DEMURRAGEDEMURRAGE HANDLINGHANDLING

Propeller Club June 25, 2004

dhd management geneva WhatWhat isis demurrage?demurrage?

dhd management geneva Several Definitions

z Acc. To Prof. Hugo Tiberg : « a payment provided by contract or by law for the use of the charterer of a ship, of time beyond that which is conceived to be absolutely necessary for loading or discharging a ship or for the performance of certain functions relating hereto »

z According to The English Law, demurrage is considered as « liquidated (i.e. agreed) damages » for using the vessel beyond the agreed laytime. Other legislations may have a different view on demurrage, such as the payment of additional freight …

z Demurrage g « dispatch money »

dhd management geneva DemurrageDemurrage handlinghandling isis notnot anan exactexact sciencescience

z The multiplicity of laytime and demurrage clauses both in charter parties and in sale and purchase contracts leads to frequent disputes. z The vast majority of legal disputes over a contract of carriage by sea are directly related to demurrage.

dhd management geneva ConfusingConfusing clausesclauses inin CharterCharter PartiesParties

z Lord Denning « Life would be much easier if shipowners and charterers would refrain from making sophisticated bargains about demurrage and express their bargains more clearly »

z Lord Justice Scrutton in 1924 in a case H.. Brightman & Co versus Bunge on the Centrocon CP : « this charter is on the form known as the Chamber of Shipping River Plate Charter, 1914, which was agreed between the Chamber of Shipping and the representative body of the Argentine shippers. It contains phrases not easy to construe, as it is often the case when parties with conflicting interests adopt an ambiguous form which each side dare not make precise for fear the other party should disagree with their meaning if stated precisely »

dhd management geneva WHOWHO ISIS THETHE WINNER?WINNER?

dhd management geneva THETHE LAWYERSLAWYERS ……

dhd management geneva CONTRACTSCONTRACTS ENTEREDENTERED INTOINTO UPONUPON CONCLUSINGCONCLUSING OFOF AA TRADINGTRADING DEALDEAL (FOB/CIF)(FOB/CIF)

z FOB purchase contract z Charter party z Cif sales’ contract z Other related 9 Insurance policy 9 Letter of Credit (contract between Banks) 9 Hedging contracts

dhd management geneva CONTRACTCONTRACT TERMSTERMS

1. Sale /Purchase Contract

2. Voyage Chartering

dhd management geneva 1.1. Sale/PurchaseSale/Purchase ContractContract

A-Main terms

Quantity MT +/- 10% MIN/+10% ; -10%/max, option buyer/seller / supplier / ship

Quality Quality requirements with minimum or maximum or « typical », test method if applicable - price variations if applicable Price Fixed per ton, formula Oil Platt’s Oilgram – detailing quotation + premium / - discount – grain quotations Kansas City HRW … date range loading/ discharge dates NOR – complicated quotation dates with options.. Delivery -FOB – CFR – CIF – DES ETC. (INCO TERMS 2000) . Such terms will define the place of delivery, transfer of ownership and transfer of risk. -LAYCAN – or STEM Vessel nomination procedure to narrow to few days loading range – ARRIVAL DATE RANGE, substitution of vessel -Notice clauses to receiver Payment Prepayment – COD – LC, confirmed, 1st class bank, time of opening etc..

Other Bid bond / performance bond etc.. essential dhd management geneva B- Additional terms

Qual/quant determination Inspection Cy – who’s account etc.. Dispute settelemt procedure (very well organised in grain and seed contracts: GAFTA, FOSFA contracts..)

Laytime and demurrage WWD, SHEX, SHINC, Detailed terms: nomination, clauses notices (when to tender), exclusions, bad weather, « as per C/P », see hereafter General Terms and Oil Majors, Producers, Government agencies etc. Conditions

Arbitration, applicable Law

LC, Performance bond wordings etc.

