Demurrage Benchmarking Study

Haugen Consulting (HC) was first approached a year ago by an oil major who was interested in HC conducting a demurrage benchmarking study with their peers. The project is a natural fit for our company as we are an international independent demurrage consulting firm and thus naturally well-versed in the depth and breadth of demurrage issues. In embarking on this study, we sought input from those interested in participating as to what they would like to see reported.

The purpose of the study is to assess one’s demurrage department’s performance in relation to its peers by quantifying what a successful demurrage department actually is and the business practices leading to that success. To accomplish this many factors would be considered and data stratifications reported, including but not limited to, differentiating amongst cargo, vessel type, payable and receivable claims; and, further, distinguishing settlement cycle time norms between claims made by vessel Owners and claims made by commercial trading partners. In addition, the study will explore the demurrage cost on a per barrel basis, demurrage to freight ratios, demurrage analyst experience, software, operating procedures, and overhead. Naturally, due to the confidential nature of this study, HC would sign confidentiality agreements with all the participants.

Great idea, right? Well, it may be a great project that will yield insightful information but as with all things in life, timing is everything. The study did not take flight a year ago due to an insufficiency of participants; perhaps the economy was to blame. More recently, about a year after we initially embarked on this study, we got a call from an interested participant who last year was not a subscriber but now wants to see this project launched. Perhaps now the time is right?

Again, with enthusiasm brimming, HC campaigned for the resurgence of this study amongst numerous producers and trading companies, but to no avail. Although some previously disinterested parties expressed interest this go around, it was nullified because some of last year’s interested parties declined participation this time. There’s simply not enough interest to get this off the ground at the moment.

Nonetheless, we will not abandon this demurrage benchmarking study altogether, rather, we look forward to the day when more organizations will be inclined to participate to gain insight into running a successful demurrage department. Just give us a call if this study is of interest to you and we’ll be happy to make another attempt at launching it. I’m certain that one day this project will fly, it’s just a matter of when.

NPRA 2010 – International Petrochemical Conference

San Antonio is the quintessential destination for the annual NPRA meeting and so I’m looking forward to attending the upcoming 2010 International Petrochemical Conference being hosted there from March 28th-30th. It’s a great opportunity to put in face time with current clients, meet prospective new clients, and catch up with old friends. This is singly the best venue of the year to meet with the decision makers in the petrochemical industry from around the globe in one locale in a period of just a few days!

Although Haugen Consulting’s demurrage services are downstream from the refiners’ core business, these producers must successfully move their feedstocks and refined products, usually by tanker or barge, and thus this conference goes hand-in-hand with the transportation and logistics services sector who are poised to help make the commercial transactions seamless and most cost-effective.

Haugen Consulting’s core business is to facilitate resolution of demurrage disputes which, at times, are unavoidable. However, in the first instance, we work to mitigate these ancillary shipping charges proactively through optimized vessel scheduling, writing comprehensive marine provisions, and successfully managing clients’ demurrage receivables and payables. With over 15 years as an independent consultancy we work as advocates for oil majors, petrochemical producers, commodity traders, and ship owners, in addition to teaching training courses worldwide making Haugen Consulting leading demurrage experts in the field.

Regardless of the position one holds in the petrochemical industry or what deals are being explored at the 2010 International Petrochemical Conference, I’m looking forward to the camaraderie of all the attendees who are keen to make things happen! Likewise, Haugen Consulting enjoys taking an active role in returning positive results. A few minutes invested in a personal meeting with Haugen Consulting in San Antonio can lead to increased effectiveness of one’s revenue generating employees while simultaneously improving one’s demurrage cost center management.

If you would like to schedule a meeting with Haugen Consulting while at the conference in San Antonio , please call Kathy Haugen at +1-540-463-5818 or send us an email via our website’s Contact Info page. Hope to see you there!

Fast as Can (FAC) -- What are the Parameters?

Our office has seen a couple of disputes arise under contracts that stipulated laytime as "Fast as Can" (FAC) because on the surface this term appears ambiguous as to which party (the Vessel or Terminal) is responsible for loading/discharging the cargo as fast as possible. Let me explain.

FAC is not commonly used in the bulk liquids trade; rather, laytime allowance is typically fixed basis total hours such as 72 hours per Worldscale or as a volumetric rate, say 125 Metric Tons per Hour (MTPH) or 2,500 Barrels per Hour (BPH), which is then readily converted into laytime by dividing the total cargo volume (inclusive of deadfreight) by the volumetric rate. So, when a contract stipulates "FAC Discharge", for example, it is not always clearly understood by the parties as to what exactly it means. . .

Although at a glance FAC appears ambiguous, it is in fact clearly defined in Voyage Charters as the "period of time to be calculated by reference to the maximum rate at which the ship in full working order is capable of loading/discharging the cargo." Additionally, there have been a few disputes decided in New York arbitration that likewise uphold this view. However, keep in mind that every contract is unique and one cannot simply isolate a single term without first considering all the terms of the contract in order to give meaning and effect to the contract as a whole before reaching a conclusion.

In our most recent demurrage case involving FAC, the underlying charter party form was IMOL 78 (a molasses charter) and the laytime allowance clause stipulated "FAC discharge". Nowhere in the contract did it state that the "FAC terms are governed by the terminal" and IMOL 78 Form Clause 5 expressly stipulates that "Cargo to be received from vessel as fast as she can discharge pumping continuously." As upheld in N.Y. arbitrations and defined within Voyage Charterers, said clause combined with the express FAC laytime provision directly relates to the maximum rate of the Vessel's discharge capacity (not the rate at which the terminal can receive).

Although moot relative to the FAC obligation, the vessel in question maintained 100 PSI as required in the Pump Warranty clause which set forth that the vessel is to "maintain a minimum average pumping rate of either 150MTPH against a back pressure of 100 PSI or the maximum rate acceptable by shore facilities, whichever is lower."

It is noteworth that the FAC obligation and Pump Warranty are not mutually exclusive. FAC pertains to the calculation of laytime allowance, whereas the pump warranty clause in this instance sets forth a minimum at which the Vessel is to pump foregoing which the Owner is liable for overtime, excess quay dues, wharfage, etc.

In this particular case, as supported by the Master's LOPs, the Vessel was precluded from discharging FAC because the respective terminals provided only 1x10" cargo hose whereas the Vessel offered 4x12" manifold connections. Thus, the difference in time basis the Vessel's discharge capacity relative to the reduced discharge rate experienced due to the terminal constraints was billable as time on demurrage.