Overview of Maritime Contracts of Carriage

 

Maritime contracts of carriage are legal agreements that govern the transportation of goods by sea. They establish specific rights and responsibilities between the parties involved, typically including shippers, carriers, and consignees. These contracts form the backbone of international shipping and ensure that all stakeholders understand their obligations and liabilities.

 

The main types of Contracts

 

• Bill of Lading Contracts, which act as a receipt for goods, evidence of the contract of carriage, and a document of title.
• Charterparty Contracts, which are agreements for the hire of an entire vessel or space on a vessel.
• INCOTERMS, which define the responsibilities of buyers and sellers in international trade.
• Service Contracts, which involve long-term shipping agreements between shippers and carriers.

 

Bill of Lading

 

A bill of lading is a foundational document in maritime shipping. It serves three main functions: as a receipt confirming cargo loading, as evidence of the contract of carriage, and as a document of title that can be transferred to endorse ownership. Common types include straight, order, bearer, multimodal, and electronic bills.

 

Charterparties

 

Charterparties are contracts for hiring a ship or its cargo space. They involve parties such as the shipowner, charterer, and often a broker who facilitates the agreement. 

 

There are several types of charterparties:

 

• A voyage charter hires the vessel for a specific journey.
• A time charter hires the vessel for a set period.
• A bareboat or demise charter transfers full control of the vessel to the charterer.
• Each type carries different allocations of risk and responsibility.

 

INCOTERMS Overview

 

INCOTERMS (International Commercial Terms) were developed by the International Chamber of Commerce to provide a standard framework for international trade. The 2020 revision is the current version. These terms clarify the division of costs, risk, responsibility for delivery, and required documentation between buyers and sellers. While not legally binding on their own, they become enforceable when incorporated into a contract.

 

INCOTERMS Categories

 

There are four main categories:

 

• E Term (Departure): EXW – Ex Works.
• F Terms (Main Carriage Unpaid): FCA, FAS, FOB.
• C Terms (Main Carriage Paid): CFR, CIF, CPT, CIP.
• D Terms (Arrival): DAP, DPU, DDP.

 

INCOTERMS also vary by mode of transport, with seven applicable to any mode and four specifically for sea or inland waterway transport.

 

FOB – Free On Board

 

FOB is used for sea or inland waterway transport. The seller is responsible for delivering the goods onboard the vessel and handling export clearance. The buyer arranges and pays for freight and insurance. Risk transfers from seller to buyer once the goods cross the ship’s rail.

 

CIF – Cost, Insurance, and Freight

 

CIF also applies only to sea or inland waterway transport. The seller delivers the goods onboard, handles export clearance, pays for freight to the destination, and provides a minimum level of insurance. The buyer is responsible for import clearance and unloading. Risk also transfers at the point the goods cross the ship’s rail.

 

FOB vs CIF

 

FOB and CIF differ significantly in who controls and pays for key aspects of the shipment. Under FOB, the buyer arranges the main carriage and insurance, giving them more control but also more risk. In CIF, the seller arranges freight and insurance, simplifying the buyer's obligations but potentially increasing cost. Documentation and complexity also differ, with CIF generally involving more paperwork.

 

INCOTERMS and Letters of Credit

 

Letters of credit are financial instruments issued by banks to guarantee payment in international trade. The terms of a letter of credit often reference the applicable INCOTERM, which defines the required documents and delivery confirmation standards that trigger payment. For example, CIF requires an insurance certificate, FOB demands an on-board bill of lading notation, and FCA may accept a forwarder’s receipt.

 

Precise alignment between the INCOTERM used and the terms in the letter of credit is essential to avoid delays or disputes.

 

Smart Contracts in Maritime Trade

 

The use of blockchain technology is enabling smart contracts—self-executing agreements coded on a decentralized ledger. These offer enhanced transparency, reduced reliance on paperwork, automated payments, and real-time tracking of cargo. This shift represents a major digital transformation in maritime trade.

 

Dispute Resolution in Maritime Contracts

Disputes commonly arise over delivery timing, document discrepancies, and interpretations of risk transfer and force majeure clauses. Resolution methods include arbitration, mediation, litigation (particularly through admiralty courts), and expert determination. Contracts should specify the preferred method to avoid jurisdictional conflicts.

 

Force Majeure

 

Force majeure refers to events beyond the reasonable control of the parties that prevent contractual performance. In the maritime context, this includes extreme weather, strikes, political instability, or pandemics. A valid force majeure clause can offer temporary relief or enable contract termination, depending on the circumstances.

 

Liability Regimes in the Carriage of Goods by Sea

 

International conventions determine liability for loss or damage:

 

• Hague Rules: Apply to bill of lading contracts; liability is capped at £100 per package with a one-year time bar.
• Hague-Visby Rules: Update of Hague; limit is 2 SDR/kg or 667 SDR/package.
• Hamburg Rules: Apply to all carriage contracts; higher limits of 2.5 SDR/kg or 835 SDR/package and a two-year time bar.
• Rotterdam Rules: Provide the highest limits (3 SDR/kg or 875 SDR/package) and a two-year time bar, covering a wider range of transport contracts.

 

INCOTERMS and Liability

 

While INCOTERMS determine when risk transfers between the buyer and seller, liability regimes define how claims are handled once that risk is transferred. Understanding both is crucial for ensuring adequate protection and coverage under international sales and carriage contracts.