Legal and contractual changes to enable operational efficiency
What are the legal implications of operational efficiency, and how can the inefficient artefacts of shipping contracts be phased out while driving uptake of specific clauses that encourage the transparency, cooperation, and benefit sharing that allow for more efficient operation of ships?
This paper explores this question as part of a series that examines the undervalued opportunity presented by operational efficiencies to reduce shipping emissions in the short term and pave the way for long-term decarbonisation solutions. The learnings presented here have emerged from a series of meetings and workshops gathering perspectives from experts across the maritime value chain—shipowners, operators, charterers, ports, and NGOs—as part of the Short Term Actions Taskforce. Other papers in the series provide an overview of the issue, and dive deeper into the identified solutions and enablers: the role of data, and the role of pilots.
- Randall Krantz
- Senior Advisor on Shipping Decarbonisation, Global Maritime Forum
- Ludovic Laffineur
- Project Advisor on Shipping Decarbonisation, Global Maritime Forum
- Lena Faber
- Project Assistant, Global Maritime Forum
- Nishatabbas Rehmatulla
- , UMAS
May 23 2023
Speed optimisation is one of the most effective short-term operational measures to cut down on shipping’s greenhouse gas emissions. However, vessels have not historically had the right incentives to optimise their speed— in fact, the opposite is often true. In the days when vessels sailed under wind power and there was no way to track their position from shore, captains were given the incentive to sail as fast as possible, referred to as “utmost despatch”, so that cargo could be delivered quickly. There was no way of knowing where a vessel was once out
of sight of shore, and from the vessel there was no way of knowing how crowded a port might be. The distances covered and the isolated nature of the open sea created a historic emphasis on legal structures as an important part of the fabric of shipping.
With advances in satellite communications, GPS, vessel tracking using automatic identification system (AIS) data, route and weather optimisation software, and other digital technologies, there is now more than enough data to predict vessel progress and arrival with a great degree of accuracy. While the operational inefficiencies caused by a lack of information are no longer necessary, the contracts that govern the industry have evolved to lock in many of the inefficiencies they were initially designed to eliminate. Over time, shipping contracts have developed sophisticated mechanisms for allocating the financial cost of operational inefficiencies to shipowners or charterers (or buyers or sellers of cargo) through a range of contractual mechanisms: demurrage, laycan, speed warranties, etc. (see Glossary in annex).
This paper will focus on the legal/contractual challenges for speed optimisation but there are other legal/ contractual challenges that impact implementation of other energy efficiency operational measures, e.g. hull cleaning, trim draft optimisation, and weather routing. Those will be covered at a later stage.
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