Deadfreight

What it does

Deadfreight is the compensation an owner can claim when the charterer loads less cargo than the charter requires, leaving carrying capacity unused. The charterer has effectively contracted to provide a minimum quantity, and if it ships short, the owner is deprived of the freight it would have earned on the missing cargo. Deadfreight makes good that lost freight on the shortfall.

It is closely tied to the intake quantity terms, since the agreed minimum, taking account of any margin and whose option controls it, sets the benchmark against which any shortfall is measured. Deadfreight is generally calculated as the freight that would have been earned on the missing quantity, sometimes with deductions for costs the owner saved by not carrying it, depending on the charter wording.

Commercial effect

Deadfreight protects the owner's freight expectation against a charterer that fails to fill the ship, turning unused capacity into a recoverable sum rather than a simple loss. It matters most where freight is earned per tonne, because a short loading directly reduces the owner's earnings, and the deadfreight claim restores the gap between what was loaded and what was promised.

For the charterer, deadfreight is the price of not providing the agreed cargo, so it is a direct incentive to load the minimum quantity. The size of the claim, and whether the owner must give credit for saved costs or mitigate by loading other cargo, are points that turn on the wording, and they are read alongside the intake quantity terms and the freight provisions.

Owner's perspective

The owner relies on deadfreight to ensure that a charterer which contracts for a minimum quantity either provides it or pays for the freight lost on the shortfall. The owner wants the minimum clearly fixed and the deadfreight calculation tied to the agreed freight rate, so that a short loading does not simply reduce its earnings without recourse.

The owner is mindful that it may be expected to mitigate, for example by accepting substitute cargo if available, and that the charter may require credit for costs saved on the cargo not carried. It therefore wants the clause drafted so that its core entitlement to the lost freight is clear, while any deductions are confined to what the wording genuinely requires.

Charterer's perspective

The charterer wants the minimum quantity set realistically and the deadfreight calculation to give credit for costs the owner saved by not carrying the missing cargo, so that it pays the owner's true loss rather than a windfall. It is conscious that ordinary variation should be absorbed by the quantity margin, with deadfreight reserved for a genuine failure to load the minimum.

The charterer also looks to mitigation, arguing that the owner should reduce its loss where it reasonably can, for instance by loading other available cargo. It aligns the minimum quantity and the deadfreight terms with its cargo availability and sale contracts, so that it is not exposed to a deadfreight claim for a shortfall that the structure of the deal should have accommodated.

Negotiation points

• The minimum quantity against which any shortfall, and so deadfreight, is measured.
• Whether deadfreight is the full lost freight or net of costs the owner saved.
• Whether and how the owner must mitigate, for example by loading substitute cargo.
• The interaction with the intake quantity margin and whose option controls it.

Common variations

• Deadfreight at the full freight rate on the shortfall below the agreed minimum.
• Deadfreight net of expenses saved by the owner on the cargo not carried.
• A clause requiring the owner to mitigate before claiming deadfreight.
• Deadfreight tied to a clearly stated minimum quantity rather than a target and margin.