In liquid bulk trades, charterers frequently request an In-Transit Loss (ITL) clause during charterparty negotiations. It can look like routine “technical wording”, but it is not. Drafted well, it protects shipowners from small, expected volume discrepancies. Drafted poorly, it can open the door to inappropriate claims and—at worst—create tension with the liability defences owners normally rely on.
What an ITL clause actually covers
“In-transit loss” is the difference between the ship’s recorded cargo quantities after loading and before discharge. In practice, discrepancies arise from:
- paper losses, driven by temperature-related volume changes, differences in free water detection, or measurement errors; and
- physical losses, occurring during the voyage due to the cargo’s characteristics (e.g., evaporation).
An ITL clause typically sets:
- the definition of in-transit loss;
- an agreed allowance (often 0.3–0.5%); and
- who bears losses within and above that allowance.
The real risk: interaction with the clause paramount and Hague/Hague-Visby
Most charterparties include a clause paramount incorporating the Hague or Hague-Visby Rules, giving owners a set of important defences and exceptions. The danger arises when an ITL clause is drafted to override the broader contract framework. If that happens, owners may find their usual defences challenged—an issue that is not only legal, but also insurance-relevant, because poor contractual positioning can become a P&I concern.
The leading case: The Valle Di Cordoba
The key authority is Trafigura Beheer v Navigazione Montanari (The Valle Di Cordoba) [2015] EWCA Civ 91. The vessel was seized by pirates and a significant quantity of cargo was stolen. The charterer sought to recover the cargo value from the owner relying on the ITL clause.
Two practical takeaways stand out:
- Scope matters: the Court construed the ITL clause narrowly. It rejected the idea that “all losses during transit, however caused” fall within ITL. That would effectively turn the shipowner into a cargo insurer—commercially unrealistic and inconsistent with why ITL clauses exist (routine voyage losses incidental to carriage).
- No automatic conflict with Hague-Visby: in that case, the Court found the ITL clause did not displace the clause paramount; the clauses could operate together, with ITL adding rights rather than removing defences.
However, there is a very practical drafting warning: if the ITL clause grants charterers the right to deduct from freight(rather than requiring a damages/compensation claim), owners may struggle to rely on Hague-Visby defences in the same way.
Owner-friendly drafting: the practical playbook
When negotiating an ITL clause, the question is not only “what percentage?”, but “what remedy mechanism are we creating?”. An owner-friendly approach typically:
- allows charterers to bring a claim for qualifying ITL (instead of automatic freight deductions);
- avoids wording such as “notwithstanding anything else in this charter…” which may unintentionally override the contract’s liability framework; and
- stays consistent with the clause paramount and the broader allocation of responsibility.
A quick drafting checklist
- Define ITL tightly around routine paper/physical losses—avoid “any loss during transit”.
- Set a clear allowance and measurement methodology (including temperature/volume basis).
- Remedy structure: claim-based, not deduction-based (or heavily constrained if unavoidable).
- Avoid overarching precedence language (“notwithstanding”).
- Align with bills of lading wording and cargo documentation chain.
- Use targeted legal review for higher-risk trades, cargoes, or routes.
Conclusion
An ITL clause is a double-edged sword. It can shield owners from minor, expected discrepancies, but a broadly drafted clause—or one allowing freight deductions—can invite claims beyond the clause’s commercial purpose. Treat ITL as a liability clause, not boilerplate.
CTA: If you share the exact ITL wording you’re being asked to accept, I can flag the red-line issues and propose minimal edits to keep it owner-friendly. Is the clause structured as a damages claim, or as a freight deduction?
Source & Reference
- Organisation / authors: Shipowners’ Protection Limited / Shipowners’ Club; HFW contributors named in the publication.
- Document title: “In-transit loss clause – A double-edged sword for ship owners”.
- Official link: https://www.shipownersclub.com/latest-updates/news/transit-loss-clause-double-edged-sword-ship-owners/
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