Lay-time is the time permitted in a contract for loading and/or discharging a voyage chartered ship. If this permitted time is exceeded, the owner or operator of the ship will be entitled to damages. These damages are normally agreed to be 'liquidated' - that is to say that a daily sum (or 'pro-rata' for part of a day) will be negotiated in the form of 'demurrage', payable for each day or part day of delay.
The demurrage rate is usually freely negotiated by the parties concerned during the fixing stage and will reflect market conditions prevailing then. Of course matters can change during the course of the voyage but under most charter parties the rate of demurrage will not alter. Some charter parties – Gencon 76 is a good example – restrict the period in which the demurrage rate applies. If the vessel is still delayed beyond this period the owner can claim ‘damages for detention’ instead of demurrage.
Unlike demurrage, damages for detention will need to be proved – i.e. the basis on which they are calculated must be related to the actual loss of the owner and generally they will need to be sanctioned by a court or arbitration. Where the freight market has increased dramatically the damages may well be more than the demurrage that would otherwise have been paid but conversely in a poor market they may be less. An owner who can show that a following, but previously agreed, contract has been cancelled will clearly have a good basis on which to claim damages for detention.
that proving damages for detention might be a complicated matter it
is easy to see why most charter parties – including the Gencon 94 –
do not contain provision for any penalty other than demurrage.
Interestingly the Gencon 76 form, which is still widely used, gives
the owner a right of lien on the cargo for damages for detention and
that would surely expedite approval of the damage claim.
If a vessel finishes before the allowed time - or 'laytime' - has been used, a charterer may be entitled to a 'reward' in the form of payment of 'despatch' money - usually payable at half the daily rate of demurrage.
calculating is not an activity to be undertaken lightly. There may be
considerable sums of money at stake, which will have a noticeable
effect on a ship's profitability, or on a charterer's income.
The calculation of laytime can be divided into 'Seven Stages': -
the relevant clauses in the governing CONTRACT.
2. Obtain the STATEMENT OF FACTS.
3. Determine how much laytime is available – i.e. its DURATION.
4. Establish the COMMENCEMENT of laytime.
5. Allow for INTERRUPTIONS to laytime.
6. Establish when laytime will cease – i.e. CESSATION, and,
7. Calculate how much DESPATCH or DEMURRAGE is payable.
1. CONTRACT: The relevant charterparty or the sales contract should specify laytime terms, so that by referring to the contract in relation to the details supplied by the statement of facts form, a 'time sheet' can be drawn up which shows whether the allowed laytime has been exceeded or is not fully used. The interpretation of many of these clauses and their true significance is almost an art in itself, and careful wording needs to be employed in the drafting of laytime clauses, guided by knowledge of specialised case law on the subject.
2. STATEMENT OF FACTS: One of the prime functions of a port agent is to produce a written record of events occurring during a vessel's port visit this is sometimes referred to as a 'port operations log'. Thus are recorded a ship's arrival date and time: when berthed or shifted to another berth; worked cargo, bunkered and departed; the time 'notice of readiness' was tendered and accepted; weather conditions; and whatever else is relevant.
No matter the reason for a vessel's visit to port, whether it is for drydocking or repairing; bunkering; cargo-working; whether on voyage or timecharter; a port agent should produce a Statement of Facts form to be forwarded to his principal upon the vessel's departure. Many port agents use their own in-house designed form for this purpose, but a standard document which can be used at any port, worldwide, is available from BIMCO, and can be used if the agent or his principal so wishes (see Appendix 6:1). It will be from this that a Time Sheet (such as in the form of Appendix 6:2) will eventually be drawn up.
It is good practice for principals to brief a port agent fully about operational and chartering matters before a vessel's arrival in port. If possible the port agent should be sent a copy of the charterparty/sales contract for perusal and guidance. In this way the agent should be aware of information ultimately needed to be incorporated into the statement of facts form.
To avoid unnecessary dispute, interested parties to a vessel's visit to port – e.g. the ship's Master, port agents, shipper/receiver - should sign the completed statement of facts form. There should rarely be any objection to signing that document if it sets out to be simply what its name implies - a statement of facts. It is in the laytime interpretation of those facts that disputes are likely to arise, not in the recording of events. If, however, one or other of the parties has an objection to the contents of a statement of facts form, it should be signed 'under protest', a statement being added, clarifying the reason(s) for the objection.
Some agents provide an Internet-based service that allows owners and charterers to access a running statement of facts while the vessel is working in port. The more sophisticated systems allow the information to be moved electronically into computer laytime calculation programs.
