SIMON SAYS: Demurrage – it’s time to sort it out

Submitted by Simon Hill on Mon, 06/24/2019 - 16:35
Demurrage Conflicts

I’m currently sat in southern France having just watched some very exciting water jousting along the main canal in Sete, brought to the region by the ancient Greeks, while our eldest son and his two buddies have front row seats for the CS:GO “Esport” pro league final in Montpellier. I guess similar in that the aim of both games is to bludgeon each other, one with a surprisingly sharp stick, the other with an array of software simulated weaponry. The difference for me is that the Esports guys are fighting for a $750,000 purse. How the world has changed. Anyway, I want to have a French theme in today’s blog, so I thought why not “demurrage”, derived from the Old French demeurer – to linger.

I remember many years ago making a presentation at, what was then called, the Purvin & Gurtz Seminar in Singapore. My colleague at the time, Ian Phua, did a pencil outline, on a big flip chart, of the Chinese character that was closest to the French derived word. I think I probably pointed my finger at those members of the audience who had flown in from China, saying something like, “you keep denying this word exists in Chinese, well it does!”, hastily going over the outline in thick black marker pen. It must have made an impression as it front-paged in the following week’s Tradewinds, which was something pretty big, even then!

If there’s one thing in our industry that really irks me it’s the delay, the avoidance, the dodging, the eluding, the sidestepping, the shunning, the shirking, call it what you want,  but basically we don’t pay our demurrage, not on time or not at all! We must change the mindset and legal impediments governing our industry when it comes to the word demurrage. Let’s start now!

I fully understand the rules. Contractual agreements are struck with ship controlling parties specifying the period of time allowed to load and/or discharge the vessel’s cargo, called “laytime”, and if we take longer to load, discharge or both, we pay a penalty called demurrage, but it’s not that straight forward, is it. And because it’s not straight forward we get these magical grey areas that can cause all the problems as well as latitudes that aren’t really equitable.

I’m sure your list is longer than mine, but there are a lot of areas that come up time after time, usually after the words “ we are unable to accept your demurrage claim because…”. The first that comes to mind relates to Notice of Readiness (NOR), where the charterer is often given six free hours to get the receiving terminal formalities in place to either load or discharge the cargo (e.g. customs documentation), arranging pilot, and so on. I accept the formalities but what I don’t accept is that the terminal can use it, as their time, if they don’t have the cargo ready to load, space to discharge, or they have another ship that hasn’t vacated the berth. I’m sure there will be legal opinion, Jones v Smith or whatever will be thrown back, but its not right in my simple mind.

Then there’s night berthing. The port decrees that you cannot berth between a certain time at night, so if your ship turns up after the cut-off time, that time does not count towards used laytime. I have seen this so many times, yet we are a 24/7 world. As a real-world example, I have to tell you the story of a ship we had on charter, a small pressurised vessel, that’s all I’ll give away on the vessel’s identity. Anyway, I noticed she was consistently turning up at each port thirty minutes or an hour after the port closed. Let’s just say the Master and crew didn’t always get an early night to ready themselves for the morning procedures!

But it’s the use of “we’re not able to agree because” that frustrates me most; the ship wasn’t able to receive the cargo at the specified loading rate in the contract, because the vapour return line was not being used, or the ships pumps weren’t pumping at the rate required, maybe the Master or the agent or whoever were late signing such and such documents, the tanks weren’t fully cooled or was it because the cargo loaded wasn’t fully chilled. How many times does someone, or something appear to get it wrong or go wrong?

The problem of course is that we all sometimes agree to laytime and demurrage clauses from a position or strength or weakness. The loading terms in Houston in my mind are favourable to the seller, but they were negotiated when every man and his dog were trying to get U.S. export cargoes. The terminal operators knew their chiller capacity limited loading to between 48 and 72 hours, so they put this in the contracts and the buyers all agreed. I can’t blame them but now the world has changed and exposure to potential demurrage is a cost waiting to happen. May be, I am asking for a standard time to be allotted for a standard cargo on a standard ship, removing the anomalies that exist. Maybe this is impossible, but we do need to standardise somewhere to minimize the potential grey areas and speed up the payment. Somebody or some bodies should take on the initiative.

I also see that time limits on claims, such as in the Ginga contract, has meant those who have to pay wait until the last minute to reply to a claim. That’s not right. I see large claims held up due to arguments over a few hours. If the bulk of a claim is agreed we should pay what is agreed when it is agreed.

I’ve heard it said that if you don’t like the terms you need to account for it in the price you charge or pay, maybe I’ve been guilty of this in the past as well. But should this be the way forward? Our industry could easily double the number of VLGCs applying its trade in the last 10 years, let alone all the other smaller ships. We all want standardization but to say “terms as Standard” we need to make those terms mean what they say.