Calculation of Demurrage

Calculation of Demurrage

 

How are Demurrage Charges calculated?

In the calculation of demurrage amount payable to shipowner, demurrage rate is multiplied by the number of days or part of day in excess of the agreed laytime. For example:

  • Total Laytime Allowed 11 days
  • Demurrage Rate $60,000 per day pro rata (PDPR)
  • Ship exceeded laytime allowed for loading and discharging by 4 days 6 hours 30 mins
  • Demurrage Payable =4d 6h 30m x $60,000 per day =4.27083 days x $60,000 = $256,250

In order to arrive at the number of days on demurrage, a calculation of the time in port must be made making reference to the time allowed (laytime) and whether time is counting or whether it is an exception and does not count. Demurrage calculation is similar to using a stopwatch in that the clock will continue to run until there is a qualifying exception and the time will stop. Therefore, in any charter-party it is important to know exactly when the agreed laytime has expired as the ship, from that point, ship will be on demurrage.

‘Once on Demurrage, Always on Demurrage’ phrase is sometimes overused and often misleading. It is crucial to note that the rules for the stopwatch change when a ship is on demurrage and careful attention must be paid to the detail of the specific charter-party when this happens.

General rule is that express exceptions to laytime do not apply to demurrage unless there is clear wording in the charter-party to that effect. Theoretically, the clock does not stop running once the ship has gone on demurrage,

For example, Asbatankvoy – Clause 7 last sentence reads as follows: Time consumed by the ship in moving from loading or discharge port anchorage to her loading or discharge berth, discharging ballast water or slops, will not count as used lay time. If the ship was moving from the anchorage to the berth and the laytime at that time had not been used up then time will not run during the period of moving to the berth. On the other hand, if lay time had expired and the ship was on demurrage then time would continue to run for such an event and the owner is entitled to demurrage for this time.

Great care must be taken over the wording of the charter-party for events which interrupt laytime to apply to demurrage.

Demurrage would not run where there is a fault on the part of the shipowner. For example, a ship breakdown, as shipowner should not be able to profit (paid for demurrage) for his own breach of contract. General exceptions clauses will not apply to demurrage unless the wording specifically supports this. Time on demurrage ends at the same time as laytime would have done, such as when completion of cargo operations in dry bulk market or when disconnection of cargo hoses in the tanker market.

When is Demurrage Payable?

Gencon Charterpary (GENCON 94) Clause 7 states ‘Demurrage shall fall due day by day and shall be payable upon receipt of the owners’ invoice.’ In this case an owner is entitled to submit an invoice every day for as long as the vessel is on demurrage. Clearly where there are long delays and large amounts of demurrage incurred the owner may want to do so to ensure that the charterer becomes liable immediately.

In practice a claim is submitted at the end of the voyage and, after a period of negotiating the details and amount, agreement is reached and one payment made for the entire claim. Absent the Gencon wording, it is generally accepted that demurrage is payable day by day. However some charterparties will include express terms about the timing of payment which will need to be examined on a case-by-case basis.

 

What is Demurrage?

Demurrage refers to the liquidated damages payable by the charterers to the shipowner for failing to complete the loading or discharging of the ship within the agreed laytime period.

Demurrage is not payable when the charter party expressly provides that certain periods of time lost, such as breakdown or inefficiency of the ship, shall not count for demurrage, However, the general rule is “once on demurrage, always on demurrage” i.e., if a ship is on demurrage, no laytime exceptions such as Sundays and holidays can be deducted from the computation of demurrage.

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Demurrage Rate

Demurrage is the name given to the damages payable by the Charterer to the Shipowner for the Charterer’s Breach of Charterparty in delaying the ship beyond the agreed laytime. Demurrage is Liquidated Damages that means the rate per day is fixed at the time the charterparty is agreed. Furthermore, Shipowners (Disponent Owners) and Charterters know in advance their respective liabilities/earnings in the event of a delay. This is distinct from Damages at Large which would require a Shipowner to prove his losses. For demurrage, the Shipowner only has to prove that the delay falls within the terms of demurrage for the relevant charterparty. The Demurrage Rate agreed is much like the Freight Rate, Demurrage Rate will be a reflection of the running costs of the ship and the market conditions. Usually, the Demurrage Rate is agreed in the charterparty as a Daily Rate. For part of a day, the rate is pro rated as.

