Laytime & Demurrage - FOB terms. Last updated 12-Aug-2014

I do not find it surprising that a buyer should contract to receive demurrage at a different rate, or on different conditions, than those governing his liability to pay a shipowner or a sub-buyer. Normally one might perhaps expect the terms to be the same, … but they may be different.
R. Pagnan & Fratelli v Finagrain Co. Com. Agricole et Financiere SA (The Adolf Leonhardt) [1986] 2 Ll.R. 395, per Staughton J.

Positions of the buyer as the owner & the seller as the charterer

Main characteristic of FOB contract is that seller’s responsibility generally ends when he delivers the goods on board of buyer’s ship, over the rail or manifold. Therefore the price of commodity sold reflects the value of the goods only. Thus in ordinary f.o.b. contract, when 'free on board' does not merely condition the constituent elements in the price but expresses the seller’s obligations additional to the bare bargain of purchase and sale, the seller puts the goods safely on board, pays the charge of doing so, and, for the buyer’s protection but not under a mandate to send, gives up possession of them to the ship only upon the terms of a reasonable and ordinary bill of lading or other contract of carriage. There his contractual liability as seller ceases, and delivery to the buyer is complete as far as he is concerned.

FOB

Accordingly, if the seller deliver and load the goods within stipulated time interval, all forthcoming risks related to delays and demurrage, including those incurred in port of loading, are for the buyer’s account. The concept of laycan in FOB contract was examined by Longmore LJ in ERG Raffinerie Mediterranee SPA v Chevron USA Inc (t/a Chevron Texaco Global Trading) [2007] EWCA Civ 494 at para 17:

17. Sometimes, as in this case, the laycan concept is used in an fob contract. Since, in such a contract, it is the buyer who has the disposition of the vessel, it is the buyer who is in the position of the shipowner and is at risk of the vessel being cancelled if she does not present before the last day of the laycan period. Similarly it is the seller who is in the position of the charterer and is the person entitled to terminate the contract if the vessel has not arrived in time. The seller will not be bound to start loading the vessel before the period starts but will be bound to load as and when, within the laycan period, the vessel is ready to receive the cargo.

From the nature of FOB terms if follows that the f.o.b. seller is under an implied duty to load the goods on board a vessel within the time defined for shipment in the sale contract. He also supposed to accomplish loading within reasonable time, but as the Court of Appeal held in Einar Bugge v Bowater (1925) 31 Com. Cas. 1, his other reasonable engagements were to be considered and ... he was not bound to have all the cargo at the port prior to loading or continuously there while he was loading.

And although the buyer is in the position of the shipowner and the seller is in position of the charterer but their obligations under laytime and demurrage provision not necessarily match those in voyage charter. In Glencore Grain v Goldbeam Shipping Inc. (The Mass Glory) [2002] 2 Lloyd’s Rep. 244, Moore-Bick, J. stated at p.251:

Although the contract in that case provided for a minimum loading rate once the vessel was in berth and for the buyer to give notice to the seller of the vessel’s readiness to load, it was a contract for the sale of goods, not a voyage charter. The function of the notice of readiness was to enable the seller to make the necessary arrangements for the goods to be loaded, not to inform him that the ship was then at his immediate disposal. That is reflected in the fact that the buyer had to give at least 15 day’s notice of the vessel’s readiness and in the fact that it was unnecessary for the vessel to have reached any specific point on her approach voyage before such a notice could be given. The seller’s obligation under the Centro terms to load the cargo at a minimum daily rate arose only when the vessel had entered berth and was not linked to the giving of notice of readiness to load.

It is necessary to note here that position is different in the oil trade from that of general goods sale, so that in oil trade the link between the charterparty and the sale contract, usually on fob terms, is much tighter.

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