Freight

Freight payment terms

Published 18 October 2026

On a voyage charter the charterer pays freight for carrying the cargo. Two questions decide how safe that money is for the owner. First, when is the freight earned, so that the owner keeps it even if something goes wrong later? Second, when must it be paid? They are separate questions, the charterparty usually answers them in separate words, and a recap that only says "freight 95 percent within 3 banking days" has answered only the second one.

The rule when the charterparty says nothing

Under English law, freight is earned when the cargo is delivered at the destination. If the ship sinks on the way and the cargo is lost, no freight is due. Damaged cargo that is still the cargo described in the contract still earns full freight, and the cargo owner must claim the damage separately. The charterer cannot simply deduct a cargo claim from the freight.

This default puts the risk of a total loss on the owner. That is why almost every voyage charter moves the moment of earning earlier, to loading.

Deemed earned on loading

A typical clause says freight is "deemed earned as cargo is loaded, discountless and non-returnable, vessel and/or cargo lost or not lost". Each part does a job:

Deemed earned on loading. The right to freight exists from the moment the cargo is on board, even though the voyage has not started.
Discountless. The charterer may not reduce the freight for its own claims against the owner. Commissions agreed in the charterparty still come off.
Non-returnable, lost or not lost. If the ship or the cargo is lost after loading, the owner keeps the freight already paid and can still collect any part not yet paid.

English courts have held that freight earned this way survives the loss of the ship and even the end of the contract. The charterer carries the risk of loss instead, which is why prudent charterers and cargo owners insure the freight together with the cargo.

GENCON 2022, the BIMCO general voyage charter, takes this approach. Freight other than lump sum freight is earned progressively as the cargo is loaded. Lump sum freight is earned only on completion of loading. In both cases freight is non-returnable if the ship or cargo is lost.

When the money must arrive

Earning gives the owner the right. The payment term sets the date. The common patterns are:

Wording	What it means	Who it favours
Prepaid	Full freight paid before or on signing bills of lading	Owner
Within N banking days of signing and releasing bills of lading	Usually 3 to 5 banking days after loading is complete and the bills are issued	Owner
BBB, before breaking bulk	Paid before discharge starts	Both, depending on route
On right and true delivery	Paid after the cargo is delivered	Charterer
95 percent and balance	Most paid early, the rest after discharge when demurrage and other items are settled	Shared

A banking day is a day the banks are open in the place of payment, so weekends and bank holidays in that country do not count. On a 3 banking day term, bills released on a Friday afternoon may not need to be paid until the following Wednesday.

Releasing matters as much as signing. Many owners will not release original bills of lading until freight is received. If the charterer needs the bills to sell the cargo or open a letter of credit, this gives the owner a strong position.

BBB, and why the exact moment can matter

BBB means the freight is due before the ship starts to discharge. It sounds simple, but a charterer can try to delay "breaking bulk" by not giving discharge instructions. In a 2016 English case, a tanker arrived in Germany with freight unpaid and no instructions to discharge. The court read the clause, which let the owner refuse to start discharge until paid, as making the freight due when the ship had arrived and was available to the charterer. The freight was therefore a debt, not a claim for damages. That difference matters: an owner recovering a debt does not have to prove a loss or reduce it.

If BBB is used, it is safer to tie the date to something the owner controls, such as notice of readiness at the discharge port, and to say plainly that the owner need not discharge until payment arrives.

Freight prepaid and freight collect bills of lading

The charterparty is between owner and charterer. The bill of lading travels with the cargo to the receiver. A bill marked freight prepaid tells the receiver that freight is not its problem, and the owner usually cannot then demand freight from the receiver. A bill marked freight collect or "as per charterparty" keeps the receiver in the chain. GENCON 2022 allows the charterer to demand "freight paid" bills only once the freight has been paid in full. An owner who issues freight prepaid bills before the money arrives gives away its security.

A worked example

Voyage charter, illustrative figures only.

  Cargo            30,000 mt
  Freight rate     US$40 per mt
  Gross freight    US$1,200,000
  Address comm.    3.75%            -45,000
  Freight due      US$1,155,000

  Terms: 95% within 3 banking days of signing and releasing B/L,
         balance 5% within 30 days of completion of discharge,
         together with demurrage or less despatch.

  First payment    95% of 1,155,000    1,097,250
  Balance          5% of 1,155,000        57,750
                   plus demurrage, less despatch

The balance is where most arguments sit, because it is paid after the laytime statement is agreed. A charterer who disputes the demurrage often holds back the balance as well. Keep the two items in separate invoices so that an argument about demurrage does not delay freight that is clearly due.

What the owner can do when freight is not paid

Lien on cargo. At common law the owner has a lien on the cargo for freight due on delivery: the right to keep the cargo until paid. A contractual lien clause can extend this to deadfreight, demurrage and other sums. See liens, cesser and deadfreight.
Holding the bills of lading. Not releasing original bills until freight arrives is often the most practical security.
Suspending performance. GENCON 2022 lets the owner suspend performance for unpaid freight, deadfreight or demurrage and, after a notice period, end the contract or discharge at any port.
Claiming the debt. Freight that is due is a debt and can be claimed in full, usually in arbitration under the charterparty.

A lien only works while the owner still controls the cargo. Once freight prepaid bills are issued or the cargo is delivered, the security is gone. Decide the payment terms with that in mind, and write them into the fixture recap word for word.

References

Low & Partners, Law of the carriage of goods by sea, part 6. lowpartners.com
Steamship Mutual, Unpaid freight: a debt or claim in damages?, 2016. steamshipmutual.com
West of England P&I Club, The new GENCON 2022 charterparty, 2023. westpandi.com
BIMCO, GENCON 2022, 2022. bimco.org

Liens, cesser and deadfreightProving the claim is the easier part. These clauses decide whether an owner can actually collect the money. Bills of ladingA receipt, proof of a contract and the key to the cargo, all on one piece of paper. Most disputes come from mixing up the three. Charterparty formsNobody writes a charterparty from a blank page. People name a printed form, change it, and then disagree about which part of the document applies. The fixture recapThe e-mail that says what was agreed. Written in minutes, read by a tribunal years later, and the contract until the charterparty is drawn up. Voyage charter vs time charterHow the two main charter types split the risk, what each side pays for, and which terms exist in only one of them.

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