This post first appeared in the September 2013 Asdem Newsletter. To see this Newsletter please go to www.asdem.co.uk and look for the ‘Newsletters’ tab
Earlier this year I was interested to hear that Intertanko were calling for a code of conduct for freight and demurrage as they claim Owners are waiting longer for their money these days. I have heard that payment of freight can be slow, but there should be no excuse for not paying freight within just a few days of completion of discharge.
As for demurrage, Intertanko presumably had not heard about the Asdem Code of Practice which has been around now for over four years. Isn’t it time to look at it again if you have not already adopted it?
Advantages for both Charterers and Owners? Yes, you will be surprised to know that I think there are some clear advantages for Charterers. Most people think it’s all about paying Owners more quickly, so how does this benefit Charterers? I’ll come back to the advantages for Charterers a bit later.
Owners. The main push is to get the cash to the Owners much more quickly. Demurrage is increasingly important to Owners in this market and I agree with Intertanko’s sentiment that undue delays in demurrage payments mean that Owners are funding the Charterers’ business. Why does it take so long for Charterers to respond and pay the demurrage due to Owners? There could be a number of reasons such as a shortage of staff or a backlog of claims. This can be addressed by adding more people to the team either temporarily or permanently but, of course, no one wants to add costs today. Another reason is deliberate – many Charterers delay settlement of Owners’ claims because they are waiting for their counterparty’s response in the oil contract chain and are reluctant to pay out until they have some news from the claims they have made to suppliers and receivers.
Charterers. If you are in the position of a backlog, staff shortage or you are waiting for your counterparty you could take some stress out of your work and gain an advantage by adopting the Code of Practice. It will not solve the backlog or staff shortage and you will have to address this at some point but it may help you if you feel that you are fire fighting all the time. If you are in the position where you have kept the Owners waiting for so long that they have lost patience and have commenced legal proceedings, you are forced to settle the claim when you may not have had the luxury of hearing from your counterparty. Once you have paid the demurrage it is very difficult to reopen the claim or ask for a refund as my understanding of the courts’ attitude in such cases is that you have made a commercial settlement and the money is gone forever.
Adopt the Code of Practice as suggested in the download from Asdem and, of course, you will be paying the Owner earlier than you normally would. However, the Owners should give you the right to reopen the claim if you come across something at a later date which you were not aware of at the time of settlement. This aspect of the Code gives you a very definite advantage over the current system and probably gives you much longer to revert on the claim than you would otherwise have had. The Code of Practice should also improve the relationship between the Owners and Charterers and this can only be of benefit to both parties.
If you want to know more about the Code of Practice contact roger@asdem.co.uk or phil.stalley@hubse.com. If you have had a good or bad experience with the Code of Practice or if you have a comment to make about this article please add your comments here.