Ship Fuel Consumption
Assessing Ship Performance
The description of the ship’s speed and consumption applies at the time that the charterparty is made and, as the law stands, probably at the time of delivery.
In assessing the performance of a ship, unless the owners have given a guarantee of maintaining the description warranty, the words of Lloyd L.J. in ‘The Gas Enterprise’ should be borne in mind: “The warranty is an undertaking as to the speed at which the vessel is capable of performing, not the speed at which she will actually perform.”
It is therefore necessary to calculate the performance based on the many factors and show that the ship owners have failed to maintain the vessel in a condition in which she is capable of performing in accordance with the warranted description given. Having knowledge of the warranties and the data to be used, the basic calculation is to find the distance traveled in good weather and divide it by the good weather hours to give the actual performance speed.
The total distance of the voyage is then divided by the actual performance speed which gives the total performance time. It is then necessary to divide the voyage distance by the warranted speed to give the time that the voyage should have taken in accordance with the warranty.
If the total performance time is greater than the warranty time the difference will be the under-performance.
Ship Performance Example
An example is as follows: The vessel is described as capable of about 11.5 knots in good weather on about 30 tons per day LSIFO. Any under-performance is on a passage by passage basis, distance being measured from pilot station to pilot station. The voyage ordered is given as 3,400 miles by the agreed distance tables. There are 10 good days of weather on the voyage during which the ship travels 2,200 miles. The vessel consumed an average of 31 tons of bunkers per day. The calculation is as follows:
Good weather miles 2,200
———————————— = 9.16 knots
Good weather hours 240
Distance of Voyage 3,400
———————————— = 15.465 days
Good weather speed 9.16
Distance of voyage 3,400
———————————- = 12.878 days
Warranted Speed 11
Time lost 15.465 days – 12.878 days = 2.587 days
Value of time lost $50,000 x 2.587 = $129,350 (less any commission)
The calculation of the bunkers over-consumed would be as follows. The margin of an extra ton per day falls within the ‘about’ allowance of 5%, so there has not been any excess consumption whilst steaming on the voyage. However, additional fuel was used during the time lost by reason of the speed deficiency and charterers are entitled to recover the cost of these.
1. Excess time 2.587 days x 30 tons warranted consumption = 77.61 tons
2. Less 5% allowance for about 77.61 x 95% = 73.73 tons
3. Agreed bunker price $1,000 per ton x 73.73 = $73,730
Charterers’ total claim will be:
Value of time lost $129,350
Excess bunker consumption $73,730
Whilst this is a relatively straightforward example it shows the general principles to be applied. Depending on the precise wording of the performance clause it may be necessary to add in additional factors such as current allowances or sea conditions. If there has been bad weather that would affect engine revolutions it may be necessary to make allowances when applying the good weather speed achieved to bad weather periods.
On occasions the calculation can become detailed and complex and it is instructive to read what Hobhouse J had to say in Didymi v Atlantic Lines: Once the breach of warranty has been established by reference to performance in good conditions the loss is capable of being proved for all conditions.
This is a normal exercise under the simple form of charter-party speed warranty, which relates to the capacity of the vessel to achieve the warranted speed in good conditions. That capacity and any consequent loss may have to be determined from evidence, including expert evidence, about performance in less good conditions … loss to charterers should include bad weather periods …. Expert evidence may be needed to prove how this should be done. When tackling high-value claims for long charter periods it is often highly advisable to obtain advice from a technical expert.
The essential elements for making any assessment are what the charterparty says, or doesn’t say. If a routeing company’s formula for deciding performance is agreed to apply then both parties will have to accept their calculations. If, as mentioned above, speed and consumption are to be assessed on different criteria then the parties must live with that. It is essential that if problems and potentially expensive claims are to be avoided the performance provisions are as clear and precise as possible. One small example of this concerns distances.
In order that accurate calculations can be made it is essential that the steaming distances are known and agreed. If no reference is made to which distance tables will be used to establish these, this can lead to problems because of variations between them. For example, in the most recent BP tables, account has been taken of recent international regulations and IMO and environmental recommendations on routeing. These factors have, in some cases, increased the total steaming distances by many miles. As a result it should be made clear in the performance clause how distances are to be measured and possible disputes thereby avoided.
Ship Speed and Bunker Consumption
The standard ship description clause in most Time Charterparty forms contains the word about which qualifies the various figures and dimensions that are given.
In both the New York Produce Exchange Form (NYPE) and Baltime Time Charter Party clauses set out above, speed is shown as about … knots and consumption about … tons
What effect does this have under English Law? The use of the word about qualifies the absolute nature of the figures provided by the Shipowners in describing the characteristics of the ship and allows them a margin of error.
