal law prohibits this. A carrier cannot include a clause avoiding liability for its own negligence in loading, stowing, caring for, or delivering the cargo, and any such clause is void.³ The Hague-Visby Rules contain an identical prohibition.

When the Shipowner Can Hold Your Cargo

A shipowner who has not been paid has a powerful self-help remedy: the possessory lien. The owner can refuse to discharge the cargo, effectively holding it until the freight and any other amounts owed under the contract are paid. In practice the cargo sits aboard the ship or gets unloaded into a warehouse under the owner’s control.

The lien has limits. Under common law it covers only freight payable at delivery, general average contributions, and expenses incurred to preserve the goods. Most charterparties expand the lien by contract to cover demurrage, dead freight, and other sums. If the cargo belongs to a third party rather than the charterer, the lien clause must be incorporated into the bill of lading to be enforceable against that third party. A shipowner who refuses delivery without a valid lien risks being treated as having wrongfully withheld the cargo.

Federal law also provides a separate maritime lien to anyone who furnishes necessaries to a vessel on the owner’s order. Unlike the possessory lien, a maritime lien does not require holding the goods. It attaches to the vessel itself and can be enforced through an in rem civil action in admiralty court.⁴

1
Office of the Law Revision Counsel. 46 USC 30701 – Definition
2
Office of the Law Revision Counsel. 46 USC 30706 – Defenses
3
Office of the Law Revision Counsel. 46 USC 30704
4
Office of the Law Revision Counsel. 46 USC 31342 – Establishing a Lien