Demurrage, Breakdown, and Waiting Costs in Charter Agreements

In maritime trade, a ship’s waiting time in port for loading or discharge can directly affect commercial costs. If the waiting period exceeds the time provided for in the contract, demurrage or other charges set out in the contract may arise.

However, the fact that there was a delay does not mean that the same amount of charges may be claimed in every case. The contract terms, how the period is calculated, and the reason for the delay must be assessed together.

What is demurrage?

Demurrage is a charge that may arise under the contract terms, particularly when a specified loading or discharge period is exceeded. Whether the charge arises and how it is calculated depend on the type of charterparty and the conditions agreed by the parties.

The period allowed under the contract for loading and discharge, when that period begins, which time intervals are counted, and how exceptions apply should be clearly specified.

Who is responsible for the waiting charge?

To determine responsibility, the parties to the contract and each party’s obligations must first be identified. Cargo not being ready, operational delays at the port, missing documents, or another obstacle may produce different legal consequences under the specific contract.

The cause of delay alone may not be sufficient; the relevant contract provisions and the parties’ notices must also be assessed. The basis of the charge, calculation method, and time records should therefore be reviewed together.

Which documents matter in a dispute?

The charterparty, loading and discharge records, notices that the ship is ready, port records, timelines, invoices, and correspondence between the parties may be important evidence.

Consistent and verifiable time records become particularly important when there is a dispute over when the period started or stopped.

What should be considered when drafting a contract?

The parties’ obligations, loading and discharge periods, method of calculating the charge, exceptions, notification procedures, applicable law, and dispute resolution method should be set out as clearly as possible.

It should not be assumed that the standard forms used in international contracts will produce the same result for every transaction; the relationship between special provisions and standard terms should be examined.

Conclusion

Demurrage and waiting charges may develop into high-value commercial disputes in maritime trade. Properly drafting the contract and maintaining orderly operational records are important both for making and defending a claim.

Attorney Gizem Gonce notes that maritime contracts should clearly set out not only the amount of a charge but also the conditions under which it arises and the method of calculating it.

Questions and answers

If the ship breaks down, does the shipowner pay all the costs?

Attorney Gizem Gonce: The answer depends on the type of contract and the cause of the breakdown. The parties’ obligations may differ under a time charter, voyage charter, or other carriage arrangement. Responsibility for maintenance and repairs, fuel costs, waiting costs, and losses caused by delay must be examined together with the contract terms.

Are demurrage and waiting due to a technical breakdown the same thing?

Attorney Gizem Gonce: No. Demurrage is primarily connected with exceeding the loading or discharge period specified in the contract. Waiting due to a technical breakdown requires a separate legal assessment. Whether an event gives rise to demurrage, off-hire, or another cost item must be determined under the contract provisions.

If the ship is unseaworthy, can the charterer terminate the contract?

Attorney Gizem Gonce: Seaworthiness is a fundamental obligation, but not every breakdown automatically gives rise to a right to terminate. The seriousness of the breakdown, the time needed to remedy it, the contract terms, and the consequences of the breach must be assessed. Contractual notice and cure procedures should also be checked before seeking termination or compensation.

Can lost profits caused by delay be claimed?

Attorney Gizem Gonce: If the conditions are met, loss or lost profits resulting from delay may be claimed. The legal basis of liability, existence of the loss, causal link, and compliance of the claim with the applicable contract and legislation must be established. Not every expected profit is automatically recoverable as damages.

What should companies consider when entering into a charterparty?

Attorney Gizem Gonce: The ship’s technical condition, maintenance obligations, breakdown notices, repair periods, fuel costs, off-hire provisions, demurrage, and dispute resolution mechanism should be clearly set out. The applicable law and arbitration clause in international contracts should also be checked carefully.

Liability of the parties under charterparties is determined according to the type of contract and the circumstances of the specific case. Technical breakdown and legal liability must be assessed separately.