 

Once on Demurrage, Always on Demurrage

If a charterer detains the vessel beyond the agreed lay days, then the charterer is in breach of contract.

The majority of charter-parties include a clause providing that he may retain the vessel for additional days in order to complete the loading or discharging operation on payment of a fixed daily amount, known as demurrage.

In the late nineteenth century this additional period was judicially referred to as lay days that have to be paid for. This is a misleading description since it conceals the fact that, in reality, the charterer is in breach of contract even though he is entitled, on payment of the agreed rate, ‘to detain the ship for the purpose of enabling him, if possible, to perform his broken contract and so mitigate any further damage’.

Nevertheless, it is an anomalous position since, despite the breach, the shipowner is unable to rescind the contract and withdraw his ship during the demurrage period unless the failure of the charterer to load amounts to a repudiation of the contract on his part, or the delay is so substantial as to frustrate the object of the charter-party. This principle applies whether the charter stipulates for a fixed number of days on demurrage or no time limit is expressed as, e.g., ‘eight days for loading, after which demurrage at £2,000 per diem’. At common law a demurrage clause is purely a creation of contract and is in the nature of a provision for agreed damages for detention of the vessel beyond the agreed lay days. The stipulated sum is recoverable by the shipowner irrespective of proof of damage, and represents the maximum amount recoverable for loss resulting from the detention.

Demurrage will thus cover losses of freight arising under subsequent charter-parties affected by the delay, or from the consequent reduction in the number of voyages possible under a consecutive voyage charter-party. On the other hand, it will not extend to limit claims for losses arising from causes other than detention as, for example, from failure to load a full cargo.

As with any other provision for liquidated damages, a demurrage clause may be struck down by the courts as a penalty if the rate is fixed so high as to be extravagant and unconscionable in comparison with the greatest possible loss that could flow from the breach. In such circumstances the courts would consider the shipowner adequately compensated by being allowed to recover his actual loss. A similar principle would not appear to be applicable in reverse in cases where the rate is fixed at an unreasonably low level. In such an event the shipowner is unable to recover his actual loss but is limited to the specified demurrage rate even though the delay has been deliberately caused by the charterer for his own benefit. Such a situation may be open to abuse at times when costs and freight rates are rising and the shipowner may be left without an effective remedy should excessive delay result in him losing a subsequent charter.

The actual rate of demurrage will be stated in the charter-party and will normally be fixed at a figure in line with current freight rates at the time of the conclusion of the charter. As such fixtures are often made well in advance, the figure may bear little resemblance to prevailing freight rates by the time demurrage becomes payable.

Liability for the payment of demurrage accrues immediately on the expiration of the lay days and runs continuously through Sundays, holidays and other periods normally excluded from laytime, e.g. bad weather working days.

The rule is once on demurrage, always on demurrage. For a similar reason, laytime exceptions are held not to be applicable to a demurrage period unless expressly worded to that effect. Thus in a case in which the House of Lords had refused to allow a charterer to invoke a strike exception after laytime had expired, Lord Reid justified the decision on the grounds that ‘the shipowner might well say: true, your breach of contract in detaining my ship after the end of laytime did not cause the strike, but if you had fulfilled your contract the strike would have caused no loss because my ship would have been on the high seas before it began: so it is more reasonable that you should bear the loss than that I should’.

Nevertheless, the once on demurrage rule may still apply even though the event covered by the exception occurs before the expiry of laytime. An exception can be expressly worded so as to cover the demurrage period as, for example, where it was provided that demurrage was to be paid ‘at 12s 6d per hour unless detention arises from a lock-out, strikes etc.’ Similarly, demurrage will not accrue during a period where delay was due to the fault of the shipowner or resulted from action taken by the shipowner for his own convenience. It will, however, accrue where the delay is accidental and not due to the fault of either shipowner or charterer. Even where the delay results from a breach of contract by the shipowner, demurrage may still be payable if the length of such delay is beyond the reasonable contemplation of the parties as a possible consequence of the breach.

