Time means money in international shipping. This is especially true when shipowners decide to voyage charter their vessels.
In voyage chartering, the shipowner places its vessel at the charter’s disposal. The shipowner places its vessel at the charterer’s disposal. The shipowner retains full control over the navigation and operation of the vessel. However, the charterer is responsible for designating ports, setting itineraries and furnishing cargoes. The charterer pays freight on the cargo carried.
The charterer is entitled to a stipulated period of time to load and discharge the vessel, known as laytime. If laytime is exceeded, the charterer will pay an additional freight charge called demurrage.
After the voyage charter party is formed, the vessel owner has an absolute duty to send the ship to the load port with reasonable dispatch. To maximize profits, it behooves the shipowner to complete the voyage as soon as possible in order to collect freight and to place the vessel on the chartering market for new business.
On the ideal voyage, the ship arrives at port ready to load, and the master tenders a notice of readiness. Shortly thereafter the vessel berths, laytime commences, and cargo is loaded within the permissible laytime.
Unfortunately, voyages are not always ideal. The recent New York maritime arbitration of the “M/V Carlita” (S.M.A. 2933) focuses on an issue of importance to those engaged in the voyage charter trade. Who bears the risk of time lost by a ship as a result of the berth not being available? The answer to this inquiry must be determined by analyzing the terms of the charter party, and the laytime clause in particular.
By way of background, to commence the running of laytime, the ship must arrive ready to load at the destination described in the charter. Destinations are either ports, docks or berths. Under most charter parties, charterers will not be liable for time lost wating for berths caused by port congestion, priority berthing or local port customs requiring vessels to wait their turn. Some charters even provide that laytime will commence “whether in berth or not.” If, however, a vessel loses its berthing turn because of the charterer’s fault, laytime will commence. Conversely, if the ship loses its turn through not being ready, the vessel owner bears the responsibility for the time lost.
In the “M/V Carlita” arbitration, a shipowner voyage chartered its vessel to carry pig iron from Sorel, Canada, to Italy. The ship arrived at Sorel and tendered its notice of readiness. The berth was occupied, and other ships were subsequently granted berthing priority by the cargo shipper. The “Carlita” then waited six days to berth.
The shipowner claimed $24,000 demurrage, which related to the priority berthing utilized at the facility. The shipowner alleged the charterer failed to disclose the berthing arrangement when the charter was negotiated. The vessel owner argued that the charterer should not be permitted to rely on the charter laytime provision, which provided that time lost waiting for berth, if beyond the charterer’s control, was not to count as laytime.
The charterer argued that the vessel loading rotation was outside of its control. Moreover, the priority arrangement was a matter of common knowledge. It had no obligation to advise the vessel owner of readily accessible facts.
The arbitrators agreed with the charterer’s position: “Owners could have readly determined the priority berth arrangement upon simple inquiry but, for whatever reason, chose not to do so.” The arbitrators then held that the shipowner was not entitled to demurrage.
The “Carlita” arbitration suggests that vessel owners should familiarize themselves with port berthing practices during charter party negotiations in order to allocate the risk of berth delays in charter agreements.