3. DURATION: Duration of laytime can be sub-divided into three categories: -
3.1 Definite Laytime: The simplest of the categories, specifies how many days/hours are allowed, whether for loading or for discharging, or for both activities, the latter sometimes being known as for 'all purposes'. Terms might be: 'Cargo to be loaded within 5 weather working days of 24 consecutive hours', or '7 working days of 24 consecutive hours, weather permitting, for all purposes'.
Calculable Laytime: In these cases periods of definite laytime as
described above can only be established once a calculation has first
been carried out, based on factors contained in the contract and in
the statement of facts form.
Calculable laytime can be sub-divided into two further sub-sections: -
3.2.1 Tonnage Calculations: Tonnage calculations are the most common types of calculable laytime. A contract will state that a vessel is to load and/or discharge at a set rate of tons/tonnes per day/hour. Thus, for a ship loading 40,000 metric tonnes of cargo, minimum/maximum, at a rate of 10,000 tonnes daily, there will be 4 days of laytime available to her charterers.
it might be that the ship's Master has a margin within which to load
– e.g. 40,000 tonnes/5% more or less. Thus, if the ship eventually
loaded 41,258 tonnes of cargo, available laytime can be assessed as
41,258 tonnes ) 10,000 tonnes daily = 4,1258 days.
4,1258 days equates to 4 days 3 hours 1 minute in the following manner: -
D H M
- 4.0000 4 00 00
- 0.1250 0 03 00
- 0.0007 0 00 01
4 03 01
A table giving the decimal parts of a day to help in calculations of this kind will be found in Appendix 6:3.
3.2.2 Hatch Calculations: Are more complicated than Tonnage Calculations, but occasionally need to be performed: Nonetheless, there are well-established procedures to assist.
Let us assume that general cargo vessel 'HERON' is discharging bagged wheat flour on the basis of: -
i) a discharge rate of 175 tonnes per hatch daily,
ii) total cargo of 7,000 tonnes,
iii) 1,575 tonnes cargo in the largest cargo compartment, and
iv) vessel has five (5) hatches.
18.104.22.168 'Per Hatch daily': The vessel is to be discharged at 175 tonnes per hatch daily.
Thus 5 (hatches) x 175 tonnes = 875 tonnes daily,
Thus 7,000 tonnes cargo ) 875 = 8 days permitted laytime.
22.214.171.124 'Per Workable Hatch daily': Where the terms 'workable', 'working' or 'available hatch daily' are introduced, complications set in. To be 'workable' under English Law, a hatch must be capable of being 'worked' - that is to say, there must be space beneath that hatch at the loading port, and there must be cargo under the hatch at discharge port.
Taking the above example of the 'HERON', as each hatch is emptied, the discharge rate would reduce by multiples of 175 tonnes daily, until all holds become empty one by one. This is, however, a cumbersome and sometimes complicated method of calculation, and English law procedure lays down a simpler alternative which is followed in such cases. First it is necessary to establish the 'largest' unit of cargo in the vessel. Reference to the 'stowage plan' shows that 1,575 tonnes contained in No. 3 hold and tweendeck beneath No. 3 hatch constitutes the 'largest' unit.
Thus, 1,575 tonnes) 175 daily = 9 days laytime overall.
However, where the largest unit of cargo is served by two or more hatches, the unit tonnage must be sub-divided. Assuming two hatches served No. 3 hold and tweendeck, for example, 1,575 tonnes would first be divided by 2 before applying the factor of 175 tonnes daily. In that case, the largest indivisible cargo unit would become the 1500 tonnes contained in No. 2 hold and tweendeck, and the laytime duration calculation would then be: -
1,500 tonnes ) 175 daily = 8.571428 days laytime.
(8.571428 days can be converted to days, hours and minutes by using the table in Appendix 6:3).
SELF ASSESSMENT QUESTION
Work out the laytime allowed for the following vessels on the basis of ‘per hatch daily’ and ‘per workable hatch daily’ under English law:
‘Lark’ to be discharged at 340 tonnes per…
6 holds/6 hatches
Vessel ‘Pigeon’ to be discharged at 1500 tons per…
4 holds/7 hatches (twin Nos 2, 3 and 4 holds).
1. 9200T; 2. 17,800T; 3. 22500T; 4. 24000T.
3.3 Indefinite Laytime: Occasionally, an owner or operator will agree for his ship to be loaded or discharged as per 'custom of the port (COP); 'customary despatch' (CD); 'customary quick despatch' (CQD), or 'fast as can' (FAC) terms.
