The Purpose Of The Laycan Narrowing Provision In FOB Sale Contracts
In FOB sale contracts where the delivery period is stated as a vessel presentation period, the buyer`s obligation is to present the vessel ready in all respects for loading by the end of the last day of the delivery period provided that the buyer gives the required pre-advice of the vessel`s ETA. When the FOB buyer nominates the vessel for the loading of cargo, he also have to declare the vessel`s laycan at loading port. This is sometimes referred to as the narrowing of the contract delivery period to the vessel`s laycan.
The purpose of a laycan narrowing provision in such contracts is to reduce the costs related to the storage of cargo at the loading port. The shorter the laycan will be, the lower will be the costs related to the storage of cargo at the loading port before the shipment on board the vessel.
After the buyer declares the laycan period, this becomes the new presentation period for the vessel, which will have to tender valid NOR by the end of the last day of the laycan period1. If the buyer`s vessel fails to tender valid NOR by the end of the last day of the laycan period, the seller is entitled to terminate the contract irrespective of the previous period initially agreed in the contract2. Alternatively, the buyer may request the extension of the vessel presentation period thereby undertaking the obligation to reimburse the cargo carrying charges incurred by the seller during the extension period.
If the intention of the contracting parties is that the contract delivery period shall be a shipment period during which the loading of cargo must be completed, then they should stipulate this matter clearly in the sale contract. Such contracts should also stipulate not only the shipment period but also a vessel presentation period with a contractual time limit for the vessel tender of valid NOR taking into consideration the time necessary to complete the loading of the cargo quantity at the contractual loading rate and the last day of the shipment period. It should also stipulate that the vessel`s ETA must be pre-advised not later than the day before the commencement of the minimum pre-advice period before the last day of the period for the presentation of vessel for loading. The vessel`s laycan to be declared by the buyer must fall entirely within the vessel presentation period stated in the contract.
If the completion of loading before the end of the shipment period is a condition of the contract, then it would also be considered a condition of the contract the requirement that the buyer presents the vessel ready in all respects for loading before the contractual time limit to enable the seller to load the cargo by the end of the shipment period3.
The FOB buyers should avoid to use the laycan narrowing provisions with reference to the shipment period. A shipment period cannot be narrowed to a laycan. A laycan narrowing provision in an FOB sale contract will have the effect that the buyer`s vessel has to tender valid NOR during the narrowed period and not that the seller has the obligation to deliver the full cargo on board the vessel by the end of that period. If the intention of the contracting parties is to narrow the shipment period, then they should specify this matter clearly in the contract and not use a laycan narrowing provision.
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Grain Trade Review Edition No. 9.
Endnotes:
1. See the GTA Arbitration No. 187/2014 in Grain Trade Review Edition No.2.
2. See ERG Raffinerie Mediterranee SPA v. Chevron USA Inc (t/a Chevron Texaco Global Trading), [2007] 2 Lloyd`s Rep. 542, [2007] EWCA Civ. 494.
3. See ERG Raffinerie Mediterranee SPA v. Chevron USA Inc (t/a Chevron Texaco Global Trading), [2007] 2 Lloyd`s Rep. 542, [2007] EWCA Civ. 494; In Bremer Handelsgesellschaft M.B.H v. J. H. Rayner & Co. Ltd., [1978] 2 Lloyd`s Rep 73, Mocatta J. stated that: "If the contract names a date for shipment of the goods, there is an obligation upon the buyers to tender a ship on which the sellers can place the goods by such a date as would enable the sellers to complete putting the goods on board by the end of the period named in the contract of sale."