To Charterers: Specify Method for Computing Time

In international shipping, time means money.

This is especially true when one timecharters (leases) ships to transport cargoes.

Under most timecharters, the shipowner leases the vessel to the charterer for a stated period of time. The charterer then will pay hire (rent) for the use of the vessel for that period of time.

However, many charters fail to specify the method for calculating time. This oversight can lead to unnecessary disputes when the vessel is redelivered to the shipowner at the conclusion of the charter.

By way of background, in the timecharter trade, the shipowner retains control over the vessel and is responsible for operational expenses (crew wages, provisions, stores, insurance, maintenance and repairs). The charterer pays for bunkers (fuel) as well as port and stevedore charges. The charterer then will charge third-parties freight charges for transporting their cargoes.

In order to maximize profits, charterers will attempt to charter vessels at low hire rates; obtain high freight revenues from third-party cargo interests; carry maximum cargoes by utilizing vessel cubicable space or deadweight carrying capacities; direct vessels to proceed with utmost dispatch, while maintaining economical fuel consumption, and maximize the number of cargo carrying voyages during charter periods.

However, a vessel owner’s primary concern is to keep its ships constantly chartered in order to guarantee a continuous flow of hire payments. Vessels must, of course, be maintained, as timecharters contain provisions that suspend hire payments during vessel breakdowns.

When parties negotiate charters, the time period usually will be proceeded by the word “about.” This gives the charterer reasonable leeway to redeliver the vessel at the conclusion of the charter. This is necessary because it is impossible to predict the precise date that the last voyage will conclude. However, hire payments accrue from the moment the vessel is delivered to the charterer until it is redelivered to the shipowner.

After redelivery, parties will compute the period of hire time. This may pose a problem if the vessel is delivered at a port in one time zone and redelivered in another. Certain questions may arise such as whether the time period shold be calculated by reference to local dates and times at the delivery and redelivery ports, or by reference to the actual elapsed time based upon Greenwich Mean Time.

The recent New York arbitration of the PACGLORY (SMA Award 2737) illustrates the point.

The PACGLORY case concerned whether the computation of time was to be made by reference to “local time” or “elapsed time.” The charter stated “time to count from the date and hour the vessel has been placed at charterer’s dipossal.”

The sole arbitrator noted that a number of cases on the point had been decided in New York arbitrations, not always with the same results. (E.g., one arbitrator (SMA Award 743) has noted that if a vessel trades between islands straddling the international dateline, application of the local time concept would result in one day’s additional hire for delivery west of the date line and no hire for delivery east of it.)

Generally, however, the industry perception has been that New York arbitrators favor the local time concept whereas London arbitrators lean toward the elapsed time interpretation.

The arbitrator then noted the delivery and redelivery certificates for the PACGLORY reflected certificates for the PACGLORY reflected local times. Therefore, thse times were applied to resolve the dispute.

The arbitrator stated that specificity should be used in this area. “Considering that the dispute on local time vs. elapsed time have been around for decades, it is not unreasonable to argue that the industry should have learned from past experiences.”

The case illustrates that this type of dispute can be prevented simply by specifying the method of computing time in charter parties. This sound advise should be heeded by all those engaged in the business of timechartering vessels.