Demurrage as Liquidated Damages

It should be remembered that since demurrage represents the amounts which the Shipowners (Disponent Owners) and Charterers have agreed are payable by the Charterer to the Shipowner to recompense it for any losses which it has suffered as a result of the detention of the ship beyond laytime, it follows that the Shipowner may not be able to recover other losses which it has suffered as a result. These Liquidated Damages (Demurrage) represent all the damages which can be recovered by the Shipowner where the laytime is exceeded. Therefore, the Shipowner (Disponent Owner) may not be able to recover extra bunkers or port costs incurred by it as a result of the delay or even the loss of a valuable next cargo (fixture) which is cancelled as a result of the delay.

To recover other losses, the Shipowner must show that the charterer is also in breach of another provision of the charterparty. For example, in a case called Reider v Arcos (1926) Case, the Shipowner proved that, as a result of the charterer’s delay, the ship could not leave port with a full cargo because the depth of water over the bar had dropped. The charterer therefore loaded less cargo than it would have loaded if there had been no delay and the owner recovered deadfreight for the Charterer’s breach on top of demurrage.

 

Ship Detention 

Laytime is at the free disposal of the charterer since he is regarded as having paid for it in the freight. He is entitled to use it in the way which suits him best and, provided that the agreed period is not exceeded, the shipowner is not entitled to complain that the cargo could have been loaded in a shorter time. ‘The method of loading  and discharging the ship is entirely a matter for the charterers to decide. Nor is it of any consequence to the owners whether the loading or discharge proceed very slowly on some days and exceptionally fast on others or at an even pace.

All that matters to the owners is the actual time occupied by those operations.’ The most striking example of this principle in operation is to be found in the case of Margaronis Navigation Agency v Peabody where a vessel had been chartered  to load a full and complete cargo of maize at an average rate of 1,000 tons per weather working day of 24 hours, Sundays and holidays excepted. The charterers were required by the master to provide a cargo of 12,600 tons and when, by 5 p.m. on Friday, 27 December, all but 11 tons of this amount had been loaded, they instructed the stevedores to stop work as they were anxious for business reasons to obtain January bills of lading. Loading  was resumed at 8 a.m. on Tuesday, 2 January, the next working day in the port, and was completed in 40 minutes, after which the vessel sailed. Although the operation had been completed within the agreed lay-time, the shipowners nevertheless claimed damages for detention on the  ground that the charterers had wrongfully detained the vessel for their own purposes after a full cargo had been loaded. While admitting that the charterer’s obligation ‘was to load a full and complete cargo subject to the de minimis rule’.

The Court of Appeal nevertheless upheld the decision of the arbitrator that, in  view  of  the accuracy of the loading equipment being used, a shortage of approximately 12 tons (i.e. less than 0.01 per cent) was not a commercially insignificant amount and so the charterers were entitled to detain the vessel until the balance of the agreed cargo was loaded.

In contrast, once the loading operation has been completed, the charterer has no right to detain the vessel further, even though the laytime has not expired.

In Nolisement (Owners) v Bunge y Born the loading was completed some 19 days before the expiration of the lay days, but the charterers delayed a further three days before presenting bills of lading to the master since they were unable to decide on the port of discharge. They were held liable for damages for two days’ detention. It would seem a little inconsistent for the charterer to be penalized for detaining the vessel after the completion of loading if he could retain complete freedom of action by withholding a minimal amount of cargo.

Finally, it must be noted that the loading stage is not complete until the cargo is aboard the vessel and also stowed. Although stowage of the cargo is normally the responsibility of the shipowner and the cost is usually borne by him, it is nevertheless regarded as part of the loading operation and the charterer is under an obligation to bring the cargo alongside the vessel in sufficient time to enable the shipowner to complete the stowage within the lay days. With the completion of the loading operation, the end of the second stage of the voyage charter-party is reached and the risk of subsequent delay due to accidental hindrances and obstructions reverts to the shipowner.

Consequently, if after the cargo has been stowed the vessel is prevented from embarking on the carrying voyage by reason of ice or bad weather, the cost of the delay must be borne by the shipowner.

 

Damages for Ship Detention

When there is no provision in the charterparty for the payment of demurrage, a charterer will be liable for damages for detention for all the time he detains the vessel after the expiration of the lay days. In this situation damages are at large and will be assessed by the court in relation to the actual loss suffered by the shipowner, and in accordance with the normal principles governing remoteness of damage in contract.

Damages for detention is also the appropriate remedy where a charter-party stipulates a fixed number of days for the payment of demurrage, and those days have expired. In the latter case, however, the court will normally assess the damages at a figure corresponding to the agreed demurrage rate, though it is open to either party to prove that such a rate does not represent the actual loss suffered by the shipowner.