The common factor with these terms is that all provide a shipper or receiver with an 'indefinite' period during which to perform cargo operations, although they must act 'reasonably'. It is 'unreasonable', for example, for cargo not to be available upon a vessel's arrival within agreed laydays, and in such a case, the owner or operator of the ship would normally become entitled to reimbursement by 'damages for detention'. But risk of bad weather, port congestion, and suchlike are all for the shipowner/operator to bear.
'Fast as can' applies normally to ships that have their own gear and can load or discharge without use of shore equipment and stipulates that the cargo will be loaded and/or discharged 'as fast as the vessel can', often adding a further stipulation that charterers or shippers/receivers must be able to 'deliver' or 'take-away' cargo at a particular daily tonnage rate.
3.4 Deadfreight: Where only part of a contracted cargo can be supplied and, consequently, where 'deadfreight' becomes payable to a shipowner/operator as a result, under English law laytime is applied only on the portion of cargo actually loaded. Thus: -
i) contracted cargo:- 10,000 tonnes min/max
ii) loading rate:- 2,000 tonnes daily
iii) cargo supplied:- 7,000 tonnes
iv) deadfreight:- 3,000 tonnes (10,000 - 7,000)
v) laytime:- 7,000 / 2,000 = 3.5 days.
However, also under English law, a shipowner/ operator claiming deadfreight must return to the charterer any benefit received. Thus two laytime calculations should be carried out, one based on actual cargo loaded/discharged and the other on the original cargo that should have been loaded/discharged. Any difference in the owner's favour should be credited to the charterer in return for payment of deadfreight.
In the above case:
laytime 3.5 days.
Original laytime 10000 tons / 2000 = 5 days.
Laytime saved to be credited against deadfreight 1.5 days.
American law is more straightforward in cases of deadfreight, calculating laytime on what has been loaded, plus tonnage equivalent to the deadfreight paid by charterers.
4. COMMENCEMENT: For laytime to have 'commenced', a vessel must have 'arrived' at the place where cargo operations are to be performed (1) 'arrival': must be physically able to undergo cargo operations (2) 'readiness'; and have dealt with (3) 'contractual commitments'.
4.1 Arrival: Laytime is a subject which lends itself to dispute, and the definition of whether or not a ship has 'arrived' in a laytime sense may sometimes be extremely legally complicated, there being much English law on the subject. Simply, to have 'arrived' at a port, a vessel must have reached either the loading/discharging place or, should that place be busy, the normal waiting place.
Furthermore, a ship's Master or agent must have tendered Notice of Readiness, in accordance with the contract requirements (e.g. 'within office hours, Mondays to Fridays').
Notice of Readiness can be given orally, but usually a written form is used, an example of which can be found in Appendix 6:4. It is an important function of a port agent to assist a ship's Master in tendering notice of a ship's arrival, and also to ensure that shippers/ receivers officially 'accept' the vessel's notice of readiness, accomplished usually be signing and timing acceptance on the notice form, although many shippers/receivers or charterers' nominated port agents, will 'accept subject to charterparty terms and conditions'.
4.2 Readiness: A ship must be physically capable of performing cargo-operations – e.g. at a loading port, holds must be cleaned and prepared for receiving cargo and, if the contract so specifies, holds must be inspected and declared suitable by an appropriate authority before notice of readiness will be accepted.
4.3 Contractual Commitments: Contracts usually state that before laytime commences, a vessel must, (a) have been 'entered' at the local custom house and (b) be in 'free pratique' (given the go ahead to proceed by the port health authority).
4.3.1 Congestion: In case cargo berths are occupied upon a vessel's arrival, contracts usually specify that notices of readiness can be tendered from a 'normal waiting place', 'whether in berth, or not' (WIBON); 'whether in free pratique, or not' (WIFPON); and 'whether custom's cleared or not' (WCCON). It is normal that time spent in eventual shifting from the waiting place to the first cargo berth will not count as laytime.
4.3.2 Turn Time: This occurs at certain ports where ships wait their 'turn' to load/discharge. When waiting turn, laytime will not usually count. Sometimes 'turn time' is limited - say to '48 hours' - laytime commencing once this period has elapsed, or earlier if cargo operations begin within that period. Where no 'turn time' limit is specified, the risk of excessive delay is that for a shipowner. When markets are in their favour, some charterers attempt to impose 'turn time' conditions into a charterparty, even though there is no such custom for same at the ports involved – e.g. '36 hours turn time both ends'.
