Ship Fuel Consumption

Assessing Ship Performance

The ship’s speed and consumption description is applicable as of the charterparty’s signing and likely at the time of delivery as well.

When evaluating a ship’s performance, it is important to remember, as noted by Lloyd L.J. in ‘The Gas Enterprise’, that the warranty concerns the ship’s capability to achieve a certain speed, not necessarily the speed it will consistently maintain. Thus, assessing performance involves analyzing various factors to demonstrate whether the Shipowners have kept the vessel in a state that allows it to perform according to the described capabilities.

To calculate actual performance, one should first determine the distance covered under favorable weather conditions and then divide this by the number of hours of good weather to find the real speed achieved.

Then, the total voyage distance should be divided by this actual performance speed to ascertain the total time taken for the voyage. This figure should then be compared to the time it would take if the ship had traveled at the guaranteed speed, as per the warranty.

If the actual total time exceeds the warranted time, this indicates under-performance.

Example of Ship Performance:

Consider a vessel warranted to travel at about 11.5 knots using approximately 30 tons of LSIFO per day under ideal conditions. Performance assessments are made on a leg-by-leg basis from pilot station to pilot station. For a voyage spanning 3,400 miles according to agreed distance tables and experiencing 10 days of favorable weather during which 2,200 miles are covered, and with an average daily fuel consumption of 31 tons, the calculations would proceed 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 bunker (fuel) was used during the time lost by reason of the speed deficiency and charterers are entitled to recover the cost of these.

Therefore:
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
TOTAL $203,080

While this example is straightforward, it illustrates the general principles applicable. Depending on the specific wording of the Performance Clause, additional factors like current allowances or sea conditions might need to be considered. If adverse weather affected engine revolutions, adjustments might be necessary when extrapolating good weather speed to periods of bad weather.

In detailed and complex calculations, the insights of Hobhouse J in the case of Didymi v Atlantic Lines are instructive: Once a breach of warranty is established under good conditions, losses for all conditions can be demonstrated. This is typical under a simple charter-party speed warranty, which addresses the ship’s ability to achieve warranted speed under favorable conditions. Determining that capacity and any resulting loss may require evidence, including expert testimony, about performance under less favorable conditions. Loss calculations should account for bad weather periods, possibly necessitating expert evidence on how to properly integrate these factors.

When handling high-stakes claims over extended charter periods, consulting with a technical expert is often prudent. The foundational elements for any assessment hinge on the specific terms of the charterparty. If a Routeing Company’s formula for assessing performance is agreed upon, both parties must adhere to its calculations. If speed and consumption assessments are based on different criteria, the parties must accept those terms. To prevent problems and costly claims, it’s crucial that the performance provisions in the charterparty are explicit and precise. This includes clarity on measuring distances. Without specifying which distance tables to use, discrepancies can arise due to variations between tables. For instance, recent BP tables reflect changes from international regulations and recommendations on routing, sometimes extending total steaming distances significantly. Thus, the performance clause should clearly define how distances are measured to avoid potential disputes.

 

Ship Speed and Bunker Consumption

Ship Speed

The standard clause describing a ship in most Time Charterparty agreements often includes the term “ABOUT”, which modifies the exactness of the various figures and dimensions stated.

In clauses from both the New York Produce Exchange Form (NYPE) and Baltime Time Charter Party, speed and consumption are typically noted as “about … knots” and “about … tons,” respectively.

Under English Law, the use of “ABOUT” provides a degree of flexibility, softening the absoluteness of the figures presented by the Shipowners regarding the ship’s characteristics, thereby allowing for a margin of error.

For instance, slight changes in the capacity and tonnage due to work in a hold or tank may not be updated in the most recent fixture; the use of “ABOUT” accommodates such minor discrepancies.

Similarly, a ship’s speed and fuel consumption might decline marginally due to aging or usage. Factors like sea cleaning or slight adjustments in engine revolutions and speed could cause minor deviations from the figures stated in the Time Charterparty. Again, the term “ABOUT” benefits the Shipowners by covering these small variances.

The term “ABOUT” does not specify a fixed margin of error; however, it is commonly accepted that an allowance of 0.5 knots is reasonable for a ship’s speed.

For example, if a ship is guaranteed to operate at “ABOUT 15 knots,” there would not be a breach of warranty if it runs at 14.5 knots or above.

Likewise, to qualify for a bonus for over-performance, the ship would need to exceed 15.5 knots. This interpretation is not legally fixed but is based on practical application.

The pivotal case regarding Speed and Bunker Consumption is The AI Bida (1987) from the Court of Appeal. This case discussed the significance of the term “ABOUT”, concluding that its interpretation depends on the specifics of each case, rather than applying a universal figure such as half a knot or 5%.

