Nautilus Labs publishes white paper on charter parties to meet MEPC 80 goals

New York-based tech firm Nautilus Labs has published a white paper discussing revised charter parties to meet MEPC 80 goals.

Owners and charterers will need to look at how they operate with approaches such as slow steaming and how they structure charter parties, the white paper argues, going on to argue: “It is no secret that these agreements are still very much rooted in the traditions of another era; static and penalty-focused, they are relics of a less dynamic time. Quite simply, they are not fit for underpinning modern trade.”

Rather than operate in silos, Nautilus Labs called for all parties to focus on collaboration conceding this would be easier said than done, particularly when considering the “inherent distrust and commercial sensitivities” that colour many relationships in shipping.

Nautilus Labs is calling for the re-examination of the agreements between charter parties and how they could help maintain commercial competitiveness and enable regulatory compliance.

“With most of the world’s fleet chartered, these contracts significantly influence how vessels operate. Interrogating their current structure could present an opportunity to better support owners and charterers in achieving sustainability goals,” the research suggests.

Doing that requires greater levels of trust, which can only be unlocked by the open access of unimpeachable information. Historically, this might have been hard to achieve, with vessel performance data available in noon reports. That is all changing; more companies have access to high-frequency data generated by sensors that, in many cases, are already in place. When used properly, this data can inform the creation and implementation of more dynamic charter party clauses. These, in turn, could radically reshape how owners and charterers work together and operate vessels in an economically and environmentally beneficial way.

Studies have shown that vessels with higher design efficiency save more fuel, yet the structure of time charter agreements means that owners receive little financial benefit. There can be little incentive to make ships energy efficient. Charterers pay for the fuel, so the cost of fuel consumption, and therefore any attendant savings, falls on their shoulders.

Agreements often consist of static clauses with little scope or incentive for performing better than agreed benchmarks, the paper points out. For instance, minimal speed clauses are a common feature in charters. Yet what is agreed and what is optimal for the voyage might be very different. If this is the case, the clause takes precedence. It could lead to operating behaviour such as the so-called “hurry-up-and-wait” or “sail-fast-then- wait” (SFTW) model, often resulting in vessels sitting idle and increasing emissions. This, in turn, would leave the charterer with additional expenses, as well as causing the vessel’s CII score to decline faster, impacting the owner.

Such contracts, which could penalise better performance, need to evolve, Nautilus Labs urged.

Dynamic terms suggested by Nautilus Labs could include collaborative CII management to maintain peak efficiency and agreed-upon CII scores; time charter fouling, encouraging corrective actions once thresholds have been crossed; performance-based time charter clauses establishing a dynamic speed and consumption curve based on accurate predictions of actual performance instead of a fixed description; just-in-time (JIT) arrival clauses; and finally flexible speed clauses supporting virtual arrival with dynamic speeds to arrive at port at an agreed-upon date and time based on simulations

Many of those improved clauses rely on accurate modelling and simulation. This requires the creation of digital twins, solutions that are only possible with data. That means sharing information, historically a contentious issue in the shipping industry.