Energy Efficiency Clauses in Charter Party Agreements: Legal and Economic Perspectives and their Application to Ocean Grain Transport

198 Pages·2017·4.31 MB·English

by  George Adamantios Psarros (auth.)

Springer Series on Naval Architecture, Marine Engineering,
Shipbuilding and Shipping 3
George Adamantios Psarros
Energy Efficiency
Clauses in
Charter Party
Agreements
Legal and Economic Perspectives
and their Application to Ocean Grain
Transport
Springer Series on Naval Architecture, Marine
Engineering, Shipbuilding and Shipping
Volume 3
Series editor
Nikolas I. Xiros, University of New Orleans, New Orleans, LA, USA
TheNavalArchitecture,MarineEngineering,ShipbuildingandShipping(NAMESS)
series publishes state-of-art research and applications in the fields of design,
construction,maintenanceandoperationofmarinevesselsandstructures.Theseries
publishesmonographs,editedbooks,aswellasselectedPh.D.thesesandconference
proceedings focusing on all theoretical and technical aspects of naval architecture
(includingnavalhydrodynamics,shipdesign,shipbuilding,shipyards,traditionaland
non-motorized vessels), marine engineering (including ship propulsion, electric
power shipboard, ancillary machinery, marine engines and gas turbines, control
systems,unmannedsurfaceandunderwatermarinevehicles)andshipping(including
transportlogistics,route-planningaswellaslegislativeandeconomicalaspects).
Photo credits: Courtesy of the Vancouver Fraser Port Authority
More information about this series at http://www.springer.com/series/10523
George Adamantios Psarros
fi
Energy Ef ciency Clauses
in Charter Party Agreements
Legal and Economic Perspectives and their
Application to Ocean Grain Transport
123
George Adamantios Psarros
DNV GL AS
Høvik
Norway
ISSN 2194-8445 ISSN 2194-8453 (electronic)
SpringerSeries onNaval Architecture, Marine Engineering, ShipbuildingandShipping
ISBN978-3-319-50264-9 ISBN978-3-319-50265-6 (eBook)
DOI 10.1007/978-3-319-50265-6
LibraryofCongressControlNumber:2016959248
©SpringerInternationalPublishingSwitzerland2017
Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart
of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,
recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission
orinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar
methodologynowknownorhereafterdeveloped.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfrom
therelevantprotectivelawsandregulationsandthereforefreeforgeneraluse.
The publisher, the authors and the editors are safe to assume that the advice and information in this
book are believed to be true and accurate at the date of publication. Neither the publisher nor the
authorsortheeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinor
foranyerrorsoromissionsthatmayhavebeenmade.
Printedonacid-freepaper
ThisSpringerimprintispublishedbySpringerNature
TheregisteredcompanyisSpringerInternationalPublishingAG
Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland
Αφιεϱώνεται στους γονείς μου
Dedicated to my parents
Foreword
Traditionally,energyefficiencyofshipsisanareathathasbeensubjecttoattention
from charterers and shipowners. Operational energy efficiency is the sum of so
many factors, pointing in different directions. How can anyone “reverse engineer”
an observedoperational energy efficiency of aship tounderstand if it was good or
bad? However, we should not forget that all parties share a common interest of
optimal performance of the ships they build, operate and charter.
These are fundamental aspects that the shipping industry struggles to get their
heads around. Is it possible to observe a ship’s operational performance and from
that determine if the Master did a good job? Is it possible from the observed
operational efficiency of a ship to determine if it is the right one to charter?
Ships’ performance has traditionally been referred to in charter contracts as
warranties of speed and consumption at some defined loading condition. Such
simplistic warranties have worked, probably because they are easy to understand
and because it is similarly easy to determine if they are breached. The question if
simple speed and consumption warranties are effective and are incentivizing a
desired behavior amongst the decision makers in the industry could seem of less
importance.
Aship’soperationalperformanceisareflectionofsomanydifferentparameters.
One set ofthese areaship’sdesigncharacteristics, suchaspropulsion traindesign
and hull design. Historically, the hull design of a ship was determined by the ship
yard designers, taking into account contract design values for speed and con-
sumption at design draught. For some designs these could be complemented by a
similar set of ballast draught values.
Today,theInternationalMaritimeOrganizationhaveadoptedmandatorydesign
efficiency requirements for the major ship types in the form of Energy Efficiency
Design Index (EEDI). The regulation basically specifies an additional loading
condition to which it attaches a maximum power/speed correlation. In theory, the
EEDI in combination with traditional newbuilding contract specifications should
cater for more energy efficient ships across their operating draught ranges.
vii
viii Foreword
A ship’s designed energy efficiency is to some extent reflected in the warranted
speedandconsumptionvaluesthattraditionallyareusedincharterparties,butonly
to some extent. Warranties reflect the sum of operational behavior, environmental
conditions expected to be encountered throughout the voyages and the designed
energy efficiency.
It is a traditional view that the charter parties of today makes it an implicit
obligationtoalwaysseektoexecutethecontractedvoyagesasefficientaspossible.
It is also a traditional view that the legal parties to charter arrangements have
freedom to agree on any supplemental clauses, including clauses on how to share
benefits if so wished. However, it appears that most short term charter parties are
currently agreed without such additional provisions.
This book makes an effort to suggest ways to separate the designed energy
efficiencyfromtheactualoperationalefficiencytoallowshipownersandcharterers
obtaintransparencyandhenceforthsharebenefitsbetweenthecontractualparties.It