For example, the capacity and tonnage of a ship may be reduced slightly by work that is carried out in one of the holds or tanks but that information is not reflected in the last fixture that has been made; the Shipowners have the benefit of the qualification to cover this small divergence.
So the same applies to the speed and consumption figures. A ship is built and delivered capable of a certain speed on a certain consumption of fuel but use and age can marginally diminish these specifications. An engine may have to be cleaned at sea or revolutions and speed adjusted very slightly for one reason or another with the result that there is a minor divergence from the figure quoted in the Time Charterparty; again the owners have the benefit of the qualification of the figures.
A number of short passages may be undertaken which have an effect on the overall speed achieved during a particular period of time.
What is margin of error is allowed for Speed and Bunker Consumption?
There is no hard and fast rule that lays down the allowance given by the word about. Generally, it is accepted that an allowance of 0.5 knots is made in respect of a ship’s speed.
For instance, the ship is warranted to perform at about 15 knots, then there will be no breach of the warranty if the vessel is capable of performing at a speed of 14.5 knots.
Similarly, if the Shipowners are entitled to a bonus for over-performance the ship will have to attain over 15.5 knots for the Shipowners to recover. This is not a rule of law but a matter of fact.
The leading case on the Speed and Bunker Consumption is The AI Bida (1987) Court of Appeal decision. In The AI Bida (1987) case, the issue of the allowance for the use of the word about was raised.
One side argued that it must always mean half a knot or 5%; the other side responded that it was a matter of fact and that there was no fixed figure to be applied but each case must be looked at on its own facts. The court agreed with that the each case must be looked at on its own facts.
The phrase that is usually quoted from the judgment is that the allowance must be tailored to the ship’s configuration, size draught and trim etc. However, it is very unusual to find any allowance other than half a knot being given in London arbitrations so it is adopted as the customary figure in making performance calculations.
This can be said to cause some unfairness as a ship that manages only 10 knots has a 5% allowance while another vessel which can attain 20 knots is only given a 2.5% margin.
Ship Bunker (Fuel) Consumption
In Bunker (Fuel) Consumption, the same rule applies as Ship Speed. There is no set allowance for the use of the word about but a form of convention has grown up that a margin of 5% is usually allowed.
There are no reported cases on the subject but in one or two reported London arbitration awards from the 1980s there is some guidance to the effect that this margin is adopted in most cases by arbitrators.
It has been argued by charterers that, if a ship steams at an average speed of half a knot less than the description speed, then the bunker (fuel) consumption figure should also be reduced by the full margin of 5%.
This would mean that, if a ship consumed 40 tons of fuel per day a deduction of 2 tons per day would automatically be made, if she only performed at half a knot under the described speed. Therefore, if the ship steamed for 15 days at that speed the charterers would have a claim for 30 tons of over-consumed bunkers.
Generally, it appears that this argument has not found favor with London arbitrators. However if a Performance Clause was carefully worded the result could be achieved.
Ship Bunker (Fuel) Consumption Without Guarantee (WOG)
Apart from qualifying the figures in the description clause with the word about, owners are also stating more and more frequently that all figures are given Without Guarantee (WOG).
Indeed it is common to see at the beginning or end of the ship’s description clause in the charter the phrase All Details About and Without Guarantee (ADAWOG).
In fact, the use of Without Guarantee (WOG) is not new and there is an old reported Court of Appeal case dealing with its interpretation, Japy Frere v Sutherland (1921).
Japy Frere v Sutherland (1921) case concerned the description of a ship’s deadweight but has general application to all aspects of description including ship speed and bunker (fuel) consumption. The court found that the use of the words negatived any contractual promise with the result that the Shipowners would not be liable for any breach of the description. However, one of the judges indicated that the charterers might still be able to bring a successful claim for misrepresentation and terminate the charter on that basis.
The Lendoudis Evangelos II (1997) case concerning the estimated duration of a voyage, the court found that the use of the words also negatived any duty of care, effectively excluding any misrepresentation claim. It was said that the only obligation which existed in these circumstances was one of honesty.
In The Lipa (2001) case, the court reviewed the phrase again but this time directly in the context of a description of a ship speed and bunker (fuel) consumption. The court upheld the finding of the arbitrator which was that when the words Without Guarantee (WOG) were used in relation to speed and consumption figures in the description clause they negatived any contractual obligation. Although the judge did not comment directly on the question of honesty it seems that the same principles would be applied as in The Lendoudis Evangelos. If one of the contracting parties has only a claim for dishonesty, that is, fraud, to fall back on in such circumstances, then this may have consequences on the Arbitration Clause as the general position under English law is that only the courts may deal with Fraud Claims and Not Arbitrators.
