Despatch (Despatch Money) in Ship Chartering
Despatch (Despatch Money) is a predetermined sum paid by the Shipowner to the Charterer if the ship finishes loading or discharging before the laytime expires. Laytime refers to the allotted period during which the ship must be loaded and unloaded before the charterer incurs demurrage charges. In voyage chartering, part of the freight agreed upon for the voyage covers the cost of laytime, meaning the charterer has essentially prepaid for the use of this period without additional charges.
Shipowners factor the cost of laytime into voyage estimations, expecting it to be fully utilized without generating extra revenue unless laytime is exceeded, which then leads to earning demurrage. Despatch Money serves as an incentive for the charterer to expedite the loading and unloading processes. Essentially, it rewards the charterer for finishing these operations before exceeding the laytime, reimbursing them for any unused time in the form of Despatch Money. This arrangement benefits the shipowner by allowing the voyage to conclude earlier and the next journey to commence sooner, potentially earning the next freight more quickly. Typically, despatch is set at half the demurrage rate, but shipowners and charterers may negotiate different rates.
In tanker chartering, Despatch Money is uncommon because of the typically shorter laytime periods. If a tanker finishes loading and discharging within the allotted laytime, no Despatch Money is paid by shipowners to charterers. Standard worldscale freight terms provide 72 hours of laytime for both loading and unloading. However, shipowners and charterers can negotiate their specific laytime durations, which may vary from 12 hours for smaller tankers to 96 hours or more for larger ones.
Calculating Despatch involves determining the time saved between the actual and expected completion of loading or discharging based on the agreed laytime.
There are two methods for calculating Despatch:
- Despatch on Working Time Saved (WTS): This method considers only the actual working time from the end of loading to the expiry of the agreed laytime, excluding any excepted periods. For instance, if the laytime allowed is 10 days with Sundays and holidays excepted, and the ship completes discharge on Friday using only 7 days of laytime, the time saved and despatch payable would be on the 3 days saved.
- Despatch on All Time Saved (ATS): This method includes all time saved, considering excepted periods as well. For example, if the laytime allowed is 10 days with Sundays and holidays excepted, and the ship completes discharge on Friday using only 7 days, but with Sunday excluded and Monday being a holiday, the laytime would have expired the following Wednesday, resulting in a despatch of 5 days. Chartering a ship on an ATS basis could increase the payment to the charterer. This method also requires the port agent to maintain a record of events post-departure to ensure an accurate calculation that includes the exceptions agreed in the Charter Party.
Despatch vs. Demurrage: Despatch is essentially the inverse of demurrage, representing a payment from the shipowner to the charterers for completing operations ahead of the laytime’s expiration. It is particularly significant in trades like bulk sugar, where time efficiency is crucial for the shipowner to embark swiftly on the next voyage. Typically, the rate of Despatch is half of the Demurrage Rate (DHD Despatch Half Demurrage).
What is Despatch Money in ship chartering?
Despatch Money, also known as “dispatch money” or “despatch,” is a term used in ship chartering, specifically in the context of laytime and demurrage. It refers to a monetary compensation paid by the shipowner to the charterer when the loading or unloading of cargo is completed before the stipulated laytime expires.
Laytime is the agreed-upon time frame given to the charterer to load or unload the cargo at the port. If the charterer takes longer than the laytime, they must pay the shipowner a penalty called demurrage. However, if the charterer finishes the operation before the laytime expires, the shipowner rewards them with despatch money. This incentive encourages efficient cargo operations and minimizes delays at the port.
The despatch money rate is usually agreed upon during the negotiation of the charter party agreement and is often calculated on a per-day basis, similar to demurrage.
Despatch on Working Time Saved (WTS) Vs Despatch on All Time Saved (ATS). What is the difference of WTS and ATS?
Despatch on Working Time Saved (WTS) and Despatch on All Time Saved (ATS) are two different ways to calculate despatch money in ship chartering contracts. They both provide financial incentives for the charterer to complete loading and unloading operations more efficiently, but the methods of calculation differ based on the time saved during cargo operations.
