(EnergyAsia, March 24 2015, Tuesday) — In response to the growing liquefied natural gas (LNG) trade, the world’s largest shipping association said it is working with the industry to develop a new contract to provide for better risk and cost-management of the fuel’s transportation under voyage charter terms.

The Baltic and International Maritime Council (BIMCO), which claims its membership controls around 65% of the world’s shipping tonnage, said the new contract is designed to add “flexibility to the spot market and give parties alternative means to manage their risks and control costs.”

The association said it is working with the Paris-based International Group of LNG Importers (GIIGNL) to put together a group of LNG experts representing owners, charterers, traders, brokers and insurers to prepare the contract for adoption this year.

As both cargo and fuel, LNG presents different challenges when carried under conventional voyage charter party terms.

BIMCO said the group has begun looking in to the complexities of applying voyage charter party principles to this “unique trade where natural boil-off from the cargo is used to fuel the ship’s propulsion system and where idling in port awaiting a berth is simply not a viable proposition.”

A vessel owner and operator must deal with the challenges posed by delays in LNG cargo handling while the charter has to be worded and structured to retain familiarity for users with current time charter practice.

“The key issues all stem from the fact that the LNG cargo continuously “boils-off” and that time is of the essence in the sense that arrival at loading and discharging berths has to run like clockwork due to the infrastructure of the LNG business,” said BIMCO. This conflicting demands calls for a delicate balancing act acceptable to both owners and charterers under voyage terms.

During voyage, a ship can use the natural boil-off as free fuel to a certain limit, but will have to share in the loss if it exceeds the limit.

Owners will assume the risk unless the delay is caused by the charterers or by an event outside the owners’ control such as a blocked or restricted channel or seizure by piracy or war risks, said BIMCO.

“Conversely, at loading and discharging ports, additional loss of cargo will be for charterers’ account, except when caused by owners’ breach or by a delay which is excepted from laytime.”

Earlier this month, BIMCO said representatives of “leading players in the LNG market” met at the offices of Stephenson Harwood in London to discuss the development of a standard voyage charter party for the LNG trade.

In this small but highly specialised sector of the industry the first signs of a nascent spot market are appearing. LNG has traditionally been shipped under long term time charter arrangements lasting 15-20 years, but recent changes in market conditions have seen a greater demand for cargoes to be shipped on trip or short term charter basis (less than five years),” it said. This has opened the door to the prospect of LNG cargoes being carried on a voyage charter basis.

Asia accounts for over 70% of global LNG demand with Japan and South Korea the main importers. With Europe’s demand for LNG in decline, the owners of the specialised ships that serve a market with very limited backhaul opportunities are increasingly under pressure to lower their freight rates.