Laytime Claims Management
A vessel’s port call process is tied up in many inefficiencies, all of which cost time and money. Laytime allowance refers to the time set out in the charterparty contract for a vessel to load and discharge its cargo.
One costly problem for charterers that can arise during the port call process is if the vessel overstays its contracted laytime in a port or terminal. If this happens, the charterer must pay a fee, known as demurrage. The charterer and ship owner negotiate and decide the fee. It varies depending on carriers, terminals and contractual agreements, but can range from $10,000 – $30,000 per day and stretch into multiple six figures for larger vessels. Beyond a few days, charges can grow significantly.
Laytime and demurrage are perceived as a constant source of disagreement for minor issues due to the multifarious nature of the supply chain and a third variation of the charterparty. Furthermore, complex terminology in charterparty clauses is often misinterpreted, and calculating laytime is costly. Short timeframes to make a claim and often unstructured documents mean that claims often lead to time-consuming negotiations. This means that a thorough evaluation of the risks associated with the port side of ship operations is critical.
Digitalising laytime calculations and the claims management process can make tracking, understanding, managing, and negotiating laytime claims easier and more efficient. In doing so, the financial implications of extended and unnecessary time in port can be reduced. ClaimsHub.ai, by Marcura, digitalises and standardises the entire laytime claims process for all involved parties, leading to improved accuracy and faster cash conversion of claims.
The Cost of Charterparty Ambiguity
Charterparty contracts are never error-free. Even small spelling mistakes or nuances in words can have detrimental consequences when it comes to legal contracts, such as the charter agreement. It’s also quite common for the contract to be based on a previous fixture and may not be adjusted for each new fixture. This often leads to errors.
In more severe cases, errors in a charterparty can lead to disputes, financial losses, or legal challenges. Let’s say a charterparty includes a very ambiguous description of laytime as “about 5 days”. There’s no clear definition of what “about” means or a precise start and end date for the laytime calculation.
This kind of error is common in a charterparty. Then, the vessel arrives in port and takes 6 days to unload its cargo rather than the “about 5” specified. The charterer argues that “about 5” means there is some flexibility due to factors such as port congestion so 6 days isn’t seen as a problem. They refuse to pay the demurrage for the additional day.
Prevention is better than cure. The terms of the charterparty need to be 100% understood by all stakeholders involved in the voyage. To avoid misinterpretation, the contract should be meticulously checked and ambiguous terms such as “about” should be removed. By digitalising the laytime claims process, as with ClaimsHub.ai, critical documents can be more easily standardised, reducing the risk of ambiguities leading to costly disputes.
For a more detailed insight and understanding of the areas in this article, please refer to our latest thought leadership report in partnership with Marcura, Navigating New Financial Seas. This comprehensive guide demonstrates how digital solutions can optimise shipping operations from the pre and post-voyage fixture stages, through to the voyage itself, to ensure financial success. The full report can be downloaded below.