Despatch on Working Time Saved (WTS):
- Despatch on WTS calculates the financial reward based on the actual working time saved during cargo operations.
- It considers only the time saved when cargo operations are actively carried out, excluding non-working periods such as weekends, holidays, or unforeseen stoppages.
- This method focuses on rewarding the charterer for their efficiency during actual working hours, as it takes into account only the time saved during those periods.
Despatch on All Time Saved (ATS):
- Despatch on ATS calculates the financial reward based on the total time saved during cargo operations, irrespective of whether it is working or non-working time.
- It considers all the saved time, including weekends, holidays, and other non-working periods.
- This method rewards the charterer for overall efficiency in cargo operations, without differentiating between working and non-working hours.
Despatch on WTS focuses on rewarding the charterer for their efficiency during actual working periods, while Despatch on ATS provides incentives based on the total time saved, regardless of working or non-working hours. The choice between these two methods often depends on the specific requirements of the shipowner and the charterer, as well as the nature of the cargo and the operational conditions at the ports involved.
What is Despatch on Working Time Saved (WTS)?
Despatch on Working Time Saved (WTS) is a type of despatch money calculation used in ship chartering. It refers to the financial compensation paid by the shipowner to the charterer when the cargo loading or unloading operations are completed before the stipulated laytime expires, but only considering the actual working time saved.
In this method, despatch money is calculated based on the difference between the agreed working laytime and the actual working time used by the charterer for loading or unloading the cargo. It specifically takes into account the time during which the vessel was made available to the charterer for cargo operations and excludes any non-working periods, such as weekends, holidays, or unforeseen delays due to weather or other circumstances.
Despatch on Working Time Saved encourages efficient cargo operations by rewarding the charterer for their performance during the actual working hours, rather than considering the total laytime. This approach is particularly relevant when there are interruptions or non-working periods during the laytime, as it focuses on the productivity of the charterer during the time they had access to the vessel.
As with other types of despatch money, the rate of Despatch on Working Time Saved should be clearly specified in the charter party agreement, along with the terms and conditions governing its calculation and payment.
Despatch on Working Time Saved (WTS) Example 1
Despatch on Working Time Saved (WTS) is a variation of despatch in ship chartering where the financial reward is provided to the charterer based on the actual working time saved during cargo operations, rather than the total laytime saved. This means that despatch is calculated only on the time saved when the cargo operations are being actively carried out, excluding any non-working periods, such as weekends, holidays, or unforeseen stoppages.
Let’s consider an example of Despatch on WTS involving a bulk carrier transporting grain. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 7 days for loading at the port of origin and 7 days for unloading at the destination port (14 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $9,000 per day on working time saved.
The bulk carrier arrives at the loading port, and the cargo loading operations begin. The charterer manages to load the cargo in 5 days, saving 2 days compared to the agreed laytime. However, one of the saved days falls on a weekend when cargo operations would not be carried out. Therefore, only 1 day of working time is saved at the loading port.
The vessel then proceeds to the destination port, where the charterer efficiently unloads the cargo in 6 days, saving 1 day of laytime. In this case, the saved day is a working day.
In this scenario, the charterer has saved a total of 2 working days (1 day at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Working days saved * Despatch rate Despatch money = 2 days * $9,000 per day Despatch money = $18,000
In this example, the charterer will be rewarded with $18,000 in despatch money for completing the loading and unloading operations 2 working days ahead of the agreed laytime. This illustrates the incentive provided by Despatch on WTS arrangements to encourage efficiency in cargo operations during actual working periods in ship chartering contracts.
Despatch on Working Time Saved (WTS) Example 2
In this second example of Despatch on Working Time Saved (WTS), let’s consider a scenario involving a container ship. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 6 days for loading at the port of origin and 6 days for unloading at the destination port (12 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $10,000 per day on working time saved.