A shipowner is not allowed to withdraw his vessel during any period for which the payment of demurrage has been agreed, unless the delay is such as to frustrate the object of the charter-party. On the other hand, once the specified demurrage period has expired he is no longer obliged to remain in port to complete the loading operation and to be restricted to a claim for damages for detention.

If part of the cargo has been loaded, he may sail and claim compensation in the form of dead freight, or, if the charterer has failed to ship any cargo, he may rescind the charter and sue for damages at large. If, however, the delay occurs at the discharging port, he has little option except to complete the unloading operation and claim damages for detention.

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Ship Detention in Dry Bulk Shipping

Damages for ship detention refer to the financial compensation sought by a ship owner or charterer when a vessel is unduly delayed or detained by a third party, such as a port authority, shipper, or consignee. These damages are meant to cover the losses incurred as a result of the vessel being unavailable for other potential charters, increased operational expenses, or other associated costs.

In the event of ship detention, the following steps can be taken to recover damages:

  1. Identify the cause of detention: Determine the reason for the delay or detention, such as port congestion, labor strikes, customs issues, or delays in cargo handling. Establish whether the detention was caused by a breach of contract, negligence, or another actionable reason.
  2. Document the detention: Keep a detailed record of the events, including the timeline of events, correspondence with the parties involved, and any other relevant documentation. This information will be crucial in supporting a claim for damages.
  3. Calculate damages: Determine the amount of damages incurred as a result of the detention. This may include the loss of income from potential charters, additional operational expenses, crew wages, and other associated costs. The calculation should be based on the daily rate specified in the charter party agreement or, in the absence of such an agreement, a reasonable market rate.
  4. Notify the responsible party: Once the cause of detention and the damages have been identified, inform the responsible party of the situation and provide them with an opportunity to rectify the issue. Keep a record of this communication for future reference.
  5. Pursue legal action: If the detention is not resolved and the responsible party is unwilling to compensate for the damages, consider seeking legal advice and pursuing a claim in court or through arbitration. Provide all relevant documentation and evidence to support your claim.
  6. Mitigate damages: While pursuing damages, take steps to mitigate the impact of the detention. This may involve seeking alternative charters, reducing operational costs, or resolving the issue that caused the detention.

Damages for ship detention are meant to compensate the ship owner or charterer for losses incurred due to delays or detention caused by third parties. To recover these damages, it is essential to identify the cause of detention, document the events, calculate the damages, notify the responsible party, and pursue legal action if necessary. Additionally, taking steps to mitigate damages can help reduce the overall impact of the detention.

 

How is Demurrage Calculated?

Demurrage is a fee charged to the charterer by the shipowner for not loading or unloading the cargo within the agreed-upon laytime. Laytime is the time allocated for these processes, usually specified in the charter party (contract between the shipowner and charterer). Demurrage calculations can vary depending on the specific terms of the contract, but the general process involves the following steps:

  1. Determine the Laytime: Laytime is usually stated in hours or days in the charter party. It is the period during which the ship must be loaded and unloaded without incurring demurrage charges.
  2. Calculate Used Laytime: Calculate the actual time taken for loading and/or unloading. This may include weekends, holidays, and other exceptions as specified in the contract.
  3. Identify Any Exceptions: Identify any time periods excluded from the laytime calculation as per the contract terms, such as bad weather, customs delays, or equipment breakdowns. Subtract these periods from the used laytime to arrive at the adjusted laytime.
  4. Compare Laytime and Adjusted Laytime: If the adjusted laytime is less than or equal to the agreed-upon laytime, there is no demurrage. If the adjusted laytime exceeds the agreed-upon laytime, demurrage is incurred.
  5. Calculate Demurrage: To calculate demurrage, first determine the excess time by subtracting the agreed-upon laytime from the adjusted laytime. Then, multiply the excess time by the demurrage rate specified in the charter party. The demurrage rate is usually quoted in USD per day or per hour.

Demurrage Calculation Example 1

  • Agreed laytime: 5 days
  • Actual laytime used: 7 days
  • Weather-related delays: 1 day
  • Demurrage rate: $15,000 per day

Adjusted laytime = Actual laytime used – Weather-related delays = 7 days – 1 day = 6 days

Since the adjusted laytime (6 days) is greater than the agreed laytime (5 days), demurrage is incurred.

