Virtual Arrival Clauses
This post first appeared in the January 2014 Asdem Newsletter. To see this newsletter please go to www.asdem.co.uk and look for the ‘Newsletters’ tab
Those of you who attended last year’s Asdem Demurrage Conference and heard Simon Rickwood from BP Oil International give his paper on Virtual Arrival were probably eagerly waiting for BIMCO to issue their Virtual Arrival clause. OK, maybe you weren’t that keen, but I was waiting to see if it was going to solve some of the issues that Simon raised.
If you missed BIMCO’s clause you can find it here: https://www.bimco.org/en/news/2013/10/04_virtual_arrival_clause.aspx And if you missed it, don’t worry, you didn’t miss much. I found it very disappointing and considering how long we have been waiting, it is no better than BP’s clause that has been around for a few years. In fact BP’s Clause is much better.
What don’t I like about this clause? There are a number of issues such as:
‘Experts’. The clause says that any extra time taken to perform the voyage in the event the vessel is ordered to slow down will be calculated on the basis of all relevant information such as ‘weather data, wave and speed projections and other relevant technical or meteorological data’ which is fine. Where it gets more difficult is that if there is a dispute between the Owner and the Charterer, a mutually agreed independent ‘Expert’ will be appointed to settle the dispute – again this is fine. However, if the parties cannot mutually agree on an ‘Expert’ then each side will appoint their own expert and the average of the two calculations will be binding. That to my mind is a fudge which means that the final result can never be right!
Who is an Expert? “Expert” is not defined in this clause and I have to wonder where the industry will find such experts. I believe the closest thing to Virtual Arrival calculations are found as Time Charter Performance claims and I have a feeling that there are not too many people in the industry with a full understanding of performance claims, let alone Virtual Arrival, and I will be surprised if we do not see more disputes hitting the courts.
Compensation. The killer in this clause is how the benefits of slow steaming are carved up and this is where I think BIMCO have missed the point altogether. The impetus for introducing Virtual Arrival has been the saving of bunkers and emissions and this trend has been fed by the relentless rise in the cost of bunkers. The bunker price used for Worldscale calculations peaked at US$686 for 2013 flat rates, whereas in 2008 the price used was US$328.75. BIMCO’s clause ignores bunkers but suggests that the extra time used to perform the voyage is shared between Charterers and Owners on a 50/50 basis. This seems somewhat bizarre.
To illustrate the point, let’s take a VLCC which has been slowed down from 15 knots to 13.5 knots on a voyage of 9,720 miles. At 15 knots the voyage would take 27 days and at 100mt/day burn 2,700mt bunkers. At 13.5 knots it would take 30 days and at 75mt/day burn 2,250mt bunkers. Assuming a demurrage rate of US$30,000/day, the time element would cost US$90,000 more by slowing the vessel down. However, the bunker saving of 450mt at a cost of UK$600/mt would yield US$270,000.
Under the BIMCO clause, the Owner would share the cost of the US$90,000 but keep the benefit of the bunker saving of US$ 270,000. Under the BP clause the Owner is kept whole on time and essentially keeps the US$90,000, but the bunker savings of US$270,000 is shared on a 50/50 basis – a much more equitable result. I can’t see many Charterers agreeing to BIMCO’s clause when the risk/reward ratio is so skewed.
What do you think of this clause? Have you been involved in Virtual Arrival? Has it gone smoothly or have you run into disputes? Why not add your views, comments and share your experiences here.