Saturday 22 October 2011

Laytime & Demurrage: A Back-to-Basics Guide

One of the more mysterious elements of shipping law, at least to the uninitiated, are the issues of laytime and demurrage. I thought, for this reason, that it might be useful to do a 'bare bones' guide to the area. As with other areas identified many people use the terminology incorrectly so don't get confused by people saying apparently contradictory things. 

This area of shipping law deals with the general principle that if you charter (hire) a ship to move cargo from A to B at a set price (i.e. a voyage charter), then you should pay the ship compensation if it gets held up whilst loading or discharging the cargo you wanted to move, i.e. if you delay in getting your goods to the port and the ship's journey takes 2 days longer as a result, you should compensate the ship for those 2 days lost. Here is the framework that has developed, in simple terms. 

Ships are not like trains and cannot confirm absolute timetables for being in place A to B, especially when they are 'tramping' (just going where ordered next and not between set ports). So, when you enter a charterparty to hire a ship to move your goods the ship is given Laydays, being the period of days in which the ship can arrive to load your goods. After this point comes the Cancelling Date; if the ship is not there by this date the charterer may cancel the contract, basically because the ship is so late they either no longer wish to move the goods or wish to use another ship. This period is sometimes referred to altogether as the Laycan (Laydays + Cancelling).

When the ship arrives to load or discharge it tenders a Notice of Readiness (NOR) to the charterer, stating that they are ready to load / discharge. After a period of time (normally 6 hours) of giving notification it is considered reasonable for the charterers to have been able to start loading, so Layitme starts to run. Laytime is a period of time set out in the charterparty which gives the charterer an allowance for time to load (often 36 hours, but depends on trade and means of loading - oil tankers load faster than bulk cargo for instance). Once the charterers used up their laytime allowance time switches to Demurrage. Demurrage is a rate of compensation per day (or pro rata per hour) that they must pay to the shipowner for holding up the ship for longer than agreed. 

If the ship is held up for reasons for which the charterer is responsible but outside the running of laytime / demurrage then the shipowner can sue the charterer for Detention. Usually the compensation awarded for detaining the ship is the same as the demurrage rate, because the parties have already agreed a convenient compensation calculation for using the ship's time outside the contract so it is easy for the courts to apply this rate. 

Tuesday 18 October 2011

South of England P&I Club

At the weekend we received news that it appeared the South of England P&I Club had ceased trading. The South of England is / was a commercial (rather than mutual) protection and indemnity (third party liability) insurer and covered a range of interesting bulk carriers and tankers, among other vessels.

The International Group of mutual P&I clubs had a North of England and a West of England club, so perhaps the creator of the South of England felt that merely choosing another point on the compass would give the Club gravitas on the international P&I scene, but alas it appears that it was not to be as we hear that the liquidators have been called in. 

We received first notification in writing via the Maritime Advocate circular: 'It is at the Clyde & Co Party at the Merchant Taylors’ Hall that we hear, courtesy of the Senior Partner’s welcome speech that the South of England P&I Club has appointed provisional liquidators in Bermuda and has ceased trading. So we bid farewell to another have-a-go P&I operation, set up outside the International Group Agreement; it joins a list comprising the Oceanus, Sphere Drake, Dragon, OMM and Pacindat to name but a few. It only goes to show that the market outside the IGA is demanding and only the very long term players in the fixed market can really cope. The short span of attention, which invests your very average insurance operation simply will not sustain a business with low general underwriting profitability, accomplished claims handling and a claims tail of 30 years or more.'

That seemed relatively final and was confirmed in a later article in Insurance Day, but it clarified that the liquidators were actually called in by the company's auditors, KPMG. Later in the day we could see in Lloyds List that the Club was actually promising to fight the appointment of liquidators in Bermuda and intended to keep trading. However, looking at the news from the Club throughout the year it does appear that the writing is on the wall for the venture. If or when it does cease trading it will join a long list of commercial P&I ventures which have failed to maintain a long-term presence in the market.

The South of England started trading in 2004 and was registered in Bermuda, but appears to have been managed from Zurich, with most of the day-to-day claims management and some other services taking place in the Club's UK base in Brighton.

