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