When it comes to a chart party, there are various liner terms that are of significance. While some of these terms cover timeliness or commercial aspects of the agreement, there are also certain terms that deal with cargo tolerances. One of these terms is MOLOO.
More or Less Owner’s Option (MOLOO) is a cargo tolerance option in a charter party that allows the shipowner to increase or decrease the cargo load up to a certain percentage of the initial agreed volume. The MOLOO margin is often indicated in percentage (%) or in absolute values (metric tons).
Let’s further explore the MOLOO term with an example. In a charter party agreement the charterer and the shipowner agree on a load of 20,000 metric tons, with a MOLOO tolerance of exactly 10%.
Based on this, the shipowner has the option to deviate from the agreed volume of 20,000 MT and accept up to 10% more or less cargo. This is left to the discretion of the shipowner.
The ship master, who typically acts on behalf of the shipowner, generally confirms the actual cargo load (within the MOLOO tolerance) before the chartered vessel arrives at the port of loading.
Where Are MOLOO Cargo Tolerances Found
Just like lay days dates, ship specifications, and other requirements and charter details, MOLOO cargo tolerances are found on charter parties. Charter parties are service agreements between a shipowner and the charterer.
The aim of a charter party agreement is to protect both the charterer (often also the cargo owner) and ship owners in case of eventualities not favoring any of the parties and to manage expectations.
A MOLOO cargo tolerance gives the shipowner ultimate control over the final amount of cargo that is to be loaded onto the chartered vessel, given that it’s within the agreed MOLOO margin.
Not following the charter agreement may result in a breach of contract and could be met with monetary penalties. With regards to MOLOO tolerances, non-adherence to the agreed tolerance may also be penalized.
What Happens to Underutilized and Overutilized Cargo Space?
It’s important to understand that there are at least two parties in a charter agreement, which are the charterer and the shipowner. With a MOLOO cargo tolerance, the shipowner has the option to increase or decrease the cargo load by an agreed percentage or absolute value.
With reference to the example given earlier, where the agreed cargo volume is 20,000 metric tons, a 10% MOLOO tolerance would equate to 2,000 MT. This means that the shipowner has the right to confirm the final cargo volume between 18,000 to 22,000 MT.
Let us explore the scenarios if there is underutilization or overutilization.
If the shipowner agrees to a cargo load that falls within the agreed margin, but the charterer is not able to fulfill it, the cargo volume is underutilized. This is also known as dead freight, which is typically penalized monetarily by the shipowner.
Considering the minimum (18,000 MT) and maximum (22,000 MT) amount that the shipowner is allowed to deviate from the agreed 20,000 metric tons, anything below 18,000 MT the cargo owner fulfills is considered dead freight.
On the other hand, there is also cargo overutilization, whereby the cargo owner loads cargo beyond the agreed percentage of the tolerance. Cargo that goes above the maximum cargo threshold are known as overages, which are also chargeable by the shipowner to the charterer.
In our example, if the shipowner has accepted a maximum load of 22,000 MT and the charterer exceeds this threshold, they will be charged overages. Overage charges are typically included in the charter agreement.
When Is a MOLOO Cargo Tolerance Used?
MOLOO cargo tolerances are used when the ship owner wants to have control over the final cargo loading amount. There are various reasons why a shipowner would want to do so.
The ship’s master could decide to change the trim, take on more fuel, stock on materials and supplies, change vessel configuration or voyage, among various other reasons.
A MOLOO clause favors the shipowner, as they are allowed to finalize the total cargo load based on their requirements. The final load amount is often subject to the port of loading and discharge, voyage, available fuel, vessel condition and various other aspects.
The final cargo load is often confirmed by the shipowner before the chartered vessel arrives at the port of loading, which has to be communicated to the charterer timely and accurately.