At a recent Tackling Global Challenges event in London, North P&I’s Tiejha Smyth looked at how the 2020 sulphur cap is affecting charter parties and the concerns of charterers and owners
Speaking at North P&I’s Tackling Global Challenges event in London on 12 December, deputy director of freight, demurrage and defense (FD&D) Tiejha Smyth discussed how IMO’s sulphur cap is affecting charter parties, the concerns charterers and owners have and how best to address these.
“We are coming into a period where charter parties are ending and there will be a new wave of charter parties being entered into; that is being done on purpose,” said Ms Smyth.
“A lot of owners have decided not to enter into long-term charter parties because of the uncertainty surrounding 2020; likewise, charterers have had the same concerns.”
The big focus, said Ms Smyth, was the switchover on 1 January itself, which will involve owners and charterers agreeing a plan of action.
For example, bunker tank systems will need preparation to take on compliant fuel; this will take time and has health and safety implications.
Owners are concerned about what fuel will be available after their tanks are prepared. Such preparation will need to happen prior to the cap coming into force, but if compliant fuel is unavailable, noncompliant fuel will need to be bunkered again. As such, the tanks may require additional preparation and availability of facilities, logistics and costs will then need to be considered. If that is not done and compliant fuel is stemmed to the vessel, this risks contamination from existing HSFO in the tanks, explained Ms Smyth.
There are many other technical and commercial considerations that will require setting out in charter parties if disputes are to be avoided, said Ms Smyth, noting that a number of clauses to remedy such issues have now been produced.
Bimco for example, has published a clause aimed at dealing with the transition from noncompliant to compliant fuel itself. The clause is intended to be balanced, sharing risk between owners and charterers, thus making it more widely acceptable and easier to insert into charter parties. Owners are responsible for tank cleaning and costs, while charterers are responsible for discharging noncompliant fuel and ensuring it is dealt with in accordance with local regulations. The clause does not prescribe exactly what should be done in terms of the specific detail for tank cleaning, or mandate it, as it may not be necessary for all vessels, said Ms Smyth. It is also only relevant for charter parties that span 2020.
Intertanko has produced a clause that handles many more issues; this requires amendment according on the type of charter party and other factors, such as vessel and trade type. It can be used for charter parties ending before 2020.
North P&I has also produced its own transition clause. This enables owners and charterers to set out the last date for vessels to take on HSFO and the earliest date to take on compliant fuel, as well as when bunker tank cleaning should take place and what should happen if compliant fuel is not available following tank cleaning.
Fuel quality concerns
Ms Smyth explained that the way 0.5% sulphur fuels will be produced also raises quality concerns.
ISO 8217 is often used as a reference for handling fuel quality issues in charter parties, but this is currently under review and the next version is not expected to become available until 2021 at the earliest, resulting in an interim period in which a one-size-fits-all standard will not be available. ISO is in the process of producing a publicly available fuel specification for the interim period.
Ms Smyth said Bimco’s recently published sulphur-content clause is wide enough to meet specification needs for sulphur content, and while it does not address quality concerns in its own right, it has been drafted to be compatible with other quality-related clauses. This replaces the 2005 sulphur-content clause.
Speculation is rife concerning what fuel will be available and how compliance will be enforced post 2020.
To this end, IMO has a committee producing guidelines on port enforcement, which are expected to be available in June 2019. In the meantime, Ms Smyth said, North P&I advises owners to ensure they conduct proper due diligence. IMO’s draft vessel implementation plan will set out the parameters for meeting 2020 requirements and it is recommended all vessels have such a plan. This will be looked at by port state control when deciding on fining or detaining vessels in situations of noncompliance where fuel is not available. This plan refers to commercial considerations, such as charter parties, suggesting this will be factored in by port states when handling such situations.”
Noting how the unknowns on this matter are creating concern, Ms Smyth said: “We can make some educated guesses and I think the message still is that preparation will be key.”