Advance freight. As a rule the freight on cargo shipped under a charterparty is payable at destination upon delivery to consignees.
If the ship or cargo is lost before the destination, the shipowner is not entitled to freight. (However, under some legal systems he can claim that a part of the freight has been earned-and he has a right to it-in proportion to the distance covered from the loading port.) To protect the shipowner’s right to freight even if he cannot deliver the cargo to its agreed destination an express clause in the charterparty may provide for the whole or part of the freight to be payable in advance. The time when the advance freight is payable and the entitlement of the carrier to keep it can vary. For example, it may be stated:
“The freight is to be paid at the rate of . . . per ton of 1000 kilos on gross bill of lading weight and is to be paid in the following manner:
. . . The freight shall be deemed earned as cargo is loaded on board and shall be discountless and non-returnable, vessel and/or cargo lost or not lost.”
“Freight is payable within five days of master signing bills of lading.”
Once the freight is paid in advance it is not generally recoverable by the charterer or the shipper even if the cargo is lost.
This risk can therefore be covered by charterers or shippers by insurance.
The position is different if charterers or shippers advance money in order to meet ship’s disbursements at port of loading. Such a payment for account of shipowners constitutes a normal loan, which is recoverable from shipowners irrespective whether the cargo is actually delivered at destination, or not.
For example, the GENCON charterparty states, in cl. 4:
“Cash for vessel’s ordinary disbursements at port of loading to be advanced by charterers if required at the highest current rates of exchange, subject to two percent to cover insurance and other expenses.”
The deduction of 2 per cent of the amount to cover insurance and other expenses almost seems to suggest that the cash is an advance on freight which is not recoverable if the cargo is not delivered. However, the same clause in GENCON clearly states elsewhere that “The freight to be paid in the manner prescribed in cash . . . on delivery of the cargo . . . “. Therefore it is likely that the cash for disbursements at the load port is in the nature of a “loan” to the owner, insurable in case the owner cannot repay it.