The container ship arrives at the loading port, and the cargo loading operations begin. The charterer efficiently manages the process and loads the cargo in 4 days, saving 2 days compared to the agreed laytime. However, one of the saved days is a public holiday when cargo operations would not be carried out. Therefore, only 1 day of working time is saved at the loading port.
The vessel then proceeds to the destination port, where the charterer continues to perform efficiently and unloads the cargo in 5 days, saving 1 day of laytime. In this case, the saved day falls on a weekday and is considered a working day.
In this scenario, the charterer has saved a total of 2 working days (1 day at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Working days saved * Despatch rate Despatch money = 2 days * $10,000 per day Despatch money = $20,000
In this example, the charterer will be rewarded with $20,000 in despatch money for completing the loading and unloading operations 2 working days ahead of the agreed laytime. This further illustrates the incentive provided by Despatch on WTS arrangements to encourage efficiency in cargo operations during actual working periods in ship chartering contracts.
Despatch on Working Time Saved (WTS) Example 3
In this third example of Despatch on Working Time Saved (WTS), let’s consider a scenario involving a tanker carrying liquid chemicals. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 8 days for loading at the port of origin and 8 days for unloading at the destination port (16 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $12,000 per day on working time saved.
The tanker arrives at the loading port, and the cargo loading operations begin. The charterer efficiently manages the process and loads the cargo in 6 days, saving 2 days compared to the agreed laytime. Both of the saved days are considered working days, as they do not fall on weekends or holidays.
The vessel then proceeds to the destination port, where the charterer continues to perform efficiently and unloads the cargo in 7 days, saving 1 day of laytime. However, this saved day falls on a weekend when cargo operations would not be carried out. Therefore, no working time is saved at the destination port.
In this scenario, the charterer has saved a total of 2 working days (2 days at the loading port and 0 days at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Working days saved * Despatch rate Despatch money = 2 days * $12,000 per day Despatch money = $24,000
In this example, the charterer will be rewarded with $24,000 in despatch money for completing the loading and unloading operations 2 working days ahead of the agreed laytime. This again highlights the incentive provided by Despatch on WTS arrangements to encourage efficiency in cargo operations during actual working periods in ship chartering contracts.
What is Despatch on All Time Saved (ATS)?
Despatch on All Time Saved (ATS) is a term commonly used in the shipping and maritime industry, particularly in relation to charter parties or vessel hire contracts. It refers to a financial incentive given to a ship’s charterer if the vessel completes its loading and unloading operations faster than the agreed-upon laytime, which is the allocated time for these operations to be carried out.
In a charter party contract, laytime is specified for the loading and discharging of cargo. If the charterer manages to complete these operations in less time than the agreed laytime, they are entitled to a reward called “despatch money.” This reward is calculated based on the amount of time saved, hence the term “Despatch on All Time Saved.”
Despatch on ATS encourages charterers to be efficient in their operations, which can benefit both parties. The shipowner can potentially have the vessel back sooner for new assignments, while the charterer may save on operating costs by reducing the time the vessel is in port.
Despatch on All Time Saved (ATS) Example 1
In this example of Despatch on All Time Saved (ATS), let’s consider a scenario involving a bulk carrier transporting iron ore. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 10 days for loading at the port of origin and 10 days for unloading at the destination port (20 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $6,000 per day on all time saved.
The bulk carrier arrives at the loading port, and the cargo loading operations begin. The charterer efficiently manages the process and loads the cargo in 8 days, saving 2 days compared to the agreed laytime.
The vessel then proceeds to the destination port, where the charterer continues to perform efficiently and unloads the cargo in 9 days, saving 1 day of laytime.
In this scenario, the charterer has saved a total of 3 days (2 days at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Total days saved * Despatch rate Despatch money = 3 days * $6,000 per day Despatch money = $18,000
In this example, the charterer will be rewarded with $18,000 in despatch money for completing the loading and unloading operations 3 days ahead of the agreed laytime. This illustrates the incentive provided by Despatch on ATS arrangements to encourage efficiency in cargo operations in ship chartering contracts.