4.3.3 Commencement: Once a vessel has arrived at a port, complied with all formalities and contractual commitments, and tendered notice of readiness, laytime will commence in accordance with the contract terms – e.g. 'at 0700 hours next working day', or '12 hours following tendering and accepting notice of readiness'.
4.3.4 It is important to remember that the commencement of time counting and the commencement of actual loading or discharging can, under certain circumstances, be quite different. Take, for example, a charterparty with 36 hours turn time 'even if used' also Sundays and Holidays excepted 'even if used' and Notice of Readiness to be given during normal office hours. Such a ship could arrive at, say, 6 pm on a Friday, work the entire weekend and time would not commence to count until 36 hours after 8 am Monday. Such a ship would have been working for over four days before time even commences to count. Vital, therefore, to ensure also that Notice of Readiness is handed in at the earliest permissible moment. Never think that as work has already started a Notice of Readiness is not needed.
Arrival before laydays
Providing a ship arrives at a loading port within the laydays before the cancelling date, the charterer is obliged to produce a cargo for it. He is not obliged to produce any cargo before the laydays if the ship arrives early.
Even though the charterer is under no obligation to provide cargo, the owner can present an immediate notice of readiness and time will begin to count in accordance with the terms of the charter party. In such a case, the exceptions to laytime – in addition to those agreed upon – will include any time up to the first time and date mentioned in the agreed laydays.
Effectively this situation means that the time lapse between presenting a notice of readiness and time starting to count that would exist under more normal conditions disappears.
As an example the laycan for a ship on a Gencon 76 may have been agreed as Wednesday 8th April – Tuesday 14th April. The time to count from 1400 if NOR delivered in office hours before noon and 0800 the next day if delivered after noon. A rate of 5,000 tonnes per day WP was agreed for cargo handling.
Had the ship arrived on Wednesday 8th at 0745, the NOR would have been tendered at 0900 and time and time started to count from 1400 that day. But if the ship arrived on Friday 3rd April at 1100 and tendered immediate notice time would start to count at 1400 on Friday 3rd. None of the time up to 0001 on Wednesday 8th would count either because it was a weekend (excepted under the terms of the c/p) or because the time was before commencement of laydays.
But as soon as Wednesday 8th arrived the laytime clock would start to run, and unless the weather prevented any work it would do say at 0001. A whole 14 hours earlier than the charterer may have counted on. Some charterers have countered this advantage for the owner by demanding a clause that prevents the NOR being presented before laydays.
SELF ASSESSMENT QUESTIONS
Attempt the following and check your answers from the text or appendices: -
1. What are the seven stages to be taken into consideration when calculating laytime?
2. What is the difference between a Statement of Facts and a Time Sheet?
3. What is 'Free Pratique'?
4. What is the effect on laytime calculations when deadfreight is involved?
5. INTERRUPTIONS: Once laytime has commenced, unless a vessel's cargo-handling equipment breaks down, it will continue unhindered until the completion of cargo operations, or until laytime expires or demurrage commences. Nevertheless, contracts frequently include express clauses interrupting laytime in the event of: -
Weekends and holidays
5.2 Shifting between berths
5.4 Bad weather
5.1 Weekends and holidays: If these are to interrupt laytime, the contract can be said to be on 'SHEX' terms (Sundays and Holidays Excepted), or on FHEX terms (Fridays and Holidays Excepted) if in Moslem countries. Should weekends and holidays count as laytime, the contract can be said to be based on SHINC (Sundays and Holidays Inclusive) - FHINC in Moslem countries. The terms SHEX and SHINC came into use when Saturdays were considered part of the working week. Nowadays of course Saturday is also a non-working day and the terms have been altered slightly to SSHEX and SSHINC – sometimes brokers refer to this as ‘full’ SHEX or SHINC as the case may be when talking to each other.
Normally a charterparty will specify the actual time before a holiday or a weekend that laytime is to be suspended – e.g. 'from 1800 hours on the day preceding a holiday'. If no such time is specified, laytime is usually suspended from midnight on the day preceding a holiday.
In the same way a charterparty will normally specify the actual time of resumption of laytime following a holiday or weekend – e.g. 0700 hours Monday. If no such time is specified, laytime will usually recommence at 0001 hours on the day following a holiday or weekend.
