Charterparty Conditions That Would Enable The Charterers To Change The Destination Of Soya Bean Cargoes

One feature of the maritime trade with soya bean cargoes shipped from Brazil to China is the practice of the commodity traders to charter bulk carriers and accumulate on board these vessels soya bean parcels supplied by various Brazilian shippers on FOB terms and then on-sale the full cargoes carried on board the vessels on CFR or CIF terms to Chinese buyers.
Since the actual destination of soya bean cargoes is not known at the time of chartering the vessels and not even before the shipment of the individual parcels, the soya bean traders state the destination in voyage charterparties and Bills of Lading¹ as a range of possible discharge ports, often with a safe port warranty², so that they can order the shipowners in the course of the voyage to instruct the Master to proceed to any of the ports within the range.
The soya bean traders should also provide in the voyage charterparties an option to change the discharge port(s) initially nominated, if this becomes necessary for other reasons than war risks.
An example of such case was provided in the London Maritime Arbitration Case No. 20/21.
In that case a soya bean trader chartered a vessel for the carriage of a soya bean cargo from one of a range of ports in Brazil to one or two ports in China. The Bills of Lading issued for the soya bean cargo stated the destination as "China Port(s)". The voyage charter party provided that the charterer had the obligation to nominate the discharge port "10 days prior to vessel passing Singapore".
On 20 June, while the vessel was on the route to Singapore, the charterer notified by email the shipowner that the cargo receivers have nominated Zhoushan and Taixing as discharge ports. Then two weeks later on 3 July the charterers sent another email message asking the shipowner to re-direct the vessel to the port of Tianjin.
For the shipowner the change of destination was disadvantageous in that the freight for the carriage of cargo to the port of Tianjin was lesser than the freight for voyage to Zhoushan and Taixing and therefore, the shipowner`s representatives informed the charterer`s representatives that they could not change the nominated ports. Accordingly, the vessel sailed to the port of Zhoushan and upon it arrived there, the shipowner`s representatives sent to the charterer`s representatives a freight invoice for the voyage to Zhoushan and Taixing.
The charterer refused the freight invoice and asked the shipowner to instruct the Master to sail to the port of Tianjin and discharge the cargo there. To overcome the situation, the parties agreed to settle the dispute by arbitration. The charterer paid the disputed freight charges into an escrow account and the vessel sailed to the port of Tianjin.
In arbitration, the charterer`s representatives contended that since the voyage charter party and Bills of Lading stated the destination as a range ports in China, they had the right to change the discharge ports initially nominated. The charterer further contended that the shipowner could not claim a freight for a voyage (the voyage to Taixing) that was not performed.
In turn, the shipowner contended that the initial nomination by the charterer on 20 June of Zhoushan and Taixing as discharge ports had the effect of writing them into the charterparty as if these two ports had been declared at the time of the vessel fixture. Therefore, the charterer had no right to change the two ports initially nominated.
The LMAA tribunal held that once the voyage charterer`s representatives made a valid nomination, they could not change it in the absence of an express provision in the charter party giving the charterer the right to change a valid nomination and therefore, the shipowner was entitled to the freight based on the initial nomination of Zhoushan and Taixing as discharge ports.
This case shows the importance of inserting provisions in voyage charterparties that it will enable the charterers, upon the commodity buyer`s request, to change the destination of soya bean cargoes during the voyage in the same way as the oil traders do. The voyage charterparties for the carriage of soya bean cargoes should include a "Change of Destination Clause" stipulating that:
- after nominating the discharge port(s), the charterers shall have the right to change the nomination of the discharge port(s) and issue revised order(s) and the shipowners shall have the obligation to issue the instructions necessary to the Master to make such change(s), provided that the port(s) subsequently nominated are within the ranges stated in the charter party;
- the charterers shall have the right to make as many changes to destination as they deem necessary until the deadline provided in the charter party, that can be related either to the vessel`s ETA at a destination for orders, as in the London Maritime Arbitration Case No. 20/21, or to the vessel`s ETA at the discharge port initially nominated;
- the freight shall be based on the voyage actually performed;
- any additional period by which the steaming time taken to reach the discharge port(s) to which the vessel is finally ordered exceeds the time which would have been taken if the vessel had been ordered to proceed to such port(s) in the first instance shall count as laytime or, if the vessel is on demurrage, as demurrage. Such additional period shall be the time required for the vessel to steam the additional distance at the average speed actually achieved by the vessel during the voyage or the charter speed, whichever is the higher³. In addition, the charterers shall pay to shipowners the extra bunkers consumed during such additional period at the price paid by the shipowners for the last bunkers lifted.
The soya bean traders should provide in their CFR/CIF sale contracts a corresponding option to the Chinese buyers in order to be able to recover the costs of the deviation time and the costs of the extra bunkers they will pay to the shipowners under the voyage charter party, in the event that the Chinese buyers wish to change the discharge port(s) initially nominated.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 7.

Endnotes:

1. The shippers prepare the Bills of Lading based on the documentary instructions given by the soya bean traders as FOB buyers.
2. On the effect of the Bills of Lading with safe port terms see the article "The Potential Liability Of CFR And CIF Buyers When Accepting Bills Of Lading With Safe Port Warranty And War Risks Clause" in Oil Trade Review Edition No. 3 / August 2020.
3. See the Sub-Clause 22.3 of BPVOY4.