Shipping, Logistics and Demurrage

This note considers two most important modes of transportation in internationally trade: marine shipping and rail.
Depending on the circumstances, the parties to a transaction may structure it so that the buyer or the seller, as the case may be, does not have to concern itself with transportation and does not carry the relevant risks. We will be concerned here with the party that does deal with transportation.

Instead of dealing with the carrier (a shipping line or rail operator), one can ask a dedicated forwarder to assist. The forwarder will then arrange the contracts with the carriers. Generally speaking, contracts with forwarders can be complex in that the forwarder may transact as either agent or principal. Depending on what was agreed, the forwarder may bear no liability for delay or loss of goods – sometimes quite and unsatisfactory result.

Contracts for marine transportation may take the form of charterparties or bills of lading. Of course, charterparties can be categorised in various way; one of the most obvious distinctions to be made between time, voyage and bareboat charters. Generally speaking: a time charterer will have the use of a vessel for a specified period of time and will be able to direct the trade of the vessel during that time; and a voyage charterer will have the use of a vessel for a specific voyage. Time charterers pay hire; and voyage charterers pay freight for the use of the vessel. The third type of charterparty is a bareboat charter, where the charterer takes complete control over the trade and operation of the vessel.

There are a number of industry standard forms of charterparties, for example, Asbatankvoy, Shelltime or Barecon. Baltic and International Maritime Council (BIMCO) has played a significant role in standardisation.

A voyage charter will allow the charterer a specified period of laytime, being the time which the charter can use for loading and discharging. If the specified time is exceeded, the charterer will pay an additional “fee” to the owner, known as demurrage. The rate at which demurrage accrues differs depending on the vessel and the market conditions, but generally speaking, demurrage can be significant enough to push the economics of a trade into the red. If one remembers that today’s ports are often congested, then the importance of demurrage becomes clear.

Laytime is calculated by reference to notices of readiness, which are given by the vessel once it arrives at the load- or dis- port. But when a vessel is an “arrived vessel” depends on the terms of the charter. On the one hand, the charter may require that the vessel arrives at berth; and, on the other hand, the charter may require that the vessel arrives in a designated area in the port or at the port’s roads. The charter may use acronyms to designate itself as one or the other type, such as WIBON (whether in berth or not) or WIPON (whether in port or not). The effect of acronyms on demurrage may sometimes be easy to overlook.

In f.o.b. contacts, the buyer may be exposed to demurrage in the load port; and in c.i.f. contacts, the seller may be exposed to demurrage in discharge port. In each case, the part with the exposure will have little control of the port facilities since it is the other party who is likely to have a contract the port. Charterparty demurrage clauses will not be implied into the sale-purchase contracts and so it is common to find express clauses dealing with the matter.
Very briefly we must note here, that in container shipment the delay in loading / discharge is priced off demurrage and detention rates, which will apply to excess in time of keeping the containers in the port or excess in time of returning containers to the port.

Bills of lading can also constitute a contract of carriage, but whether this will be the case depends on the circumstances. In the hands of the charter, a bill of lading is a mere receipt for the cargo; but if the bill of lading is in the hands of a third party (a receiver), the bill will also embody the contract of carriage.

Turning to contracts with rail operators, these are typically standardised. In fact, there is typically a combination of specific statutory rules and contractual forms that constitute the terms of the contract of carriage. A rail waybill often is a part of the contractual arrangements; but it is important to keep in mind that in the eyes of law the status of a rail waybill is not same as that of a marine bill of lading.

Rail operators will the counterparty on the contract of carriage by rail, but rail operators will not necessarily also provide also provide the railcars. Accordingly, the shipper might need to also lease (rent) railcars from a third-party supplier. Here again, attention should be paid to the rules on demurrage and detention.