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 keeps the vessel beyond the agreed lay days, this constitutes a breach of contract. Most charterparties include a clause that allows the charterer to retain the vessel for additional days to complete loading or discharging, upon payment of a predetermined daily fee called demurrage.

Historically, this extra period was referred to in court as “lay days that have to be paid for.” This term can be misleading because it obscures the fact that the charterer is actually breaching the contract, even though they can mitigate further damage by completing their contractual obligations during this period upon paying the agreed rate.

This creates an unusual situation where, despite the breach, the shipowner cannot cancel the contract and reclaim the vessel during the demurrage period unless the charterer’s failure to load is so severe that it amounts to a contract repudiation, or the delay fundamentally undermines the purpose of the charterparty. This is the case whether the charter specifies a fixed number of demurrage days or not, as in “eight days for loading, after which demurrage at $10,000 per day.”

Legally, a demurrage clause is a contract-specific creation that acts as an agreed compensation for detaining the vessel beyond the lay days. The predetermined sum is collectible by the shipowner without needing to demonstrate actual damage, and it caps the compensation for losses due to the detention.

Demurrage covers potential losses from delayed subsequent charters or from fewer voyages possible under a consecutive voyage charter-party. However, it does not limit compensation for other types of losses, such as those resulting from not loading a full cargo.

Courts can invalidate a demurrage clause if the set rate is exorbitantly high compared to the maximum conceivable loss from the breach, viewing it as a penalty rather than a fair compensation. Conversely, if the rate is unreasonably low, the shipowner cannot claim beyond this rate even if the actual losses are greater, potentially due to deliberate delays by the charterer. This can be particularly problematic when market conditions are changing rapidly, leaving the shipowner without sufficient recourse in cases of severe delay.

The demurrage rate is typically aligned with current freight rates at the time the charter is finalized. Since charters are often arranged well in advance, the demurrage rate might not reflect market rates at the time it is invoked.

The obligation to pay demurrage begins immediately after lay days end and continues non-stop, including over weekends, holidays, and other times usually excluded from laytime, such as bad weather days.

The principle “once on demurrage, always on demurrage” applies, meaning laytime exceptions generally do not affect demurrage periods unless explicitly stated otherwise. For instance, the House of Lords once ruled that a charterer could not use a strike as an excuse after laytime ended, reasoning that had the contract been fulfilled on time, the strike would not have impacted the vessel since it would have been at sea.

This rule can still apply even if the excepted event occurs before laytime ends. An exception might be explicitly stated to cover the demurrage period, for example, stipulating that demurrage is payable “at 12s 6d per hour unless detention arises from a lock-out, strikes etc.” Moreover, demurrage does not accrue during delays caused by the shipowner or actions taken for the shipowner’s benefit. However, it does accrue for accidental delays not attributable to either party. If a delay results from the shipowner’s breach of contract, demurrage may still be due if the delay’s extent was beyond what the parties reasonably anticipated as a 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 entirely at the charterer’s disposal, as it is considered compensated within the freight cost. The charterer has the right to use the laytime as deemed fit, without the shipowner being able to object, provided the specified period is not exceeded. The method and pace of loading and discharging are solely for the charterers to determine, irrespective of whether the process is intermittently slow or swift.

The principles of laytime were notably applied in the case of Margaronis Navigation Agency v Peabody. Here, a vessel was chartered to load maize at a rate of 1,000 tons per weather working day, excluding Sundays and holidays. The charterers, having loaded all but 11 tons by late December, halted the operations to secure January bills of lading, resuming only on the next working day of the new year to complete the loading within 40 minutes. Despite finishing within the agreed laytime, the shipowners sought damages for detention, alleging that the charterers detained the vessel unnecessarily. However, the Court of Appeal supported the arbitrator’s decision that the charterers were justified in detaining the vessel until all the contracted cargo was loaded, given the trivial shortage of approximately 12 tons.

Contrastingly, the charterer cannot detain the vessel once the loading is complete, even if laytime remains. In the case of Nolisement (Owners) v Bunge y Born, the loading concluded 19 days before the lay days expired, but the charterers delayed for three days due to indecision about the discharge port, leading to a liability for two days’ detention. This highlights a potential inconsistency, as charterers could avoid such penalties by simply retaining a minimal amount of cargo.

It’s important to note that the loading phase isn’t considered complete until the cargo is both aboard and stowed. Although stowage is typically the shipowner’s responsibility and cost, it remains part of the loading process, and the charterer must ensure the cargo is delivered timely for stowage within the lay days.

With the end of the loading operation, the second phase of the voyage charter-party concludes, and any subsequent delays from unforeseen obstacles, such as ice or bad weather, fall back to the shipowner’s responsibility, meaning the shipowner bears the costs associated with such delays.

 

Damages for Ship Detention

When a charterparty lacks a specific provision for demurrage, a charterer becomes liable for damages due to detention for any period the vessel is retained beyond the agreed lay days. In such cases, damages are considered “at large” and are assessed by the court based on the actual loss incurred by the shipowner, following standard principles regarding the remoteness of damage in contract law.

Damages for detention are also deemed the appropriate form of compensation when a charter-party specifies a fixed number of days for demurrage, and those days have elapsed. Typically, courts will calculate damages based on the previously agreed demurrage rate. However, it remains open for either party to demonstrate that this rate does not accurately reflect the shipowner’s actual losses.

During any agreed demurrage period, a shipowner is not permitted to withdraw the vessel, unless the delay frustrates the purpose of the charterparty. Conversely, once the specified demurrage period ends, the shipowner is not obligated to stay at the port to finish loading. At this point, the shipowner may depart and is only entitled to claim damages for detention.

If only part of the cargo has been loaded when demurrage expires, the shipowner may choose to depart and seek compensation for dead freight. Conversely, if the charterer fails to load any cargo, the shipowner has the right to terminate the charter and sue for extensive damages. However, if the delay occurs at the discharging port, the shipowner’s options are limited to completing the unloading process and then claiming 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.