What is LAYCAN? (Laydays/Cancelling)
When dates are fixed; the charterparty will state, for example, “lay/can 25/30th April”. The abbreviation ‘lay/can’ means that the ‘laydays start 25th April, cancelling date 30th April’. This means that the ship must arrive on or after 25th April and before 30th April. The charterer can refuse to load if the ship arrives before the first date, in fact the cargo may not be available. If the ship arrives after the cancelling date (or often after 16:00 on the cancelling date), the charterer is at liberty to cancel the ship and find another ship to carry his cargo.
This would prove to be a useful option if the freight rates had fallen since the charter was fixed and if the charterer were therefore able to obtain a cheaper ship; however, the converse is not necessarily the case: if a ship is late arriving and rates have risen in the interim and if the charterer confirms that the ship is still wanted, then the owner must proceed with the charter.
Shipowner calculates the cost of the proposed voyage by means of the voyage estimate and compares it to the anticipated freight to decide whether the voyage will be profitable. It is important that the owner knows how long the intended voyage will take, as the calculations are based on income per day, hence a delay may make the difference between a profitable or a loss-making voyage.
Charterparties contain a clause giving the charterer the right to cancel the charterparty if the ship does not arrive at the loading port in a ready to load condition by a stated time and date. This option arises whether or not the late arrival is due to breach by the owner.
Therefore, if the ship arrives late through no fault of the owner, that is, she has suffered a breakdown whilst on the approach voyage which is excepted by the terms of the charter then the charterer will still be entitled to terminate the charterparty for late arrival of the ship but will not be entitled to claim damages for the ship’s late arrival.
On the other hand, if the ship arrives late for some reason for which the owners are not protected by one of the charterparty exception clauses then the charterer will be entitled to cancel the charterparty and also claim damages. Unless the charterparty makes some special provision to deal with the situation, the charterer does not have to exercise his option to cancel until the ship has actually arrived. This is the case even if the cancelling date has long passed. The shipowner cannot, where the cancelling date has passed, call upon the charterer to declare whether or not he will load the ship.
If the charterer cancels the charter before the cancelling date, that is, he recognises that the ship is unlikely to arrive before the cancelling date or suspects this to be the case, and therefore cancels prematurely, then the owner may terminate the contract, treating the charterer as in breach, and claim damages.
However, it should be noted that if it can be shown that the ship is unlikely or would not have reached the loading port by the cancelling date then, whilst technically in breach by cancelling prematurely, the charterer’s damages are likely to be nominal. It therefore follows that, if the charterer gives notice of cancellation before the cancelling date, the owner has a choice; he may terminate the contract and, provided that he can show that the ship would have reached the load port before the cancelling date, claim damages or he can continue on the voyage and tender the ship for loading, in effect gambling that she will arrive before the cancelling date.
If the owner adopts the second of these choices it will then be open to the charterer to remedy his breach by exercising his contractual right by loading cargo or, if the ship arrives after the cancelling date, to cancel the contract.
The canceling date is the final layday and the date beyond which, if the chartered ship has not been presented for loading, the charterers may not accept the ship and may cancel the charter. The terms of this pro- vision will usually be found in a canceling clause, which provides that the charterers will not be entitled to cancel the charter before the stated canceling date, even when it is obvious that the ship cannot arrive at the loading port by this date.
Laydays and canceling are often called the laycan; they represent the period within which the ship must be presented at the agreed port or place. If the ship arrives before the first day of the period, the charterers do not have to accept her until commencement of the agreed laydays. If she arrives after the final layday, the charterers are entitled to reject the ship and cancel the charter.
Laycan is a ship’s arrival window (the time between tendering NOR and the cancellation date and time provided for in the charter party). In The Front Commander (2006), Rix L. J. defined laycan as (a) the earliest day upon which an owner can expect his charterer to load; and (b) the latest day upon which the ship can arrive at its appointed load- ing place without being at risk of being canceled. This window is very short, hence ships may arrive earlier to make sure that they are present within the laycan window.
When a charterer quotes a cargo perhaps the worst scenario is that no ships offer for the business. This would be rare in the major bulk trades but, for those involved in the coastal or middle trades, such an event is not unknown.
The other scenario, which is a major source of trouble, is when the ship as fixed does not arrive, or indeed does not arrive in time to load the cargo. The purchase contracts for the charterers’ cargoes will state that a cargo must be loaded within certain dates, or even on a given day in some tanker loading ports. Penalties are likely to accrue against the charterer if the ship does not arrive timeously for loading.
