What is a Contract
of Affreightment?

By Calmwaters Maritime Team · Published January 2025

If you ship cargo regularly on West African trade routes, you have probably come across the term Contract of Affreightment. It is one of the most common freight arrangements in the oil and gas sector, and understanding how it works can save your company significant money and risk.

Definition: What is a Contract of Affreightment?

A Contract of Affreightment, commonly referred to as a COA, is a long-term agreement between a shipowner and a charterer. Under this contract, the owner agrees to carry a specified volume of cargo over a set period, usually between 6 and 36 months, at a pre-agreed freight rate or rate formula.

Unlike a single voyage charter, a COA governs multiple shipments. Unlike a time charter, the charterer does not hire a specific vessel. Instead, the owner nominates appropriate tonnage for each lifting, subject to the charterer's approval. This gives the charterer rate certainty without the obligations of vessel ownership.

How Does a COA Work in Practice?

Consider a Nigerian crude oil trader who exports 500,000 barrels per month from Bonny Terminal to refineries in India. Rather than booking each voyage on the spot market, the trader enters a 12-month COA with a tanker owner. The agreement specifies:

• -Total volume: 6 million barrels over 12 months
• -Cargo type: Bonny Light crude oil
• -Loading port: Bonny Terminal, Nigeria
• -Discharge range: West Coast India
• -Freight rate: Worldscale W85 (or formula-based)
• -Lifting intervals: Monthly, +/- 5 days
• -Vessel type: Suezmax (800,000 to 1 million barrels per shipment)

Each month, the owner nominates a vessel, the charterer approves it, and the voyage proceeds as a separate fixture under the umbrella COA. The freight rate stays constant regardless of what happens in the spot market.

COA vs Time Charter vs Voyage Charter

Understanding the differences between these three main charter types helps you choose the right structure for your cargo requirements.

When Should You Use a COA?

A COA makes sense when your company has a recurring, predictable cargo requirement over a defined period. Common scenarios include:

• -Oil companies with regular crude exports from Nigerian terminals
• -Refineries importing petroleum products on a monthly basis
• -LNG producers with long-term offtake agreements
• -Trading houses with fixed cargo positions on West African routes
• -Mining companies exporting minerals on a quarterly basis

If your cargo requirements are irregular or unpredictable, a voyage charter or spot market booking may be more appropriate. If you need a dedicated vessel for a long period, a time charter is likely a better fit.

Advantages of a Contract of Affreightment

Risks and Considerations

While a COA offers many benefits, there are risks to consider. If spot rates fall below your contracted rate, you may be paying above market. Conversely, if rates rise, you benefit from the fixed rate. The charterer also bears the risk of under-lifting, that is, failing to ship the committed volume, which may result in dead-freight claims.

It is also important to ensure the COA includes appropriate force majeure clauses, sanctions provisions, and war risk language, particularly for West African trades where these risks are more pronounced.

Key Terms in a COA

• -Deadfreight: Payment for unused cargo capacity if the charterer fails to ship the full contracted volume.
• -Laycan: The agreed window within which each lifting must occur.
• -Demurrage: Compensation to the owner if loading or discharge takes longer than the allowed time.
• -Despatch: Bonus to the charterer if loading or discharge is completed faster than allowed.
• -Worldscale: A standardised freight rate index used for oil tanker chartering.
• -BIMCO: Baltic and International Maritime Council, the body that produces standard maritime contracts.

Summary

A Contract of Affreightment is a practical, flexible freight arrangement for companies with regular cargo movements on predictable trade routes. It provides rate certainty, voyage flexibility, and protection against market volatility. For oil traders, refineries, and LNG producers operating in West African waters, a COA is often the preferred structure for managing long-term freight commitments.