Explanatory notes

The ability to agree contractually to adjust a vessel’s speed in order to meet a specified time of arrival can bring economic benefits to the parties. Instead of proceeding at full speed towards a discharge port only to wait at anchor for an available berth, virtual arrival permits the adjustment of speed en route that absorbs additional waiting time. This means not only less emissions and savings in fuel costs for the owners, but also less demurrage costs for the charterers. It is also a means by which port congestion can be effectively managed as with the Virtual Arrival Scheme currently operated by the port of Newcastle in New South Wales, Australia.

Virtual Arrival is not simply slow steaming. BIMCO has prepared several Slow Steaming Clauses, including one for voyage charter parties. The Slow Steaming Clause for Voyage Charter Parties confers a right on the owners to be able to reduce the speed of the vessel within certain parameters, while addressing the owners’ existing obligations towards third parties, such as bills of lading holders. As such, the Clause is a simple mechanism by which an owner can reduce fuel consumption on a voyage without being in breach of due despatch obligations. In contrast, the Virtual Arrival Clause for Voyage Charter Parties provides the charterers with a mechanism to request an adjustment of the vessel’s speed so that it arrives at a particular destination at a pre-determined time. It is not a general instruction to reduce the vessel’s speed by a specified amount, it is an instruction to the master to arrive by a particular time. This may involve not only reducing the vessel’s speed for a period of time, but also bringing the speed back up to the warranted speed if prevailing weather conditions may negatively impact on the prescribed arrival time.

Fundamental to the use of the Virtual Arrival Clause is the agreement of both parties to implement such a regime. Unlike slow steaming, Virtual Arrival is a concept that needs to be embraced by all stakeholders concerned with the voyage, such as shippers, receivers, port authorities and terminal operators, in order to be successful. Consequently, it is not a regime to be implemented lightly into a voyage charter party and careful consideration should be given to its implications and requirements beforehand.

Virtual Arrival Clause - Key features

BIMCO has developed a Virtual Arrival Clause to provide a useful tool in specific circumstances where owners and charterers have agreed to implement a virtual arrival scheme. The circumstances where the Clause will be readily applicable are, for example, where the charterers have influence over the supply chain so that they can dictate the terms of the bills of lading and control the discharging berthing schedule. By agreeing to implement a virtual arrival scheme the parties can avoid having to proceed with due despatch to the discharge port only to find that the vessel has to wait for a berth to become available and can thereby reduce the total cost of transportation.

Although the Virtual Arrival Clause gives the charterers the right to request an adjustment of the vessel’s speed contrary to the normal position under a voyage charter party, the owners can refuse such instructions on reasonable grounds, for example if the speed adjustment would compromise the safety of the crew and the vessel.

In terms of compensation for following the charterers’ request, any additional time used on the sea voyage is compensated to the owners at a discounted demurrage rate. If the parties cannot agree a rate to apply then a default rate of 50 per cent of the demurrage rate will take effect. The discount should reflect the owners’ savings in bunker costs that will accrue from sailing at a reduced speed.

The amount of extra time used on the sea voyage should be agreed by the parties. If the parties cannot agree an independent expert should be appointed to calculate the amount of extra time.

Care has been taken to ensure that the owners will not risk being in breach of their obligations to proceed with due despatch under the charter party and other contracts of carriage. In this connection the charterers undertake to indemnify the owners for any liabilities that may arise towards third parties such as bills of lading holders.

Detailed provisions

Sub-clause (a) – Taking into account that other clauses may be incorporated into the charter party that entitle the owners to slow steam, the first sentence makes it clear that this Clause is paramount in respect of giving the charterers the right to request the owners to adjust the vessel’s speed to meet a specified time of arrival at a particular destination.

The Clause provides for the owners to be able to refuse such a request if, for example, it might compromise the vessel’s safety or if a delay would have an impact on an agreed subsequent fixture. If the instruction from the charterers to adjust speed will affect an approach voyage, the charterers must agree on an amended cancellation date under the voyage charter to ensure that if the vessel arrives after the original cancellation date the owners are not exposed to the risk of cancellation despite following the charterers’ instructions in good faith.

The charterers cannot ask for an increase in speed above the vessel’s warranted speed as per the underlying charter party. Moreover, it is not intended that the charterers should be able to dictate an exact speed, but only to expect the vessel to be at a specified place on a particular date.

If the vessel arrives at the discharge port and still has to wait for berth for some reason, the laytime and demurrage regime of the charter party will apply and the charterers will have to pay demurrage at the ordinary contractual rate.

The amount of extra time used as a consequence of the owners complying with the Clause should be agreed by the parties. If the parties cannot come to such an agreement an independent third party “Expert” should be appointed. This constitutes a self-standing arrangement that is not connected to the dispute resolution procedures in the underlying charter party. The costs for the expert are to be shared by the parties. If the parties cannot agree on who to appoint, each party can appoint its own expert to calculate the extra time used and the average of the two findings determines the actual time used.

Sub-clause (b) – This Sub-clause provides a non-exhaustive list of the types of information to be used as a basis for calculating the extra time used on the sea voyage as a consequence of the vessel’s adjustment in speed.

Sub-clause (c) – In order to avoid the owners being in breach of their obligation to proceed with due despatch under the charter party and other contracts of carriage, this Sub-clause states that the exercise to reduce speed in accordance with the Clause will not constitute a breach of such obligations. The master should exercise due diligence in order to comply with the charterers’ instructions. However, this should not be regarded as a warranty on part of the owners to arrive at a certain time.

Sub-clause (d) – This Sub-clause aims to protect the owners from claims by third parties such as bills of lading holders arising out of delays. The charterers are required to ensure that bills of lading and other cargo documents issued by the owners provide that compliance with the Clause will not constitute a breach of contracts of carriage with third parties. Finally, the charterers undertake to indemnify the owners against liabilities that may arise under contracts of carriage with third parties.

Originally published in BIMCO Special Circular No. 9, 4 October 2013 - BIMCO Virtual Arrival Clause for Voyage Charter Parties