Section 20.1 Understanding Key Charter Party Clauses (Laytime, Demurrage, Off-hire)

A charter party (C/P) is the contract between a shipowner and a charterer for the hire of a ship or a substantial part of its cargo-carrying capacity. While the Master may not be involved in negotiating the C/P, they are responsible for executing many of its terms at the operational level. A working knowledge of key clauses is therefore indispensable. The specific clauses and their interpretations can be complex and vary between different standard C/P forms (e.g., GENCON, NYPE, BALTIME) and individually negotiated terms.

Here are some of the most critical clauses a Master on a bulk carrier should be familiar with:

1. Laytime:

Definition: Laytime is the period of time agreed between the parties (owner and charterer) during which the owner will make and keep the vessel available for loading or discharging cargo without payment additional to the freight (in a voyage charter) or hire (in a time charter where the charterer is responsible for cargo operations). It is essentially the “free time” allowed for cargo operations.

Commencement of Laytime: The C/P will specify when laytime commences. This usually depends on several conditions being met:

Arrived Ship: The vessel must have “arrived” at the port or berth as defined in the C/P. This can be a complex legal point (e.g., port charter vs. berth charter).

Notice of Readiness (NOR): The Master must tender a valid NOR to the charterers or their agents, stating that the vessel is ready in all respects to load or discharge the cargo. The C/P will specify to whom, when, and how the NOR should be tendered.

Readiness in All Respects: The vessel must be physically ready (e.g., holds clean and suitable for the nominated cargo, cranes operational if ship’s gear is to be used) and legally ready (e.g., all necessary clearances obtained).

Calculation of Laytime:

Fixed Laytime: A specific number of days, hours, or a rate of loading/discharging (e.g., “5000 MT per weather working day of 24 consecutive hours, Saturdays, Sundays, and Holidays Excepted – SSHEX”).

Types of Days:

Running Days/Hours: Consecutive days/hours including weekends and holidays.

Working Days (WD): Days on which work is normally performed in a port.

Weather Working Days (WWD): Working days on which the weather permits the loading/discharging of the specific cargo.

SHEX: Sundays and Holidays Excepted.

SHINC: Sundays and Holidays Included.

FAC (Fast As Can): Laytime is not fixed but charterers must load/discharge as fast as the vessel can. This can be contentious.

Interruptions/Exceptions to Laytime: The C/P will specify periods that do not count against laytime, even if cargo operations could have occurred (e.g., weekends/holidays if SSHEX, periods of bad weather if WWD, breakdowns of ship’s gear if owner’s responsibility).

Master’s Role:

Tender a valid NOR promptly and accurately.

Ensure the vessel is genuinely ready in all respects.

Keep meticulous records of all port activities, weather conditions, stoppages, and cargo operations in the port log and Statement of Facts (SOF).

Issue Letters of Protest (LOPs) for any delays caused by charterers or their agents that might affect laytime.

2. Demurrage:

Definition: Demurrage is a form of liquidated damages paid by the charterer to the shipowner for detaining the vessel beyond the allowed laytime for loading or discharging. It is compensation for the shipowner for the additional time the vessel is occupied.

Rate: The C/P will specify a daily (or pro-rata) demurrage rate.

Calculation: Demurrage starts to accrue once laytime has expired and continues until cargo operations are completed. Unlike laytime, demurrage typically runs continuously, without exception for weekends, holidays, or weather (unless the C/P specifically states otherwise, which is rare – “once on demurrage, always on demurrage” is a common principle).

Master’s Role:

Accurate calculation and recording of laytime used is critical for determining if demurrage is due.

Ensure the SOF accurately reflects all times and events.

Provide all necessary documentation to the owners to support a demurrage claim.

3. Despatch (or Dispatch):

Definition: Despatch is an agreed sum paid by the shipowner to the charterer if the vessel completes cargo operations before the allowed laytime has expired. It is a reward for the charterer for quick turnaround.

