Ship Speed and Fuel Consumption Quotation in Ocean Shipping Time Charter Contracts

This paper presents an exploration of the process of setting warranted ship speed and fuel consumption in ocean shipping time charter contracts. We formulate a conceptual model in which warranted ship speed and fuel consumption are related to an underperformance claim. We test hypotheses concerning the explanation of warranted and fuel consumption from various contract terms, ship characteristics, and market variables based on an empirical model for warranted ship speed and fuel consumption and time charter fixture data. The analysis shows that although there are some obvious reasons for differences in warranted and design speed and fuel consumption, such as the age of the ship, there is also evidence that shipowners engage in strategic behaviour by quoting warranted speed and fuel consumption in time charter contracts that reflect the development of the market.