Container ship owners who slow steam their vessels could find themselves on the receiving end of legal action, following judgment handed down in the UK’s commercial court.
Last November, Mr Justice Popplewell dismissed an appeal in the case of Bulk Ship Union SA v Clipper Bulk Shipping Ltd, which saw the latter bring a successful action against Bulk Ship Union claiming that its decision to slow steam had left it in breach of the charter clause that states that cargo should be delivered with “utmost despatch”.
Clipper Bulk Shipping had chartered the Pearl C bulk carrier in 2006 for nine to 12 months for a series of voyages, but then withheld hire alleging underperformance, “contending that the vessel had failed to proceed with the utmost dispatch; and that the Charterers were entitled to deduct the time lost due to slow steaming”, according to law firm Stone Chambers, which wrote an analysis of the decision.
However, the owner, Bulk Ship Union had ordered the vessel’s master steam below 13 knots, the warranted speed specified in the charterparty. A tribunal court concluded that the owner had breached the agreement, and Justice Popplewell upheld that decision after Bulk Union Ship appealed.
While the case was in the bulk shipping sector, lawyers contacted by The Loadstar have argued that it could also have relevance to the container shipping sector, leaving owners liable to court action from containership charterers, because the decision gives charterers a greater chance of success in any legal action.
Matthew Gore and Daisy Rayner, associates at law firm Holman Fenwick Willan, told The Loadstar: “We think the Commercial Court decision in the Pearl C will definitely be relevant to the container industry, as it has confirmed that where an owner deliberately slow steams and consequently underperforms, this will constitute a breach of the implied duty of utmost despatch, entitling the charterer to deduct the time lost under the off-hire clause.
“The case established that the performance warranty will be the benchmark for assessing whether a vessel has in fact proceeded with utmost despatch. The Pearl C was of course a bulk carrier, but we think the decision would apply equally to the container trade.
“Charterers of container vessels will welcome the decision in the Pearl C, as it not only confirms the known position that owners can be called to account for slow steaming, but also establishes more clearly how it will be judged whether a vessel is in fact slow steaming. Charterers in the container industry are increasingly choosing to slow steam themselves, but they need to meet their schedules and so will oppose any slow steaming by owners which threatens those schedules.”
While much of the fallout from slow steaming in container shipping has focused on the way in which it has soaked up excessive capacity on the major deepsea trades in the face of weak demand, and achieved huge savings on bunker costs – but at the same time it has placed significant extra costs on shippers because ever larger amounts of working capital are tied-up in goods that in transit for increasingly long periods.
“Slow steaming is of course unpopular with shippers, because while it may soak up excess capacity, reduce CO2 emissions and reduce bunker costs for carriers, shippers have not generally benefited from the financial upside which carriers have, although some do report improved schedule reliability,” Mr Gore and Ms Rayner continued.
“This however, comes at a cost for shippers in terms of the working capital which is tied up for longer, with the inherent problems of inventory management and cashflow challenges which arise from cargo being at sea for longer periods of time.”
However, shippers hoping that the case may give legal precedence on which to launch actions against container lines which favour slow steaming are likely to be disappointed, Mr Gore and Ms Rayner warn. They point to the fact that most lines’ standard terms and conditions in contract of carriage contain clauses absolving them of any liability if a shipment takes longer to deliver than advertised or expected. The following is from Mediterranean Shipping Co’s T&Cs:
“The carrier does not promise or undertake to load, carry or discharge the goods on or by any particular vessel, date or time. Advertised sailings and arrivals are only estimated times, and such schedules may be advanced, delayed or cancelled without notice. In no event shall the carrier be liable for consequential damages or for any delay in scheduled departures or arrivals of any vessel or other conveyances used to transport the goods by sea or otherwise.”
