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Is Your Charter Party up to date?

Prior to the commencement of a period of employment involving multiple voyages, the vessel owners as well as the charterers will draw up a time charter agreement detailing various aspects of the vessel and voyages.  A large part of this agreement has to do with vessel performance, including the vessel description, speed and consumption warranties, and definitions of acceptable periods of ‘good weather’ for determining if the vessel is able to meet her stated warranties.

Example of a Time Charter Agreement form – the basis for the expectations between vessel owners and charterers.

In a perfect world, the vessel would always meet the warranties and there would be no disputes post voyage for reclaiming of underperformance by the charterers.  However, due to many issues (hull fouling, mechanical issues, out of date warranties, etc), there are times when a vessel will not meet the warranties and charterers will attempt to claim back the excess time and consumption at sea.

Regardless of a vessel’s performance, the wording chosen in the time charter agreement is very important.  Nearly every aspect of performance monitoring is open to at least some interpretation and/or tolerances, especially if the wording is vague or incomplete, leading to costly disputes post voyage.

While Fleetweather’s claim team is well equipped to assist both vessel owners and charterers in these post voyage claims with our knowledge of arbitration awards and access to high resolution ocean and meteorological data, these post voyage disputes can be more quickly settled if the performance and weather routing clauses in the time charter agreement are written properly. 

It is common to find outdated predefined forms or the same charter party agreement used previously (in some cases decades earlier) that have not been updated to reflect current best practice. Not doing so can cause more costly disputes than otherwise.

While not an exhaustive list, there are several aspects of the performance clauses that are the typical ‘friction points’ of a post-voyage claim.   These include:

  • ‘About clauses’
  • Ocean currents
  • The definition of a ‘Good weather day’

About clauses

Many charter party agreements typically define the warranted speed and consumption with the term ‘About’.   For example:  “About 12kts on about 23mt FO and 0.2mt MGO”.   What exactly is the definition of the term ‘about’?

The traditional definition of the term ‘About’ has historically been to apply a 0.5kt downward allowance on speed, and a 5% upward allowance on consumption.  In fact, this had become so commonplace within the maritime industry that among the various arbitration awards on the subject, an award from 2007 stipulated for the +5% allowance despite no specificity for the same within that agreement:

2007 LMLN 710:  

“Held, that it was arguable that with modern machinery it should be possible for owners to provide a bunker consumption warranty that was more accurate than one with a 5% margin. However, the 5% margin was so commonly used in concluding contracts and resolving disputes under them that it was reasonable to assume that, purely as a matter of contractual intent in the absence of any indication to the contrary, the parties intended to allow for the application of a 5% margin if they used the word “about”.” 

Over the past two decades, there have been various awards issued both in favour of the application of the allowance on speed and consumption, as well as in favour of allowing only one about (either on speed or consumption) to apply:

2007 LMLN 720:  

“The charterers had also argued that the use of the word “about” in relation to the speed warranty automatically involved a margin on the consumption warranty and that therefore a further “about” margin should not be applied to that. However, the charter terms were clear in qualifying both the speed and consumption warranties by “about” in each case, and effect had to be given to that.

2000 LMLN 533:

“The vessel was described as ‘capable of maintaining fully laden, under good weather conditions up to and including Beaufort Force 4 about 14.5 knots / 15.3 ballast on a consumption of about 33.9 metric tons fuel oil (180 centistrokes) plus about 1.8 metric tons blend.’ Based on the charterparty language that the ‘about’ was applied either to the speed or the consumption and the parties’ selection to apply it to the speed, the vessel’s warranted speed was 14 knots.”

This is where a specifically worded charter party clause can assist.   This limits the potential for varying interpretations of the intent of this specific clause which can lead to lengthy disputes post voyage.   Specifically quantifying the ‘about’ clauses within a numerical figure and positive/negative value is recommended (such as 0.5kt downwards on speed and 5% upwards on consumption).

More recently, the well known commercial court ruling of the ‘Gaz Energy No. 2’ has begun to change the methodology in terms of dealing with a ‘standard about clause’ (meaning when no specific definition is given within the charter party).  

To summarise the ruling, the Gaz Energy No. 2 case allowed for the 5% upwards allowance on overconsumption calculations, but a 5% downwards allowance on underconsumption calculations.   

2012 852 LMLN 3:

“the guaranteed maximum consumption is expressed by reference to a range (“about 40 mt” per day) it seems to me to be right in principle to assess underperformance by reference to the upper limit of that range, 42 mt per day, and to assess overperformance by reference to the lower limit of that range, 38 mt per day”.”

