Commencement of Lay Time
For lay time to commence, a ship must be regarded as having arrived at the port where operations are due to take place. For a ship to be legally regarded as an arrived ship, it must satisfy certain requirements.
The test of whether a ship is an arrived ship was developed by Lord Reid in the case The Johanna Olderndorff (1973): The ship was chartered under a port charter to carry bulk grain from the United States to Liverpool/Birkenhead. As there was no berth free on the ship’s arrival, the port authority ordered the ship to anchor at Mersey Bar, which was seventeen miles from dock but still with- in the administrative limits of the port. The shipowners tendered the notice of readiness to load, but the charterers argued that lay time could not commence as the ship was not an arrived ship for the purposes of loading.
Lord Reid stated: “On the whole matter I think that it ought to be made clear that the essential factor is that before a ship can be treated as an arrived ship she must be within the port and at the immediate and effective disposition of the charterer and that her geographical position is of secondary importance. But for practical purposes it is so much easier to establish that, if the ship is at a usual waiting place within the port, it can generally be presumed that she is there fully at the charterer’s disposal. I would therefore state what I would hope to be the true legal position in this way. Before a ship can be said to have arrived at a port she must, if she cannot proceed immediately to a berth, have reached a position within the port where she is at the immediate and effective disposition of the charterer. If she is at a place where waiting ships usually lie, she will be in such a position unless in some extraordinary circumstances proof of which would lie in the charterer.” Hence, on this basis, to have arrived at a port, a ship must have reached either the loading/discharging place or-should that place be busy-at the normal waiting place or within the fiscal (commercial) area of the port.
When does Laytime commence?
Laytime is a concept used in charterparty contracts in the shipping industry. It is a specified time period agreed upon by the charterer and the shipowner, during which the shipowner provides the charterer time to load and/or unload cargo without incurring additional costs.
Laytime can commence under various conditions, but commonly it begins when the ship has arrived at the port and is “all fast” (fully moored), and Notice of Readiness (NOR) has been given to the charterer, provided the ship has arrived within the laydays (the agreed date range for loading or unloading). It’s also important that the ship is in a state where it is ready to load or unload the cargo.
In practice, the exact terms for when laytime commences are subject to negotiation and will be spelled out in the charterparty contract. They can be influenced by many factors, including the type of cargo, the specific port, and local regulations or customs.
Please note that, in some instances, laytime might not commence immediately after NOR due to the ‘laytime exceptions’ clause in the charter party which could be caused by bad weather, Sundays, holidays, or any other periods agreed upon in the contract. It is a very complex area of maritime law and would be typically subject to a lot of legal interpretation.
Laytime rules can vary depending on the type of charter party (voyage charter, time charter, or demise charter), and the specific terms of each individual agreement. Always refer to the specific contract and, if necessary, seek legal advice.
When does Laytime Commence in Ship Chartering?
Laytime initiates subsequent to a valid Notice of Readiness (NOR) being tendered. The Notice of Readiness (NOR) can be deemed valid:
- If the ship has arrived at the agreed-upon destination (a port, berth, or dock, depending on the type of charterparty) within the stipulated timeframe agreed by the parties (laydays), and
- If the ship is fully prepared for loading in all aspects: both legally and physically (cargo spaces are ready for loading and discharge, the ship is suitably equipped, all relevant documentation is in order, etc.)
The charterparty may contain additional provisions that determine whether the ship is considered an “Arrived Ship” under specific 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)
For instance, if the charterparty designates the loading port as Rotterdam seaport and the ship cannot enter the port due to congestion, it must wait in a designated “Normal Waiting Place.” Normally, the Notice of Readiness (NOR) can only be tendered upon the ship’s entry into the port. However, if the charterparty includes a WIPON (Whether In Port Or Not) Clause, the Notice of Readiness (NOR) may be tendered from the “Normal Waiting Place.”
The charter party may also specify the time for valid Notice of Readiness (NOR) tendering:
Notice of Readiness (NOR) should be tendered between 08:00 and 17:00 hours on all days except Saturdays, Sundays, and holidays.
Nevertheless, if the Notice of Readiness (NOR) is tendered outside the specified period, it is considered to have been tendered on the earliest possible date when it could have been validly tendered. For example:
If Notice of Readiness (NOR) is served on Thursday at 19:00, and Friday is a public holiday, the NOR will be considered tendered on Monday at 8:00 AM. because Friday, being a holiday, is excluded. Saturdays and Sundays are excluded as well. Therefore, Monday at 8:00 AM becomes the earliest possible date when the Notice of Readiness (NOR) could have been tendered.