Other terms Vessel acceptance procedures, insurance terms etc.

dhd management geneva 2.2. VoyageVoyage CharteringChartering

A- Main terms

VOYAGE LAYCAN – ½ SPSB – OR LOADING PORT RANGE Destination: port / berth, port range range … In tanker trade : large ranges such as UKCONT/MED – USES - EAST

CARGO Quantity+ allowance MT / m3 +/- 10% MIN/+10%; -10%/max, option owners/charterer – overage? Product, stowage factor / denssity - packing etc.. In bulk – in bags of 50 KG

FREIGHT / Freight lumpsum, rate per MT PAYMENT In tankers: worldscale reference: according destination range, ex. FREIGHT NWE 100, USEC 95. Against BL, BBB, upon discharge

CP TYPE ASBATANKVOY, EXXONVOY; BP VOY 3, 4 GENCON, NORGRAIN, NYPE .. GENERALLY PLUS OWNERS / CHARTERERS’ RIDER TERMS SUBJECTS STEM by such date, « Management approval » etc. .

dhd management geneva B- Additional terms (details)

Rider Terms – try to incorporate charterers’ terms from the beginning

Different counters and counters on counters

Subjects: STEM – receipt LC – Management approval …

dhd management geneva Demurrage,Demurrage, when?when?

z At contract negotiation (delivery and demurrage clauses, gtc’s) z Chartering of vessel (cp forms, rider terms..) z Upon nomination (laycan..) z Instructions to charterer’s agents - superintendants z During/after loading (protest letters …) z During after discharge (protest letters …)

dhd management geneva MainMain clausesclauses influencinginfluencing thethe finalfinal P&LP&L ofof demurragedemurrage forfor thethe tradingtrading transactiontransaction

1. The contract laytime clause 2. The contract demurrage clause 3. Any company's GT &C's incorporated into the contract 4. Contractual notice periods 5. Contractual loading/delivery dates

dhd management geneva 1.1. TheThe laytimelaytime clauseclause

A- Commencement of laytime / NOR The vessel must have given notice of arrival and readiness to load or discharge. - When and where to tender NOR ? - What if vessel arrives earlier and tenders NOR - What if vessel arrives after the cancelling date. - What if vessel holds or tanks are not clean

B- Calculation of laytime

- Days or hours: running day, working day, weather working days, weather permitting - No of days / hours, No of MT/day, MT or M3/hr - Per working hatch, per workable hatch - Usual dispatch – customs of the port - Loading – discharging - reversible

dhd management geneva Example:Example: USUS lighteragelighterage clauseclause

dhd management geneva C- Interruptions / exceptions of laytime

- Should be stipulated in the CP - « once on demurrage always on demurrage » - Typical exceptions: -shifting to berth -delays caused by port or servants of vessel -weather, tide, storm -shared exceptions of laytime

dhd management geneva 2.2. TheThe contractcontract demurragedemurrage clauseclause

zDefine laytime at loading – discharge zDemurrage rate zAs per CP terms & Conditions zDefine what terms of CP are applicable zTime bars

dhd management geneva 3.3. Any company's GT &C's incorporated into the contract

• Read carefully

• Why not counter

dhd management geneva 4.4. ContractualContractual noticenotice periodsperiods

«Deemed NOR »

dhd management geneva 5.5. ContractualContractual loadingloading // deliverydelivery periodsperiods

DES Sales

dhd management geneva PROPRO RATINGRATING BETWEENBETWEEN DIFFERENTDIFFERENT BUYERSBUYERS OROR SELLERSSELLERS

- Demurrage as per charter party terms and conditions, demurrage rate pro rata for part cargo

- Demurrage: As per charter party rate, terms and conditions

- Demurrage: As per charter party rate, terms and conditions pro rata for part cargo

dhd management geneva Geert Descheemaeker

DHD MANAGEMENT 11, rue du Mont Blanc 1201 GENEVA Tel +4122-7313855 +4122-7310789 fax +4122-7314554 e-mail [email protected]

dhd management geneva