Laytime and demurrage are traditionally one of the most contentious issues in the shipping industry, owing to the frequency with vessels are delayed in port, the cost caused by such delays, and the often ambiguous wording in charter parties and contracts for the international sale of goods.
To maintain a harmonious business relationship between shipowners and charterers, it is desirable to avoid disputes on charter parties. Therefore, the establishment of a clear and solid contractual basis on laytime calculations and demurrage rules for all parties is one of the utmost importance. A firm understanding of the legal and practical issues of demurrage can make a significant difference in securing advantageous trade deals, as well as avoid costly legal disputes in the unfortunate event of charter delays. Here’s what you need to know.
Laytime is defined as “the period of time agreed between the parties during which the Owner will make and keep the vessel available for loading or discharging without payment additional to the freight”. If a ship fails to complete the work during the allotted time and the ship is required to stay at a port for a longer time, then demurrage (fine) is incurred to the ship owner.
What Are Demurrage Charges?
Demurrage is assessed on cargo that is left at the terminal beyond the allotted free time. Free time in contracts varies with the general standard of 4 to 5 days. Once that free time expires, there is a daily storage fee (demurrage) until the cargo is pulled from the terminal. Demurrage amounts may differ based on terminal or carrier and often increase after an initial period.
Demurrage is often paid by the charterer to the ship owner as the former wants to use the ship for longer than decided time. However, if the charterer requires less than the defined lay time, the ship owner might be required to pay to the charterer. These terms are pre-defined by the charter party dealing with the whole process. Port authorities can also specify their laytime and charge ships when they exceed their allotted laytime.
Tips to Avoid or Reduce Demurrage Charges
- Pre-clear your cargo and issue delivery instructions to your inland carrier in advance. Check with brokers if the cargo will be pre-cleared whenever possible so that coordination with the truckers can begin well before free time expires.
- Have a trucker “back-up” plan. Especially when dealing with a congested porting, having an alternation option for a trucker could be handy when schedules become tight.
- Request extended free time. Large shippers, who move at least 800 containers a year, are able to request this, though it depends from carrier to carrier.
Practical A-Z Guide to Laytime & Demurrage is a 2-day training course held from 7– 8 Nov 2018 (Kuala Lumpur), designed to provide insights on how to navigate the complexities of laytime and demurrage for maximum charter party advantage. At the end of the course, shipowners will be able to maximize their collection of demurrage, and charterers will be able to reduce their potential exposure to demurrage claims and save substantial costs. For more information, please visit us at https://www.opuskinetic.com/event/laytime-and-demurrage-2/ or contact us at email@example.com .
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