Is just in time’ an unjust solution?

Malcolm Latarche
Malcolm Latarche

16 April 2019

It is always the case that in the run up to one of the IMO’s more important committee or sub-committee meetings, a number of organisations make announcements on topics likely to be discussed and debated.

It seems that this has already started in the case of MEPC 74 which will take place from 13-17 May with reports that France and other member states are proposing that a mandatory speed limit be set for ships and even going so far as suggesting that shipowners should have an annual limit of GHG imposed upon them.

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Another subject up for discussion at MEPC 74 is the Just in Time (JIT) arrival concept, whereby ships moderate their speed so as to arrive at the berth without spending time idling at anchor after sailing at a higher speed than might have been necessary. A discussion paper submitted by the IMO secretariat and advising on the work on JIT done by the IMO’s Global Industry Alliance (GIA) highlights some of the issues around the benefits of and obstacles to JIT. But as with so many of the many proposals aimed at reducing shipping’s CO2 emissions, far too little attention has been paid to the fact that shipping exists to serve the needs of cargo interests. For

Ship operators – at least those that are not constrained by contractual obligations – have always adopted means of saving fuel and boosting shipping space demand by operating at economical speeds. Slow steaming as such is not something that shipping has just discovered as it was practised 40 to 50 years ago in the days of the 1970’s oil crises in much the same was as increasing ship size to reduce unit shipping costs was also employed. Both ideas which have been repeated in the last ten years.

For ships operating under voyage charters – and that can include vessels on time charter with sub-voyage charters – it is the cargo interests and charterers that call the shots. Except in times when demand for cargo space exceeds supply, shipowners almost always need to accommodate charterers’ requirements and this will usually involve agreeing to sign a charter party where the wording has been decided by the charterer.

The JIT paper to be presented at MEPC 74 makes mention of two BIMCO drafted clauses that can be incorporated into charter parties, the BIMCO Virtual Arrival Clause and BIMCO Sea Traffic Management Clause. These permit charterers to request owners to adjust the speed of the ship to arrive at a loading/discharging port at an agreed date and time. These clauses provide a method of compensating owners at an agreed percentage of the contractual demurrage rate for any extra time used.

Clauses such as these are intended to be mutually beneficial but as is known from experience when the oil industry began trialling virtual arrival almost a decade ago, not every owner or charterer believes that the idea is really operating in their favour. The very fact that the concept was mostly the idea of charterers is a good indication that it wouldn’t have been proposed unless they were the side benefitting most.

Under a virtual arrival clause the charterer can request a delay to the ship’s arrival so as to better manage berth and cargo availability. This is done by deciding upon the arrival time and using a weather routeing service to calculate the ship’s speed necessary to arrive at a given time and place. The shipowner will probably use less fuel, which is a cost saving, but the charterer pays a lower demurrage rate for the extra time pent on the longer sea voyage. The BIMCO clause makes the rate of this demurrage negotiable but suggests a rate of 50% if no other rate is agreed.

Whether the owner actually saves overall will depend upon the quantity and cost of fuel saved by proceeding slower and the lower rate of demurrage he will receive. What is not taken into account is the effect on the ship’s engine due to potentially running at a less than optimal speed and loading. This can translate into lubrication problems, cold corrosion, lower engine efficiency due to insufficient turbocharger pressure and soot build up.

There is also an increased risk of the owner falling foul of the consequences of fraudulent actions by the charterers. The JIT clause contains a provision for the charterer to indemnify the owner against legal actions by B/L holders for not proceeding with due despatch. However, some charterers have a habit of disappearing if things go wrong and leaving shipowners to carry the can.

So there are risks for owners with JIT voyages but there are also risks for the cargo owners who so far seem to have been totally ignored in all of the discussions. In most legal jurisdictions, ports and terminals are obliged to handle ships on a ‘first come first served basis’. That may not happen under JIT. As things stand a small ship arriving just hours before a much larger vessel at a time of falling tides, may occupy the berth long enough for the larger ship to be neaped and forced to stay at anchor for several days. Under JIT, the port may decide to work the larger ship first and get it away before tides fall too low.

That may be good for the port, but by delaying the smaller ship the consequence may be that its cargo is delivered too late for the market it was intended for. Who will be prepared to pay the lost sales of the cargo owner under such circumstances?

Shipping’s legal and commercial structure has been built over centuries and cannot be rejigged in a short space of time just to prevent some additional emissions. It is after all a fact that the additional CO2 emissions due to human activity is around 3% of natural emissions and shipping makes up less than 3% of that 3%. Saving 10 or even 20% of the total emissions from shipping by this method actually has virtually no effect on the amount of CO2 in the atmosphere – it might reduce it by about one hundredth of one percent.

Some of the cargo interests who have had little input into the idea and its promotion might well think that Just in time is an unjust solution to a problem that is over-hyped.