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transnational law transnational law (lex mercatoria or international business law) and "Laytime, demurrage, detention and despatch in sea transport" 2024-06-07 10:02:04

No. X.1 - Laytime, demurrage, detention and despatch in sea transport

(a) "Laytime" means the period of time agreed between the parties ("fixed laytime") of a charterparty contract in the shipping industry during which the shipowner will make and keep the vessel available for loading or discharging without payment additional to the freight. Customary laytime applies if the parties have failed to specify how much laytime is allowed. Customary laytime is the length of time that is reasonable at the moment of loading or discharging of a particular vessel. Laytime commences with the Notice of Readiness (NOR) issued by the master of the vessel to the charterer. The Statement of Facts drawn up by the port agent and to be signed by the master and the shipper or receiver of the cargo determines the end of the vessel's stay in port and provides the basis for the calculation of demurrage (b) or despatch (c), if applicable.
(b) "Demurrage" means an agreed sum of money payable on a daily or, for shorter periods as applicable, hourly basis, by the charterer to the shipowner if containers or other cargo, after their discharge from the vessel, are not picked up by the consignee from the port or terminal area within the demurrage free time agreed upon in the charterparty. Absent an agreement to the contrary, demurrage shall not be subject to laytime exceptions, i.e. the running of the period of demurrage is not interrupted by weekends or public holidays ("Once on demurrage, always on demurrage").

(c) "Detention" charges ("per diem charges") are imposed by the shipping company if an empty container that is outside the port or terminal is not returned to the port or terminal by the charterer or consignee within the detention free time agreed in the charterparty.

(d) "Despatch" means an agreed sum of money payable on a daily or, for shorter periods as applicable, hourly basis, by the shipowner to the charterer if the vessel completes loading or discharging before the agreed laytime has expired ("laytime saved").
1 „Laytime“ (a) is the time allocated in the charterparty contract in the shipping industry for the loading and unloading of cargo at a specified port. Laytime is the time during which the charterer has the right to use the vessel for these operations without incurring demurrage or earning despatch.

2 „Demurrage“ (b) and „despatch“ (d) are terms used in sea transport that refer to a penalty or a compensation if it takes more or less time to load or discharge cargo on or from a vessel in a port versus the laytime ("free time") agreed in the charterparty contract. Both are used to encourage efficiency and to minimize delays in the loading and unloading process, since time is a critical factor in the shipping industry. Charged on top of freight costs, these extra charges can affect the profitability of an international trade transaction that requires see transport of the goods sold.

3 Demurrage can be traced back to the Rôles d'Oléron, one of the most important medieval codifications of maritime law principles written between 1160 and 1287. Art. 22 of the Rôles provides that "if a merchant delays a ship for more than fifteen days beyond the agreed departure date, then he must hold harmless the master and the mariners".

4 Today, demurrage is a payment of liquidated damages (common law) or of additional compensation (civil law) to be paid by the charterer or consignee to the shipowner in the event of delayed loading and discharging operations over which the vessel had no control. Demurrage is essentially an overtime payment when the total agreed laytime in the charterparty has been spent.

5 Demurrage is usually described as a daily rate, but it is pro rata for shorter periods as applicable. The rates are agreed in the charterparty and are usually based on the daily Time Charter Equivalent (TCE), a shipping industry measure used to calculate the average daily revenue performance of a vessel, for the voyage in question. Typically, shipowners use different demurrage rates for different types of containers and a demurrage tariffs with incremental rates per day.

6 If the delay in loading and discharging is caused by the vessel, that (delayed) time is not included in the total laytime or demurrage. However, once the  time allowed in the charterparty contract for laytime has been exhausted and demurrage commences, demurrage will continue until loading or unloading has been completed, even where subsequent delays would not usually count towards laytime, provided that the causes for these delays do not emenate from the charterer  ("Once on demurrage, always on demurrage"). Because laytime exceptions do not stop the running of demurrage, it requires expressly agreed exceptions to demurrage to do so. Demurrage is included in all the different shipping segments, but demurrage rates can vary according to the type of cargo.

7 Demurrage must be distinguished from "detention" (c), even though both are often classified as the same or even combined as one ("D&D charges") and both demurrage and detention are delay charges. A detention fee, also called "per diem charge", is charged by the shipping lines (that own or lease the containers used for transport) for the time after allocated detention free days that an empty container that is outside the port or terminal is not returned in time to the shipping line. Like demurrage, detention charges are meant to incentivize the timely loading or unloading of cargo. The difference between these two types of delay charges depends solely on where exactly the container is located at the time of the delay. Because demurrage relates to containers or other cargo inside the port, while detention charges are levied on containers outside the port, the period of detention free days is generally longer than the period of demurrage free days. However, free days for both charges have been shortened considerably and D&D charges have reached record heighs in recent years. For that reason, the US Federal Maritime Commission (FMC) has issued regulations governing demurrage and detention billing requirements effective on May 28, 2024.

8 For most ocean carriers, the number of free days included in shipping contracts without incurring demurrage and detention typically ranges from 7 to 14. However, shipping lines sometimes allow the merchant to purchase extended free time at the port of destination when they expect delays. This extended free time forms an integral part of the contract of carriage. The number of these additional free days is set at 14, 21, or 28.

9 Despatch (d) is a reward paid by the shipowner to the charterer. The payment relates to the time that the shipowner has been able to save since the charterer completed the unloading/loading of the vessel quicker than anticipated and agreed as laytime in the charterparty contract, allowing the shipowner to despatch (sail) the ship quicker than expected.

10 The rate of despatch is usually half the rate of demurrage, though it can be different depending on the terms agreed upon in the charterparty contract.

11 Despatch is most common in dry cargo shipping, and is normally not included in charterparties in the tanker or gas segments.

This text is adopted with modifications from

Please cite as: "Commentary to Trans-Lex Principle , "


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Demurrage clause

8. DEMURRAGE. Charterer shall pay demurrage per running hour and pro rata for a part thereof at the rate specified in Part I for all time that loading and discharging and used laytime as elsewhere herein provided exceeds the allowed laytime elsewhere herein specified. If, however, demurrage shall be incurred at ports of loading or discharge by reason of fire, explosion, storm or by strike, lockout, stoppage or restraint of labor or by breakdown of machinery or equipment in or about the plant of the Charterer, supplier, shipper or consignee of the cargo, the rate of demurrage shall be reduced by one-half of the amount stated in Part I …

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