Excess time = Adjusted laytime – Agreed laytime = 6 days – 5 days = 1 day

Demurrage = Excess time × Demurrage rate = 1 day × $13,000 per day = $13,000

In this example, the charterer would be required to pay $13,000 in demurrage charges to the shipowner.

 

Demurrage Calculation Example 2

Here is another example of Demurrage Calculation:

Assumptions:

  • Agreed laytime: 10 days
  • Actual laytime used: 14 days
  • Non-working days (e.g., weekends, holidays): 2 days
  • Customs-related delays: 1 day
  • Demurrage rate: $15,000 per day

Step 1: Calculate the adjusted laytime Adjusted laytime = Actual laytime used – Non-working days – Customs-related delays = 14 days – 2 days – 1 day = 11 days

Step 2: Compare laytime and adjusted laytime In this case, the adjusted laytime (11 days) is greater than the agreed laytime (10 days), which means demurrage is incurred.

Step 3: Calculate demurrage Excess time = Adjusted laytime – Agreed laytime = 11 days – 10 days = 1 day

Demurrage = Excess time × Demurrage rate = 1 day × $15,000 per day = $15,000

In this example, the charterer would be required to pay $15,000 in demurrage charges to the shipowner.

 

Demurrage Calculation Example 3

Here’s another example of demurrage calculation:

Assumptions:

  • Agreed laytime: 8 days
  • Actual laytime used: 12 days
  • Non-working days (e.g., weekends, holidays): 3 days
  • Mechanical breakdown delays: 1 day
  • Demurrage rate: $12,000 per day

Step 1: Calculate the adjusted laytime Adjusted laytime = Actual laytime used – Non-working days – Mechanical breakdown delays = 12 days – 3 days – 1 day = 8 days

Step 2: Compare laytime and adjusted laytime In this case, the adjusted laytime (8 days) is equal to the agreed laytime (8 days), which means no demurrage is incurred.

Step 3: Calculate demurrage Since the adjusted laytime does not exceed the agreed laytime, there is no excess time, and therefore, no demurrage charges are applied.

In this example, the charterer would not be required to pay any demurrage charges to the shipowner.

 

Demurrage Calculation Example 4

Here’s another example of demurrage calculation:

Assumptions:

  • Agreed laytime: 6 days
  • Actual laytime used: 9 days
  • Non-working days (e.g., weekends, holidays): 2 days
  • Weather-related delays: 1 day
  • Demurrage rate: $8,000 per day

Step 1: Calculate the adjusted laytime Adjusted laytime = Actual laytime used – Non-working days – Weather-related delays = 9 days – 2 days – 1 day = 6 days

Step 2: Compare laytime and adjusted laytime In this case, the adjusted laytime (6 days) is equal to the agreed laytime (6 days), which means no demurrage is incurred.

Step 3: Calculate demurrage Since the adjusted laytime does not exceed the agreed laytime, there is no excess time, and therefore, no demurrage charges are applied.

In this example, the charterer would not be required to pay any demurrage charges to the shipowner.

 

Demurrage Calculation Example 5

Here’s an example of a demurrage calculation:

Ship details:

  • Name: MV Handybulk Oceanic
  • Demurrage rate: $10,000 per day (pro-rated)
  • Allowed laytime: 5 days
  • Actual laytime used: 7 days

In this example, we will calculate the demurrage for MV Handybulk Oceanic.

Step 1: Calculate the excess laytime Excess laytime = Actual laytime used – Allowed laytime Excess laytime = 7 days – 5 days Excess laytime = 2 days

Step 2: Calculate the demurrage Demurrage = Demurrage rate x Excess laytime Demurrage = $10,000/day x 2 days Demurrage = $20,000

Thus, in this example, the demurrage charge for MV Handybulk Oceanic is $20,000.

Demurrage Calculation Example 6

Here’s another example of a demurrage calculation:

Ship details:

  • Name: MV Handybulk Explorer
  • Demurrage rate: $12,500 per day (pro-rated)
  • Allowed laytime: 6 days
  • Actual laytime used: 9 days

In this example, we will calculate the demurrage for MV Handybulk Explorer.