Consequently, it is crucial for the Charterers and the Shipowners to be absolutely clear on what figures are or are not qualified in order to avoid the possibility of potentially complex questions of law arising.
Ship Speed Currents Effect
Ocean currents can have a considerable effect on some ship voyages. A ship may steam against a 2 to 3 knot current for a number of days with a resulting loss of performance. On the other hand, the ship may have the benefit of the same current if she performs the same passage on return.
There is little or no authority from the courts on the subject so London arbitrators will adopt differing views. There are examples of where they have ignored currents entirely when the only relevant provision has been that the ship’s performance is measured in good weather.
On other occasions ocean current factors may be accepted with the resultant increase or deduction in speed and consumption applied. Perhaps, as a rule of thumb, current factors are most likely to be applied when a specific voyage or short number of voyages are performed and where they are likely to have a material effect. However, if the ship performance is being reviewed over a long period or there are a number of varied passages the current factor will be taken as neutral and not applied.
Time Charter Vs Voyage Charter Comparison
Time Charters can vary in length from a few days to many years. A ship can undertake one voyage , often on what is called a Trip-Time Charter (TTC), or many of varying lengths and in differing conditions. How then, is performance to be measured in these widely divergent circumstances?
The short answer is to look at what the Charterparty says. In most time charters there will be a specific clause setting out how the calculations are to be performed.
In many standard tanker charters these provisions are in the printed form; in dry cargo charters they are very frequently an additional or special clause.
An example of a clause from a Beepeetime form that was considered in The Gas Enterprise (1993) case. For the purpose of assessing the performance of the ship, the average speed and bunker consumption of the vessel shall be calculated upon the distance made, the time taken and the quantity of bunkers consumed by the vessel on each sea passage as ordered to be performed by the Charterers …. If during any passage reviewed … the average speed of the vessel is less than or exceeds the average speed based upon Charterers’ instructions to the Master from time to time during the passage then the resulting loss or saving in time … and in the case of loss of time the resulting time shall become payable by Owners to Charterers …. the case concerned the application of the good weather provisions but this is a good example of a clause which deals with performance on a voyage basis.
In Didymi Corporation v Atlantic Lines & Navigation (1987) case, the court was again considering the effect of good weather provisions but this time in relation to a time-based assessment, the relevant part of the Ship Performance Clause reading:
“the speed and consumption, as guaranteed by the Owners … will be reviewed by Charterers at the end of the duration of this Charter Party, and if it is found that the vessel has failed to maintain as an average during the period of the Charter Party the speed and/or consumption stipulated above, the Charterers shall be indemnified by reduction of hire ….”
The calculation required all periods of performance to be taken into account to produce the average and then for that to be applied across the whole period of the charter.
In The AI Bida (1986) 1 Lloyd’s Rep 142 and (1987) case, which went to the Court of Appeal, there was a distinction made between the calculation of the Ship Speed and that of the Bunker (Fuel) Consumption. While the initial description gave straightforward speed and consumption figures an additional clause provided that the speed was: “guaranteed sea speed on a year period abt. 15.5 knots” There was not an equivalent provision in relation to consumption.
The court found that whilst the speed was to be computed as an average over yearly periods the consumption figures were to be taken on a voyage by voyage basis.
The result was that, whilst the Shipowners had the benefit of periods when the ship performed at higher speeds because of the averaging, only the voyages where there was over-consumption were counted in assessing the charterers’ claims because it was only on these passages that the owners were in breach of their obligations.
For Shipowners it is usually helpful to have a period calculation of performance, particularly in longer charter periods, as this will even out problems such as voyages performed prior to hull painting and minor difficulties with engine performance.
For Charterers a voyage by voyage basis can be more favorable although the relevant clause must be carefully worded to ensure that owners do not have the benefit of setting off any better performance on individual voyages.
Ship Performance and Deductions from Ship Hire
At the end of a charter party calculations of performance have been carried out and the result is that whilst the ship has not been capable of reaching her Warranted Speed ship has also under-consumed Bunkers (Fuels).
The charterers therefore have a claim for overpaid hire whilst the owners are entitled to a bonus for bunker saving.
How will these be recovered?
If the calculations are made and agreed before redelivery of the ship agreement may be reached on a reduction of hire for the charterers to compensate for the speed claim and a deduction from the bunker values to compensate owners. But what if agreement cannot be reached?
