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DEMURRAGE HANDLING DEMURRAGE HANDLING

Propeller Club June 25, 2004

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What is demurrage?What is demurrage?

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Several Definitions

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 »

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 …

Demurrage g « dispatch money »

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Demurrage handling is not an exact Demurrage handling is not an exact sciencescience

The multiplicity of laytime and demurrage clauses both in charter parties and in sale and purchase contracts leads to frequent disputes.

The vast majority of legal disputes over a contract of carriage by sea are directly related to demurrage.

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Confusing clauses in Charter PartiesConfusing clauses in Charter Parties

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 »

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 »

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WHO IS THE WINNER?WHO IS THE WINNER?

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THE LAWYERS …THE LAWYERS …

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CONTRACTS ENTERED INTO UPON CONCLUSING CONTRACTS ENTERED INTO UPON CONCLUSING OF A TRADING DEAL (FOB/CIF) OF A TRADING DEAL (FOB/CIF)

FOB purchase contractCharter party Cif sales’ contractOther relatedInsurance policyLetter of Credit (contract between Banks)Hedging contracts

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CONTRACT TERMSCONTRACT TERMS

1. Sale /Purchase Contract

2. Voyage Chartering

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1.1. Sale/Purchase Contract Sale/Purchase Contract

A-Main terms

Prepayment – COD – LC, confirmed, 1st class bank, time of opening etc.. Payment

Bid bond / performance bond etc..Other essential

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

Quality requirements with minimum or maximum or « typical », test method if applicable - price variations if applicable

Quality

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..

Price

-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

Delivery

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BB-- Additional termsAdditional terms

Vessel acceptance procedures, insurance terms etc.Other terms

LC, Performance bond wordings etc.

Arbitration, applicable Law

Oil Majors, Producers, Government agencies etc.General Terms and Conditions

WWD, SHEX, SHINC, Detailed terms: nomination, notices (when to tender), exclusions, bad weather, « as per C/P », see hereafter

Laytime and demurrage clauses

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

Qual/quant determination

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2. Voyage Chartering2. Voyage Chartering

A- Main terms

SUBJECTS

CP TYPE

FREIGHT /PAYMENT FREIGHT

CARGO

VOYAGE

STEM by such date, « Management approval » etc. .

ASBATANKVOY, EXXONVOY; BP VOY 3, 4 GENCON, NORGRAIN, NYPE .. GENERALLY PLUS OWNERS / CHARTERERS’ RIDER TERMS

Freight lumpsum, rate per MTIn tankers: worldscale reference: according destination range, ex.NWE 100, USEC 95. Against BL, BBB, upon discharge

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

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

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B- Additional terms (details)

Subjects: STEM – receipt LC – Management approval …

Different counters and counters on counters

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

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Demurrage, when?Demurrage, when?

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

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Main clauses influencing the final P&L of Main clauses influencing the final P&L of demurragedemurrage for the trading transactionfor the trading transaction

1. The contract laytime clause 2. The contract demurrage clause3. Any company's GT &C's incorporated into the

contract4. Contractual notice periods5. Contractual loading/delivery dates

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1. The laytime clause1. The laytime clauseA- 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

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Example:Example:US lighterage clauseUS lighterage clause

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CC-- Interruptions / exceptions of laytimeInterruptions / 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

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2. The contract demurrage clause2. The contract demurrage clause

Define laytime at loading – dischargeDemurrage rateAs per CP terms & ConditionsDefine what terms of CP are applicableTime bars

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3. 3. Any company's GT &C's incorporated into the contract

• Read carefully

• Why not counter

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4. Contractual notice periods4. Contractual notice periods

« Deemed NOR »

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5. Contractual loading / delivery periods5. Contractual loading / delivery periods

DES Sales

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PRO RATING BETWEEN DIFFERENT BUYERS PRO RATING BETWEEN DIFFERENT BUYERS OR SELLERSOR SELLERS

- 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

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Geert Descheemaeker

DHD MANAGEMENT11, rue du Mont Blanc

1201 GENEVA Tel +4122-7313855

+4122-7310789fax +4122-7314554

e-mail dhd.management@tiscali.ch