If cargo work is performed during an excepted period, laytime will not normally count, unless the contract allows it to – e.g. 'time not to count during weekends, 'unless used'. Alternatively, a contract may emphasise that 'time used during weekends is not to count, even if used'. Occasionally, agreement is reached that 'actual time used during weekends is to count as laytime', or even 'half time actually used to count'. It may also be agreed that the period between notice of readiness being tendered and the commencement of laytime may count as laytime 'if actually used'.
5.2 Shifting between berths: It is common practice for contract wording to permit loading/ discharging at more than one berth or anchorage at each port. Consequently, time spent shifting between berths/anchorages is normally taken to be for owners' account. However, should the agreed number of berths/anchorages be exceeded, it becomes reasonable that the shifting time involved should count as laytime, and that the expenses involved – e.g. towage and pilotage - should also be for the account of the charterers.
5.3 Strikes: There is nearly always an express clause in a contract to the effect that delays due to shore strikes are not to count as laytime.
5.4 Bad Weather: Clauses in a shipping contract referring to bad weather interruptions of laytime at one time could be divided into two types - 'weather working days' and 'days, weather permitting'. For many years it had been accepted that the former expression favoured charterers and the latter favoured shipowners.
In cases of 'weather working days', laytime does not count during period of bad weather that interrupt loading or discharging, nor (and this is the important factor) does laytime count when bad weather occurs during a working day even if, had the weather been fine, no attempt would have been made to work. 'Weather working day' describes a type of working day. It does not matter whether the vessel was actually working or not.
It follows, therefore, that even if a ship is not actually on the loading (or discharging) berth, for example because it is occupied by another ship, if time has started to run and bad weather occurs during a working day, that time will not count against charterers as laytime.
Take note of the word 'working' day (we will be studying this a little more deeply later in the lesson). A working day not only refers to a day when work normally takes place, it is also that part of the day when work is normally done in the port in question. If, therefore, the word 'working' is not qualified in any way, the bad weather would have to occur during the port working part of the day for it to be deducted from the laytime.
Conversely, where the charterparty reads 'working day of 24 consecutive hours' (which is now more normal), then bad weather occurring at any time (once laytime had started to run) would be deductible even if the charterer had no intention of working during such a period.
In cases of 'days, weather permitting' it was understood until 1982 that only working time actually interrupted by bad weather would fail to count as laytime. All this, however, was before the case of the 'VORRAS' in that year. That vessel was a tanker and the judges of the English Court of Appeal had to determine the meaning of the term '72 running hours, weather permitting, Sundays and holidays included...', where the vessel was kept from a loading berth for some days owing to bad weather. They held that bad weather at the time was such as to prevent the loading of a vessel of the 'VORRAS' type and as such, laytime should not count. In other words, that decision on a tanker has effectively eroded the long-held and sacred distinction in the dry-cargo market between 'weather working' and 'weather permitting'.
Frequently in modern charterparties one will still encounter either the terms 'weather working' or 'weather permitting', although under English law, at least, there is effectively now no difference. However, both will probably refer in the same clause to 'days of 24 consecutive hours', a similar expression to the 'running hours' used in the case of the 'VORRAS'. The word 'consecutive' is, in fact, extremely important, having evolved over very many years in order to avoid costly disputes.
Where the term 'days of 24 consecutive hours' is incorporated into a charterparty's laytime provisions - and this is the term used in almost all modern dry-cargo charterparties - it in effect means that a laytime day will run continuously for 24 hours each day, unless specifically interrupted by some charterparty factor such as a weekend or holiday, bad weather, or a strike. It is of no consequence whether the 'working day' of a port is of less than 24 hours. The parties to the contract have agreed, in effect, to ignore port 'working days' and to define a 'laytime day' as running continuously for 24 hours, except for any specified interruptions.
the student of dry-cargo laytime can understand this point, the
effect of interruptions on laytime should cease to be a
Where the words '24 consecutive hours' do not appear, as occasionally happens by intent, although perhaps more often by mistake, variations in today's practices may arise.
The term 'weather working day' on its own without qualification is indeed affected by the number of hours actually worked in a port. Should bad weather occur outside working periods in the normal, non-working and otherwise idle time, laytime will not be affected. However, if bad weather occurs in normal working time, even if the vessel was idle at the time, laytime will be interrupted and the degree of interruption has to be reached by apportioning working time in a port against a 24-hour day.
and assuming port labour works a 12 hour day, from 0700 hours until
1900 hours: -
Day 1: worked 0700/1900 = 1.0 day = 24 hours
2: worked 0700/1900
rain 2200/2400 = 1.0 day = 24 hours
Day 3: rain 0001/2400 = 0.0 day = 0 hours
Day 4: rain 0700/1900 = 0.0 day = 0 hours
5: worked 0700/1300
rain 1300/1900 = 0.5 day = 12 hours
6: worked 0700/1000
rain 1000/1900 = 0.25 day = 6 hours
7: rain 0700/1000
worked 1000/1900 = 0.75 day = 18 hours
Since the case of the 'VORRAS', the term 'working days, weather permitting' should be taken to be the same as for the above example, and the terms 'weather working days of 24 hours' and 'working days of 24 hours, weather permitting' (i.e. without the all-important 'consecutive') must also be treated in the same manner.
