Published in Operations and Supply Chain Terms by MBA Skool Team
What is Contract of Affreightment?
A contract of affreightment is a contract between a ship-owner and charterer i.e. person interested in hiring ship to carry its goods, in which the ship-owner agrees to carry goods for the charterer, or to give the charterer the access of the whole or part of the ship's cargo-carrying space to transfer goods for a specific journey or for a specific time. The charterer agrees to pay an agreed price, called freight, for services provided by ship owners.
Ship owner will be liable for payment whether or not the cargo is ready for shipment at time agreed. This contract addresses issues such as its crew, the routes, and other issues associated with vessel.
The main purpose of Contract of Affreightment is to put onus on carrier to transfer a certain amount of goods in certain time. Usually, contract talks in terms of journeys not limited to particular vessel. Price is decided based on quantity of goods with fines on carrier for delay.
Example- Iran is one of the major exporters of crude oil to India. Exporters in Iran can sign such contracts with shipping company. A fixed quantity of oil should reach Indian ports every month for next 2 years.
Hence, this concludes the definition of Contract of Affreightment along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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