Demurrage in a Disrupted Market: What Cargo Interests and Charterers Need to Know

In normal market conditions, demurrage disputes are a routine feature of the shipping industry; frustrating, often contentious, but generally predictable in their mechanics. In a market shaped by the kind of disruption we are currently seeing in the Persian Gulf, with vessels stranded, ports congested, and voyage timelines collapsing, demurrage claims are going to multiply in volume and complexity at a rate the industry has not seen in decades.

What Demurrage Actually Is

Demurrage is liquidated damages. It is the compensation a shipowner is entitled to receive from a charterer when the vessel is detained in port beyond the contractually agreed laytime.

The laytime clock starts running after a valid Notice of Readiness (NOR) has been tendered by the master. For an NOR to be valid, the vessel must have arrived at the agreed destination, whether that is a port, berth, or dock depending on the charter party type, and must be ready for cargo operations in all respects; physically ready, legally cleared, and properly documented. Once a valid NOR is tendered, laytime begins running in accordance with the charter party terms, and when it expires without cargo operations having concluded, demurrage commences.

The rate at which demurrage accrues is fixed in the charter party, expressed as a daily rate or pro-rata equivalent. Common formulations include structures such as "$15,000 per day pro rata." The critical principle that governs once demurrage has started running is the common saying "once on demurrage, always on demurrage," meaning that, unlike laytime, demurrage runs continuously and is not suspended by the exceptions and interruptions (weekends, holidays, weather) that may have tolled the laytime clock. There are limited exceptions to this principle, if the delay is caused by the master or crew, for instance, but they are narrow and require specific facts to engage.

Demurrage is distinct from damages for detention, which arises after the charter party has ended and the vessel continues to be held beyond even the demurrage period. The distinction matters because the legal frameworks governing each are different.

Who Bears the Risk and When

In a voyage charter, the charterer is the party primarily liable for demurrage, as it is the charterer's responsibility to ensure the vessel is loaded and discharged within the allowed laytime. But the allocation of risk is rarely that simple in practice.

Where cargo is sold on CIF (Cost, Insurance, & Freight) or FOB (Free on Board) terms, the bill of lading receiver, rather than the original charterer, may end up bearing demurrage liability at the discharge port. CIF and FOB contracts frequently incorporate the charter party's demurrage rate by reference, though the precise scope of that incorporation is a frequent source of dispute. Where the incorporation clause is vague, referring only to "freight" terms from the charter party rather than "all terms," receivers have successfully argued that demurrage provisions were not incorporated into their contracts with shippers. Cargo interests who receive goods under bills of lading without having reviewed the underlying charter party terms are routinely surprised when demurrage claims land in their direction.

In the current disrupted environment, where vessels are diverting around the Cape of Good Hope, waiting at anchorage outside closed ports, or queuing at congested hubs like Jebel Ali, the laytime and demurrage calculus is being disrupted at every stage. Port congestion that prevents berthing, waiting time at anchorage, and delays caused by rerouting decisions all interact with charter party laytime provisions in ways that generate significant disputes about when laytime commenced, whether it ran during delays, and who bears the cost.

The Time Bar Problem

Of all the ways demurrage claims fail, none is more common, or more avoidable, than the time bar. Most modern voyage charter parties, particularly in the tanker trade, include provisions that require demurrage claims to be submitted within a defined period after completion of discharge, accompanied by specified supporting documentation. Miss the deadline, or fail to provide the required documents, and the claim is gone, regardless of its underlying merit.

The standard language appears in various forms across common charter party templates. A representative example from an amended ASBATANKVOY form reads:

"Any claim for demurrage, deadfreight, shifting expenses or other charges or invoices shall be considered waived unless received by the Charterer or Charterer's broker in writing with all supporting calculations and documents, within 90 days after completion of discharge of the last parcel of Charterer's cargo(es)."

Ninety days is common in the tanker trade. Some charter parties impose tighter windows, 30 days for initial notification and 90 days for full documentation, or even shorter periods in certain commodity trades. The consequences of non-compliance are severe. Under English law, time bar clauses of this kind are treated as extinguishing the claim entirely, not merely suspending it. If the time bar is missed, there is generally no equitable relief available.

What the Current Market Disruption Creates

The Hormuz crisis and associated routing disruptions create a specific set of demurrage pressure points that operators should be thinking about now, before claims arise. Vessels ordered to discharge at alternative ports as a result of rerouting decisions will generate disputes about whether laytime provisions in the original charter party apply at the substitute port, whether NOR tendered at the alternate berth is valid, and who bears the cost of the extended voyage time. Charter parties vary significantly in how they allocate these risks. Some contain explicit provisions for port substitution and the associated laytime consequences; others are silent, creating fertile ground for disputes.

Vessels sitting at anchorage outside congested ports, a situation affecting a significant number of ships waiting for Jebel Ali berths or alternatives following Hormuz-related rerouting, will generate waiting-time disputes. Whether that waiting time counts against laytime depends entirely on the "arrived ship" provisions of the charter party and whether the port was accessible at the time NOR was tendered. If the port was inaccessible due to congestion at the time of tendering, the NOR may be invalid, and laytime may not have commenced. Owners and charterers are likely to take very different views on this question.

Force majeure clauses may be invoked by charterers seeking to excuse delay at loading or discharge ports affected by the conflict. Whether those clauses are engaged depends on their specific language, and particularly on whether the relevant event was foreseeable at the time of contracting. Charter parties signed before February 28 of this year may present a different force majeure picture than contracts concluded after the strikes on Iran, when the risks in the Gulf were already well-known to the market.

The Documentary Discipline Required

For both owners and charterers, the practical lesson of this environment is the same: demurrage claims must be managed as a discrete legal process, not as an afterthought to commercial operations.

For owners: establish an internal demurrage tracking system that records the completion of discharge date for every voyage and the corresponding time bar deadline. Assemble the full documentary package (NOR, Statement of Facts, port log, time sheets, pumping logs where applicable, letters of protest, and laytime calculation) at the time of discharge, not when the claim invoice is being prepared. Submit claims well within the time bar, with the complete document package attached, and do not assume that documents provided under other charter party clauses satisfy the time bar requirements unless your charter party expressly makes that connection.

For charterers: review the demurrage provisions in your charter parties before a claim arrives, not after. Understand what the time bar requires, what documents should accompany a valid claim, and what the consequences are if an owner fails to comply. In the current market, where demurrage claims will be arriving in greater volume and at higher dollar amounts than usual, the time bar is a legitimate legal defense, not a technicality to be waived out of commercial goodwill.

For cargo interests holding bills of lading: review whether your sales contract incorporates the charter party demurrage rate, and if so, what documentation you will be expected to receive and in what timeframe. Demurrage liability that travels down the contractual chain through bill of lading incorporation can arrive without warning if the underlying charter party terms were not reviewed at the time of contracting.

The disruption in the Gulf will generate claims across every layer of the shipping chain. The operators who have their documentation and contractual frameworks in order before those claims arrive are the ones who will be best positioned to either recover what they are owed or defend against what they are not.