Wednesday 12 October 2011

The "Rena" Grounding in New Zealand - What Limit Applies?

The "Rena" ran aground on a reef off the North Island in New Zealand on 5 October 2011. It is predicted to be the worst maritime disasters in New Zealand's history. Questions quickly began as to what the total cost would be and whether the shipowner (MSC is reported to have had the container vessel on a 5 year hire agreement) would be able to limit. I have heard a lot of speculation about what the result will be but in my opinion the vessel will be able to limit its liability to around USD 9.5 Million (considering that no direct fault of owners or charterers is alleged and proven).

There are 4 main conventions which apply to limitations for release of oil. The difference is extremely confusing but hopefully the following provides a brief 'idiot's' guide.

1. The CLC Convention - This would normally be the first port of call for an oil pollution claim. However, it only covers persistant oil - i.e. heavy oil carried as cargo by oil tankers. It will not therefore apply.

2. The 1992 Fund Convention - In the same way as above this would not apply.

3. The Bunker Pollution Convention - This convention was brought in specifically to deal with the effect of large oil spillages from commercial vessels due to them spilling their own fuel (bunkers), rather than a cargo of fuel they were carrying. The New Zealand government has supported its implementation recognising that in the last ten years the worst oil pollution incidents in NZ waters have been bunker spills, however, to my knowledge they have not yet ratified or acceded to the convention. It therefore has no effect.

4. The LLMC 1976 - This is the convention that will probably therefore apply by default, as implemented into NZ law in the Maritime Transport Act 1994 . It is very broad brush and does not even specifically mention oil but the limit for claims which do not involve injuries to people or passengers are as follows:
(a) in the case of a ship of not more than 300 gross tons, 83 333 units of account:

  • (b)     in the case of a ship of more than 300 gross tons, but not more than 500 gross tons, 167 000 units of account:
  • (c) in the case of a ship of more than 500 gross tons, 167 000 units of account* plus a further number of units of account calculated as follows:
    • (i) for each gross ton of the ship from 501 to 30 000 tons, 167 units of account; and
    • (ii) for each gross ton of the ship from 30 001 to 70 000 tons, 125 units of account; and
    • (iii) for each gross ton of the ship in excess of 70 000 tons, 83 units of account.

Therefore the limit can be calculated as follows:
a. 167,000 SDR (for the first 500 GT)
b. 29,500 x 167 SDR = 4,926,500 SDR (for 501 to 30,000 GT)
c. 7,209 x 125 SDR = 901,125 SDR (for 30,001 to 37,209 GT - the GT of the "Rena")
Total = 5,994,625 SDR (or) approx. 9,500,000 US Dollars at today's rate of exchange.

* A 'Unit of Account' means a Special Drawing Right - see this article for an explanation of what this is. 

Sunday 2 October 2011

What is the Difference Between a Port, Quay, Pier and Wharf?

These terms are sometimes used interchangeably, but there are differences between each which it is useful to remember.

A Port is generally a description of a place on the coast which has facilities for boats or ships to call into, and usually a village or town attached. Normally these places developed because the natural features at that particular part of the coastline (a break in the high cliffs, an area of deepwater where the coast is rocky etc.). Because a port is a description of a type of function, ports can look very different from one another and a port may contain all of the things listed below (wharfs, quays, piers etc.). Porto Cervo, in Italy, is a good example.

A Wharf is a man-made structure on a river or by the sea, which provides an area for ships to safely dock. Some are very intricate, with multiple types of berth over a large area, and navigable channels, and others (like this one, below, from Australia) are more straightforward. A Wharf can contain quays and piers and will normally have buildings within it to service the ships (often warehouses and offices). Because of their abundance of unusual buildings and ready-made water features, unused wharfs are often converted into expensive retail and housing areas (for instance Canary Wharf and Butler's Wharf in London).

A Quay is, technically, a part of the river bank or coastline which has been modified so ships can dock at it parallel to the shore. This boat is moored at the quay in Poole, England. 

A Pier is a, normally wooden, structure which protrudes from the shore at a level above the water level, allowing ships to disembark passengers in the deeper water further out. The length of the pier may also provide berths for smaller boats.

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