If the ship fulfills the aforementioned requirements (readiness, arrival at the destination, valid NOR tendered), laytime will commence in accordance with the charter party terms:
Laytime will commence at 13:00 hours if the Notice of Readiness (NOR) is validly tendered at or before 12:00 hours, and at 08:00 hours on the following working day if the Notice of Readiness (NOR) is validly tendered after 12:00 hours.
Therefore, if the Notice of Readiness (NOR) is tendered on Wednesday before 12:00 PM, laytime commences at 13:00 hours on the same day. However, if the Notice of Readiness (NOR) is tendered at 12:01 p.m. on Wednesday, laytime will start running from 08:00 hours on Thursday.
The general rule dictates that once laytime commences, it proceeds without interruption until the completion of cargo operations or its expiration.
There are the following types of laytime:
- Fixed Laytime
- Calculable Laytime
- Other Laytime: CQD (Customary Quick Despatch), Custom of the Port, Customary Despatch, Fast as can, etc.
1- Fixed Laytime: Fixed Laytime explicitly specifies the number of days/hours allotted for loading and/or discharge, for example, “36 hours for loading and 48 hours for discharge.”
2- Calculable Laytime: Calculable Laytime indicates the predetermined loading rate, i.e., the amount of cargo to be loaded onto the shipper day/hour. For a ship loading 100,000 mt at a loading rate of 10,000 mt per day, the available laytime will be calculated as follows:
100,000 / 10,000 = 10 days
If the above calculation yields a whole number, it should then be converted to hours and minutes:
10.575 days = 10 days 13 hours 48 minutes
3- Other Laytime: The common characteristic of terms associated with this type of laytime is that they provide for an indefinite period for loading/discharge, with the expectation that the shipper/receiver will act “reasonably.”
What is Customary Despatch (CD)? or What is Customary Quick Despatch (CQD)?
The Shipowners find this term unfavorable when it relates to the duration granted to the Charterer for cargo loading and/or discharge. Customary Quick Despatch (CQD) or Customary Despatch (CD) introduces uncertainties similar to those associated with the “Fast As Can” or “Custom of the Port” specifications for the time allowed for loading and/or discharging.
The core meaning of the Customary Despatch (CD) phrase is that the Charterer must promptly load and/or discharge depending on the prevailing circumstances at the loading/discharging location.
Although this phrase appears to modify the Charterer’s obligation to load/discharge the ship within a reasonable time, there are no fixed criteria for determining the desired swiftness of Customary Despatch (CD). Additionally, Customary Quick Despatch (CQD) or Customary Despatch (CD) wording does not indicate a specific timeframe allotted to the Charterer.
What is Customary Quick Despatch (CQD) in Ship Chartering?
In the context of ship chartering, Customary Quick Despatch (CQD) refers to an agreement that the charterer will load and/or unload the cargo as quickly as possible, minimizing the time that the ship spends in port. This is typically described in the charter party agreement, which is the contract between the shipowner and the charterer.
The aim of the CQD clause is to reduce “demurrage”, which is the fee charged by the shipowner to the charterer for any extra time spent in port beyond what is stated in the laytime or agreed upon in the contract. Similarly, if the charterer manages to load or unload the cargo faster than the agreed laytime, they may be entitled to “despatch”, which is a reward usually equal to half the demurrage rate.
Therefore, Customary Quick Despatch, or CQD, encourages the efficient turnaround of the ship by providing financial incentives and penalties. The quicker the cargo operations are completed, the lesser the costs for the charterer, and the faster the shipowner can deploy the ship to its next engagement.
The specifics of how the Customary Quick Despatch (CQD) works can vary depending on the terms of the charter party agreement. This agreement will define the laytime (the time agreed for loading and unloading the cargo), how demurrage and despatch are calculated, and what constitutes any exceptions or interruptions in the laytime count.
Importantly, the Customary Quick Despatch (CQD) clause often applies only to “working days”, which are generally defined as weekdays excluding holidays, although the exact definition can vary depending on local customs and the specific agreement.
The calculation of demurrage and despatch can also be complex and subject to negotiation. For example, demurrage is typically calculated based on a daily rate, whereas despatch might be calculated based on half the daily demurrage rate for every day saved under the agreed laytime.
The Customary Quick Despatch (CQD) provision plays a significant role in the efficient operations of the shipping industry. By ensuring a quick turnaround time for cargo operations, it aids in reducing congestion at ports and promotes timely delivery of goods.