The charterers therefore need to be able to cancel a ship that is running late so that they are able to find a commercial solution such as fixing an alternative, earlier ship as a substitute. It is perhaps unseemly to point out that the charterers may at times, in a falling market, use the ploy to cancel a more costly ship to enable them to fix a cheaper alternative. It may be cynical to ask is a ship ever cancelled for being late if the market has risen since the original fixture was concluded.
Thus it is necessary, these days, for a voyage charter to be negotiated with a ‘Laydays/Cancelling'(Laycan). In dry cargo trades the dates could be as wide as 10 or 15 days, say 1/10 April or 1/15 April. In the oil trades it is common for the sale contract to have a 48-hour supply window so we would see the business quoted as 1/3 April. At first view this appears to be three days, 1, 2 and 3 April – but on closer scrutiny the sale contract states 12.00 hrs 1st to 12.00 hrs 3rd which is 48 hours. The charterers, under the terms agreed with the owner in the charterparty, may take the risk of the ship arriving before 12.00 hrs on the 1st and indeed arriving after 12.00 hrs on the 3rd. However Shellvoy6 has a commencing and cancelling time of 12.00 hrs on the unamended form.
Accepting that the charterers need the right to cancel a ship that is running late, or perhaps more accurately will not be ready within the cancelling time/date it may be no surprise to the student that various charters have different ways of dealing with late readiness.
What is LAYCAN in Ship Chartering?
LAYCAN is an acronym used in the shipping industry that stands for “Laydays/Cancelling.” LAYCAN is a term often used in the context of charter parties, contracts between the owners of a ship and the charterers who wish to hire the ship.
Laydays refers to a range of dates within the charter party where the ship is expected to present itself at the loading port, ready to load the cargo. This date range is usually agreed upon by both parties during the negotiation of the contract.
Cancelling, on the other hand, is the final date in the range of laydays. If the ship has not presented itself ready to load the cargo by this date, the charterers are legally allowed to cancel the charter party.
So, in essence, LAYCAN is a window of time agreed upon by both parties (the shipowner and the charterer). The shipowner must ensure the ship arrives within this period at the loading port and is ready to load the cargo. If the ship arrives after the cancelling date, the charterer has the right to cancel the agreement, unless otherwise negotiated in the contract. This mechanism allows for predictability and planning for both parties involved.
In the shipping industry, the punctuality of ships is critical. The arrival and departure times of ships can impact many different aspects of the shipping process, including costs associated with port stay, handling, and the scheduling of subsequent voyages. That’s why the LAYCAN period is so important.
For instance, the shipowner, knowing the LAYCAN period, will plan the ship’s schedule accordingly to ensure it arrives within the stipulated window. If the ship arrives before the laydays, it might have to wait, incurring demurrage charges. If it arrives after the cancelling date, it risks the charterer cancelling the contract. Therefore, accurate voyage planning and efficient operations are crucial to meet the LAYCAN period.
On the other hand, for the charterer, the LAYCAN period gives them an assurance of when the ship will be available for loading. This allows them to plan their operations, such as arranging for the cargo to be ready, booking the berth at the port, and scheduling subsequent transport. If the ship fails to arrive within the LAYCAN period, the charterer can either negotiate a new agreement, find an alternative ship, or, if the terms of the contract permit, claim damages.
The LAYCAN period, therefore, is a critical element in charter party agreements. It ensures a balance of responsibilities between the shipowner and charterer, providing a framework for efficient and effective operations in the shipping industry. It’s a reflection of the need for punctuality and planning in a complex, global industry where delays can have significant financial implications.
LAYCAN Example 1
Here’s an example of LAYCAN (Layday-Cancelling) in a shipping contract:
Suppose a company wants to charter a ship to transport goods from Port A to Port B. They engage in a contract with a shipowner. In this contract, they specify a LAYCAN period during which the ship is expected to arrive at the loading port and start the operation.
For instance, the contract might state a LAYCAN period from June 10 to June 15. This means that the ship should arrive at the loading port (Port A) and be ready to load the goods anytime between these dates.
If the ship arrives before June 10, the charterer is under no obligation to start loading the cargo until June 10. If the ship arrives after June 15, the charterer has the right to cancel the contract, hence the term “cancelling.”
The LAYCAN period allows both parties to have a clear understanding of when the ship should be available for loading. It helps manage expectations and provides a legal framework to handle delays or early arrivals.
