In the deep sea tanker trade laytime is normally agreed as x number of hours for loading and discharging. ‘x’ is frequently 72 hours and would be if fixed on the basis of Worldscale Hours Terms and Conditions but of course it can be much more or much less depending on the size of the vessel, the type of voyage and the agreement of the Owners and Charterers.
Once agreed it generally doesn’t matter where the laytime is used as it is reversible and spread across as many load and/or discharge ports as the vessel visits in accordance with the limits placed in the fixture.
In the chemicals and lubes trades in particular laytime is often agreed on the basis of a loading and/or discharge rate. For example this may be 600 tonnes per hour (tph) loading/400 tph discharging so for a vessel loading 12,000mt cargo the time for loading would be 20 hours (12,000/600) and for discharging would be 30 hours (12,000/400).
It is normal for this laytime to be reversible so that any unused time at the loadport could be offset against the discharge port or vice versa so that in this case a total of 50 hours laytime would apply. A word of warning – reversibility must be expressly agreed in the charter party otherwise you could end up with demurrage payable at one port despite time saved at the other.
This is all well and good but consider this scenario. The vessel is fixed for a minimum of 12,000mt but charterers cannot provide more than 9,600mt. Under the terms of the charter party the charterer has to pay freight on 12,000mt – how much laytime is he entitled to?
The Cargo Quantity of 9,600mt gives rise to 16 hours (9,600/600) at the loadport and 24 hours (9,600/400) at the discharge port – a total of 40 hours for the voyage compared to 50 hours if based on 12,000mt.
The question is – is the charterer entitled to 50 hours because he has effectively paid for it in the freight and deadfreight, or only 40 hours because he has not loaded the full quantity envisaged.
I don’t think I have seen a case on this and I’m not aware of an arbitration but I suspect this has come up before. I think there are arguments to interpret it both ways but if I were to decide I would say that having paid freight on 12,000mt I believe the charter should be entitled to laytime on 12,000mt and get the full 50 hours.
What do you think? Have you had a case like this and how was it solved? Have you seen a court case or arbitration on this type of dispute that you can share with us?
Please add your comments here
3 thoughts on “How Much Laytime does Deadfreight Buy You?”
I am indebted to David Clark for this comprehensive answer which seems to resolve this issue unless anyone has an alternative view. David is a solicitor at Waltons and Morse http://www.waltonsandmorse.com
[i]'The law is as set out in the case The Ionian Skipper [1977] 2 Lloyd’s Rep 273. This case held that if you fail to load a full cargo and pay owners dead freight for that breach of the charter party, and your laytime is calculated on basis of a loading rate per day, then quantity of cargo used for this calculation is the actual cargo loaded rather than the full cargo that you should have loaded.
However, owners must also give you credit against their dead freight claim for the increase in demurrage caused by the laytime being shorter than would have been the case had a full cargo been loaded. In The Ionian Skipper Mr Justice Parker at page 277 states how damages (i.e. dead freight) for your failure to load the full quantity of cargo should be assessed:
[/i]
“Prima facie such damages would be the freight which would have been payable on the quantity short-loaded but there would have to be deducted from that any benefits to the owner e.g. by having his vessel available earlier as a result of having had to load and discharge a smaller quantity or any increased demurrage or saving in dispatch money which might result from the smaller quantity of cargo actually loaded and discharged. Any savings in dispatch and in increase in demurrage so resulting would be dependent upon two things. Firstly, the time at which laytime would have expired had the full cargo been loaded and discharged, and secondly, how long it would have taken to load and discharge the full cargo. In order to compare dispatch and demurrage actually accrued with dispatch and demurrage which would have been accrued and thus to measure the benefit to the owners, both would have to be ascertained and taken into account.”
[i]Thus, it appears from this judgement that in order to assess if owner’s did receive increased demurrage, you need to compare owner’s actual demurrage calculation, which is based on the laytime being shorter than would have been the case had a full contractual cargo been loaded, against a fictitious demurrage calculation.
In the fictitious demurrage calculation, you need to add on the time that it would have taken to have discharged the additional cargo that was not loaded.'[/i]
Good day to all
The above post and subsequent comment reply to a day to day question which arises in laytime / demurrage calculations.
However, as I understand from the above and correct me if I am wrong, since the owners have to give 'any benefits' gained back to the charterers and since there should be a comparison between actual demurrage calculations and a fictitious one basis 'the time that it would have taken to have discharged the additional cargo that was not loaded', practically speaking the owners should allow charterers full laytime allowance in the first place, as if the full quantity had been loaded, provided that they have been paid the deadfreight.
The above arises since the 'fictitious demurrage calculation' would be based on the x mts / hour as per the charter party, since it is hypothetical and the only point of reference for the calculation.
Thus, the conclusion is that if the charterers have paid deadfreight, they are entitled to full laytime allowance (?)
Petros
Following on from Petros’ reply, as shipbrokers in the vegoils and chemicals sectors, we not only face the situation of laytime on deadfreight occasionally but also what should happen regarding the laytime allowance when short-loading against the expected quantity with a lumpsum freight occurs.
When it’s a known agreed quantity that is to be loaded and freight charged accordingly, the general principle accepted by most owners and charterers we deal with is that having built the laytime required for the agreed quantity into the voyage calculation and agreed freight rate, charterers should be entitled to the laytime that they pay for in the freight. So laytime on deadfreight is provided.
With a lumpsum it’s not so easy to see that the same issue can arise, even though the principle is much the same. The voyage estimate and lumpsum freight will have been calculated based on the expected loadable quantity, and this expected loadable quantity is generally recorded in the fixture recap. In order to cover for both situations, some of our clients who work regularly with lumpsum freights have created additional clauses to deal with both situations. These clauses essentially say that when deadfreight has been paid laytime will be calculated on the freight paid quantity inclusive of deadfreight and not on the cargo loaded quantity, and when a lumpsum freight is agreed and paid laytime will be calculated on whichever is the higher out of the expected loadable quantity as advised by owners or the actual loaded quantity. These clauses don’t appear to create any issues with owners.