Voyage charter freight, more often than not, consists of the ocean freight or
sea freight only. This is because cargoes of sufficient size to warrant chartering
a ship (charterable quantity) are larger than liner cargoes, normally
sufficient to fill the ship; the loading and discharging berths are very often
controlled by cargo owners or used frequently by them. Freight on this basis
is said to be on a free in and out basis.
Free in and out
While liner terms is the mainstay of the freight rates used in the liner trade,
free in and out, normally abbreviated to fio, together with its variations, is
the backbone of the voyage chartering business. To understand the meaning
of this term, it is helpful to break it down into its constituent parts. This will
also assist in understanding the variations:
• free – the cost of cargo handling is free to the shipowner, that is to say, it is
paid for by some other party
• in – at the port of loading
• out – at the port of discharging.
Variations of fio
The variations of the fio rate all define the precise responsibilities of the charterer
or shipper at the port of loading. More exactly, they spell out those elements
for which the shipowner is not responsible. There is a school of thought
that if an fio rate is not qualified, as it is in the under- mentioned examples,
the shipowner is liable for the cost of, for example, stowing and trimming. To
avoid any ambiguity, and possible dispute, it is therefore worthwhile using
these terms:
• free in and out and stowed – the charterer or shipper is responsible for
the cost of stowage, that is, the placing of cargo in the ship in the position
which it will occupy during the voyage;
• free in and out and stowed, lashed, secured and dunnaged – this
goes a step further than the fios rate in specifying that the costs of lashing,
securing and dunnage are to be borne by the charterer or shipper (i.e. not
the shipowner); and
• free in and out and trimmed – bulk cargoes such as grain or coal which
are tipped into the hold of a ship require levelling or, as it is known, trimming.
This is done for reasons of ship stability. When this task is necessary,
it is performed either manually or by means of bulldozers. The fiot rate
makes it clear that the charterer or shipper is required to pay for it.
Gross terms
If the shipowner does pay for loading and discharging, the contract is said to
be on gross terms.
Basis of freight
In a voyage- charter, the charterer may pay the shipowner either an fio freight,
that is, the pure carriage only, or some cargo handling may be included. In
either case, the freight may be payable as a lump sum or per tonne. The
former occurs in a lump sum charter. The charterer tells the shipowner
the stowage factor of the cargo (the ratio of the cargo’s measurement to its
weight). The shipowner responds by stipulating the minimum quantity which
the ship can lift. The whole of the ship’s carrying capacity is made available to
the charterer who pays a lump sum freight. When charter freight is paid per
tonne, similar discussions will take place between shipowner and charterer as
to the stowage factor of the cargo as this affects the ship’s ability to carry the
intended cargo and a ship with insufficient grain or bale capacity may have to
be forgone. If the ship is suitable, however, agreement has to be reached as to
the contractual quantity and hence the basis of payment of freight:
• min/max quantity – the shipowner stipulates an exact quantity which
cannot be varied: this is the quantity on which freight is payable;
• a quantity with a tolerance – the quantity is specified but in this case there
is an option to declare the final quantity within an agreed percentage. The
option could belong to the shipowner (via the master) or to the charterer.
The percentage varies from contract to contract and can be “more” than
the specified quantity or “more or less”. A charter- party with such a provision
might read: “100,000 tonnes, 5 per cent more or less in owner’s
option”. More or less is often abbreviated to “MOL”, particularly in telex
negotiations. “Owner’s option” becomes OO and “charterer’s option”
CHOP. Hence the acronyms MOLOO and MOLCHOP;
• a minimum quantity with the charterer having the option to fill the ship
to capacity. A contract might stipulate 15,000 tonnes minimum, charterer
having the right to provide a full and complete cargo (popularly shortened
to F&CC);
• delivered weight – this is perhaps the most frequent method of paying
freight, based on weighing the cargo on discharge. The delivered or outturn
weight will often be lower than the loaded weight because of loss of cargo
caused, for example, by windage: small amounts of fine cargo, such as grain
and some types of coal, are literally blown away while being handled;
• bill of lading weight with option on delivered weight – some charterparties
allow the merchant to pay freight on the bill of lading weight or to
declare prior to breaking bulk (commencement of discharge) that he wishes
to pay on the delivered weight;
• discount in lieu of weighing – some contracts which call for the cargo
to be weighed on discharge at the ship’s expense allow the merchant a discount
if weighing can be dispensed with, thus saving time and money. In
this case, the parties will use the bill of lading weight. The discount varies
but typically could be 1 or 2 per cent.