Approaching 2020: Who should do what to ensure compliance

With new environmental regulations changing the fuel mix used in shipping, the industry will have to configure new contracts and procedures related to bunkering. The expected increased use of LNG as bunker fuel will require its own contracts and procedures for which the cargo trade of LNG in shipping may well serve as a template. But the 2020 sulphur regulation has triggered a more immediate demand for new contractual clauses.

The shipowner is responsible for the implementation of Marpol Annex VI mandates and is liable in case of non-compliance. If the ship is not in compliance, it may face action: detention, delays and fines. But in some charter conditions, such as time charter, the shipowner is not entirely in control of the bunker fuel coming onboard; it is the charterer who provides and pays for the fuel.

“The owner is on the hook but it is the charterer who provides and pays for the fuel in most time charters,” said Grant Hunter, head of contracts and clauses at BIMCO, as part of a presentation he made at the CMA Shipping 2019 conference held in Stamford, Connecticut, in April of this year.

BIMCO, the largest international shipping association that aims to produce templates for commercial agreements, has developed two additional clauses to include in time charterparties. It has, for now, decided against issuing a specific new clause for scrubbers, as such equipment is considered part of the ship; but it has developed a sulphur content clause and a transition clause, to be introduced in charterparties when ships change over to low-sulphur fuels.

The first clause developed by BIMCO (BIMCO 2020 Marine Sulphur Content Clause for Time Charter Parties) says charterers shall supply fuels to permit the vessel, at all times, to comply with any applicable sulphur content requirements, which may not just pertain to regulations 14 and 18 of Annex VI, but also to mandates imposed by other authorities such as Port State Control.

The maximum sulphur content that the bunkers can contain will need to be specified although other information and can be detailed elsewhere in the charterparty. The sulphur content clause indemnifies the owner against the consequences of non-compliance of the 2020 sulphur cap, but only if charterers fail to comply with their obligations.

The charterer warrants that any bunker supplier, and others in the chain of supply, such as the craft operators and surveyors, will comply with the requirements. “The indemnity protects the owner if the charterer has not provided the fuel, as per Marpol requirements, that may have led to detainment, delays or fines. This is essential in case of time charterparties,” Mr Hunter added.

Co-operation is key

He explained that there is no reciprocal indemnity in the clause. Provided the charterer has done everything to deliver Marpol-compliant fuel, the charterer does not have liability.

The second clause that BIMCO has developed (BIMCO 2020 Fuel Transition Clause for Time Charter Parties) deals with the transition period.

Mr Hunter is of the view that long and detailed legal verbiage will not be enough. “The time charterers decide where they are going to employ the ship and where it will be bunkered. The owners decide on the implementation plan. All the stakeholders will have to put their heads together and co-operate,” he said.

The absolute minimum requirement is that on 1 January 2020, the ship has enough compliant fuel onboard to take it to the next bunkering port where compliant fuel is available. This means planning for having compliant fuel onboard already before 1 January 2020, or the ship may find itself non-compliant upon arrival after the deadline.

In addition to the sulphur requirement from 1 January 2020, IMO has issued a carriage ban. The ban means that from 1 March 2020, ships are not allowed to have non-compliant fuel onboard, unless they are fitted with scrubbers. Mr Hunter explained that the two-month window is not a grace period. Ships should not burn non-compliant fuel in those two months.

The BIMCO transition clause says that it is the charterers who have the obligation to get rid of non-compliant fuel. “Discharge it, burn it, treat it as waste and debunker it, or even sell it to ships that use scrubbers and therefore are allowed to burn higher sulphur fuel. Do this before 1 March and get rid of any non-compliant fuel,” Mr Hunter advised.

Once the tanks are emptied, it is the owner’s obligation to prepare the tanks to receive compliant fuel. The language in the BIMCO clauses does not set a benchmark for this. In BIMCO’s explanatory notes, it is stated: “… fit to receive compliant fuel, taking into account the type of compliant fuel that will be loaded…”

Depending on circumstances such as the ship’s age, the type of fuel it has been using, the types of bunker tanks and especially the type of fuel that is to be loaded, different procedures could be required to prepare bunker tanks. The explanatory notes add: “In some cases, a thorough cleaning of tanks might be needed, but in other cases the tanks might be prepared using additives. This issue should be addressed on a case-by-case basis, so the clause intentionally avoids being too prescriptive.”