"About" equals about half a million dollars

Charter parties, legal contracts that dictate the chartering of vessels, are indispensable tools for all shipowners and charterers within the maritime industry. These agreements delineate the rights and obligations of both parties, thereby facilitating seamless operations during voyages.

Regardless of whether it is a time charter, where the vessel is chartered for a specific period, or a voyage charter, where the vessel is chartered for a specific voyage, these contracts are instrumental in enabling global trade for carriers.

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Warranties within a Charter Party

In the broader context of the shipping industry’s decarbonization efforts, the commercial contract between shipowners and charterers, known as the charter party, is frequently overlooked.

Within a charter party, owners typically provide warranties for maximum fuel consumption and minimum speed. However, these warranties are generally applicable only during fair weather conditions, referred to as “good weather periods”.

Regrettably, many voyages experience an abundance of “bad weather days”, which complicates performance assessments. Furthermore, performance warranties are often confined to just two speeds (for instance, full speed and eco-speed), limiting the flexibility for crucial sailing strategies.

Lastly, the warranties typically include the term “about”, which is commonly interpreted as a 0.5 knot margin on speed and a 5% margin on consumption. While this may appear insignificant, the commercial implications are huge.

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The commercial margin of “about”

Consider a bulk carrier with a day rate of USD 16,300, and a laden consumption of 25 MT at a speed of 12 knots, and ballast 25MT at 13 knots. With the fuel price set at USD 620 per MT, and when sailing 40,000 miles in laden and 20,000 in ballast annually, the average charter party costs amount to USD 112 per nautical mile. Annually, the expected costs total USD 6.7 Million.

If we incorporate the “about” of 0.5 knot on speed, and a 5% on consumption, the effects on costs per mile is 7%.

This essentially implies that the “about” equates to a commercial margin of over USD 450,000 annually!

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The need for normalised performance data

Given that weather margins and “abouts” significantly diminish the value of the warranties, while introducing a huge commercial margin, it is crucial to utilise normalised performance data.

Merely stating that the “vessel’s performance is within the limits of the charter party” is not sufficiently accurate, as only the spread in commercial margins can be close to 0,5 million dollars annually.

Therefore, a performance method should be employed which normalises the data for weather effects and is capable of reporting both with and without “abouts”.

Adopting a normalised data approach like We4Sea unveils new possibilities for assessing vessel performance and benchmarking vessels with their peers. This enables more informed decision-making.

Striking a balance between fuel efficiency, emissions reduction, and commercial performance becomes more attainable, ultimately benefiting both the environment and the industry.                           

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