Under a voyage charter, time is the second major item, after freight, that determines an owner’s earnings. The parties agree a period for loading and discharging; if it is exceeded, the charterer pays the owner demurrage. Simple on paper, this arrangement is in practice one of the areas where owners lose the most revenue. Most of the loss does not come from losing disputes, but from claims that are never prepared, prepared incompletely or sent too late.

This article looks at where the laytime and demurrage process loses value for small and mid-sized owners running fleets of 3 to 12 vessels, drawing on the standard definitions and English case law. Companies of this size rarely have a dedicated demurrage team; chartering, operations and accounts often sit with a handful of people. That is also why the risks below materialise more often in this setting.

Key concepts

  • Laytime: The period agreed in the charter party during which the charterer may load or discharge without paying anything beyond the freight.
  • Demurrage: Liquidated damages, at an agreed rate, payable by the charterer to the owner for each day or part of a day after laytime has expired.
  • Despatch: Money payable by the owner to the charterer when operations are completed in less time than allowed. In practice it is often agreed at half the demurrage rate.
  • Notice of Readiness (NOR): Written notice to the charterer that the vessel has arrived at the agreed destination and is in all respects ready to load or discharge. As a rule, laytime cannot start without a valid NOR.
  • Statement of Facts (SOF): The record, usually prepared by the agent, of the vessel’s activities in port, hour by hour. It is the raw data of the laytime calculation.
  • Time sheet: The calculation that results from applying the charter party’s rules to the events in the SOF.

When laytime starts depends largely on the type of charter. Under a berth charter, the vessel has not arrived until she reaches the agreed berth. Under a port charter, it is enough that she is within the port, at a place where waiting ships usually lie, and at the immediate and effective disposition of the charterer. This test was settled by the House of Lords in The Johanna Oldendorff (1974). To shift the risk of waiting from owner to charterer under berth charters, wordings such as WIBON (whether in berth or not), WIPON (whether in port or not), WCCON (whether customs cleared or not) and WIFPON (whether in free pratique or not) are used.

How laytime counts is set by the calculation wordings. SHINC means Sundays and holidays are included, SHEX that they are excepted; the difference between SHEXUU (unless used) and SHEXEIU (even if used) decides whether time actually worked on those days counts. A weather working day counts only working days on which the weather does not prevent work. BIMCO’s Laytime Definitions for Charter Parties 2013 and its predecessor, the Voylayrules 1993, are the main references for the standard meaning of these terms.

Five places where value is lost

1. Notice of readiness

The first and often most expensive mistake in a laytime calculation is a notice of readiness that is late or defective. For a valid NOR the vessel must both have reached the destination contemplated by the charter and be actually ready to load or discharge. A notice given before she is ready, because holds are not clean, documents are missing or cargo is inaccessible, is invalid. In The Mexico I (1990) the Court of Appeal held that a premature NOR does not become effective by itself once the vessel later becomes ready.

An invalid NOR means laytime does not start and the waiting time never enters the calculation. In The Happy Day (2002) the Court of Appeal held that, even where the NOR was invalid, laytime began at the latest when discharge commenced, since the charterers had proceeded without objection. That outcome depends on the facts, however, and does not recover time spent waiting at anchor. The accepted practice is therefore, where there is doubt about the first notice, to re-tender NOR once the vessel is ready, without prejudice to the validity of the first.

Charter parties also often restrict NOR to certain hours or days, or provide that laytime starts a set period (for example six or twelve hours) after NOR. Failing to extract these wordings from the charter and pass them to the vessel and the agent before the voyage is one of the easiest mistakes to make.

2. Statement of facts and consistent records

A laytime calculation is only as reliable as the SOF behind it. The SOF is usually prepared by the agent; one signed by the master without remarks can later be used against the owner. Inconsistencies between the deck log, engine log, port authority records and the agent’s notes are the most productive source of charterers’ objections.

Claims that work stopped because of the weather, in particular, directly extend laytime under weather working day terms. The strongest answer to such claims is being able to compare the stoppage hours with independent sources: meteorological records, the vessel’s position records and port records. The later this comparison is made, the harder it becomes to obtain the data.

