December 27, 2021
Anders Carlsson

Expert viewpoint on demurrage and the maritime industry in 2021 & 2022

Expert viewpoint on demurrage and the maritime industry in 2021 & 2022

In a year of transition, the bulk freight industry is coping with a “new normal” as it prepares for more choppy waters ahead.

As we are fast approaching the end of another year of extremes, 2021 has shown us to be a year of transition, dealing with the COVID-19 pandemic and its impact on individuals, businesses, and society at large. 

With so many changes happening in the world we wanted at Enqlare to tap into the expert insights of those in our network who have witnessed upclose, the trials and tribulations of such a tumultuous year.  

Reaching out to industry thought leaders and our customers a number of them were kind enough to give us a commentary onhow they saw 2021, and what the future holds for us in 2022.

Our first in the series of expert discussions was with Jean-Paul Dezutter MCIArb, a former shipbroker.

Bio: Jean-Paul is a laytime and demurrage expert and founder of Demurrage Desk. Mr Dezutter is a Member of the Chartered Institute of Arbitrators, a CIArb accredited Mediator, member of the Baltic Expert Witness Association and Supporting member of the London Maritime Arbitrators Association. He also lectures Operations; Laytime and Demurrage at the Cambridge Academy of Transport.

What trends did you see happening in 2021 that had an impact on the transport supply chain globally?

A significant number of ports were for periods of time closed in 2021, vessels detoured or continue to wait to berth. As a result, businesses have suffered delays and faced rising costs through an increase in demurrage levels and the overall impact on the supply chain and its various actors.

 

From manufacturers to industrials to ports, brokers, and ship agents 2021 will be remembered as a year of extremes. From the utilization of the archaic “free pratique” which pre-COVID was a pure formality, to enforce crew quarantines to the “knock-on-effect” of extremely long delays with port congestion at an all-time high as vessels spend more time waiting for berths.

 

Tell us why you believe 2021 was a year of extremes …

All of us in shipping have felt the consequences of the stresses and strains of the pandemic. From the human, social costs of crews suffering extreme delays in relief, to the escalating financial impact of adelayed cargo, accumulating costs and disrupting the supply chain.

 

With an extreme situation comes a need to review the legal status quo of contracts and clauses, to stress test their application in these difficult times.

 

Many companies realise this as a critical period to review, assess and adapt clauses to reflect these disruptive times. Businesses need to think through their operations and how they are to absorb or pass on the escalating costs of operating vessels at sea.

 

It is better to take time now to analyze your position, because taking a “lite touch” approach could have consequences, especially in a dispute where like a shield your contract should protect your interests and not leave you open to unforeseen penalties.

 

Recommended sources of information as an operator to keep up to date with what is happening are BIMCO and your respective PandIclubs who can help with expert advice on an array of different trade issues.

 

Download your Enqlare Laytime summary sheet.

 

COVID will remain for the foreseeable future a major disruptive force and continue to impact the workforce, customer demand and shipping operations.

 

But it is not just on the back of the pandemic that we saw the transport supply chain come to a grinding halt. There were a number of accidents. The March 2021 grounding of the Ever Given in the Suez canal blocked traffic for six days and kept about 380 ships from transiting, causing rates to surge and a massive supply chain disruption.

 

These accidents clearly show how one major accident can cause a “bottleneck” on a global scale and the impact that such an incident can have on a fragile supply chain and global trade.

 

Just as we saw in the global crisis of 2007 - 2008, when there was an “economic crisis”, companies will continue to look at ways to decrease their operating costs and typically that means reducing their staffing overheads.

Consequently, what we have seen over the years has been abuild-up in demand to outsource specialist services such as calculating laytime as businesses reduce their headcount in these highly skilled roles.

 

Gain control - Improve Laytime results through improved datainsights. Read more

 

At a time when “every penny counts” missing an important piece of information can have a serious impact on bottom-line profitability.

 

Some businesses will make a simple cost benefit analysis when it comes to demurrage, is it worth the time and effort to dispute the costs or just accept it and go straight to a settlement discussion.

Now, at a time when freight rates are escalating because of high demand and low availability, it means that demurrage costs, pegged to the freight rates are also at historically, very high levels.

 

This scenario tends to be a trigger for companies to either become more aggressive in their stance and slow down the whole process, with a significant increase in demurrage disputes or start to question their own approach to calculating laytime and how successful they are at it.

 

So, it makes sense that rather than burden staff who are juggling multiple shipments, port congestion, technical issues, etc…. That they use a service like Enqlare Laytime where more and more of the leading bulk freight companies are trusting their laytime module with its powerful laytime calculator, along with extensive reporting and access to deep insights.