LAYCAN Example 2
Here’s another example of LAYCAN in a different context:
Suppose a crude oil trader is chartering a tanker to transport oil from Houston to Shanghai. The trader negotiates a contract with the shipowner and sets the LAYCAN period as August 1 to August 5.
This means that the tanker is expected to be ready to load the oil cargo at the Houston port anytime from August 1 to August 5.
If the tanker arrives and is ready for loading before August 1, the trader is not obligated to start loading the oil until the start of the LAYCAN period (August 1). This allows the trader flexibility in case the oil isn’t ready for transport until the agreed date.
On the other hand, if the tanker is not ready to load the oil by the end of the LAYCAN period (August 5), the trader has the right to cancel the contract. This protects the trader in case the shipowner is unable to fulfill their part of the agreement in a timely manner.
The LAYCAN period provides a clear timeframe for both parties and helps to manage potential issues related to delays or early arrivals. This can be crucial in industries like oil trading, where timing and schedule adherence are paramount.
LAYCAN Example 3
Here’s another example of LAYCAN in a different scenario:
Imagine a global manufacturing company that needs to transport raw materials from a supplier in Chile to their factory in Germany. They charter a freighter and negotiate a LAYCAN period with the shipowner, setting it as September 20 to September 25.
This LAYCAN period means that the freighter should be ready to load the raw materials at the Chilean port anytime between these dates.
If the freighter arrives and is ready for loading before September 20, the manufacturing company is not obligated to start loading the materials until the LAYCAN period begins. This provides flexibility for the manufacturer in case there are unforeseen delays in material preparation.
Conversely, if the freighter isn’t ready to load the raw materials by the end of the LAYCAN period on September 25, the manufacturing company has the right to cancel the charter agreement. This clause protects the manufacturing company if the shipowner doesn’t meet the agreed upon timeline.
The LAYCAN period thus serves as a tool to manage logistics and schedules, providing both parties with a clear and legally binding timeframe for the loading operation.
LAYCAN Clause in GENCON 2022
There are two distinct rights to cancel the charterparty to be found in Clause 9 and Clause 14.
Clause 9 is an entirely new provision which entitles the charterers to cancel if, upon arrival alongside, the ship’s holds are found not to be ready and cannot be brought up to the requisite standard by the cancelling date or within a fixed period (96 hours is the default timeframe), whichever falls later. Whilst this may seem draconian, it recognises that the fundamental nature of the shipowners’ obligation to present a ship which is ready to load in all respects and, if they wish to cancel, charterers still have to compensate the shipowners for the time spent waiting to berth. Otherwise, Clause 14 enables cancellation if the ship has not tendered a valid NOR before the cancelling date, rather than being linked to the arrival of the ship.
We kindly suggest that you visit the web page of BIMCO (Baltic and International Maritime Council) to learn more about LAYCAN Clause and to obtain the original Charter Party Forms and Documents. www.bimco.org
What is the difference between Laycan and Laytime?
Laycan and Laytime are both important terms in the field of maritime shipping and trade, referring to different aspects of the cargo handling process.
- Laycan (Layday Canceling): This term is a combination of two words, “Layday” and “Canceling”. It refers to the period within which the ship is expected to arrive at the port and be ready to load or discharge cargo. This period is typically given as a range of dates. For example, a Laycan of 1st June to 10th June means the ship is expected to arrive between these dates. If the ship does not arrive within this time frame, the charterer has the right to cancel the charter party (contract).
- Laytime: This term refers to the time allowed to load or discharge the cargo without incurring demurrage (a penalty for exceeding the agreed time). The exact duration of laytime will be specified in the charter party. This time starts counting when the ship is an “arrived ship” (i.e., when it is at the specified port and ready to load or unload). If the loading or unloading operations are completed within this laytime, there’s no extra charge. However, if these operations exceed the laytime, demurrage charges will apply.
LAYCAN is about the arrival and readiness of the ship for cargo operations within a specific timeframe, while LAYTIME is about the actual duration allowed for these cargo operations.
Laycan Vs Laytime
- Laycan (Layday Canceling): The importance of the Laycan period lies in the fact that it provides a defined window of expectation for both parties involved in the chartering contract. This helps to prevent ambiguity and disputes regarding the expected arrival of the ship. If the ship arrives before the Laycan period, it may have to wait until the start of the Laycan. If it arrives after, the charterer has the right to cancel the contract, but they are not obliged to. They may choose to wait, especially if there are no better alternatives available.
