Dead Freight: Meaning in Chartering
Dead freight is the freight a charterer pays for cargo space it booked in a voyage charter but did not use.
What it is
In a voyage charter the charterer agrees to ship a quantity of cargo. If less is loaded, and the contract has a minimum, the charterer pays freight on the difference, because the ship operator kept the space and could not use it for another cargo. The payment is called dead freight.
How it is worked out
The freight is paid on the agreed quantity. If the contract says "30,000 tonnes, ten percent more or less at the ship operator's option", the charterer owes freight on the quantity the ship operator is entitled to. A shortfall below this is dead freight. The rate is the freight rate of the voyage, less any saved costs that the contract says to deduct, for example loading and discharging costs not incurred.
Why a shortfall happens
The cargo is not ready, the harvest or the production is smaller than expected, the port cannot deliver the full quantity in the laytime, or a buyer changes the plan. Whatever the reason, the ship operator has planned the voyage for the full quantity and cannot refill the space at short notice.
How to avoid it
Agree a quantity with a realistic tolerance and an option for the ship operator or the charterer to decide it. Tell the ship operator early if the cargo will be smaller, so that the space can be used or the ship can be changed. Read the clause on the minimum quantity and on the loading time before you sign.
What it is not
Dead freight is not demurrage, which pays for time in port, and it is not the whole freight. It is a payment for lost earning because of unused space. A charter party sets the details, and the ship operator usually has a right to hold the cargo as security for it; see lien.
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Related guides
More in glossary
- Time Charter
- Trip Time Charter
- Contract of Affreightment (COA)
- Time Charter vs Voyage Charter
- Laycan
- Laytime
- Notice of Readiness
- Charterer
- Shipowner, ship operator, disponent owner
- Ship broker
- Ship fixing and fixture
- Bulk carrier
- Deadweight tonnage (DWT)
- Bill of lading
- Baltic Dry Index
- Off-hire
- Bunkers
- FIO and FIOS
- Cancelling date
- Ton-mile
- Statement of facts
- Letter of indemnity
- Ballast voyage
- Lighterage
- Stem
- Subjects
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