5.5 Breakdowns: It is reasonable that if a vessel's gear is being used and it breaks down, laytime should not continue during the period of breakdown. It may be that, for example, one crane out of four has broken down and, in such a case, apportionment of the degree of loss must be carried out. In that relatively simple example, laytime would continue at a rate of 75% until the crane is repaired.
There are, however, shore breakdowns, and it may be that the shipowners have knowingly or unwittingly assumed responsibility for these in their contract. Some charterparties exclude time lost due to stoppages of shore machinery “beyond the Charterers control”, which means just that under English law. Thus a shore crane breakdown that is judged to be 'beyond charterers' control' (i.e. Charterers do not own or otherwise 'control' the crane) such a break-down will, therefore, interrupt laytime. Under American law it may be that the alternative view would be upheld, in shipowners' favour, although that is not completely certain.
While most modern revisions have removed this wording, there are still several widely-used forms containing this expression or another to similar effect.
6. CESSATION: Generally, dry-cargo laytime ceases simultaneously with the termination of cargo-operations – i.e. as loading is completed. Occasionally, however, special cargo work such as trimming, lashing or securing will be necessary, the time for which would reasonably be added to laytime.
Most charterparties are silent also on the effect on laytime of time taken for reading drafts, perhaps an essential activity before bill of lading weight can be assessed. Usually, Charterers will recognise this activity as essential and include same as laytime, especially since it normally involves a relatively short time. Every now and then, however, a draft survey is seriously impeded by, for example, bad weather, and there might well be a dispute between the parties unless the contract specifies whether time devoted to ascertaining a vessel's draft should count as laytime or not.
7. CALCULATION: This can usefully be sub-divided into the following categories: -
7.4: Averaging laytime
But before examining each of these four categories, it is important at this stage to examine 'time sheets'.
with a statement of facts and the relevant charterparty, the
calculator having reached this 'seventh stage' can move on to using a
'time sheet' to compile the laytime calculation.
A time sheet is a document showing laytime utilised, taking into account all the factors mentioned in this Lesson, before arriving at a balance of despatch money in favour of charterers, or demurrage money in favour of owners/operators. They are based on information supplied from the statement of facts as interpreted by the relevant laytime clauses in the governing contract, themselves interpreted by knowledge of the law relating to laytime.
As in the case of statement of facts, BIMCO produce a standard time sheet form which is available for use worldwide, and this is reproduced under Appendix 6:2.
7.1 Damages for Detention: If charterers fail to abide by the provisions of a contract and, as a result, permitted laytime is exceeded, shipowners are normally entitled to reimbursement for their loss, if any. One method of reimbursement could be by claiming 'damages for detention', however this could be a lengthy and costly legal exercise. Consequently, most parties to a shipping contract avoid the problem by negotiating a daily level of 'liquidated damages' –i.e. 'demurrage' - for the time spent in excess of agreed laytime.
7.2 Demurrage: When all permitted laytime is used before the completion of cargo operations, and the parties to a contract have foreseen this possibility, it is usual that a governing contract will provide for demurrage to be paid to the shipowners. The amount of demurrage is negotiated with the contract and is usually described as '$...per day' or pro rata for part of a day. (Very occasionally demurrage might be described as '$ x cents per ton' but in such a case it is vital to establish whether the 'ton' refers to a summer deadweight tonnage of the ship involved, or 'per cargo ton', or 'per registered ton', and whether metric or long, gross or nett).
Usually address commissions and brokerages are deductible from demurrage payments, just as in the case of freight or deadfreight but this has to be clearly stated in the commission/brokerage clause(s).
Demurrage is intended to reflect the daily running cost of a vessel, including port bunker consumption, and where applicable, a reasonable profit level. Shipping being a free market, however, and exposed to market forces and necessities, there may be occasions when shipowners accept low or negotiate high demurrage rates.