Moreover, it encourages charterers to optimize their operations, as a quick and efficient load/discharge operation can lead to a financial advantage, whereas delays can result in significant costs. This highlights the key importance of effective planning and coordination in the shipping and logistics industry.
Customary Quick Despatch (CQD) is a crucial element of ship chartering that promotes efficiency, minimizes costs, and ensures the smooth operation of global maritime trade. However, like all contractual terms, it needs to be clearly defined and understood by all parties to avoid potential disputes.
What is Fast As Can in Ship Chartering?
“Fast as can” is a term used in ship chartering to refer to actions that should be performed as quickly as reasonably possible. This phrase can be applied in various contexts within maritime logistics, but it is most often seen in the context of cargo loading and unloading operations.
For example, a charter party contract might stipulate that cargo must be loaded ‘fast as can’, meaning that the loading process should be carried out as quickly as reasonably feasible, considering factors such as safety, working hours, available equipment, and operational constraints. This terminology helps to ensure that time and costs are managed effectively, which is vital in the shipping and chartering industry.
It’s crucial to note that “fast as can” does not mean to rush operations without regard to safety or efficiency. It means to conduct the operations promptly within the bounds of safety, capability, and the law. All parties involved are expected to do their part to avoid unnecessary delays. Misinterpretations or disputes about what constitutes “fast as can” could potentially lead to disagreements and legal disputes, so the term is often carefully defined within the contract.
What is Custom of the Port in Ship Chartering?
“Custom of the Port” in ship chartering refers to a standard or norm established over time by habitual practice at a particular port. These customs are typically unwritten rules or guidelines that govern various aspects of port operations and procedures. They can cover a variety of topics, including the handling of goods, docking procedures, cargo loading and unloading, the use of certain equipment, and other port operations.
These customs can significantly affect the operations of ships, especially charter ships, as they have to comply with these rules whenever they dock at these ports. Ignoring or failing to comply with the customs of the port can lead to delays, extra charges, or even legal issues.
It’s important for the shipowner and the charterer to be aware of and understand the customs of the ports where the ship will be loading and discharging. These customs often form an integral part of charter parties (the contracts between the shipowner and charterer), where they are usually implicitly assumed to be part of the terms of the agreement, unless explicitly stated otherwise.
For example, if it’s custom of the port for loading or unloading to be conducted only during daylight hours, then the charterer needs to factor this into their planning and scheduling. It could affect demurrage charges, which are fees for the extended stay of a ship at the port beyond the agreed free time.
In some cases, ‘custom of the port’ can also mean that if a dispute arises, local laws and customary practices of the port will apply, rather than the laws of the ship’s flag state or the country of the shipowner or charterer.
In essence, understanding and adhering to the ‘custom of the port’ can be crucial to the smooth operation of charter ships, avoiding unnecessary delays and additional costs.
Interruptions to Laytime
Interruptions to laytime refer to periods that typically fall within the laytime definition but are excluded by specific exception clauses. Such clauses usually interrupt laytime in the event of:
- Weekends and Holidays: “SHEX” (Sundays and Holidays Excepted) stipulates that Sundays and holidays are not counted in the laytime calculation
- Weather Conditions. For instance, in the case of “WWD” (weather working day), laytime does not accrue during periods of adverse weather, which hinder loading or discharge operations
- Shifting the ship from berth to berth
Demurrage and Dispatch
If laytime has expired but loading has not yet been completed, the Charterer must pay demurrage. On the other hand, if loading is completed before the laytime expires, the charterer will receive despatch (a reward for expeditiously completing loading/unloading, thus freeing the ship for other purposes) if it is specified in the charterparty.
The amount of demurrage is stipulated in the contract, e.g., USD 20,000 per day pro rata. Generally, the despatch rate is half of the demurrage rate (DHD: Depatch Half demurrage). Some contracts do not provide for the payment of despatch.
The primary principle governing demurrage is “once on demurrage, always on demurrage,” which means that the exclusion clauses regarding 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, this maxim is not absolute, and there are certain cases where it may not apply. For example, crane breakdown or if the delay was caused by the actions of the ship master or crew, etc.
If the ship is delayed after the completion of loading or discharge, the Charterer must pay damages for detention instead of demurrage. The distinction between demurrage and detention is straightforward.
Demurrage constitutes liquidated damages, meaning that the amount or rate is pre-agreed upon in the charter party. The shipowner can only claim demurrage for any delays in loading/discharge beyond the agreed laytime.