Step 1: Calculate the excess laytime Excess laytime = Actual laytime used – Allowed laytime Excess laytime = 9 days – 6 days Excess laytime = 3 days

Step 2: Calculate the demurrage Demurrage = Demurrage rate x Excess laytime Demurrage = $12,500/day x 3 days Demurrage = $37,500

In this example, the demurrage charge for MV Handybulk Explorer is $37,500.

Demurrage Calculation Example 7

Here’s another example of a demurrage calculation:

Ship details:

  • Name: MV Handybulk Voyager
  • Demurrage rate: $15,000 per day (pro-rated)
  • Allowed laytime: 4 days
  • Actual laytime used: 5.5 days

In this example, we will calculate the demurrage for MV Handybulk Voyager.

Step 1: Calculate the excess laytime Excess laytime = Actual laytime used – Allowed laytime Excess laytime = 5.5 days – 4 days Excess laytime = 1.5 days

Step 2: Calculate the demurrage Demurrage = Demurrage rate x Excess laytime Demurrage = $15,000/day x 1.5 days Demurrage = $22,500

In this example, the demurrage charge for MV Handybulk Voyager is $22,500.

Demurrage Calculation Example 8

Here’s another example of a demurrage calculation:

Ship details:

  • Name: MV Handybulk Pioneer
  • Demurrage rate: $8,000 per day (pro-rated)
  • Allowed laytime: 3 days
  • Actual laytime used: 4.25 days

In this example, we will calculate the demurrage for MV Handybulk Pioneer.

Step 1: Calculate the excess laytime Excess laytime = Actual laytime used – Allowed laytime Excess laytime = 4.25 days – 3 days Excess laytime = 1.25 days

Step 2: Calculate the demurrage Demurrage = Demurrage rate x Excess laytime Demurrage = $8,000/day x 1.25 days Demurrage = $10,000

In this example, the demurrage charge for MV Handybulk Pioneer is $10,000.

Demurrage Calculation Example 9

Here’s another example of a demurrage calculation:

Ship details:

  • Name: MV Handybulk Adventurer
  • Demurrage rate: $9,500 per day (pro-rated)
  • Allowed laytime: 8 days
  • Actual laytime used: 10.75 days

In this example, we will calculate the demurrage for MV Handybulk Adventurer.

Step 1: Calculate the excess laytime Excess laytime = Actual laytime used – Allowed laytime Excess laytime = 10.75 days – 8 days Excess laytime = 2.75 days

Step 2: Calculate the demurrage Demurrage = Demurrage rate x Excess laytime Demurrage = $9,500/day x 2.75 days Demurrage = $26,125

In this example, the demurrage charge for MV Handybulk Adventurer is $26,125.

Demurrage Calculation Example 10

Here’s another example of a demurrage calculation:

Ship details:

  • Name: MV Handybulk Navigator
  • Demurrage rate: $7,500 per day (pro-rated)
  • Allowed laytime: 4.5 days
  • Actual laytime used: 6 days

In this example, we will calculate the demurrage for MV Handybulk Navigator.

Step 1: Calculate the excess laytime Excess laytime = Actual laytime used – Allowed laytime Excess laytime = 6 days – 4.5 days Excess laytime = 1.5 days

Step 2: Calculate the demurrage Demurrage = Demurrage rate x Excess laytime Demurrage = $7,500/day x 1.5 days Demurrage = $11,250

In this example, the demurrage charge for MV Handybulk Navigator is $11,250.

 

How to Avoid Demurrage Charges?

To avoid demurrage charges, shippers and consignees can take several steps to ensure cargo is loaded and unloaded within the allowed laytime. Here are some tips to help avoid these charges:

  1. Plan ahead: Proper planning and coordination between all parties involved in the cargo handling process can help avoid delays. Make sure the cargo is ready for loading or unloading before the vessel arrives at the port.
  2. Communicate effectively: Regular communication with the port, vessel agents, and stevedores can help identify potential issues early, allowing for faster resolution and minimizing delays.
  3. Choose reliable partners: Work with reputable shipping lines, freight forwarders, and transport providers to ensure timely delivery and handling of cargo.
  4. Monitor ship schedules: Keep track of vessel schedules and be aware of any changes in arrival or departure times. This can help you adjust your plans and avoid demurrage charges.
  5. Understand port requirements: Familiarize yourself with port regulations, customs procedures, and documentation requirements to avoid delays caused by non-compliance or missing documents.
  6. Allocate buffer time: Allow some buffer time in your planning to accommodate unforeseen delays, such as weather-related disruptions or mechanical issues.
  7. Opt for faster modes of transportation: If your cargo is time-sensitive, consider using faster modes of transportation, such as air freight or express shipping services.
  8. Negotiate longer laytime: If you anticipate delays in loading or unloading cargo, negotiate a longer laytime with the carrier to provide some flexibility.
  9. Use technology: Utilize software and tools to track and manage your shipments more effectively, enabling better visibility and control over your supply chain.
  10. Train your staff: Ensure your team is well-trained in handling cargo and documentation to minimize errors that can cause delays.