Despatch on All Time Saved (ATS) Example 2
In this second example of Despatch on All Time Saved (ATS), let’s consider a scenario involving a container ship. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 9 days for loading at the port of origin and 9 days for unloading at the destination port (18 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $7,000 per day on all time saved.
The container ship arrives at the loading port, and the cargo loading operations begin. The charterer efficiently manages the process and loads the cargo in 7 days, saving 2 days compared to the agreed laytime.
The vessel then proceeds to the destination port, where the charterer continues to perform efficiently and unloads the cargo in 8 days, saving 1 day of laytime.
In this scenario, the charterer has saved a total of 3 days (2 days at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Total days saved * Despatch rate Despatch money = 3 days * $7,000 per day Despatch money = $21,000
In this example, the charterer will be rewarded with $21,000 in despatch money for completing the loading and unloading operations 3 days ahead of the agreed laytime. This further illustrates the incentive provided by Despatch on ATS arrangements to encourage efficiency in cargo operations in ship chartering contracts.
Despatch on All Time Saved (ATS) Example 3
In this third example of Despatch on All Time Saved (ATS), let’s consider a scenario involving a tanker carrying crude oil. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 11 days for loading at the port of origin and 11 days for unloading at the destination port (22 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $5,000 per day on all time saved.
The tanker arrives at the loading port, and the cargo loading operations begin. The charterer efficiently manages the process and loads the cargo in 9 days, saving 2 days compared to the agreed laytime.
The vessel then proceeds to the destination port, where the charterer continues to perform efficiently and unloads the cargo in 10 days, saving 1 day of laytime.
In this scenario, the charterer has saved a total of 3 days (2 days at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Total days saved * Despatch rate Despatch money = 3 days * $5,000 per day Despatch money = $15,000
In this example, the charterer will be rewarded with $15,000 in despatch money for completing the loading and unloading operations 3 days ahead of the agreed laytime. This again highlights the incentive provided by Despatch on ATS arrangements to encourage efficiency in cargo operations in ship chartering contracts.
What is Despatch and Demurrage in Ship Chartering?
Despatch and demurrage are two financial terms commonly used in the shipping and maritime industry, particularly in relation to charter party contracts or vessel hire agreements. They represent the financial consequences of completing cargo loading and unloading operations either faster or slower than the agreed-upon laytime.
- Despatch: Despatch refers to the financial reward given to a charterer when the loading and unloading operations of a vessel are completed in less time than the agreed-upon laytime. This incentivizes the charterer to be efficient in their operations, resulting in cost savings and the possibility of the ship being available sooner for new assignments.
- Demurrage: Demurrage, on the other hand, is a financial penalty imposed on the charterer if the loading and unloading operations exceed the agreed laytime. This can occur due to various reasons, such as delays in cargo availability, labor issues, or other unforeseen circumstances. Demurrage charges are usually calculated on a daily basis and serve as a form of compensation to the shipowner for the additional time the vessel is occupied beyond the agreed laytime.
In summary, despatch and demurrage are financial terms that represent the rewards and penalties associated with the completion of cargo loading and unloading operations within the agreed-upon laytime. They help maintain efficiency and ensure that both parties in a charter party contract adhere to the agreed terms.
What is DHD (Despatch Half of Demurrage) in Ship Chartering?
DHD (Despatch Half of Demurrage) is a term used in ship chartering that refers to a specific arrangement related to the financial rewards and penalties associated with cargo loading and unloading operations. In a charter party contract, the agreed-upon time for these operations is called laytime. If the charterer completes these operations faster than the laytime, they are entitled to a financial reward called despatch money. Conversely, if the operations take longer than the laytime, the charterer must pay a penalty called demurrage.
