bunker-pitfalls - BIMCO Bulletin


CONTRACTS AND CLAUSES September 2019 By Rasmus Nord Jørgensen, Communications Director at BIMCO The worst part, right now, is that the questions are still very hard to answer The uncertainty around fuel and bunkering generates many questions for the P&I Club North of England. The club hears concerns ranging from how will it be enforced, to how to handle the difference between MARPOL Annex VI and the ISO 8217 standard, and what to do with bunker clauses? Tiejha Smyth, Deputy Director in the Freight, Demurrage and Defence (FD&D) department at the Club, expects to be involved in all of the different issues concerning transition and come 1 January 2020 there may also be enforcement action, such as fines and detentions. The worst part, right now, is that the questions are still very hard to answer – and (at the time of writing) it is only five months to 1 January 2020. Tiejha Smyth, deputy director in the Freight, Demurrage and Defence (FD&D) department of the North of England P&I Club “There is concern about how quality should be dealt with in charter parties – how that might impact the contractual relationship with bunker suppliers when bunkers are being purchased, and people are concerned about what they should do to make sure they get good quality bunkers that meet the sulphur requirements as well,” Smyth says. The trouble begins with the fact that fuel has to comply with the requirements of MARPOL Annex VI and ISO8217 standard at the same time but the approach to testing for the two is different. However, there are some steps that shipowners and charterers can take to prepare, according to Smyth. Tolerance discrepancy MARPOL Annex VI states the sulphur content must not exceed 0.50% after 1 January 2020. But the tests carried out for the commercial bunkering contracts for ISO8217 purposes allow a tolerance, up to 0.53%. So, in theory, you can receive fuel that is compliant with ISO8217, but non-compliant with MARPOL Annex VI, and still be in accordance with the bunker supply contract. What will enforcement look like? “Bunkers of 0.51% sulphur will be non-compliant (if the MARPOL delivered sample is tested – a tolerance will be applied for samples taken from the vessel’s bunker system) so that could result in a fine or detention, but actually there might be no recourse against the bunker supplier because they delivered an ISO compliant product. Hopefully, the issue won’t come up too often, because it is a very small margin, but who knows? The uncertainty is not ideal,” she says. Bunker supply contract troubles The issues related to the differences between being ISO 8217 compliant and MARPOL Annex VI compliant can – again, in theory – be avoided quite easily by using bunker supply contracts based on the ISO8217 2010 standard (or newer), as they specifically say that for residual fuels it should be “as per the statutory requirements”, according to Smyth. The problem is that the 2005 standard is very common in bunker supply contracts. “A lot of the time we’re seeing in supply contracts that 2005 versions will apply – and they don’t have the same reference. It specifically lists the old sulphur content value of 3.50% without any obvious way for that to be automatically amended as regulations change,” she says. However, in practice it is more difficult, as the bunker suppliers may not want to change their contract to use the 2010 or 2017 version. “It is not always easy to change these standard terms or persuade the suppliers to change them. If there is a good commercial relationship, or if a big owner or charterer has a lot of buying power, they might be able to do so, but often the charterer and owners have no choice. It is take it or leave it,” she says. “However, some bunker suppliers might be willing to accept the new BIMCO supply contract, which would help to avoid this issue.” According to Smyth, one ray of hope is that, at the last MEPC meeting, IMO produced some guidance to port state control to try to ensure consistent implementation. This guidance encourages port state control to look closely at bunker suppliers and take action if they are found to be supplying fuel that isn’t compliant or if they supply incorrect paperwork. It remains to be seen what steps will be taken. Enforcement uncertainty But, what will enforcement look like? What will happen if a ship is found to be non-compliant? “That is difficult to answer, because enforcement is left to each individual authority and state. And we know right now, from experience, that enforcement is inconsistent across the different states and across different jurisdictions,” Smyth says. Nothing might happen, but owners could also face fines and detained ships, according to Smyth, and the next question is: will P&I cover the fines? And in the case of North of England, it depends on the circumstances of the individual case, as is the case for emissions-fines cover now. What is certain is owners or charterers will have to show “best efforts” to comply with the new regulation when submitting a Fuel Oil Non-availability Report (FONAR), which is a high burden, according to Smyth. “That means you have to do your very best. It not just saying that you’ve carried out reasonable efforts, but you have to have almost tried everything. In practical terms, the authorities will consider what planning took place before the vessel went on its voyage – and that might mean looking at not just the last voyage but the previous three voyages. Were there any opportunities for the vessel to take on compliant fuel at an earlier port, and should the vessel have done that? How many bunker suppliers were contacted to try to get compliant fuel? Why hasn’t it been possible to get that fuel?” Smyth says. Furthermore, best effort doesn’t mean “at a reasonable cost” – it means “at any cost”, according to Smyth. Delivery and ratification Owners with ships tramping or with ships calling countries that haven’t ratified MARPOL Annex IV need to be particularly careful. “It is probably a smaller issue to some extent, but there are a number of countries – particularly in Africa and South America and other parts of the world as well. Parties need to be mindful of these areas, owners in particular, because they will have little control over the bunkers being supplied if bunkering is done in one of these countries and time charterers are purchasing them.” The next months of uncertainty are sure to generate more questions, but Smyth hopes many will be resolved before 1 January 2020, or at least not too long after. What will happen if a ship is found to be non-compliant? Best effort doesn’t mean “at a reasonable cost” – it means “at any cost” Photo (top): Danny Cornelissen / www.portpictures.nl Top 2020 questions: 1 What charter party clauses are available for transition? 2 What should our bunker quality clause look like? 3 What should we do with our bunker suppliers? 4 What will enforcement look like? 5 What happens if we can’t get compliant fuel? Connect with BIMCO Facebook Twitter Linkedin YouTube