Contractual governance as a lever for controlling hidden costs in international voyage chartering: A proposed conceptual model

Abstract

Hidden execution costs in voyage chartering can arise from repeated coordination, documentary searches and verification work. This conceptual article asks when contractual governance can reduce such resource use while remaining less costly than the problems it addresses. Pirrong’s (1993) account of bulk shipping contracts and Schepker et al.’s (2014) analysis of contractual functions provide the starting point. The unresolved issue examined here concerns the connection between these functions and resource attribution at the level of an execution episode. A purposive theoretical synthesis combines organisational economics, management research and maritime law. It produces a model for testing rather than empirical estimates or a systematic literature review. Contractual structuring and documentary maturity are the explanatory dimensions. Their proposed mechanisms concern avoidable execution costs, while governed adjustment moderates the expected relationship between contractual structuring and performance. The contribution includes a classification separating the activity consuming resources from the source of additional work. A net governance benefit convention then compares avoided dysfunction costs with additional governance expenditure. This is an analytical proposal, illustrated through a fictional numerical scenario, not a measured finding. The example also distinguishes joint efficiency gains from transfers between counterparties. Three hypotheses and an associated validation programme specify relevant observations, competing explanations and findings that would weaken the proposed relationships. Practical application requires independent assessment of governance arrangements, explicit allocation rules and comparable operating conditions. The framework therefore directs attention to usable contractual responsibilities, accessible documents and decision procedures, while keeping implementation costs and the distribution of burdens visible throughout evaluation.

JEL classification : D23; L14; L91.

Paper type: Theoretical research - conceptual model.