The amount of detention is not specified or limited in the charter party and may include any damages resulting from the delay of the ship after the completion of loading/discharge.
The following documents are typically required to file a demurrage claim:
- Notice of Readiness (NOR)
- Statement of Facts (SOF)
The charterparty or contract may specify additional documents. English law sets a 6-year limitation period for demurrage claims. However, the riders to the charterparty often shorten this period to a maximum of 60 days. If the deadline surpasses even by a single day, the claim shall be deemed time-barred. Additionally, the claim is likely to face failure if any of the documents mandated by the charter to substantiate the demurrage claim are not provided within the prescribed timeframe.
In the event that the demurrage remains unpaid voluntarily, the claim may be referred to a suitable arbitral body as per the arbitration clause mentioned in the charterparty or commercial contract.
When does Laytime Commence?
Commencement of Laytime signifies the initiation of a specific time period agreed upon in a voyage charter between the Shipowner and the Charterer. This period designates the duration during which the will be made available and kept ready for loading or discharging cargo.
The commencement and conclusion of this period are fixed at specified moments. Once it commences, it can be likened to a “clock” that begins ticking backward, counting down the available time, which the Charterer possesses.
However, the “laytime clock” cannot start until certain prerequisites are met and specific events occur, triggering the initiation of laytime. One such event is the ship being classified as an “Arrived Ship,” while another is the submission of a “Notice of Readiness (NOR)” to the Charterer, shipper, or cargo receiver.
Typically, the Notice of Readiness (NOR) takes the form of a written document containing information that assures the Charterer, Shipper, Receiver, or any other relevant party specified by the Charterer, that the ship has reached the agreed destination and is prepared for cargo-handling operations.
The fulfillment of requirements preceding the issuance of a Notice of Readiness (NOR) is necessary before laytime can commence. For example, in a Berth Charterparty (B/C), the Ship Master may be permitted to give notice “Whether in Berth or Not (WIBON)” if the designated berth is unavailable. However, the clause may also specify that the Notice of Readiness (NOR) is to be given after the ship is cleared by Customs.
If the ship is situated at the customary waiting area outside the port limits, obtaining Customs clearance might prove challenging. Failure to obtain clearance would render the document titled Notice of Readiness (NOR) invalid, thereby preventing the commencement of laytime.
Commencement of laytime signifies the period during which the Shipowner makes the ship available for cargo operations. It is crucial to determine precisely when this period commences. To establish certainty, the charterparty often explicitly links the initiation of laytime to the occurrence of a particular event. This event involves the submission of a valid Notice of Readiness (NOR).
However, for the Notice of Readiness to be deemed valid, two prerequisites must be satisfied:
- Ship must be classified as an “arrived ship,” and
- Ship must be physically and legally prepared to either receive or deliver the cargo
Invalid Notice of Readiness (NOR)
If the Notice of Readiness (NOR) is invalid at the time of submission, it will be ineffective in triggering the start of laytime, in other words activating the “laytime clock”, after the stipulated notice period expires. If the ship is not genuinely ready, presenting a document titled Notice of Readiness (NOR) would misrepresent the facts, and the owners would not be entitled to advance the commencement of laytime.
The phrase “unless the charterparty otherwise provides” acquires significance when the expression WIBON (Whether in Berth or Not) is included in the “laytime clause” of a Berth Charterparty. Commonly, WIBON (Whether in Berth or Not) serve to convert a berth charter into a port charter in cases where the ship arrives without an available berth.
However, WIBON (Whether in Berth or Not) does not apply when a berth is accessible but unattainable due to factors such as inclement weather. The phrase ensures that under a Berth Charter, the Notice of Readiness (NOR) can be given as soon as the ship arrives within the port, thereby causing laytime to commence upon the expiration of the notice period. The precise expiry is typically specified in the Laytime Clause, indicating that laytime begins to count against the Charterer at a specific moment or after a specified number of hours following the issuance of the notice.
A sample Laytime Clause can be found in the GENCON charterparty:
Commencement of laytime (loading and discharging):
Laytime for loading and discharging shall commence at 1 p.m. if notice of readiness is given before noon, and at 6 a.m. on the next working day if notice is given during office hours after noon…
Time actually used before the commencement of laytime shall be counted.
Time lost while waiting for a berth shall be considered as loading or discharging time, depending on the circumstances.
Naturally, the aforementioned printed clause can be expanded, revised, or supplemented by the inclusion or removal of other terms and the addition of a Rider Clause.