- Laytime: Laytime can be calculated in various ways, depending on the terms agreed in the charter party. It could be based on working days, calendar days, or weather working days, among other possibilities. Furthermore, the agreement may specify different laytimes for loading and discharging. If the cargo handling operations are faster than expected, the ship owner doesn’t earn any extra, but if they are slower, the charterer has to pay demurrage. Conversely, if the ship is loaded or unloaded significantly faster than the laytime, the ship owner may have to pay dispatch (a kind of reward) to the charterer.
Laydays and the Cancelling Date in a Charter Party
Laydays denote a designated period (e.g., “June 10/20”) during which proprietors must present the ship for loading. Laydays should not be mistaken for laytime, which designates the period granted to the charterers for loading and/or unloading without incurring additional charges beyond the freight.
The terminating date corresponds to the ultimate layday, beyond which, if the chartered ship has not been made available for loading, the charterers reserve the right to reject it and nullify the agreement. Typically, this provision is specified in a Cancelling Clause, which stipulates that the charterers cannot cancel the charter prior to the stated terminating date, even if it becomes evident that the ship will not reach the loading port by that time.
Collectively, laydays/cancelling, often referred to as the “laycan,” signifies the timeframe within which the ship must be presented at the agreed port or location. If the ship arrives prior to the commencement of the agreed laydays, the charterers are not obligated to accept it. Conversely, if it arrives after the final layday, the charterers have the right to reject the ship and cancel the charter.
The charterers cannot be compelled to declare their intention to cancel before the ship arrives at the loading port. Even after the passing of the cancelling date, the owners still cannot compel the charterers to disclose whether they will load the ship or not (and in practice, the charterers often remain silent, hoping to negotiate a new contract with the owners). In order to avoid delays while awaiting the charterers’ decision on cancellation, certain charter parties incorporate an extension to the Cancelling Clause that compels the charterers to declare within a specified timeframe whether they choose to cancel or not upon being informed of the ship’s delayed arrival.
In charter parties and related documents, the laycan is typically expressed as (for instance) “10/20 June,” where 10 June represents the first layday and 20 June is the terminating date.
Laytime Clause in a Charter Party
The provision known as the “Laytime clause” delineates the duration allocated for both loading and discharging activities. It establishes the circumstances under which the Notice of Readiness (NOR) can be presented.
Laytime, as defined in the Voyage Charter Party Laytime Interpretation Rules of 1993, refers to the agreed-upon period during which the shipowners are obligated to make the ship available for loading or discharging, without requiring any additional payment beyond the freight charges. The inclusion of the phrase “without payment additional to the freight” holds significant importance.
It represents the time allotted to the charterers for cargo operations, without incurring any supplementary expenses. In the best interest of the shipowners, it should commence at the earliest feasible opportunity. The clause can specify separate laytime durations for loading and discharging, or alternatively, an overall laytime period. It is essential for the master to examine the details outlined in the charter party.
There are three possible types of laytime durations based on the method of calculation:
• Definite laytime
• Calculable laytime
• Indefinite laytime
Definite laytime is expressly stated in the charter party as a specified time period, such as “6 (six) days…” or “….48 running hours.” In the realm of oil tanker trades, the industry norm is typically 72 running hours.
Calculable laytime is determined by performing calculations based on the information provided in the charter party. For instance, if a cargo weighing 20,000 tons is to be loaded at a rate of 10,000 tons per day, the laytime would amount to 2.00 days.
In the case of indefinite laytime, the charter party may indicate that the cargo should be loaded with “customary despatch,” “customary quick despatch,” or “as fast as the ship can receive.”
Laytime can only begin to elapse for the charterers once three conditions have been satisfied:
- The ship meets the criteria of being an “arrived ship” as specified in the charter party.
- The ship is fully prepared for loading or discharging in all aspects.
- The notice of readiness has been served to the charterers or their designated agent, or, in a few instances, received by the charterers or their agent as per the provisions outlined in the SHELLVOY 4 charter party.
Laytime typically continues until the completion of the loading or discharging process. However, certain charter parties stipulate that if there is a delay of one hour or more for the charterer’s purposes after the completion of loading (e.g., sample testing, document preparation), time will be deemed to run until the delay is resolved.
Ship Masters should acquire a copy of the Voyage Charter Party Laytime Interpretation Rules of 1993 from their owners or managers. These rules elucidate all the customary terms associated with the calculation of laytime, demurrage, and despatch.