Laytime and demurrage

Laytime and demurrage

Laytime is time allowed to a vessel for loading and discharge of cargo, whereas demurrage is compensation for failure to load or discharge the vessel within laytime. The calculation of laytime may be divided in three stages:

  • Establishing the commencement of laytime.
  • Determining the duration of laytime.
  • Allowing for interruptions to laytime.

When does laytime commence?

Laytime commences after a valid Notice of Readiness (NOR) has been tendered. NOR may be considered valid if the vessel:

  • has arrived at the agreed destination (a port, berth, or dock depending on the type of the charterparty) within the period of time agreed by the parties (laydays), and
  • is ready for loading in all respects: both legal and physical (cargo spaces are ready for loading and discharge, vessel is properly equipped, all relevant documentation is in order and etc.)

The charterparty may contain additional provisions qualifying whether the vessel is deemed to be an "arrived ship" in certain circumstances:

  • WIPON (Whether In Port Or Not)
  • WIBON (Whether In Berth Or Not)
  • WICCON (Whether Customs Cleared Or Not)
  • WIFPON (Whether In Free Pratique Or Not)

E.g. The charterparty specifies the loading port as Odesa seaport. The vessel is unable to enter the port due to congestion and is to wait her turn in a “normal waiting place”. Usually, the NOR may be tendered only when the vessel enters the port. However, if the charterparty contains a WIPON clause, the NOR may be tendered from the “normal waiting place”.

The charter may also specify the time for tendering a valid NOR:

Notice of readiness shall be tendered between 08.00 and 17.00 hours on all days except Saturdays, Sundays and Holidays.

However, if the NOR is tendered outside the specified period, it is considered to have been tendered at the earliest date when it could have been validly tendered, for example:

NOR is served on Thursday at 18.00. Friday is a public holiday. The NOR will be considered tendered on Monday at 8 a.m. because Friday, being a holiday, is excluded. Saturdays and Sundays are excluded either. Therefore, Monday 8 a.m. becomes the earliest possible date when NOR could have been tendered.

If the vessel complied with the above requirements (readiness, arrived at destination, tendered the valid NOR), laytime will commence in accordance with the contractual terms:

Laytime shall commence at 13.00 hours if notice of readiness is validly tendered at or before 12.00 hours and at 08.00 hours on the next working day if notice of readiness is validly tendered after 12.00 hours.

Thus, if NOR is tendered on Monday before 12.00 a.m., laytime commences at 13.00 hours on the same day. But if the NOR is tendered at 12:01 p.m. on Monday, laytime will start running from 08:00 hours on Tuesday.

Duration

The common rule is that once laytime commences it runs unhindered until the completion of the cargo operations or it expires.

There are the following types of laytime:

  • fixed;
  • calculable;
  • other ("Custom of the port", "Customary despatch", "Fast as can", etc.).

The first one directly specifies how many days/hours are allowed for loading and/or discharge, e.g. “20 hours for loading and 30 for discharge”.

The second one specifies the set loading rate i.e., the amount of cargo to be loaded on the vessel per day/hour. For a ship loading 50,000 mt at a loading rate 5,000 mt per day the available laytime will be assessed as follows:

50,000 / 5,000 = 10 days

If the above calculation results in an integer number, it should be then converted to hours and minutes:

3.575 days = 3 days 13 hours 48 minutes

The third type of laytime referred to above is rarely used. The common feature with the terms of this third type of laytime is that they all provide for an indefinite time for loading/discharge, but the shipper/receiver should act “reasonably”.

Interruptions to laytime

The interruptions to laytime are the periods which normally fall within the laytime definition, although excluded by a respective exception clause. Such clauses usually interrupt the laytime in the event of:

  • Weather conditions. For example, in case of "WWD" (weather working day), laytime does not count in the periods of bad weather, which interrupts loading or discharge operations.
  • Weekends and Holidays: "SHEX" (Sundays and Holidays Excepted) provides that Sundays and holidays to be excepted from the counting of laytime.
  • Shifting from berth to berth.
  • Strikes.
  • Others.

Demurrage and dispatch

If laytime has expired, but loading is not yet completed, the charterer will have to pay demurrage. If loading is completed before the expiration of the laytime, the charterer will receive a reward in the form of despatch (being a reward for completing loading/unloading more efficiently, thereby freeing the vessel for hire) if this is provided for in the charterparty.