By following these tips and maintaining open communication with all parties involved, you can reduce the likelihood of incurring demurrage charges.

 

How much does Demurrage Cost in Dry Bulk Shipping?

The cost of demurrage in dry bulk shipping varies based on several factors, including the type of vessel, the market conditions, the cargo being transported, and the specific terms agreed upon in the charter party contract. Demurrage fees are typically calculated on a per-day basis, referred to as a daily demurrage rate.

Some factors that influence the cost of demurrage in dry bulk shipping include:

  1. Vessel Size and Type: The daily demurrage rate can vary depending on the size and type of the vessel, such as Handysize, Supramax, Panamax, or Capesize. Larger vessels usually have higher daily demurrage rates due to their higher operating costs and earning potential.
  2. Dry Bulk Shipping Market conditions: The daily demurrage rate can be influenced by the supply and demand dynamics in the dry bulk shipping market. During periods of high demand or limited vessel availability, demurrage rates may be higher to reflect the opportunity cost of keeping the vessel idle.
  3. Bulk Cargo Type: The type of cargo being transported can also impact the demurrage rate, as some cargo types may require specialized handling equipment or additional precautions that can influence the cost of delays.
  4. Charter Party Agreement: The demurrage rate, as well as the allowed laytime and free time, are typically negotiated and specified in the charter party agreement between the ship owner and the charterer. The demurrage rate may be influenced by the bargaining power of the parties involved and the specific terms of the agreement.
  5. Geographic Location and Port Conditions: Demurrage rates can also be influenced by the geographic location and port conditions, as certain ports may have higher operating costs or be more prone to congestion and delays.

It is difficult to provide a specific cost for demurrage in dry bulk shipping, as it can vary widely depending on the factors mentioned above. However, daily demurrage rates can range from a few thousand dollars to tens of thousands of dollars per day, depending on the vessel size, market conditions, and other factors. It is essential for both ship owners and charterers to carefully review and negotiate the demurrage terms in their charter party agreements to minimize the risk of incurring unexpected demurrage costs.

Who pays for Demurrage Charges in Dry Bulk Shipping?

In dry bulk shipping, demurrage charges are usually the responsibility of the charterer or the party causing the delay. The specific terms and conditions regarding demurrage charges are outlined in the charter party agreement, which is a contract between the ship owner and the charterer.

Here is a general overview of demurrage responsibilities in dry bulk shipping:

  1. Charterer’s Responsibility: In most cases, the charterer is responsible for paying demurrage charges, as they are typically the party organizing the loading and unloading of the cargo at the port. Delays in cargo handling that exceed the allowed laytime specified in the charter party agreement result in demurrage charges, which are then billed to the charterer.
  2. Shipper or Consignee’s Responsibility: In some cases, the responsibility for demurrage charges may be passed on from the charterer to the shipper or consignee if the delays are caused by their actions or negligence. This transfer of responsibility would be outlined in the contracts between the charterer and the shipper or consignee.
  3. Shipowner’s Responsibility: If the ship owner or their representatives, such as the vessel’s crew or agent, cause delays that result in demurrage charges, the ship owner may be held responsible for those charges. However, this scenario is relatively rare, as demurrage charges are typically associated with cargo handling delays.

It is crucial for all parties involved in dry bulk shipping to carefully review and understand the terms and conditions of their contracts, including the charter party agreement and any contracts between the charterer, shipper, and consignee. Clear communication and understanding of each party’s responsibilities can help minimize disputes and unexpected costs related to demurrage charges.

 

What is the Process of Demurrage in Dry Bulk Shipping?