In the case of The Mexico 1, 1990, a document labeled Notice of Readiness (NOR) was submitted by the ship master when the ship was not truly prepared to unload the cargo carried under the disputed voyage charter. This Notice of Readiness (NOR) was deemed invalid, and the judge, in the English Court of Appeal, stated that “unless something happened after the notice was sent to make the laytime start, it never started at all.” Consequently, not only did the shipowners fail to earn any demurrage, but shipowners were also obligated to pay the Charterers despatch money for the entire laytime.
In this scenario, if cargo operations indeed take place without the commencement of laytime, they occur independently. In practice, it may be widely accepted that despite the absence of a Notice of Readiness (NOR), laytime has begun.
In The Mexico 1 case, the charterers conceded that laytime started when the discharge actually commenced. While this may be logical, it does not align with the terms of the charter. A charter constitutes a contract, and as the judge stated in the aforementioned case, “a contract is a contract.”
In the event of a dispute, arbitrators and courts will interpret the commencement of laytime strictly in accordance with the contract’s terms. If the charterers and shipowners, who agree to voyage charter conditions, opt to link laytime to a specific event, the law will consider the issuance of a valid Notice of Readiness (NOR) as the commencement of laytime, rather than interpreting the contract as referencing an entirely different event.
What occurs if the Ship arrives before the Laycan?
If the ship arrives prior to the initiation of the specified laydays, the charterers are not obliged to accept it until the commencement of the agreed laydays. In the event that it arrives after the concluding layday, the charterers hold the right to refuse the ship and terminate the charter agreement.
When a ship arrives before the laycan, or laydays (the scheduled window of time for a charterer to load or unload cargo), it can have a few different outcomes depending on the specific terms of the charter party agreement. Here are some possibilities:
- The ship may have to wait: The ship might have to wait until the scheduled laycan before loading or unloading can commence. This could potentially lead to additional costs, such as demurrage or detention charges. However, this is less common as usually the loading or unloading starts as soon as the ship is ready, even if it’s before the laycan.
- Loading or unloading may begin early: If the cargo is ready and the necessary facilities and personnel are available, the charterer may begin loading or unloading the cargo before the laycan. This could be advantageous for both the shipowner and the charterer, as it could allow the ship to depart early, thereby saving time and potentially reducing costs.
- The shipowner may be entitled to compensation: Depending on the terms of the charter party, the shipowner may be entitled to compensation for the additional time the ship spends at the port if it arrives before the laycan. However, this is often not the case, as the laycan is typically seen as the earliest date the charterer is required to start cargo operations, not a time before which the ship cannot arrive.
In all cases, the specific outcomes will depend on the terms of the charter party agreement. It’s also worth noting that, while arriving early might occasionally have benefits, arriving late can often lead to significant penalties and costs, such as laytime and demurrage charges. Thus, shipowners and charterers both generally aim to have ships arrive as close to the beginning of the laycan as possible.
What is laytime Unless Used (UU)?
Unless Used (UU) shall mean that if Laytime has commenced but loading or discharging is carried out during excepted periods, actual time used shall count as Laytime.
This statement pertains to the calculation of laytime against a charterer and the exclusions of laytime, such as Sundays and Holidays.
During the periods exempted from laytime, in the absence of any qualification regarding the exemption, the Charterer has the liberty to conduct loading and/or discharging operations without incurring any loss of laytime. To safeguard the interests of the Shipowner, a provision may be incorporated into the voyage charter that designates certain specified periods as non-chargeable to the charterer while the ship is at port. However, if these periods are utilized for cargo operations, they will be considered as Laytime Used Please note that these exceptions do not apply if the ship is already on demurrage.
While the Unless Used (UU) clause serves exclusively for the Shipowner’s benefit, the Even If Used (EIU) clause is entirely advantageous to the Charterer.
It is sometimes possible to negotiate a fair compromise, where a provision stipulates that only a proportion of the time utilized will be counted as laytime against the Charterer. For instance, a clause could state:
“The cargo shall be loaded, stowed/trimmed at an average rate of . . . tonnes and discharged at an average rate of . . . tonnes, both per working day comprising 24 consecutive hours, subject to weather conditions. Sundays (or their local equivalent) and Holidays are excepted, unless utilized, in which case only half of the actual time employed shall be considered.”
Consequently, if operations are conducted during the exempted days, only half of the actual working hours will be accounted for as laytime. The phrase “. . . implies that if operations are conducted during the exempted days, only the actual working hours will be counted towards laytime.”