One of the simplest ways for Charterers to obtain recovery would be to set off their claim against hire due to the Shipowners but are they entitled to do this? The present position is far from clear.
In The Nanfri (1978) case, various judges had indicated that it might be permissible for deductions to be made from hire if the charterers had effectively been deprived of their use of the vessel. In that case the Court of Appeal confirmed that this was correct and that ship owners were not entitled to withdraw the vessel for failure to pay hire in those circumstances.
The difficulty that has arisen since in the context of performance claims is whether they are of a nature that they can be classified as depriving charterers of the use of the vessel.
In The Chrysovalandou Oyo (1981) case, a judgment was given which did allow a deduction from hire for a claim that there had been a breach of the speed warranty. The reasoning is that if the ship performed at the warranted speed the charterers would have additional time at their disposal, but that this time was lost.
This has been followed in subsequent cases but the position still awaits clarification by the Court of Appeal or House of Lords. The charterers might therefore open themselves up to a slight risk of being accused of wrongfully deducting hire but this is unlikely, particularly if the counter-claim for the hire was secured.
Deducting for over-consumption is more risky as this is not a claim for loss of use of the vessel but damages for uncontractual deprivation.
The best advice that might be given to charterers is to await the final installment of hire before making any deduction. It is also important to note that any claim must be made in good faith and on the basis of a reasonable assessment.
An arbitrary hire deduction without good evidence might well be considered wrongful and allow the owners to withdraw the ship under the charter.
But what if the lack of performance is having a real and adverse effect on the charterers’ business? Are the Charterers entitled to withdraw from the charter?
This is obviously the most drastic self-help remedy and must be an action of last resort. As set out at the beginning of this section, performance obligations have been classified as intermediate terms giving rise to the right to terminate where the breach goes to the very substance of the agreement. The circumstances where damages alone will not be sufficient to compensate the charterers will be very rare but they do exist; the best example was in The Aegean Dolphin (1992) case.
In he Aegean Dolphin (1992) case, the charterers were running a cruise-ship service but on a relatively tight schedule between a number of ports. This was known to the owners when they entered the charter and they warranted that the vessel was capable of 18 knots in good weather conditions. In fact, the ship could not perform at this speed which meant that she would fall behind the agreed schedules with devastating consequences to the charterers’ business. The court found that, in these circumstances, the charterers were entitled to reject the ship. Unfortunately for the charterers they had signed a document saying that the ship was satisfactory as a result of which they were found to have waived their right to cancel.
Ship Speed and Weather
The weather and sea conditions that a vessel encounters are some of the most important aspects of how she performs. High winds and adverse seas can soon change a voyage that has been properly performed in accordance with the ship’s warranted speed and consumption into one where there is a substantial shortfall in speed and increase in bunkers consumed.
As a result of these potential difficulties the description figures are usually only warranted ‘in good weather conditions’; but what does this mean? If the charterparty is silent on what constitutes good weather it is generally accepted that it applies to sea conditions of Force 4 on the Beaufort Scale and
The definition for Force 4 is: Wind Speed 11-16 knots; moderate breeze; small waves becoming longer; fairly frequent white horses; mean height of waves 5 feet. In conditions above Force 4 the vessel is likely to be adversely affected by the weather conditions with a resulting decrease in speed and greater consumption as a result of the slower passage.
Therefore when the vessel’s performance is measured at the end of the voyage or charter only performance during good weather days is taken into account. That does not mean that the vessel’s performance in bad weather is ignored entirely as will be shown later.
It is open to the parties to agree what constitutes good weather in the description or performance clause by stipulating the wind speed which is to count. In the case of some vessels, such as fully laden large oil tankers performing at relatively low (economical) speeds, the effect of wind conditions may well be less and therefore the agreed good weather range might be increased to Force 5 or, possibly, even Force 6.
On the other hand, for a moderate-sized vessel which has to perform at relatively high speeds, such as a reefer vessel, Force 3 may be agreed as the limit of good weather.
Ship Performance Intermediate (Innominate) Term
Under English law the obligations of the parties under a contract, including a charterparty, are divided into three categories which are conditions, warranties and intermediate, sometimes ‘innominate’, terms. Each of these types of obligation differs in the following manner.
Generally, a breach of a warranty of the performance of the vessel given by the owners will not have consequences which are so fundamental that the charterers will be entitled to terminate the charterparty, but the charterer will be entitled to recover damages for the time lost and the additional bunkers consumed.
However, there may be circumstances where the vessel’s speed is absolutely essential, to the service required by the charterers with the result that that breach entitles them to terminate the charterparty.
