Charterparty and Bill of Lading in the Philippines: How Shipping Contracts Work

A charterparty is the contract under which a shipowner places a vessel, or its carrying capacity, at the disposal of a charterer. A bill of lading is the document a carrier issues to a shipper covering the goods actually loaded. In the Philippines, both operate alongside Republic Act No. 9295, the Domestic Shipping Development Act of 2004, which governs who may carry cargo in the domestic trade and how that business is licensed. This article explains each document, how they differ, and the Philippine rules that apply to domestic carriage.

What is a charterparty?

A charterparty is a contract of hire of a ship. The owner keeps or surrenders control of the vessel depending on the type of charter, and the charterer pays hire or freight in return.

Philippine law does not define "charterparty" in Republic Act No. 9295. Instead, the statute treats the charter of a vessel as a mode of importation — the "direct purchase, lease or charter of newly constructed or previously owned ships" from foreign sources. A charter is therefore also an acquisition route for tonnage, subject to MARINA rules on vessel importation and classification.

Charters are commonly described by how much of the ship is placed at the charterer's disposal: a demise or bareboat charter transfers possession and control of the vessel, while other arrangements leave the owner responsible for crewing and navigation. Because the Civil Code and the Code of Commerce govern contracts and maritime commerce generally, the parties' written terms control most commercial questions, subject to Philippine law and regulation.

What is a bill of lading?

A bill of lading is the carrier's receipt for the cargo, evidence of the contract of carriage, and a document of title that allows the goods to be claimed or transferred. It is issued for the specific shipment loaded on board, not for the use of the ship as a whole.

This is the practical dividing line. A charterparty deals with the vessel or its capacity; a bill of lading deals with the goods. Where a vessel is chartered and then carries cargo for third parties, the bill of lading issued to those shippers governs the carrier's relationship with them.

Who may carry cargo in the Philippine domestic trade?

Under Section 5 of Republic Act No. 9295, no franchise, certificate, or other form of authorization for the carriage of cargo or passengers in the domestic trade shall be granted except to domestic ship owners or operators.

A domestic ship operator or domestic ship owner is defined in the same law as a citizen of the Philippines, a commercial partnership wholly owned by Filipinos, or a corporation at least sixty percent (60%) of the capital of which is owned by Filipinos, duly authorized by the Maritime Industry Authority (MARINA) to engage in domestic shipping.

Section 6 adds that no foreign vessel shall be allowed to transport passengers or cargo between ports or places within Philippine territorial waters, except upon the grant of a Special Permit by MARINA when no domestic vessel is available or suitable and public interest warrants it. A charterer therefore cannot simply bring in a foreign vessel to move domestic cargo; the Special Permit requirement applies.

MARINA authority over domestic carriers

MARINA issues the certificate of public convenience, which the law defines as the license or authority issued to a domestic ship operator to engage in domestic shipping. Under Section 10, MARINA registers vessels, issues these certificates (none valid for more than twenty-five years), and may modify, suspend, or revoke them upon notice and hearing.

MARINA also sets safety standards, inspects vessels, and hears complaints involving violations of the law or its rules. Under Section 9, all vessels operated by domestic ship operators must at all times be in seaworthy condition, properly equipped, and manned by duly licensed and competent crew.

Cargo liability and compulsory insurance

Section 14 of Republic Act No. 9295 requires every domestic ship operator to submit annually adequate insurance coverage for cargo, computed in accordance with existing laws, rules and regulations, with the total coverage equivalent to the vessel's total cargo capacity being offered. The coverage must come from a duly licensed insurance company or an international protection and indemnity association.

The same section ties this requirement to the operator's financial responsibility for any liability it may incur for any breach of the contract of carriage. That contract, for a given shipment, is typically evidenced by the bill of lading. Where the operator runs more than one vessel, the required coverage is based on the largest operating vessel, and the total required shall not exceed the value of that vessel.

Section 15 allows MARINA to require other compulsory insurance necessary to adequately cover claims for damages.

Common problems in charterparty and bill of lading disputes

Two recurring issues arise. First, identity of the carrier: a shipper holding a bill of lading may need to establish who contracted to carry the goods, particularly where the vessel was under charter. Second, authority to operate: a carriage arrangement involving a party without the required certificate of public convenience, or a foreign vessel without a Special Permit, raises regulatory exposure under Section 16, which lists operating without valid authority among the prohibited acts and practices of domestic ship operators.

Frequently asked questions

Is a charterparty the same as a bill of lading in the Philippines? No. A charterparty is a contract for the hire or use of a ship or its capacity. A bill of lading is issued for the goods loaded and serves as receipt, contract of carriage, and document of title.

Can a foreign vessel carry cargo between Philippine ports? Generally no. Under Section 6 of Republic Act No. 9295, a foreign vessel may transport passengers or cargo between Philippine ports only upon a Special Permit from MARINA, granted when no domestic vessel is available or suitable and public interest warrants it.

Who can operate domestic shipping in the Philippines? Only domestic ship owners or operators — Filipino citizens, Filipino-owned partnerships, or corporations at least sixty percent Filipino-owned — duly authorized by MARINA, as provided in Sections 3 and 5 of Republic Act No. 9295.

Practical takeaways

• A charterparty covers the ship or its capacity; a bill of lading covers the cargo actually loaded.
• Domestic cargo carriage requires a MARINA-issued certificate of public convenience, available only to qualified domestic ship operators.
• Foreign vessels need a MARINA Special Permit to carry cargo between Philippine ports.
• Domestic ship operators must carry adequate cargo insurance, tied by law to liability for breach of the contract of carriage.
• Check the counterparty's MARINA authority before committing to a fixture or shipment.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• IRR of REPUBLIC ACT NO. 10635 - 2022 IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT 10635, "ACT ESTABLISHING THE MARINA AS THE SINGLE MARITIME ADMINISTRATION RESPONSIBLE FOR THE IMPLEMENTATION AND ENFORCEMENT OF THE INTERNATIONAL CONVENTION ON STANDARDS OF TRAINING, CERTIFICATION AND WATCHKEEPING FOR SEAFARERS, 1978, AS AMENDED, AND INTERNATIONAL AGREEMENTS OR COVENANTS RELATED THERETO:

• REPUBLIC ACT NO. 9295 - AN ACT PROMOTING THE DEVELOPMENT OF PHILIPPINE DOMESTIC SHIPPING, SHIPBUILDING, SHIP REPAIR AND SHIP BREAKING, ORDAINING REFORMS IN GOVERNMENT POLICIES TOWARDS SHIPPING IN THE PHILIPPINES, AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 7583 - AN ACT GRANTING THE ABOITIZ AIR TRANSPORT CORPORATION A FRANCHISE TO ESTABLISH, OPERATE AND MAINTAIN TRANSPORT SERVICES FOR THE CARRIAGE OF GOODS, MAIL AND OTHER PROPERTY BY AIR, BOTH DOMESTIC AND INTERNATIONAL

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.