Dead Freight
In the world of global shipping, empty space is more than just a missed opportunity—it’s a financial liability. For shippers and freight forwarders, Dead Freight represents one of the most frustrating "hidden costs" in the supply chain.
What Is Dead Freight? (Beyond the Definition)
Dead freight is essentially liquidated damages. It is a charge levied by a carrier when a shipper fails to provide the full quantity of cargo specified in a binding contract or Charter Party.
Unlike standard freight charges, which are paid for service rendered, dead freight is paid for a breach of contract. When you book a vessel’s capacity-whether it’s a 40ft High Cube container or a 50,000-ton bulk carrier-you are buying that space. If you don't use it, the carrier cannot simply "resell" it at the last minute, and you are held liable for the lost revenue.
Senior Strategist Insight: In maritime law, dead freight is usually "unliquidated," meaning the carrier has a duty to mitigate their loss by seeking substitute cargo. If they find another shipment for that space, your dead freight bill should, in theory, be reduced.
Why Dead Freight Occurs: The Common Triggers
Short-Shipped Cargo: The most common cause. A shipper books 5,000 MT of grain but only delivers 4,500 MT to the pier.
Over-Nomination: A shipper overestimates their production capacity during the booking phase.
Cargo Rejection: If a surveyor deems cargo unfit for loading (due to moisture or contamination), and no replacement is available, the carrier will claim dead freight.
Inaccurate Volumetric Planning: In LCL (Less than Container Load) or Air Freight, failing to account for "pivot weights" or "chargeable weight" can trigger penalties.
How to Calculate Dead Freight (The Formula)
Logistics managers must understand that dead freight isn't always "Full Rate x Missing Tons." Most professional contracts use the Net Dead Freight approach.
The Basic Formula:
Dead Freight = (Quantity Short - Shipped * Freight Rate) - Expenses Saved
Quantity Short-Shipped: The difference between the agreed minimum and the actual loaded amount.
Expenses Saved: The carrier must deduct costs they didn't incur, such as Loading/Discharging costs (stevedoring) and specific port dues based on weight.
Critical Differences: Liner Terms vs. Charter Parties
In Container Shipping (Liner): Dead freight is often handled as a "No Show Fee" or "Cancellation Fee."
In Bulk/Tramp Shipping: Dead freight is governed by strict clauses in the Charter Party (e.g., GENCON). Here, the Master will usually issue a formal "Letter of Protest" for dead freight at the loading port to protect the shipowner’s claim.
Strategies to Mitigate Dead Freight Risk
Use "MOLOO" Clauses: When chartering, use MOLOO (More or Less in Owner's Option) or MOLCHOPT (More or Less in Charterer's Option) clauses. This allows for a percentage (usually 5-10%) of flexibility in the cargo volume.
Real-Time Cargo Readiness: Implement stricter milestones for inland drayage to ensure cargo arrives at the Port of Loading (POL) before the "Gate-In" deadline.
Load Plan Optimization: Use 3D load planning software to ensure you are maximizing the "Weight vs. Volume" ratio of every container booked.
Conclusion
Dead freight is an operational signal of inefficiency. While it serves to protect carrier revenue, for a shipper, it is a "dead" expense that adds no value to the product. By mastering contract nuances and improving forecasting accuracy, companies can turn these potential losses into a competitive advantage.
Frequently Asked Questions (FAQs)
1. Does the carrier have a lien for dead freight?
Yes, in many jurisdictions and under most Bill of Lading terms, a carrier can legally hold your cargo until dead freight charges for the unused space are settled.
2. Is Dead Freight the same as Demurrage?
No. Demurrage is a penalty for exceeding allowed time (Laytime) for loading/unloading. Dead Freight is a penalty for failing to provide the agreed volume of cargo.
3. Can I avoid dead freight if the ship is full?
If the carrier manages to fill your "unused" space with another customer's cargo, they have technically mitigated their loss. In many legal frameworks, you may be entitled to a reduction or waiver of the dead freight charge.