The performance obligation can therefore be categorised as intermediate or innominate term. But, what are the performance warranties given by owners?
In most time charterparties there is an initial description of the chartered vessel which includes details of the speed at which the vessel is capable of steaming and the fuel consumption to maintain that speed. The NYPE form stipulates in the description clause that the vessel is: “capable of steaming, fully laden, under good weather conditions about (X) knots on a consumption of about (Y) tons of … best grade fuel oil and in the Baltime Form: “fully loaded capable of steaming about (A) knots in good weather and smooth water on a consumption of about (B) tons oil fuel”. These are the basic promises made by the owners but these are almost always supplemented by specific additional clauses setting out more detailed descriptions and mechanisms for calculating the performance of the vessel and remedies for both under- and over-performance.
In fact, there are almost as many types of performance clause as there are types of vessel since, of course, they have different trading patterns and operations all of which can affect how the vessel performs. Other issues covered in more detailed performance clauses will also be the definition of what constitutes good weather and sea conditions, how distances are to be calculated, the effect of currents and the responsibility for and consequences of hull fouling.
Although the owner gives a description of the vessel’s capabilities in the charterparty one question that has arisen is – when is the description effective? There was a case over 60 years ago which indicated that the vessel must comply with the description at the time the charterparty was made rather than any other. The continuing obligation to maintain the vessel’s capability of performance after delivery was based on other obligations of the owner, in particular the general obligation of maintenance – see Lorentzen v White Shipping (1943).
For many years this was held to be the correct position but in a case in 1978 a different interpretation was raised in a Commercial Court judgment. In ‘The Apollonius’  the charter was made in August but the vessel was not to be delivered until October. In the charterparty the vessel was described as being capable of steaming at about 14.5 knots. During the period between the making of the charter and delivery, the ship was discharging at a warm-water port with the result that the hull was badly fouled. This fouling meant that when the ship was delivered to the new charterers she was only capable of maintaining an average speed of 10.61 knots. The owners admitted that the vessel was not capable of maintaining the warranted speed but claimed that this only applied at the time the charter was made, that is, August, when she could perform in accordance with the description.
However, the judge was not persuaded by this argument and, despite the decision in Lorentzen v White, decided that the date when the vessel must comply with the description was the date of delivery. His reasons included the fact that commercial considerations favored the charterers’ case. Since that case there has been debate about which interpretation is right and many commentators still favor the earlier concept of the date of the charter rather than delivery.
Why is this point important? As a matter of English law, a claim for under-performance by charterers cannot be made merely because the vessel does not maintain the described speed throughout the period of the charter; in one case it was said that it was not a continuing warranty.
The charterers must show that either the vessel could not comply with the description at a particular time, namely the date of the charter, or that, after delivery, the owners failed to maintain the standards of efficiency required for the vessel to meet the described speed. Therefore to apply the description at the time of delivery was to extend the warranty and cause a degree of confusion.
If one of the most important obligations of a charterer under a time charter is to pay the hire for the use of the vessel, then a fundamental requirement on the part of the Shipowner is to provide and maintain a vessel that properly performs the voyages ordered.
A charterer will seek to maximise the commercial use from the vessel and will want to see that the vessel keeps speed at a maximum and bunker consumption at a minimum.
When time charter rates at very high levels and bunker prices reaching the highest, even a day lost can mean that a substantial sum is in issue. If disputes over proper performance are to be avoided then it is essential that both parties to the charterparty are fully aware of their rights and obligations and senior shipboard personnel are properly informed of their responsibilities.
English law has established certain principles which have application but often technical issues are involved. As with much of English Shipping Law the principles that have evolved are based on fundamental aspects of contract law. It is important to understand that it is the parties who regulate the relationship between them by what they put in the contract.
The courts dislike interfering with commercial relationships and will do the minimum to write or re-write agreements. For this reason clear, precise and fair performance clauses written into charters can do an immense amount to avoid or reduce disputes.
Expert Advice for Ship Performance
The law related to performance claims is not easy, as many technical issues are involved. Whilst, at first, it may seem easy to claim that a vessel has under performed there are a wealth of factors which must be taken into consideration in order to do so. Often expert advice must be used in order to justify or defend such a claim. This can be a very expensive exercise.
However, by recognizing the potential pitfalls and hazards a performance clause can be formulated and agreed by the owners and charterers which will remove much of the uncertainty from the subject and leave the potential for dispute at a minimum.
As a postscript it may be helpful to consider the following dispute that arose some years ago. At the end of a time charter a number of issues were outstanding including a relatively modest performance claim.