Shipping cargo via sea freight is one of the most popular modes of transport in the world of logistics. Today, nearly 90% of global shipping is done via container ships, tankers, dry bulk carriers, and general cargo vessels.
Although shipping cargo with ocean carriers is slower than rail, road, or air freight, it’s the most economical option for shippers. Moreover, for large equipment and bulk cargo, it’s often the only option.
Chartering a vessel mandates certain documentation and procedures before a shipper can charter a vessel to move their cargo from A to B, such as a Contract of Affreightment (COA), which is a contract between the shipowner and the shipper.
This vital piece of documentation puts the onus on the ship owner or carrier to transfer a certain amount of cargo within a specified timeframe.
In this article, we’ll go into detail about what a COA entails and explain how it’s different from other essential documentation, such as a time charter, voyage charter, and charter party agreement.
What Is a Contract of Affreightment (COA) in Shipping?
A Contract of Affreightment (COA) is a legally binding contract between a shipowner (carrier) and a charterer (the shipper). This contract certifies the goods or equipment to be transported with its respective specifications such as weight and quantity, the destination, and the timeframe for delivery.
It also obligates the charterer to pay the freight even if the shipment isn’t ready. This way, carriers can choose from different vessels and book the required amount of storage space for a particular shipment.
Moreover, a COA is often used for more than one shipment at different intervals. As a result, charterers that opt for sea freight are certain they will have a vessel available to carry their cargo when required.
Although many parties draft bespoke agreements, Contracts of Affreightment are governed by the Baltic and International Maritime Council (BIMCO).
This council requires charterers and shipowners to follow certain standards, including VOLCOA, GENCOA, and INTERCOA 80. However, VOLCOA is a forerunner of GENCOA. Therefore, we’ll discuss GENCOA and INTERCOA 80 in detail below.
The GENCOA is a standard contract of Affreightment that was established by BIMCO specifically for dry bulk cargo transport via the sea. Therefore, voyage charter parties looking to move coal, grain, iron ore, sugar, cement, and other dry items are recommended to adhere to this standard and follow the best practices.
Similarly, the INTERCOA 80 is a COA designed by BIMCO for charter parties looking to move liquids and gases in bulk quantities using tankers. Common examples include crude oil, liquid petroleum gas, liquified natural gas, and other petrochemicals.
What Information Can Be Found In a Contract of Affreightment?
Most COAs are relatively straightforward and typically comprise a framework agreement outlining the terms intended to apply to all shipments and voyages for both parties (charterers and shipowners).
For instance, it defines the cargo quantity to be shipped during each voyage along with the accepted ports within range. However, it doesn’t specify a particular vessel to be used, which gives shipowners the freedom and flexibility to choose from several options.
Here are some of the most common details found in a COA:
- Owner Details – Standard COAs start with a preamble that outlines the shipowner’s details, including their name, address, telex number, and company or brokerage name. This section also contains the place and date of the contract.
- Charterers’ Details – Similarly, a COA contains the charterer’s details, including their name, address, and telex number.
- Type of Cargo – This section briefly describes the type of freight the charterer intends to move (dry bulk cargo, liquids, gas, etc.). For tanker shipments, it also mentions the specific gravity.
- Ports or Ranges – The port and ranges section of a COA covers the loading and discharge ports of all shipments within the agreement period. It also outlines the range of ports that are suitable for loading and unloading a certain cargo type.
- Quantity of Cargo – This section specifies the minimum and maximum amount of freight to be transported per shipment within a specified timeframe. It would also specify the total quantity to be shipped for the full duration of the contract.
- Period of Contract – The period of the contract marks the first layday for the initial vessel and the final/canceling data for the final vessel. As a COA is usually effectuated for long-term transportation arrangements, the period of the contract may extend over a number of years.
- Schedule of Shipments – The schedule section outlines the frequency of shipments from A to B on the agreed routes with the COA. It may also specify the shipping period (days, weeks, or months) in a fiscal year.
- List of Vessels – This section provides the list of vessels the shipowner will use to meet their charterer’s freight requirements. It specifies the length, age, size (capacity), tank coating, pumping capacity, and other details.
- Rates – The rates section outlines the basic cost of moving a shipment from A to B, along with commission, late payment, demurrage, etc. Freight rates depend on many factors, including the destination, shipment weight, and cargo type.
- Bunker Adjustment Factor – This section covers any additional charges levied on the shipowners due to fluctuations in fuel prices (also referred to as bunker prices). This would allow the shipowners to offset any additional costs in the event of a sharp increase in fuel prices.
- Dispute Resolution – The dispute resolution section of a COA mentions the different methods all parties can use to resolve disputes while adhering to lawful practices. Specific locations for arbitrations are typically included here.
- War Cancellation – Finally, the war cancellation section covers the terms all parties have to agree with to cancel the COA in the event of war among specified countries.
Contract of Affreightment vs Charter Party
A contract of affreightment and a charter party agreement are both common pieces of documentation used by charterers and shipowners for sea freight transport, particularly bulk shipments.
However, they’re two distinctive contracts. A COA doesn’t specify the vessel to be used for a particular shipment. Hence, shipowners have more freedom in selecting vessels to move goods from A to B within a specified timeframe and a fixed rate.
Conversely, a Charter Party Agreement has more detailed clauses related to vessel selection and management. This maritime contract allows charterers to use a particular vessel or part of it to move cargo from one port to another.
If both contracts are used together, the terms of the COA will supersede the charter party terms in the event of a conflict in any clause. As a result, most charterers use a COA in conjunction with the latter to facilitate and protect their shipments and prevent unnecessary delays or issues caused by conflicts.
However, there are two types of Charter Party Agreements. We’ll explain how each type differs from a Contract of Affreightment below:
Contract of Affreightment vs Time Charter
A Time Charter is a type of Charter Party Agreement that enables charterers to book an entire vessel and its storage capacity while the shipowner and their crewmen navigate the ship. Moreover, they can also select their crew and aren’t responsible for ship maintenance.
In other words, a Time Charter is essentially a leasing agreement between a shipowner and a charterer. Unlike a COA, this agreement has a short tenure, often between a few days to a year, depending on the number of shipments required.
Moreover, Time Charters don’t require full payments upfront. Charterers can pay charges as they arise during their voyages or every quarter.
Contract of Affreightment vs Voyage Charter
A Voyage Charter is the second type of Charter Party Agreement that leases out a particular vessel to a charter on a voyage basis instead of a time basis. The agreement outlines the destinations, ports of call, cargo restrictions, and undertakings by the charterers.
The shipowner mans and navigates the ship just as with Time Charters. Additionally, they also pay the duties and berthing charges at the ports. Unlike COAs, which require upfront payment, Voyage Charters enable charterers to pay on a per-ton or lump-sum basis.
Most shippers use this freight method to transport full cargo on a single voyage. Nevertheless, it is important to note that the COA terms would supersede the terms in the Voyage Charter when both are in effect simultaneously.