How is Laytime Treated When Other Cargoes are Handled Simultaneously?

April 26, 2014

This is a question that part cargo shippers often ask. The answer hinges on the express terms of the contract and the facts surrounding the event. Part cargo shippers mistakenly assume that laytime should automatically be shared across all cargoes handled at the same terminal.

Furthermore, confusion regarding the treatment of laytime results when cargoes are handled consecutively rather than simultaneously. It’s assumed that laytime is automatically suspended during periods when one’s cargo is not being handled. Rather, additional discovery may be needed to determine who ordered the sequence of cargoes i.e. the terminal or vessel.

When contract terms are clearly written it’s a lot easier to determine when laytime is to be shared or not counted at all. These types of clauses are commonly referred to as Prorated Laytime and Suspended Laytime clauses, respectively.

A comprehensive clause encompassing both aspects can be found in SHELLVOY 6, Clause 15 (4),

“If any part cargo for other charterers, shippers or consignees (as the case may be) is loaded or discharged at the same berth, then any time used by the vessel waiting at or for such berth and in loading or discharging which would otherwise count as laytime or if the vessel is on demurrage for demurrage, shall be pro-rated in the proportion that Charterers’ cargo bears to the total cargo to be loaded or discharged at such berth. If however, the running of laytime or demurrage, if on demurrage, is solely attributable to other parties’ cargo operations then such time shall not count in calculating laytime or demurrage, if on demurrage, against Charterers under this Charter.”

Foregoing a protective clause like the above, the courts and arbitrators hold that there is no obligation to automatically share time counting. The judge in the English court ruling The Tropwave (1981) held that if the relevant part of the vessel or cargo is available to the charterer concerned, then there is no reason why demurrage provisions in their charter should not apply when laytime has expired. The fact that another set of demurrage provisions apply to another parcel concurrently is not relevant.

The New York arbitrators in the Bow Petros SMA 3922 held that prorated waiting time and/or laytime was not an automatic entitlement stating, “pro-rating clauses are specifically negotiated and are not created on an implied basis. Had Charterers wanted to protect themselves, they readily could have negotiated a suitable clause.”

As evidenced above, prorated laytime only applies when a specific clause is negotiated in the contract. The issue of suspended laytime is a bit trickier. Suspended laytime can apply regardless if an express clause is inclusive in a contract or not. In particular, time spent by a Vessel working other cargoes can be suspended if the sequence of cargo handling is at the Vessel’s direction. For example, in the English court ruling Ropner Shipping Co. v. Cleeves (1927) the court held that if it’s not possible to work any given parcel concurrently with others, then it would seem that the charterers of that parcel should not have to pay demurrage. The ship has in effect been taken away for the owners’ own purposes just as if she had to stop work to take bunkers, but even then the charterers will need to show they have lost time.

Turning to demurrage claims under contracts of sale, the same rules above apply. However, other issues come into play when traders use their own shorthand to fix a deal. For example, a phrase commonly incorporated in a sale contract simply states, “Demurrage: Prorata for a Part Cargo”. This simple phrase is subject to interpretation and begs clarity. Does it mean that all demurrage is prorated or the laytime allowance and time at the specified berth is prorated with the other cargoes handled at that same berth? The latter is the customary method.

Whether you are a part cargo on a parcel tanker or part of a full cargo shipment, the treatment of laytime allowance and prorated laytime gets complicated. Haugen Software has integrated a seamless solution in Voyager to address these complex issues. Laytime Allowance and time at berth is quickly prorated across several cargoes and can be rebilled to the respective commercial counterparties with one click. This functionality alone has saved Haugen Consulting many man hours in demurrage management.

In summary, be sure to understand the risks of being a part cargo shipper and incorporate protective terms whenever possible. Accurately assess and promptly rebill demurrage liability with counterparties. Haugen Software can show you how.