The process of demurrage in dry bulk shipping involves several steps, from negotiating the terms in the charter party agreement to calculating and settling the demurrage charges in case of delays. Here’s an overview of the demurrage process in dry bulk shipping:

  1. Negotiating terms in the charter party agreement: The charter party agreement is a contract between the ship owner and the charterer that outlines the terms and conditions for the shipment of cargo. This agreement includes the laytime, which is the allowed time for loading and unloading the cargo, as well as the demurrage rate, which is the daily rate charged if the laytime is exceeded.
  2. Notice of readiness (NOR): Upon the vessel’s arrival at the port, the ship owner or their representative (usually the ship’s master or agent) issues a notice of readiness (NOR) to the charterer. This notice indicates that the vessel is ready to load or unload cargo. The charterer is then responsible for providing a berth for the vessel and commencing cargo operations.
  3. Commencement of Laytime: Laytime begins once the vessel has arrived, the NOR has been issued and accepted, and any agreed-upon preconditions have been met. These preconditions may include customs clearance, safety inspections, or other requirements outlined in the charter party agreement.
  4. Monitoring Laytime: Throughout the loading and unloading process, the vessel’s agent, master, or other representatives will monitor the time used for cargo operations, ensuring that it does not exceed the allowed laytime.
  5. Calculating Demurrage: If the loading or unloading process takes longer than the allowed laytime, demurrage charges will begin to accrue. These charges are calculated using the demurrage rate specified in the charter party agreement, multiplied by the number of days (or part of a day) that the laytime is exceeded.
  6. Settlement of Demurrage Charges: Once the cargo operations are complete, and any demurrage charges have been calculated, an invoice for the charges will be issued by the ship owner to the charterer. The charterer is then responsible for paying the demurrage charges according to the terms of the charter party agreement.

By understanding the demurrage process in dry bulk shipping and following the steps outlined in the charter party agreement, all parties can minimize the risk of disputes and ensure smooth and efficient cargo operations.

 

What is a Demurrage Charge in Dry Bulk Shipping?

A demurrage charge in dry bulk shipping is a fee imposed on the charterer when the process of loading or unloading cargo at a port takes longer than the agreed-upon time, known as laytime. Demurrage charges are meant to compensate the ship owner for the additional time the vessel is kept idle at the port, as delays can lead to increased operational costs and the loss of income from potential charters.

Demurrage charges are calculated based on a daily rate, which is specified in the charter party agreement between the ship owner and the charterer. Typically, the demurrage charges start accruing after a “free time” period, also known as laytime, has been exceeded. This laytime is a grace period provided by the carrier for loading or unloading the cargo without incurring additional charges.

In dry bulk shipping, demurrage charges are associated with the vessel itself rather than specific cargo or containers, as dry bulk cargo is typically loaded and unloaded directly onto or from the vessel using specialized equipment. By minimizing delays in cargo handling and adhering to the laytime agreed upon in the charter party agreement, the charterer can avoid or reduce demurrage charges in dry bulk shipping.

 

What is Despatch equals to Half Demurrage (HD) in Ship Chartering?  (D=HD)

Despatch equal to Half Demurrage (HD) in ship chartering is a clause that can be included in the charter party agreement between the ship owner and the charterer. It specifies that if the loading or unloading process is completed in less time than the agreed-upon laytime, the ship owner will reward the charterer with a financial incentive called despatch. In this particular clause, the despatch rate is set at half the rate of the demurrage.

The purpose of including a “Despatch equals to Half Demurrage” clause in the charter party agreement is to encourage the charterer to expedite cargo handling operations, which in turn benefits the ship owner by allowing the vessel to depart earlier and be available for other potential charters. This helps improve the overall efficiency of the shipping process and can lead to cost savings for both parties.

To calculate despatch under the HD clause, the following steps are taken:

  1. Determine the actual time used for loading or unloading, and compare it to the allowed laytime in the charter party agreement.
  2. Calculate the time saved by subtracting the actual time used from the allowed laytime.
  3. Apply the “Half Demurrage” rate to the time saved by multiplying the saved time by half the demurrage rate specified in the agreement.
  4. The resulting amount is the despatch payable by the ship owner to the charterer as a reward for completing the cargo handling process faster than the agreed-upon laytime.

By including a “Despatch equals to Half Demurrage” clause in the charter party agreement, both the ship owner and the charterer can benefit from increased efficiency in the loading and unloading process.