Speed clause. The oil price shocks of 1973 and certainly those of 1979 caused bunker fuel prices to increase.
At the same time the world economy worsened, causing low freight rates. One result was that tankers were operated at slow, “economic speeds” because fuel consumption (and costs) varies exponentially with speed. The resultant savings in fuel costs were of a greater advantage than the loss in time. Charterparties began to include Speed clauses, allowing the Charterer to require the ship to increase or decrease speed on a voyage charter and in a time charter, and, in the latter, amending the description of the vessel to show differing fuel consumption at different speeds, as required by the charterer.
For a voyage charter, an example is given from TANKERVOY 87:
“In the absence of any instructions to the contrary from Charterers, the vessel shall use best endeavours to steam on the laden passage at a speed of no less than the Base Speed, weather and sea conditions permitting. Charterers shall have the option, exercisable any number of times and at any time, to order the vessel to steam during the remaining portion of the laden passage at any speed (`the Ordered Speed’) between the Base Speed and the Maximum Speed and Owners shall: use all reasonable endeavours to comply with such orders, weather and sea conditions permitting. If Charterers do not exercise this option Owners shall not for their own purposes order the vessel to exceed the Base Speed without Charterers’ prior consent, which shall not be unreasonably withheld.
On each occasion the Charterers exercise such option, the rate of freight . . . shall be varied by an amount determined as follows:
(a) the `Calculation Speed’ shall be the lesser of the Ordered Speed and the speed actually attained by the vessel during the currency of such orders.
(b) if the Calculation Speed is greater than the Base Speed, the freight rate shall be increased by:
D x (Mo)/(Mt)x Speed up Factor
where D = the difference between the Calculation Speed and the Base Speed
Mo = the mileage steamed during the currency of such orders
Mt = the total mileage steamed on the laden passage(s).
The mileages and achieved speeds referred to above and the applicable time shall be obtained from observations in the vessel’s deck log book. . . .”
(In the charterparty, the basic performance, speed is described as the “Base Speed”, the Charterer is allowed to order the vessel to travel at a given maximum higher speed (“Maximum Speed”) and the freight rate increase according to Worldscale percentage points per knot of ordered speed increase is called the “Speed up Factor”.)
Clearly such a clause can be complex in its operation and can lead to disputes on the freight rates. An example in its use may be of help.
A vessel proceeds at “optimum speed” of 10 knots (as determined by the owner, depending on the price of bunker and the expected waiting time at the next port). At this speed, the freight rate is W70 (that is, 70 per cent of the Worldscale rate for the passage on which the vessel is engaged). After 10 days, the Charterer orders the vessel to complete the passage at 15 knots. The remainder of the passage occupies another 10 days. The increased speed provides for an increase in Worldscale rate of 0.5 per knot (the “Speed up Factor”.) Therefore, the freight rate for the voyage will be:
((W70 x 10 days) + (W72.5 x 10 days) )/20 days (for the entire voyage)
This will give an overall freight rate of W71.25