Request a demo of Enqlare Laytime.

One point of note has been the cargo influx (especially from Asia) driven by increasing demand from China as the world’s factory. From retailers to manufacturers, they are all relying on China, as 60% of theworld’s cargo (tankers and containers) heads to and out of Asian ports, source UNCTAD reviewof Maritime Transport 2020.

It means being able to address and adapt to the special considerations of port calls and laytime calculations when trading with ports in Asia.

 

What is your outlook for 2022?

 

Although 2021 has exposed the fragility of the global economy with the distractions and interruptions of the COVID pandemic, difficult situations are often the accelerator of ideas and innovations.

 

Shippers will have to adapt contracts to the ‘new normal’ of 2022. To take the time to assess their commercial standing and the interpretation of the risks that they are exposing themselves to by not reviewing their commercial terms of trade.

 

Disputes

Risk exposure towards demurrage and beyond (e.g. case of the Eternal Bliss as a reference will need to be addressed. Although the volumeof disputes will remain high, there is greater appetite amongst stakeholders to re-negotiate and to a degree share the pain.

 

Interested in how to get more value from your bulk freight data? Read: Enrich your data and sharpen business decisions using the cloud.

 

Against a backdrop of an increase in the demand for shipping seeming like it will continue into 2022 it will have to be managed in parallel with the ongoing threat of COVID and the disruptions to the transportation of cargo and bulk freight in the supply chain.

 

Freight Rates

Freight rates are expected to remain strong which will have animpact on the cost levels of demurrage. In this new normal it means shipping must anticipate that there will continue to be port delays, with increased time to turn vessels around, disputes to address with demurrage and negotiations to undertake.

 

The Environment

Shipping as an industry also must bear some responsibility for its environmental footprint and the drive towards global climate change targets.

 

Businesses and end-consumers are now far more vested in seeing a world where we remain focused on the environmental impact of our actions andfocus on sustainability as a company and as a consumer.

 

Technology

The shipping industry has always had a conservative approach tochange and technology. Now is a great time to address many of the challenges faced with such a traditional industry, known to be resistant to change and slow to adopt disruptive technology.

 

Shipping and digitalisation are not yet two words that are commonly found together, but one of the most effective ways to drive efficiency is to assess what manual processes can be automated.

 

By using digital formats and software rather than for example paper or spreadsheets a shift in working practices can increase productivity and reduce the risks of making input errors, for example with laytime calculations.

 

ERP Systems

There are some companies that are already making advances with their adoption of ERP systems, that they look to manage at scale many if not all aspects of their business.

 

The hurdle often with an ERP system is that it by its nature it cannot do “everything perfectly”. And because of the complexities within the maritime industry these systems may not be in some cases particularly user friendly or able to seamlessly integrate with external systems.

 

Laytime calculations are a good example of where the hurdle is more about interpretation than just the calculation. Operators may have the user skills to input data into an ERP system that has an embedded calculator but don’t have the experience or specialist knowledge to understand what is important and how to interpret the insights for the benefit of their client.

 

What would your tips be for the year ahead?

 

To prepare your business for 2022, below are several recommendations to get your company into shape, ready to navigate the potential stormy seas ahead:

 

●      Regularly review/renegotiate laytime clauses

○     e.g. specific quarantine requirements may have changed and need a refresher

●      Some clauses may need an update or a complete overhaul

○     E.g. tendering NOR (Notice of Readiness)

●      Stay on of top legal case law developments

○      Demurrage vs. Damage claims (The Eternal Bliss example)

○     (check with PandI Club/legal div)

●      Closely monitor Port restrictions and regulations

○     Check with Ship Agents as situations may change overnight

 

You can contact Jean-Paul at Demurrage Desk or info@demurragedesk.com if you want to learn more about how expert laytime management can result in substantial savings.

 

Unlock the value of your data.

 

Enqlare has the expertise to help customers unlock the value in their data. Our cloud-based SaaS solutions are quick to implement, from planning to Laytime to post-fixture, enabling effective collaboration, workflows, and insight from data.

 

Download your Enqlare Laytime summary sheet.

 

Enqlare can dramatically improve performance through automation designed to help you scale profitably, unlock process improvements, and consistently save time and money. We can help your team to create more accurate laytime calculations and speed up the work, avoiding any costly mistakes.

 

Would you like us to walk you through a 1:1 demo of the Enqlare Laytime software? Contact us directly for a meeting.

 

Request a demo of Enqlare Laytime. 

The content of the pages of this website are for your general information and use only, they do not constitute legal advice.

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Anders Carlsson
Anders Carlsson
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