The judgment typically referenced suggests the allowance should consider the ship’s configuration, size, draught, and trim. However, in London arbitrations, a half-knot allowance has become a customary figure for performance calculations.

This standard practice might seem unfair, as it allows a 5% leeway for a ship achieving only 10 knots, while a faster ship at 20 knots receives only a 2.5% margin.

 

Ship Bunker (Fuel) Consumption

In Bunker (Fuel) Consumption, the principles applied to Ship Speed are similar. While there is no definitive rule regarding the usage of the word “ABOUT”, it is customary to allow a margin of 5%.

Though there are no landmark legal cases specifically addressing this margin, some guidance from London arbitration awards in the 1980s suggests that this 5% margin is commonly accepted by arbitrators.

Charterers have contended that if a ship’s average speed is half a knot below the specified speed, then the bunker consumption rate should also decrease by the full 5% margin. This argument implies that for a ship consuming 30 tons of fuel per day, a reduction of 1.5 tons per day should be made if the ship’s performance falls half a knot short of the described speed. Thus, over a period of 15 days, the charterers would claim compensation for 22.5 tons of fuel over-consumed due to underperformance.

However, this argument generally does not persuade London arbitrators. Nevertheless, if a Performance Clause is drafted with precision, such outcomes can potentially be negotiated.

 

Ship Bunker (Fuel) Consumption Without Guarantee (WOG)

Besides using the word “ABOUT” to qualify the figures in the description clause, Shipowners are increasingly including the phrase Without Guarantee (WOG).

It’s common to see the phrase All Details About and Without Guarantee (ADAWOG) at the beginning or end of the ship’s description clause in a charter.

The use of Without Guarantee (WOG) is not new. An old Court of Appeal case, Japy Frere v Sutherland (1921), dealt with its interpretation. This case involved the description of a ship’s deadweight but is applicable to all aspects of ship description, including Ship Speed and Bunker (Fuel) Consumption. The court ruled that the use of these words negated any contractual promise, thus freeing the Shipowners from liability for any breach of the description. However, one judge noted that the Charterers might still be able to claim misrepresentation and terminate the Charter Party based on that.

In The Lendoudis Evangelos II (1997), concerning the estimated duration of a voyage, the court found that the use of these words also negated any duty of care, effectively blocking any Misrepresentation Claim. The court held that the only remaining obligation was one of honesty.

In The Lipa (2001), the phrase was examined again, this time directly related to a ship’s speed and bunker (fuel) consumption. The court supported the arbitrator’s decision that when the words Without Guarantee (WOG) are used concerning speed and consumption figures in the Description Clause, they negate any contractual obligation. While the judge did not explicitly address honesty, it appears the same principles as in The Lendoudis Evangelos would apply. If a party only has a claim for dishonesty, i.e., Fraud, in such circumstances, this could affect the Arbitration Clause, as under English law, only courts may handle Fraud Claims, not arbitrators.

Therefore, it is vital for both Charterers and Shipowners to be absolutely clear about which figures are or are not qualified to avoid potential complex legal issues.

 

Effect of Currents

Ocean currents can significantly impact ship voyages. A ship may navigate against a 2 to 3 knot current for several days, causing a noticeable drop in performance. Conversely, the ship could benefit from the same current on a return passage.

Legal precedents on this matter are scarce, leading London arbitrators to adopt varying stances. In some cases, Arbitrators have completely disregarded currents when the sole relevant clause stipulates that the ship’s performance is to be assessed in good weather conditions.

In other instances, the impact of ocean currents may be recognized, adjusting the ship’s speed and fuel consumption accordingly. Generally, the effect of currents is more likely to be considered when assessing specific voyages or a limited number of trips where their impact is substantial. However, over longer periods or across varied routes, the influence of currents is often deemed neutral and disregarded.

 

Time Charter Vs Voyage Charter Comparison

Time Charters can last from a few days to several years, and a ship might embark on a single voyage or multiple voyages of different lengths and under varying conditions. This raises the question: how is performance measured in such varied scenarios?

The key is to consult the specific provisions of the Charter Party. Time Charters typically contain clauses that explicitly describe how performance calculations are to be conducted. In standard tanker charters, these guidelines are often included in the printed form, while in dry cargo charters, they are usually added as a special clause.

For instance, in the BEEPEETIME Charter Party form considered in The Gas Enterprise (1993), the clause for assessing ship performance specifies that the ship’s average speed and bunker consumption should be calculated based on the distance traveled, time taken, and bunkers consumed on each sea passage as directed by the Charterers. If the ship’s average speed during any passage is less or more than the speed instructed by the Charterers, resulting time losses or savings and the associated costs are adjusted accordingly.

In the Didymi Corporation v Atlantic Lines & Navigation (1987) case, the court examined the implications of good weather provisions in the context of a time-based performance review. The Ship Performance Clause stated that at the end of the Charter Party, the Charterers would review the ship’s average speed and consumption over the charter period. If the ship failed to maintain the stipulated speed or consumption, the Charterers would receive a hire reduction.

