Swire Pacific Offshore’s commercial director Duncan Telfer called for a re-evaluation of charter-party terms in his address to the 2019 Annual Offshore Support Journal Conference
Owners need to pay greater attention to aspects of the charter party (CP) beyond the day rate, Mr Telfer said.
“Much of spotlight has been placed on the near-60% drop in rates but not enough attention has been paid to the gradual erosion of CP terms,” he said.
“The day rate will be dictated by supply but the terms and conditions will not.”
He highlighted several areas that negatively impact on owners while favouring charterers, such as consumables pricing being included in day rates, payment terms growing longer and longer, insufficient cure periods, terminations for convenience and cause not allowing for remedy, and draconian liquidated damage clauses.
Mr Telfer also called for the return of knock-for-knock provisions. “Over last five years there’s been a steady and disturbing erosion of knock-for-knock and contracts now often require owners to assume responsibility for damage even if it’s not directly the owner’s fault.”
He asked “Is it commercially sensible to fix owners with potential unlimited liability in respect of property damage?”
Pollution and wreck removal were highlighted as areas that could be disproportionately harmful for owners when considered on a risk-reward analysis basis.
In the medium- to long-term, this will only result in increased costs for both owners and charterers, he said, adding “There’s no benefits from this except perhaps to the insurance industry itself.”
To remedy this situation, Mr Telfer called for several mesasures to be taken including paid mobilisation and demobilisation of vessels’ reasonable cure periods for deficiencies; 30-day or even prefunded payment terms becoming the norm; a return to knock-for-knock; mutually beneficial termination clauses and fair compensation to owners in the event of termination for convenience; and that penalty clauses should be realistic, rather than “a payment to earn work.”