Freight payment terms rarely draw much attention until a dispute brings them sharply into focus. For owners, charterers and the brokers who bring the two together, knowing when freight is earned, and whether it falls due prepaid or on a collect basis, shapes cash flow, financing arrangements and the allocation of risk should something go wrong during the voyage. This article sets out, in general terms, how freight payment typically works under a dry bulk voyage charter. It is not a substitute for reading the actual fixture: commercial practice varies between trades and parties, and the wording of the charterparty always takes precedence.
What Freight Represents
In a voyage charter, freight is the consideration paid for carrying a specified cargo from a load port to a discharge port. It is calculated and agreed as part of the fixture, and it compensates the owner for performing one particular carriage, rather than for making the vessel available over a period of time. This is a useful distinction to keep in mind, since the mechanics of payment differ meaningfully from the hire arrangements seen under a time charter, where payment is made periodically for use of the vessel regardless of what cargo she happens to be carrying.
Because freight relates to a single voyage, the charterparty will typically set out not only the amount and currency, but also when it becomes due, how it is to be paid, and what happens if the voyage is interrupted or the cargo is not delivered as expected. These provisions sit alongside, but are distinct from, laytime and demurrage terms, which deal with time spent in port rather than payment for carriage itself.
Freight Prepaid: Payment Ahead of Discharge
Under freight prepaid terms, freight is paid at or shortly after loading, often against the release of bills of lading marked accordingly. This arrangement is common where the shipper or seller needs to demonstrate that freight has been settled in order to satisfy the terms of a sale contract, a letter of credit, or a bank's documentary requirements. Marking bills of lading freight prepaid signals to anyone relying on those documents, including a buyer or a financing bank, that no further freight payment is outstanding against the cargo.
From an owner's perspective, freight prepaid offers an element of certainty: payment is received early in the voyage, reducing exposure to the counterparty's position by the time the vessel reaches the discharge port. From a charterer's perspective, it typically means freight has to be funded before the cargo has even been delivered, which has implications for working capital, particularly on longer voyages.
Freight Collect: Payment on Delivery
Freight collect terms shift payment to the discharge end of the voyage, with freight payable by the receiver on or around delivery of the cargo. This structure is more common where the receiver, rather than the shipper, carries the commercial responsibility for freight, or where the trade is structured so that payment naturally follows receipt of the goods.
The owner's position under freight collect is different from prepaid: the carriage is performed before the full freight has actually been received, so the owner is, in effect, extending a form of credit for the duration of the voyage. Charterparties addressing freight collect often pair it with other protections, such as a lien over the cargo for unpaid freight, though how such a lien operates in practice depends entirely on the clause as drafted and on the applicable law, which is a matter to check in the charterparty terms rather than assume.
When Is Freight Earned
A separate, and often misunderstood, question is when freight is earned, as opposed to when it is merely payable. The general principle in ocean carriage is that freight is earned by performance of the carriage, meaning the owner becomes entitled to it once the cargo has been carried and delivered, rather than simply once the cargo was loaded or the vessel sailed. This principle historically underpinned the idea that freight follows the cargo: if goods are lost before delivery, freight may not be earned at all, absent a specific clause saying otherwise.
In modern dry bulk practice, charterparties frequently depart from, or clarify, this default position through express wording, deeming freight earned on loading, or on signing bills of lading, regardless of what subsequently happens to the vessel or cargo. This is why the precise clause matters more than any general rule of thumb. The standard forms widely used in dry bulk trades each approach freight timing somewhat differently, which is one of the reasons it is worth understanding how charter party forms typically structure these provisions before assuming a particular default applies.
Why the Distinction Matters in Practice
The choice between prepaid and collect, and the point at which freight is treated as earned, affects more than bookkeeping. It influences how a sale contract between shipper and receiver is structured, what documentary evidence a bank will accept, and how risk is allocated if a voyage is delayed, deviated, or cut short. It can also interact with deductions, since parties sometimes agree to net items such as address commission or agreed adjustments against freight rather than settle them separately.
For charterers, understanding these terms ahead of fixing helps avoid surprises around cash flow and documentation deadlines. For owners, it clarifies what protection exists if a receiver is slow to pay, or if a dispute arises over the condition of the cargo on delivery. None of this removes the need to read the specific clause in the specific fixture: general industry practice is a useful starting point, but the charterparty terms are what actually govern the outcome.
Freight payment terms are agreed early in the fixing process but felt throughout the life of a voyage, from the moment bills of lading are issued to the final settlement at discharge. Getting the wording right, and understanding what it means in practice, is part of the groundwork that sits behind every fixture our desks conclude. If you are weighing up prepaid against collect terms on an upcoming cargo, our chartering desks in Rotterdam are glad to talk it through.