In a DHD (Despatch Half of Demurrage) arrangement, the despatch money paid to the charterer for completing the cargo operations faster than the laytime is set at half the rate of demurrage. This means that if the demurrage rate is, for example, $10,000 per day, the despatch money would be $5,000 per day for each day saved.
DHD provides an incentive for charterers to be efficient in their operations while also balancing the financial implications for both parties. With this arrangement, shipowners still receive some compensation for the vessel’s availability in the form of demurrage, and charterers are rewarded for efficiency without receiving an excessive financial reward.
Despatch Example 1 in Ship Chartering
In ship chartering, despatch refers to the financial reward given to a charterer when they complete the cargo loading and unloading operations faster than the agreed-upon laytime. To illustrate this concept, let’s consider an example.
Suppose a shipowner and a charterer enter into a charter party contract for a bulk carrier to transport a shipment of coal. The agreed laytime for loading at the port of origin and unloading at the destination port is 6 days each (12 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $5,000 per day for each day the operations are completed ahead of the laytime.
The vessel arrives at the loading port, and the cargo loading operations begin. The charterer is efficient and manages to load the cargo in 4 days instead of the agreed 6 days, saving 2 days in the process. After the voyage, the vessel reaches the destination port and unloads the cargo in 5 days, saving 1 day.
In this scenario, the charterer has saved a total of 3 days (2 days at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Days saved * Despatch rate Despatch money = 3 days * $5,000 per day Despatch money = $15,000
In this example, the charterer will be rewarded with $15,000 in despatch money for completing the loading and unloading operations 3 days ahead of the agreed laytime. This demonstrates the incentive provided by despatch arrangements to encourage efficiency in cargo operations in ship chartering contracts.
Despatch Example 2 in Ship Chartering
In this second example of despatch in ship chartering, let’s consider a different scenario involving a tanker carrying crude oil. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 8 days for loading at the port of origin and 8 days for unloading at the destination port (16 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $7,000 per day for each day the operations are completed ahead of the laytime.
The tanker arrives at the loading port, and the cargo loading operations begin. The charterer faces some challenges but still manages to load the cargo in 7 days, saving 1 day compared to the agreed 6 days. The vessel then proceeds to the destination port, where the charterer efficiently unloads the cargo in 6 days, saving 2 days.
In this scenario, the charterer has saved a total of 3 days (1 day at the loading port and 2 days at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Days saved * Despatch rate Despatch money = 3 days * $7,000 per day Despatch money = $21,000
In this example, the charterer will be rewarded with $21,000 in despatch money for completing the loading and unloading operations 3 days ahead of the agreed laytime. This again highlights the incentive provided by despatch arrangements to encourage efficiency in cargo operations in ship chartering contracts.
Despatch Example 3 in Ship Chartering
In this third example of despatch in ship chartering, we will consider a scenario involving a container ship. A shipowner and a charterer enter into a charter party contract with an agreed laytime of 5 days for loading at the port of origin and 5 days for unloading at the destination port (10 days total). The charter party agreement states that the charterer will be paid despatch money at a rate of $8,000 per day for each day the operations are completed ahead of the laytime.
The container ship arrives at the loading port, and the cargo loading operations begin. The charterer efficiently manages the process and loads the cargo in 3 days, saving 2 days compared to the agreed 5 days. The vessel then proceeds to the destination port, where the charterer continues to perform efficiently and unloads the cargo in 4 days, saving 1 day.
In this scenario, the charterer has saved a total of 3 days (2 days at the loading port and 1 day at the destination port). Therefore, they will receive despatch money calculated as follows:
Despatch money = Days saved * Despatch rate Despatch money = 3 days * $8,000 per day Despatch money = $24,000
In this example, the charterer will be rewarded with $24,000 in despatch money for completing the loading and unloading operations 3 days ahead of the agreed laytime. This further emphasizes the incentive provided by despatch arrangements to promote efficiency in cargo operations in ship chartering contracts.