3. Exceptions and “once on demurrage, always on demurrage”

Exceptions in the charter party, such as weekends, holidays, weather, strikes or shifting, interrupt the running of laytime. Under the settled rule in English law, however, once the vessel is on demurrage those exceptions no longer apply unless the charter clearly says otherwise. The principle, confirmed by the House of Lords in The Dias (1978), is known as “once on demurrage, always on demurrage”.

A common error in practice is to apply exceptions that operate during laytime to the demurrage period as well. The owner then deducts, at its own expense, part of the demurrage it is legally entitled to. Which exceptions also operate during demurrage can only be determined by a careful reading of the charter.

4. Calculation errors

Losses at the calculation stage are small one by one, but significant in total:

  • Ignoring parts of a day. Demurrage is usually payable “per day or pro rata for part of a day”.
  • Misapplying the difference between local time and UTC, or the holiday calendar.
  • Missing reversible or averaging provisions, which allow loading and discharging time to be calculated together.
  • Deducting shifting and similar periods contrary to the charter.
  • Confusing despatch on an “all time saved” basis with despatch on a “working time saved” basis.

5. Time bars and supporting documents

Many standard charter forms require a demurrage claim to be presented within a set period after completion of discharge (most often 60 or 90 days) and “with all supporting documents”. A claim that is not presented in time, or lacks the documents, can fail however well founded it is. English courts construe these clauses strictly; The Sabrewing (2007) is often cited as an example where failure to provide the documents the charter required (such as pumping records) could leave a claim time-barred.

For a small owner, this is usually where the largest loss occurs. The vessel has moved on to the next voyage, the agent has changed and the documents are scattered across mailboxes. The claim cannot be completed before the deadline.

Practices that reduce the loss

What the risks above have in common is that all of them can be prevented at the start of and during the voyage, not at its end. The approaches that stand out in the literature and in industry practice can be summarised as follows:

  1. Extracting the rules from the charter: Summarising the NOR, commencement of laytime, exceptions, rates and time bar provisions before the voyage, and sharing them with the vessel, the agent and the operations team.
  2. NOR discipline: Checking the conditions of readiness, tendering NOR properly, and re-tendering where in doubt.
  3. Same-day SOF review: Comparing the agent’s SOF with the vessel’s records and noting discrepancies before the vessel leaves port.
  4. Independent evidence: Supporting waiting and stoppage periods with position (AIS) and meteorological data.
  5. A time bar calendar: Recording the claim deadline for every voyage and keeping the supporting documents in a single file.

Conclusion

Laytime and demurrage is a legally well-defined area shaped by case law. For a small owner the real problem is not uncertainty in the rules, but applying them in the flow of a voyage. Most losses arise from gaps in documentation, timing and calculation discipline. Closing those gaps usually calls less for additional legal effort than for consistent, verifiable record-keeping from the start of every voyage.

This article is for general information and is not legal advice. In any actual dispute, the terms of the relevant charter party and the applicable law govern.

References

  • BIMCO, Laytime Definitions for Charter Parties 2013.
  • BIMCO et al., Voyage Charter Party Laytime Interpretation Rules 1993 (Voylayrules 93).
  • Schofield, J., Laytime and Demurrage, 7th edition, Informa Law, 2016.
  • Cooke, J. et al., Voyage Charters, 4th edition, Informa Law, 2014.
  • E.L. Oldendorff & Co GmbH v Tradax Export SA (The Johanna Oldendorff) [1974] AC 479 (HL).
  • Dias Compania Naviera SA v Louis Dreyfus Corporation (The Dias) [1978] 1 WLR 261 (HL).
  • Transgrain Shipping BV v Global Transporte Oceanico SA (The Mexico I) [1990] 1 Lloyd’s Rep 507 (CA).
  • Glencore Grain Ltd v Flacker Shipping Ltd (The Happy Day) [2002] EWCA Civ 1068.
  • Waterfront Shipping Co Ltd v Trafigura AG (The Sabrewing) [2007] EWHC 2482 (Comm).