This ruling limits potential savings of bunkers caused by application of the upward allowance, as well as allows for a situation where neither an overconsumption nor an underconsumption occurs, and the vessel will consume within the ‘acceptable range’.   

As the Gaz Energy No. 2 was a ruling handed down by a London Commercial Court it does carry more weight than an individual arbitration award. In fact, even some charter parties themselves now include the +/-5% allowance wording stipulated by this award.   Perhaps some consistency will begin to follow this commercial court ruling when it comes to post voyage reports and the proper allowance for the term ‘about’.

This still lends further credence to the merit of having specificity be the centre of any charter party wording in terms of the ‘about clause’.

Ocean Currents

Image from NASA’s perpetual motion ocean currents across the Gulf of Mexico and Western Atlantic Ocean. Source: NASA

In many charter party descriptions, a vessel’s speed and consumption are only warranted during periods of ‘good weather’, and in many cases, this ‘good weather’ is quantified as being during a day with ‘no adverse currents’ or similar wording.

As is the case with the ‘about clause’ as described above, this vague wording is somewhat open to interpretation, and there are numerous arbitration awards with various results in attempting to handle this or similar clauses.  

Below are two such arbitration awards with varying results/interpretations of the ‘no adverse currents’ clause:

2012 854 LMLN 4“It followed that – at any rate once non-compliance with the warranted speed had been established by reference to periods of good weather and not unfavourable current – the application of a current factor was permissible to compensate for periods of both favourable and of adverse currents.” 

2014 12/14 LMLN:  “The Tribunal again preferred the Owners’ interpretation. The essential purpose of a “good weather” definition is to limit the performance warranty to wind/sea conditions in which the vessel can realistically be expected to perform as warranted; and, as is common, currents are mentioned to ensure that the vessel’s performance in those conditions is not impeded by currents. So “no advance currents” really meant no adverse currents. Thus, the 0.2 kt reduction by Charterers’ router of the vessel’s “good weather” speed for the 0.2 kt assisting current was incorrect in view of the Tribunal’s ruling”

As one can see from the above two awards, two different outcomes were determined.  The first award allowed for accounting of both adverse currents and favourable currents to determine her performance speed.   The second award did not allow for the application of favourable current effect to determine her performance speed.

Similar clauses, two different results.  The intent of any ‘no adverse currents’ or similar clause should be made very clear when drafting the charter party agreement.  Specifically, noting how currents impact a day being included in good weather or not is an important aspect to consider to avoid costly post voyage disputes.  This can be done by clearly stating that in addition to the typical wind and sea limitations on good weather conditions, that any day with adverse currents should be excluded from good weather calculations (if this is the intent of the parties in regards to any ‘no adverse currents’ clause).

The definition of a ‘Good weather day’

A cargo vessel anchored in calm seas.

In continuation of the use of the ‘no adverse currents’ clause, another stipulation that is key to any post-voyage claim is the actual definition of a ‘good weather day’ during which a vessel’s speed and consumption is warranted, and against which a speed and performance claim is based.

Most charter party forms leave a space blank for parties to stipulate what they regard as good weather. For example, it is common that force four on the Beaufort (BF4) scale is inserted where winds of BF4 and below are considered as good weather.  In other words, the warranty only relates to how the ship should perform in good weather and any data which indicates weather was bad should be discarded.  Logically, if a ship under performs on good weather days then it naturally follows that she also under performs in bad weather. However, at times, the charter party can be quite vague, especially when it comes to permissible sea state figures for good weather which can lead to costly disputes post voyage. Best practice is to use specific numerical figures for good weather defined limits of wind and sea.

In the time charter agreement, it is also important for there to be consistent wording across the document.   All too often there are conflicting definitions or clauses within the main body of the agreement and any supplemental rider clauses, which can lead to more difficulties in the post-voyage process.

Fleetweather is well positioned to assist the vessel owner or charterer with the handling of post-voyage performance analysis and performance claims.  In particular, Fleetweather can assist with charter party wording recommendations should the opportunity arise for the vessel Owner to rewrite/update an agreement between charters, or if a vessel charterer would like to assess a particular clause within an agreement that they are negotiating pre-voyage.   

Time charter agreements are slowly evolving over time, and we expect further developments in time charter parties related to emissions and carbon intensity reduction driven by regulation and industry through initiatives such as the Sea Cargo Charter and Poseidon Principles. 

Please reach out to us 24/7 if you need assistance. 

Stay connected and safe.

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