Once laytime has been fully used, demurrage should normally run continuously, night and day, weekend and working period, with no interruptions until cargo work is completed unless the contract expressly provides otherwise – e.g. 'shifting time from anchorage to berth not to count as laytime or as time on demurrage'. Normally, however, laytime interruptions such as bad weather, weekends and holidays, will not interfere with demurrage time, although breakdowns on a vessel affecting discharge will interrupt demurrage time. Given these exceptions, it can usually be said that the much used shipping expression: 'once on demurrage, always on demurrage' means what it says.
7.3 Despatch: It is very often agreed that if a vessel completes cargo operations within the available laytime, the charterer will be rewarded by the payment of despatch money, which is normally set at half the daily rate of demurrage.
It should be borne in mind, however, that a few charterers negotiate that daily despatch is the same as daily demurrage, while, by contrast, for vessels that normally might expect a fast turn-round in port – e.g. ro-ro ships, car carriers, or coasters - it is not at all unusual for the contract to specify 'free despatch' – i.e. no despatch at all.
However, no address commissions or brokerages are payable on despatch money.
Where despatch is payable, it can be sub-divided as being payable on:
All time saved, or on
7.3.2 Working time, or laytime saved.
7.3.1 It is perhaps easier to understand despatch on 'all time saved' by the use of an example.
The 'HERON' completes loading at 1200 hours on a Friday, her charterparty being 'per weather working day of 24 consecutive hours, Saturdays, Sundays and Holidays excepted, even if used'. Thus laytime would be suspended in normal circumstances from Friday 2400 hours through to Monday 0001 hours.
At 1200 hours on Friday there are 3 days of laytime remaining and, since the term 'all time saved' means exactly what it says, the calculator of laytime has to base figures on the hypothetical case that "if the vessel had not completed loading on the Friday at 1200 hours, but had remained in port working cargo when would laytime have been fully used"?
Despatch would thus be calculated in the following fashion: -
'all time saved' 'laytime'
hours 12 hours
Saturday 0000/2400 0 hours
Sunday 0000/2400 0 hours
Monday 0000/2400 24 hours
Tuesday 0000/2400 24 hours
Wednesday 0000/1200 12 hours
5 days 3 days
Allowing for the weekend that has been 'saved' by the charterers due to their finishing before the expiry of permitted laytime, they have in effect 'saved' the shipowner some 5 days and, under 'all time saved' terms, are thus entitled to 5 days despatch.
7.3.2 Using the same example, but on the basis of 'working time' or 'laytime saved', only the 3 remaining days of laytime would apply as despatch, despite weekends or holidays or bad weather or any other factor occurring once the ship had departed.
The question remains, however, is 'working time saved' the same as 'laytime saved'? With laytime described as 'a day of 24 consecutive hours' it will be the same. Otherwise, if one is involved in apportioning 'working time' in the manner shown under 5.4 above, then despatch should be apportioned in the same manner.
You will readily see that 'despatch on all time saved' favours the charterer whilst 'laytime saved' or 'working time saved' is better for the owner; the 'fairness' of one versus the other is a perpetual debate. The owners naturally say that as laytime excepts certain periods like Sundays and holidays, then despatch should be on the same basis. The charterer counters this by arguing that a ship is earning all the time she is at sea regardless of which day of the week it is so that getting the ship to sea that much quicker should reward the charterer for every day without exception.
One final word about despatch; it should be borne in mind that some markets (e.g. bulk sugar) are based on laytime far in excess of the time actually required to perform cargo operations. It is, therefore, important for shipowners to take this into account when negotiating business and to reflect the 'saved' time as a 'despatch expense' in a voyage estimate.
7.4 Averaging Laytime: This is an overall title which should in reality be sub-divided into: -
Normal (or 'non reversible') laytime
7.4.2 Reversible, and
7.4.1 Normal or Non-reversible Laytime: If nothing is specifically mentioned in the contract, and where loading and discharging port laytime allowances are separately assessed, it can be taken that laytime is 'normal' or 'non-reversible'. Thus laytime for loading port(s) and for discharging port(s) are assessed entirely separately and it is possible even to calculate, claim, negotiate and settle the load port(s) despatch/demurrage sums before even a vessel has reached her discharge port(s).
7.4.2 Reversible Laytime: Where allowance for both the loading and discharging ports are added and calculated together. Either the contract may openly be on 'reversible' terms without actually stating so – e.g. 7 days, 'all purposes', or '16 total days' - or there may be an express clause giving the charterers the right or the option to apply reversible conditions if they so wish - in other words, if they calculate it to be in their favour to do so. Thus any laytime saved from the loading ports can be carried forward and added to laytime allowed at the port(s) of discharge.
