Currency of Payment

What it does

A currency of payment clause specifies the currency in which freight, hire, demurrage, and other sums under the charter are to be paid, and it may address how amounts expressed in one currency are converted to another and at what rate and date. Shipping payments are commonly made in a major international currency, and the clause fixes that choice and the mechanics around it.

Where costs and revenues arise in different currencies, the clause may also deal with exchange-rate risk, for example by fixing a rate, a conversion date, or an index for converting between currencies. It is read with the freight and hire payment provisions, since it governs the actual money in which those obligations are discharged and how currency differences between the parties are resolved.

Commercial effect

The currency clause allocates exchange-rate risk over the life of the charter. Because rates move, the choice of payment currency and any conversion terms determine which party bears the risk that a currency strengthens or weakens between fixing and payment. Over a long charter or a series of payments, that risk can be commercially significant, particularly where one party's costs are in a different currency from the payment.

A clear currency clause avoids disputes about how much is actually owed when amounts are quoted or incurred in more than one currency. It interacts with the payment mechanics and timing, since the conversion date and rate decide the sum that must actually be remitted, and it forms part of the overall payment package alongside the freight, hire, and commission provisions.

Owner's perspective

The owner wants to be paid in a stable, freely convertible currency that matches its own cost base where possible, so that it is not left exposed to depreciation or to difficulty converting the money it receives. It wants the payment currency and any conversion terms clear, so there is no doubt about the sum due and it can plan its finances on a known basis.

The owner is attentive to exchange-rate risk where the rate is quoted or costs are incurred in a different currency from payment, and it negotiates conversion terms to limit its exposure. It wants the currency provisions consistent with the freight and hire clauses so that the actual amounts remitted reflect what was agreed, without erosion through unfavourable or unclear conversion.

Charterer's perspective

The charterer similarly wants the payment currency to suit its own revenues and costs, so that it is not buying an unfamiliar currency at an unpredictable rate to meet its obligations. It wants the currency and any conversion mechanics clear, so it knows exactly what it must pay and can manage its own currency exposure accordingly.

Where the charter mixes currencies, the charterer focuses on the conversion rate and date and on who bears the movement between them, negotiating terms that allocate the exchange risk acceptably. It treats the currency clause as part of the payment package and aligns it with the freight, hire, and commission provisions so the whole payment structure is predictable.

Negotiation points

• The currency in which freight, hire, and other sums are payable.
• Any conversion mechanism, rate, and date for amounts in another currency.
• Which party bears the exchange-rate risk over the charter.
• Consistency with the freight, hire, and commission payment provisions.

Common variations

• All sums payable in a single stated international currency.
• Payment in one currency with conversion of other-currency items at a defined rate.
• A fixed exchange rate or index applied for the duration of the charter.
• Separate currencies for different heads of payment, each clearly specified.