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Time charter

Off-hire on a time charter

On a time charter the charterer pays hire for every day from delivery to redelivery. Off-hire is the exception. It is a clause in the charterparty that lists the events that stop hire, such as a main engine breakdown. If one of those events happens and the ship cannot do the work the charterer needs, hire stops for the time lost. Everything else stays on hire, even when the delay is frustrating for the charterer.

The starting point: hire runs unless the clause says otherwise

A time charter sells the use of a ship for a period. The owner is paid for the time, not for the result. So the off-hire clause is read as an exception to the owner's right to hire, and English courts read it narrowly, against the charterer. The charterer must prove that the event is in the clause. Fault does not matter. A ship can be off-hire with nobody to blame, and a ship can stay on hire even when the owner was careless, if the event is not on the list.

The West of England P&I Club sets out the questions in order. They are a good way to read any off-hire claim:

  1. Is the event one of those listed in the clause?
  2. Did it prevent the full working of the ship for the service required at that time?
  3. How much time was lost, under the way this clause counts time?

The events in NYPE 1946

Clause 15 of the NYPE 1946 form is the most common starting point. Its main events, as the clubs explain them:

The event must also be an accident of the voyage. It cannot be the normal result of following the charterer's orders.

"The service immediately required"

The ship is off-hire only if it cannot do the next thing the charterer needs. If a ship's crew cleaned the holds badly and the holds must be cleaned again before loading, the next service is hold cleaning, not loading. Under NYPE 1946 the ship stays on hire while it cleans.

The Court of Appeal confirmed this test in The Athena in 2013. The ship drifted off Libya for about eleven days. The Commercial Court had asked whether the charter as a whole lost time and said no. The Court of Appeal reversed that. It held that the question is asked about "the service immediately required of the vessel". The ship was off-hire for the time it could not do that service.

Net loss of time against period clauses

Off-hire clauses count time in one of two ways.

TypeHow time is countedWho it favoursFound in
Net loss of timeOnly the time actually lost while the ship cannot work fullyOwnerNYPE 1946, Baltime, Shelltime 4
PeriodFrom the start of the event until it ends, whether or not time is lostChartererForms and riders that say so

Two rules make net loss clauses work in practice:

What is deducted

The main deduction is hire for the time lost. Most charterparties also put the fuel burnt while off-hire, and the extra costs of the event, on the owner. Clause 15 of NYPE 1946 says that if the ship's speed is reduced by a defect or breakdown, the charterer may reduce hire for the time lost and for any extra fuel and extra expenses. Where the clause does not give a right to deduct costs, a charterer may still be able to set them off against hire if the claim is closely connected to the use of the ship.

Deducting too much is risky. Late or short hire can give the owner a right to withdraw the ship. Clubs advise a deduction that is a reasonable, good faith estimate, backed by the ship's logs.

A worked example

A Supramax is on NYPE 1946 at US$14,000 a day, ballasting to its load port. The main engine stops and the ship drifts for 30 hours while the crew repairs it. The figures are illustrative.

Event          main engine breakdown, ship stopped
Service due    sailing to the load port
Time lost      30 hours = 1.25 days

Hire           1.25 days x 14,000 /day          = 17,500
Fuel burnt     1.25 days x 3 t/day idle VLSFO   = 3.75 t
               3.75 t x 600 /t                  =  2,250
                                                  ------
Deduction from the next hire payment              19,750

Now the second case. While loading, one of four cranes fails for ten hours, but the other three keep the stevedores working and loading finishes on time. Under a net loss of time clause there is no deduction. Under a period clause the charterer could argue for ten hours, or a quarter of the ten hours for a quarter of the gear, and the wording decides which.

Why it matters on the desk

Off-hire is a line in the hire statement, and it is also an estimating question. A ship with a record of breakdowns earns less over a period than its hire rate suggests. A charterer fixing a trip on a period clause carries less risk than one on NYPE 1946 wording. Read the off-hire clause with the same care as the hire rate, and keep the ship's deck and engine logs for the days in question. See delivery and redelivery for the other two moments when the hire clock is argued over.

References

Voyage charter vs time charterHow the two main charter types split the risk, what each side pays for, and which terms exist in only one of them. Charterparty formsNobody writes a charterparty from a blank page. People name a printed form, change it, and then disagree about which part of the document applies. Time charter equivalentFreight per tonne cannot be compared with hire per day until you divide it by the voyage. This is the arithmetic that does it. Delivery and redelivery on a time charterHire starts at delivery and stops at redelivery. Each end fixes a place, notices, the fuel on board and the ship's condition. The statement of factsThe agent’s timed record of everything that happened in port. Every demurrage claim is decided on it, long after anyone was there to see.

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