The AI Bida (1986) 1 Lloyd’s Rep 142 and (1987) case, which escalated to the Court of Appeal, highlighted a distinction between calculating Ship Speed and Bunker (Fuel) Consumption. The ship’s speed was to be averaged over yearly periods, while consumption figures were evaluated on a voyage-by-voyage basis.

This meant that while the Shipowners could benefit from periods of higher speeds due to averaging, Shipowners were only accountable for voyages where over-consumption occurred, as these were the instances where they failed to meet their contractual obligations.

For Shipowners, averaging performance over extended charter periods can mitigate issues like pre-hull painting voyages or minor engine problems, smoothing out performance dips.

Conversely, Charterers might find a voyage-by-voyage assessment more advantageous, though it requires precise clause wording to prevent Shipowners from offsetting subpar performances with better-performing voyages.

 

Ship Performance and Deductions from Ship Hire

After performing end-of-charter calculations, it was found that while the ship did not achieve her Warranted Speed, she also consumed less Bunkers (Fuels) than anticipated.

Thus, the Time Charterers have a basis for claiming Overpaid Hire, while the Shipowners may claim a Bonus for the savings on bunkers.

Recovery methods include mutual agreement on adjustments before ship redelivery, with possible hire reductions for Charterers and bunker compensation for Shipowners. If no agreement is reached, Charterers might offset their claims against pending hire payments to Shipowners, though legal clarity on this option is lacking.

Legal precedents, like The Nanfri (1978), suggest it’s permissible for Charterers to deduct from hire if their vessel usage is significantly compromised. This was affirmed when deductions were made for unmet speed warranties in The Chrysovalandou Oyo (1981), implying lost time could equate to lost vessel use.

However, deducting for over-consumption presents higher risks since it’s not directly linked to vessel usage but rather to non-contractual performance.

Charterers are advised to delay any deductions until the final hire payment, ensuring claims are substantiated and made in good faith to avoid wrongful deductions, which could allow Shipowners to withdraw the vessel.

In severe cases where performance deficits severely impact Charterer operations, such as in The Aegean Dolphin (1992), Charterers may terminate the Charter Party. This drastic step should be a last resort, reserved for breaches profoundly affecting the charter’s intent. Unfortunately, in this case, Charterers inadvertently waived their cancellation rights by acknowledging ship conditions prematurely.

 

Ship Speed and Weather

The vessel’s performance is critically influenced by weather and sea conditions. High winds and rough seas can transform a voyage from being within the ship’s warranted speed and fuel consumption to one where significant deviations occur.

Typically, performance warranties are valid ‘in good weather conditions.’ Absent a definition in the Charter Party, ‘good weather’ is commonly understood to include sea conditions up to Force 4 on the Beaufort Scale, characterized by wind speeds of 11-16 knots, a moderate breeze, and small, more pronounced waves, often with visible whitecaps, averaging a height of 5 feet.

Above Force 4, adverse weather is likely to negatively impact the ship’s speed and increase fuel consumption due to the hindered progression.

At the conclusion of a voyage or charter, performance assessment typically considers only those periods classified under good weather. However, this does not entirely disregard how the ship handles harsher conditions, as will be demonstrated.

Parties may specify what constitutes acceptable weather within the charter’s description or performance clauses by defining acceptable wind speeds. For large oil tankers operating at economic speeds, the threshold for good weather might extend to Forces 5 or 6 due to their reduced sensitivity to wind. Conversely, for smaller, faster ships like reefer ships, the limit might be set at Force 3 to ensure performance standards are met.

 

Ship Performance Intermediate (Innominate) Term

 

Ship Performance

If one of the most critical duties of a Charterer under a Time Charter is to pay for the hire of the ship, then a crucial responsibility of the Shipowner is to provide and maintain a vessel that effectively performs the voyages commanded.

A Charterer aims to maximize the commercial utility of the vessel, ensuring that it maintains optimal speed and minimal bunker consumption.

With Time Charter Rates at peak levels and bunker prices at historic highs, even a single day’s delay can involve significant financial implications. To prevent disputes over vessel performance, it is vital that both parties in the charterparty fully understand their respective rights and obligations, and that senior shipboard personnel are well-informed of their duties.

English law has established specific principles applicable to such situations, often involving technical aspects. Much of English Shipping Law is grounded in fundamental contract law principles, emphasizing that the contractual terms set by the parties govern their relationship.

The courts generally avoid meddling in commercial agreements and will minimally intervene to amend or rewrite contracts. Therefore, incorporating clear, precise, and equitable Performance Clauses in Charter Parties can significantly help in preventing or mitigating disputes.