From 1 January 2020, the International Maritime Organisation (IMO) will enforce a new 0.5% global sulphur cap on marine fuel – which is lower than the present limit of 3.5%.
While there has been much discussion about the technical aspects of compliance with the sulphur cap – and whether owners should be installing “scrubbers” on vessels to remove sulphur dioxide emissions or switching to low sulphur bunkers - far less has been said about the commercial aspects and how the new sulphur cap should be addressed in time charterparties where charterers are responsible for bunkering.
In an attempt to address potential issues that may arise from the new sulphur cap, BIMCO has just published two new clauses for use in time charterparties:
- BIMCO 2020 Fuel Transition Clause for Time Charterparties
- BIMCO 2020 Marine Sulphur Content Clause for Time Charterparties
The Transition Clause is intended to be incorporated into time charterparties which start before 1 January 2020 but that will end after that date. The clause sets out owners and charterers obligations in ensuring compliance with the sulphur cap before the 1 January 2020 while the vessel is on hire.
- Charterers are to ensure that the vessel is supplied with sufficient low sulphur bunkers before 1 January 2020, so that from that date, the vessel will have enough low sulphur bunkers to reach the nearest bunkering port.
- The vessel should not have any high sulphur bunkers on board by 1 March 2020. However, owners and charterers are to cooperate and use reasonable endeavors to remove the high sulphur bunkers from the vessel by 1 January 2020.
- Charterers are responsible (at their risk, time and costs) for the removal of all high sulphur bunkers from the vessel’s bunker tanks by 1 March 2020 or the vessel’s redelivery date – whichever is earlier. Charterers are also responsible for the disposal of the bunkers discharged.
- Owners are responsible (at their risk, time and costs) for ensuring that the bunker tanks are clean and fit to receive the low sulphur fuel once all the high sulphur fuel has been removed. Once the bunker tanks are clean and fit to receive the low sulphur fuel, no high sulphur fuel is to be loaded.
- Unless otherwise agreed, low sulphur bunkers is only to be loaded into empty tanks and segregated from any high sulphur bunkers remaining on board.
Sulphur Content Clause
Although the Sulphur Content Clause is intended to apply to charterparties running beyond 1 January 2020, the Clause can be incorporated into charterparties starting prior to that date. The Clause serves to allocate between owners and charterers the responsibilities for compliance with the new sulphur cap.
- Charterers are required to supply bunkers that meet the specifications and grades as set out in the charterparty and that will permit the vessel to comply with all the requirements of MARPOL Annex VI and any related local regulations.
- Charterers warrant that bunker suppliers, bunker craft operators and bunker surveyors used also comply with the aforementioned regulations.
- Charterers are to indemnify owners in the event they fail to comply with their obligations under the Clause and the vessel will remain on hire in the event of any delays.
- Owners warrant that the vessel shall comply with the requirements of MARPOL Annex VI and related local regulations. Charterers will not be liable for losses arising from owners’ failure to comply as long as it has supplied the vessel with compliant/low sulphur fuel.
The new BIMCO clauses are certainly welcomed as they will enable owners to secure charterers’ cooperation in complying with the new sulphur cap. This is especially important given that charterers are responsible for bunkering vessels during the course of the time charterparty. In light of this we would recommend that these clauses are incorporated into new time charterparties.
While the clauses are a necessary step in the right direction, there are still further issues that will require further consideration:
- The issue of whether scrubbers should be installed is still very much being discussed and the industry has yet to come to a firm view. If a vessel is operating with scrubbers, then charterers will be able to continue using high sulphur fuel.
- It may not be clear in every case how far the vessel will have to sail after 1 January 2020 to load bunkers - so it may not be immediately evident to how much low sulphur bunkers charterers will need to load in advance of that date.
- Even with the Transition Clause, there will still be a need for cooperation and coordination between owners and charterers to facilitate debunkering/bunkering operations during the transition period. Disputes may therefore still arise if there are delays caused by poor coordination.
- Costs of dealing with the transition to low sulphur bunkers may ultimately still be borne by owners, notwithstanding the Transition Clause, as charterers may try negotiate lower hire rates in order to make up for the time and expense that will have to be incurred in transitioning to low sulphur bunkers.
- There is concern in the industry that some low sulphur bunkers may cause engine problems. It is conceivable that in some instances, charterers may end up supplying vessels with low sulphur bunkers in compliance with the charterparty – but which may still cause engine damage.
- The Transition Clause is of course not present in existing long term time charterparties that extend beyond 1 January 2020 so owners and charterers in these charterparties will have to consider how the transition to low sulphur bunkers can be best managed in the absence of such a clause.
- Timing of the transition to low sulphur fuel is critical as, ideally, the vessel should finish consuming all the high sulphur bunkers well before 1 January 2020. This will have to be carefully considered and managed.