I completely understand why some voices in the industry want to do away with charterparty warranty compliance. Forward-thinking owners who start doing this early by using real vessel operating performance information stand to get ahead of their competition.
The rise of environmental compliance in the maritime industry, such as the International Maritime Organization’s Carbon Intensity Indicator, together with Task Force on Climate-related Financial Disclosures (TCFD)-based reporting in general, should be welcomed as a harbinger of positive change.
In the European Union, environmental, social and governance reporting rules under the Corporate Sustainability Reporting Directive will be compulsory for large companies from 2024 to 2028. While across the pond, the US Securities & Exchange Commission is likely to bring in new requirements in the near future, obliging public companies to disclose climate-related risks and information about Scope 1, 2 and 3 emissions. Japan has made a head start in Asia-Pacific, with all listed companies required to submit TCFD-based climate disclosures beginning in 2024.
Combining these developments with the increasing ubiquity of real-time sensors on board vessels — transmitting live data on emissions, speed and fuel burn — could help accelerate us towards a fully digital paradigm as the primary benchmark of vessel performance, and jettison our current reliance on charterparty descriptions and warranties.
‘Deficient benchmark’
Charterparty descriptions are outdated and a deficient benchmark for performance. Owners can base descriptions on information provided by the shipbuilder following sea trials, or describe the vessel any way they want. The disingenuous will use text that “muddy the waters” to conceal poor performance.
In addition, most charterparty descriptions describe performance only in good weather conditions — rendering the described performance invalid in bad weather. Weather routing companies tend to split days up into pieces. If over a certain threshold of pieces are in good weather, then it is a good-weather day. If below that threshold, it is a bad-weather day. An owner can sometimes claim a particular voyage invalid if a large part of it was in bad weather. Any claim by the charterer would be time wasted. (Not that any of our customers would do this, of course).
Stuck in the past
Unscrupulous parties can also tweak the charterparty warranty to protect against claims. For example, you might find that the very last sentence in a warranty in effect invalidates the description, by saying that performance cannot be correctly analysed due to disagreements on how currents should be interpreted.
Such tricks allow them to continue to make money and act as a shield to emit more carbon than stipulated. This is why warranties are like a chain around the ankles of the industry, forcing shipping companies to languor in the past. And it is not at all helpful for the environment.
In contrast, imagine a new digital paradigm where it is no longer possible to hide poor performance, there are no more claims by charterers, out-of-court negotiations nor costly court cases, and it is much easier to fix the best ships because the scores are out there in the open.
Competitive edge
There are plenty of companies that want to do good. Those already doing well on environmental compliance will want to be completely transparent regarding the performance of their ships because it represents a reputational “top hat”. They will want not only to have the highest CII ratings but also to be at the top of the list in reporting to public authorities. It will be a core way to drive business.
There will be early adopters and these companies should be lauded in the industry. But when a critical mass of companies go public with their vessel performance (in all weather conditions), everyone will have to follow suit — just to stay in the game.
I certainly hope that 10 or 15 years from now, open disclosure will be compulsory across the board. That will be the beginning of the end of charterparty descriptions and warranties — and not a day too soon. It would certainly help to clean out poor-performing ships.
Jesse Vecchione is head of sales
and marketing, Americas, at Weathernews.
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