Arbitration is a formal method of resolving disputes outside the court system. It is a form of alternative dispute resolution (ADR) where the parties in a conflict agree to present their cases to a neutral third-party (an arbitrator or a panel) rather than filing a lawsuit in a public court.
The arbitrator hears evidence from both sides and then renders a decision, known as an arbitral award, which is typically legally binding and final.
In U.S. trade and maritime law, arbitration clauses are standard in nearly all contracts, including Bills of Lading, service contracts, and charter agreements. Parties agree to this because it is often faster, more confidential, and less expensive than litigation. It also allows them to select an arbitrator who has specific expertise in the complex field of maritime or transportation law.