There are going to be significant changes to the shipping world by way of the IMO sulphur limit in marine fuels (IMO 2020) with new regulations coming into force on 1 January 2020. We have previously reported on the upcoming changes in our September article but in short, outside of emission control zones, where the sulphur limit is presently 3.50% m/m (mass by mass), the limit is going to be reduced to 0.5% m/m. This means that the marine sector will have to reduce sulphur emissions by over 80% by switching to lower sulphur fuels or using scrubbers, which will represent the largest reduction in the sulphur content of a transportation fuel undertaken at any one time.
The shipping industry has lagged behind many industries in reducing its carbon footprint, with vessels burning the dirtiest fuels. The world’s reliance on the marine transportation has allowed it to escape its responsibilities to some extent, but change is afoot. That change is of course necessary, but it will come with significant disruption across the entire industry.
Charterparty implications
In our September bulletin, we reported on some of the insurance implications. Below we consider some of the charterparty implications as that is where the immediate impact will be felt.
The extent to which the new cap will impact parties will depend on the type on contract in place – in particular, who has responsibility for providing bunkers. The usual position is that in a time charter, the charterers provide and pay for bunkers. Under a voyage charter, it is usually the owners that provide and pay for the bunkers.
Voyage charters
The voyage charter position is therefore relatively simple. The owners have a choice to either install scrubbers (and continue to use low grade fuel) or must purchase bunkers which meet the IMO requirements but are more expensive. The additional cost will no doubt be reflected in increased freight rates.
The sudden increase by the world’s tonnage in using compliant fuel could however potentially cause engine problems. These issues may include problems due to the change in viscosity, instability, or incompatibility blended fuels. Damage to the engine could therefore give rise to a number of salvage and general average and potential unseaworthiness arguments. It will also result in delays possibly giving rise to cargo claims.
Time charters
The time charter position is more complicated however. As far as the regulations are concerned, the burden is on the owners to ensure that their vessel is compliant. However, it is the charterers providing the fuel, which could give rise to some tension between the parties. We consider some of the issues below.