suggests ways to quantify these benefits and makes legal analysis on how the
quantifiedbenefitsmaybeincorporatedincharterpartyterms toobtainthedesired
behavior.
I wish you good reading.
Lars Robert Pedersen
DeputySecretary General,TheBalticandInternationalMaritime
Council
Preface
The work reported in this monograph describes the author’s search of excellence
and attempt of harvesting knowledge within business, management, sales and
marketingrelatedtopics.Furthermore,itportraystheauthor’sorientationtoexplore
new areas of specialization in a more commercial setting, as well as to fulfil the
ambition of operating across a range of disciplines beyond own functional spe-
cialism.Itisadmittedthatthisquesthasbeenchallengingnotonlyduetofulltime
jobcommitments,butalsoonhowtocognitivelyrealizethemeaningofleadership.
ThelattercanbeencapsulatedthroughSiegel(2008),wherethehungeroflearning
andassimilatingfactsisaself-governingintellectualabilitywhichisnotimpliedto
bedisplayedortransferred.Nevertheless,theyearstocomewillprovewhetherthe
further commitment on such executive education would be rewarding and suc-
cessful in search of alternative career opportunities, or simply would contribute to
addinganotherpostgraduatedegreeontheshelf.Inanycase,thereaderiscordially
tempted to experience the author’s knowledge expedition.
The remit of improving maritime industry’s energy efficiency has attracted
significant attention not only due to recent regulatory imperatives, but also incon-
sistencies between demand and supply as well as volatile market behavior.
Along-termflexiblesolutionisobtainedthroughnurturingthewiderapplicationof
innovative energy efficient technologies. This requires the existence of suitable
incentives that embrace adoption of new technological solutions and reduce their
performance uncertainty. A supporting mechanism to safeguard energy efficient
investments can be envisaged through the chartering process (undertaking
responsible for a vessel’s employment), its negotiation stages (orchestration of the
signatories’ commitment for a successful enterprise) and the charter party agree-
ment (prevailing contract form). Undoubtedly, developing a solid grasp of the
regulatory background and gaining a practical insight into the legal, contractual,
commercial and economic principles underpinning energy efficiency is a crucial
aspect that the buyers and sellers of maritime transportation services need to be
aware of in order to reduce impacts on revenue.
Hence,thecurrentbookproposesaconceptualframeworkonhowtoincludean
incentive mechanism for energy efficiency within the existing charter party
ix
x Preface
contracts. An answer to this call is given by examining key concepts of case law
and the generated theoretical proposition is demonstrated for time and voyage
chartercontracts(book’squalitativesection).Realizingthatsuchdevelopmentmay
challenge the traditional business setting of vessel chartering, it is argued how the
interests of the contracting parties can be balanced with the use of game theory.
Thisscientificapproachisabletosolveinformationproblemsofstrategicbehavior.
Furthermore, it is believed to be well suited for modeling the chartering negotia-
tions, wherethe fair investment sharing isperceived by astute price determination.
A working example applied to the ocean grain transport is offered to clearly
enhance the reader’s understanding and advance an analytical approach during
contract negotiation (book’s quantitative section). To the author’s best knowledge,
game theoretic applications on such topic have not been exposed to extensive
scientificresearchandthecurrentvolumeisaimedatfillingthisgap.Additionally,
it is hoped that the contained ideas will trigger additional interest for continued
work and will facilitate communication between industry practitioners, as well as
set a comprehensive foundation for modernizing the chartering process radically.
The views discussed herein are treated with adequate legal as well as mathe-
matical scholarship and the reader is not required to possess sophisticated knowl-
edge for their accumulation. This fascinating book is intended to be attractive to
academics (educators, tutors, researchers, scientists) and professionals (shipowners
and operators, charterers, cargo owners, shipbrokers, lawyers and insurers, com-
mercial and investment bankers, commodity and energy traders, institutional
investors, market analysts and consultants, private equity firms, industry associa-
tions) engaged inthemaritime industry whowishtosharpentheirinsightsonhow
toobtainsustainableoceanfreightservicepricing.Itisavaluableassetforenabling
the reader to interact across multidisciplinary roles and providing the skills to
bargain from a position of strength. The author is confident that the reader will
attain a competitive edge and be able to navigate profitably within uncertain mar-
kets and an ever demanding shipping environment.
Elements of the book’s qualitative section have been prepared as part of the
author’s Master of Business Administration dissertation and he would like to
express his gratitude to Dr. Lakshmi Narasimhan Vedanthachari, Module Leader
Business Transformation Project, Middlesex University, Business School, for
acceptinghissuggestedtopic.Theauthorispleasedtoacknowledgehissupervisor
Dr. Katerina Konsta, Lloyd’s Maritime Academy, for her valuable comments and
constructivefeedbackonearlierversionsofthedissertation.Theauthor’sambition
to quantitatively support the presented ideas of the dissertation equipped him with
the desire to extend the work and materialize the current manuscript. Hence, the
author is indebted to the editorial team of Springer Series on Naval Architecture,
Marine Engineering, Shipbuilding and Shipping, Prof. Nikolaos I. Xiros and
Dr. Leontina Di Cecco for their favorable willingness to welcome the book pro-
posal as well as the meaningful guidance during the publication stage. Further,
sincere thanks need to be given to Mr. Amer Badawi, Columbia Grain Inc.,
Ms.SusanBurns,BungeLimited, Ms.Marion Danneboom, BayWa AG, Ms.Lori
Haugh, Cargill Inc., Mr. Jean-Luc Renaudeau, Groupe Sica Atlantique and