The amount of demurrage is stipulated in the contract (e.g. USD 5,000 per day pro rata). Generally, the despatch rate is half of the demurrage rate. Some contracts do not provide for payment of despatch.

It may be the case that the relevant commercial contracts (CIF and FOB) do not specify the demurrage rate but instead only refer to the charterparty in this regard. In such cases, the CIF buyer or FOB seller, when they do not have the charterparty at the time of contracting, assumes additional risk. The most sensible option is to set a maximum demurrage rate (demurrage as per charterparty but max USD 5,000).

The main rule on demurrage is "once on demurrage, always on demurrage", which is taken to mean that the exclusion clauses on laytime do not apply to demurrage:

According to the charterparty, laytime does not include weekends and holidays (SSHEX). Laytime expires on Friday, but loading is only completed on Monday. The time between Friday and Monday counts as demurrage. Saturday and Sunday are not excluded from the demurrage calculation.

However, the maxim is not an absolute, and there are certain cases in which it may not apply (if the delay was caused by the actions of the master or crew etc.).

Detention

If the vessel is delayed after the completion of loading or discharge, the charterer will have to pay damages for detention, rather than demurrage. The difference between demurrage and detention is simple.

Demurrage constitutes liquidated damages, which means that the amount or rate thereof is pre-agreed in the contract. The shipowner will be limited to claim only demurrage for any delay in loading/discharge beyond the agreed laytime.

The amount of detention is not stipulated (or limited) in the contract and may therefore include any damages related to delay of the vessel after the completion of the loading/discharge.

Demurrage claims

The following documents are generally required to claim demurrage:

  • Invoice.
  • Timesheet.
  • NOR.
  • Statement of Facts.

The charterparty or contract may set out additional documents. English law provides for a 6-year limitation period for demurrage claims. However, the riders to the charterparty usually shorten this period up to a maximum of 60 days:

CL.9. DEMURRAGE TIME-BAR

ANY DEMURRAGE CLAIMED UNDER THIS CHARTER PARTY HAS TO BE RECEIVED BY CHARTERERS IN WRITING WITH ALL SUPPORTING DOCUMENTS NOT LATER THAN 60 (SIXTY) DAYS AFTER COMPLETION OF DISCHARGE. SUPPORTING DOCUMENTS SHALL MEAN OWNERS' SIGNED INVOICE, NOTICES AND STATEMENTS OF FACTS FROM LOADING AND DISCHARGING PORT(S) DULY SIGNED BY SHIPPERS/RECEIVERS, RESPECTIVELY. ANY DEMURRAGE CLAIM RECEIVED LATER THAN 60 (SIXTY) DAYS IS TO BE CONSIDERED NULL AND VOID AND IT SHALL BE DEEMED THAT OWNERS HAVE WAIVED ALL THEIR RIGHTS IN RESPECT OF SUCH DEMURRAGE CLAIM.

If the deadline is missed by even one day, the claim will be time barred. The claim will also likely fail if any of the documents required by the charter to be presented to claim demurrage are not provided in support of the claim in time.

If the demurrage is not paid voluntarily, then the claim may be referred to an appropriate arbitral forum in accordance with the arbitration clause of the charterparty or commercial contract. In our previous articles, we explain the recovery procedure under LMAA, GAFTA and FOSFA rules.

Container demurrage and detention

Container demurrage should be distinguished from demurrage. As one might expect, container demurrage is used in cases of linear (container) shipping.

After the container is unloaded at the port, the consignee is to collect his cargo and return the cleaned container. The shipping line will set the free time to return the container. Free time is a given amount of time allowed for a pickup and return of the container free of charge (i.e. a set time limit). Container demurrage is a fee incurred by the consignee for keeping a container at the port beyond the free time. Detention refers to the time outside the port. Container demurrage and detention are charged per day according to the applicable rates of the shipping line. These rates often provide for a progressive scale of compensation: the longer the delay is, the higher the rate of demurrage/detention that will be applied.

About Fortior

Fortior is an international law firm specialising in English litigation, arbitration, and dispute resolution in shipping, international trade and investment law. Fortior’s team consists of English solicitors and lawyers qualified in multiple jurisdictions (New York, Switzerland, Malta, Italy, Georgia, Ukraine, Kyrgyzstan).

Danil Hristich, Head of Fortior's Ukrainian office, and Sergey Platonov, Associate, have prepared this article.

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