Rate: The despatch rate is usually specified in the C/P, often at half the demurrage rate (“half despatch”). If not specified, it may not be payable.

Master’s Role: Accurate laytime calculation is also essential for determining if despatch is payable.

4. Off-Hire (Primarily in Time Charters):

Definition: In a time charter, the vessel is hired for a specified period, and the charterer pays “hire” to the owner. An off-hire clause stipulates circumstances under which the payment of hire ceases or is reduced. This occurs when the vessel is unable to perform the services for which it was chartered due to reasons attributable to the vessel or owner.

Common Off-Hire Events:

Breakdown of Machinery: If it affects the vessel’s speed or performance.

Dry-docking or Repairs: Necessary for maintaining Class or seaworthiness.

Deficiency of Men or Stores: If the owner fails to provide a full complement of crew or necessary stores (excluding those provided by the charterer).

Loss of Time due to Accidents: Grounding, collision, or other accidents for which the owner is responsible, preventing the vessel from performing the charterer’s service.

Deviation for Owner’s Purposes: E.g., for crew change not agreed by charterers, or for repairs.

Failure to Maintain Class or Statutory Certificates.

PSC Detention due to Vessel Deficiencies.

Speed and Performance Claims: If the vessel fails to meet warranted speed and consumption figures (this can lead to hire deductions rather than full off-hire).

“Net Loss of Time”: Many off-hire clauses specify that hire ceases only for the “net loss of time” to the charterer.

Master’s Role:

Prevent Off-Hire Events: Maintain the vessel to the highest standards to minimize breakdowns and deficiencies.

Accurate Record Keeping: Meticulously record any event that could potentially lead to an off-hire claim (e.g., engine breakdowns, equipment failures, delays due to vessel deficiencies). Log start and end times of such events.

Prompt Notification: Immediately inform the owners and charterers (as per C/P instructions) of any incident that might result in off-hire.

Mitigate Delays: Take all reasonable steps to rectify problems and bring the vessel back on-hire as quickly as possible.

Issue LOPs: If delays are caused by charterers or their agents, this should be protested to protect the owner from an unjustified off-hire claim.

Cooperate with Surveys/Repairs: Facilitate any necessary surveys or repairs efficiently.

Other Important Concepts Often Linked to These Clauses:

Statement of Facts (SOF): A chronological record of all activities related to the ship’s port call, from arrival to departure. It is jointly signed by the Master (or agent) and the charterer’s representative (or shipper/receiver). It forms the primary basis for laytime/demurrage calculations. Accuracy and completeness are paramount.

Notice of Readiness (NOR): As mentioned, this is the formal notification by the Master that the vessel is ready to load/discharge. Its validity is often a point of dispute.

“WIBON, WIPON, WIFPON, WICCON”: Acronyms related to NOR tendering:

WIBON (Whether In Berth Or Not): Laytime can commence even if no berth is available, provided the ship has “arrived” at the port.

WIPON (Whether In Port Or Not): Allows NOR to be tendered even if the ship is waiting outside port limits (e.g., due to congestion), provided it’s at the usual waiting area.

WIFPON (Whether In Free Pratique Or Not): Allows NOR to be tendered before free pratique (health clearance) is granted.

WICCON (Whether Customs Cleared Or Not): Allows NOR to be tendered before customs clearance is obtained.

Master’s General Approach:

Obtain and Review Relevant C/P Extracts: The company should provide the Master with extracts of the key operational clauses from the governing charter party.

Clarify Doubts: If unsure about the interpretation of any clause, seek clarification from the company/owners.

Meticulous Record Keeping: This cannot be overstressed. Accurate and contemporaneous records in logbooks, SOFs, and through LOPs are the Master’s best tools for protecting the owner’s interests.

Prompt Communication: Keep the company informed of all developments that could have commercial implications.

Understanding these fundamental commercial clauses empowers the Master to manage port operations and voyage events in a manner that upholds the owner’s contractual rights and minimizes financial disputes.