7.4.3 Average Laytime: Arises where separate calculations are performed for the loading and for the discharging ports, with the final results for each being combined in order to assess what is finally due – e.g. 2 days demurrage at load port would be cancelled out by 2 days despatch at discharge port, even though the daily value of demurrage may be twice that of despatch.
At first sight it may appear there is no difference between the application of reversible and average laytime. In fact, differences can arise and, with the same basic facts, it is possible to reach three different results by applying each of the above alternatives.
Laytime Definitions: Appendix 6:5 contains the ‘VOYLAY Rules 1993’ in which laytime terms have been defined by a group of distinguished international shipping practitioners. It may be found useful in everyday laytime calculating. One word of warning, however. The definitions relate to international practice and not necessarily to a particular code of law. Thus there may be slight but significant differences between the definition appearing in this document from legal practice in a particular country.
It should also be noted that the rules do not automatically apply to every fixture made. Willing parties can however ensure that this is so by merely adding a short clause to the effect that in the event of a dispute the Voylay rules are to apply in interpreting particular words or phrases.
A study of the rules would show that the very first elements to be defined are ‘port’ and ‘berth’. This is particularly relevant because many charters specify particular berths for loading or discharging while others only mention the port.
If the charterer intends to work the ship at a specific berth it may be in his interest to name the berth and thus make the fixture a ‘berth charter’. There are many reasons why the charterer may want to nominate a particular berth but from a practical point of view as regards laytime the important difference between berth and port charters is that if a named berth is not available for a reason in which time would not count (such as neap tides) then the risk of incurring demurrage is lessened. Under a port charter time would count if other berths within the port were not affected by the tidal reason stated.
This lesson is designed to provide you with an introduction to this most complicated of subjects. This lesson will not, however, have made you an expert. That can only come with experience (some bitter) and by extensive reading. There are probably more arbitration and court cases connected with 'time counting' than any other single aspect of charterparties. One needs to keep up to date by reading newspaper and magazine articles. For example, in addition to the (many say perverse) judgement in the case of the 'VORRAS' referred to earlier, an apparently simple dispute recently went all the way to the English House of Lords. This concerned the 'KYZIKOS' which had been fixed with time commencing to count 'whether in port or not', 'whether in berth or not', 'whether in free pratique or not' and 'whether cleared at the Customs House or not'. She had to wait for the berth to become free so time started to count but when the berth became available, the ship was unable to move immediately because of fog. The charterers argued that bad weather impeding navigation was a ship's concern so time should not count between calling the ship onto the berth and her actually getting there including the delay caused by the fog. The owners contended that had the charterers not been tardy in providing a ready berth, the fog would not have caused any trouble. In the event their Lordships ruled in charterer's favour. By no means every commercial/shipping person agreed with that decision.
SELF ASSESSMENT QUESTIONS
Attempt the following and check your answers from the text: -
1. What events can interrupt laytime counting?
2. Does time continue to count if shore cranes break down?
3. What is (a) demurrage and (b) despatch?
4. What is meant by 'Reversible Laytime'?
By this time you should have read Chapters Nine and Ten about cement and ferrous ores.
SELF ASSESSMENT QUESTIONS
Attempt the following and check your answers from the text of Chapters Nine and Ten of "CARGOES": -
1. What is the difference between cement and cement clinker?
2. What is D.R.I. and what are the problems associated with its carriage?
what conditions would a shipowner probably insist before agreeing to
Having completed Lesson Six attempt the following and submit your answer to your Course Tutor.
Set out a detailed Time Sheet and calculate Demurrage or Despatch for M.V. OSPREY from the Statement of Facts in Appendix 6:1a.
C/P stipulates: 'Laytime to commence at 1300 if notice of readiness given before Noon, at 0700 next working day if given after Noon: notice to be given in ordinary office hours'.
'Laytime shall not commence to count before holds are passed as clean by Shippers' Inspector'.
'Cargo to be loaded at the rate of 5000 metric tons per weather working day of 24 consecutive hours'.
'Time from 1700 Friday or the day preceding a holiday to 0800 Monday or next working day not to count unless used (but only actual time used to count) unless vessel already on demurrage'.
'Demurrage US $5000 per day and pro rata/Despatch at half demurrage rate on laytime saved'.
(NB: Appendix 6:3 will help convert decimal parts of a day to hours and minutes, and vice versa.)