The sulphur cap, to take effect from 1 January 2020, mandates that ships must run on fuel containing no more than 0.5% m/m of sulphur, unless having scrubbers installed. As part of the rule, the MEPC 73 approved a ban, prohibiting vessels also from carrying fuel oil with a sulphur content of more than 0.50% m/m.

Non-compliance

  • A non-compliant vessel can encounter the imposition of fines, and even the detention of the vessel.
  • It is the individual states who are responsible for determining what “control measure” to take.
  • It is the ship owner who pays any fines levied for non-compliance and they will be required to show what was done to try and achieve compliance, which will likely impact on the action taken against the ship.
  • Whether or not any fines or other losses incurred on account of non-compliance are recoverable from a charterer will depend on the terms of any charterparty, and the cause of the vessel’s non-compliance.

As far as P&I cover is concerned, members are required to act as a prudent uninsured and follow applicable rules and regulations. Furthermore, cover for fines is generally only available where there has been accidental escape of a pollutant from the insured vessel and the Member has satisfied the Club that all reasonable measures have been taken. Other fines are only covered by the P&I insurance on a discretionary basis.

Practical and legal issues

New charters entered into prior to 1 January 2020 but which will extend beyond that date will need to contain specific terms to deal with the new regime. However, ship owners should also review the terms of existing charterparties which extend beyond 1 January 2020. If uncertainty exists then it is advisable to agree certain addenda with charterers so as to avoid any potential disputes in the future. Some of the issues which might arise are:

1) Seaworthiness: As part of Clause 1, owners must maintain the vessel’s class and ensure that she complies with international and national maritime rules and regulations, i.e. is “legally fit” for the chartered service.

2) Cost of bunkers: Charterers are to provide and pay for all fuel whilst the vessel is on hire (see clauses 2 and 20 of the NYPE). Charterers will be required to supply fuel which complies with the new sulphur limit, in line with ISO 8217 standards, and which is “of a quality suitable for burning in the Vessel’s engines and auxiliaries”.

3) Quality of bunkers / Removal of non-compliant Fuel: Under the BIMCO Bunker Fuel Sulphur Content Clause, charterers are required to supply bunkers of such specifications and grades to permit the vessel to comply with the maximum sulphur content requirement of any ECAs within which the vessel is ordered to trade. The BIMCO quality control clause requires charterers to supply bunkers which comply with ISO 8217 standards, and which are “of a quality suitable for burning in the Vessel’s engines and auxiliaries”.

4) Bunkers on redelivery / Definition of bunkers: In relation to delivery and redelivery quantities, bunkers have only been defined as “high sulphur fuel” and “low sulphur fuel”, in line with the two categories of bunkers available today. It may of course be the case that the charterparty fuel prices (agreed pre 2020) do not reflect the cost of buying fuel post 2020. However, the parties will be stuck with the bargain that they have reached, with the result that charterers in our example could end up ‘selling’ bunkers on redelivery to the owners at a significant discount. From 2020 however there will be three categories: fuel with sulphur content of (a) < 0.1% m/m, (b) < 0.5% m/m, and (c) < 3.5% m/m. It is suggested that post 2020, in all cases, “low sulphur fuel” should sensibly be interpreted to mean fuel with a fuel sulphur content of < 0.1% m/m. So the charter prices would apply accordingly.

5) Switching fuels: Different limits on sulphur emissions exist inside and outside of ECAs, and this will continue beyond 2020. Switching fuels has become commonplace, and will also continue. If crew competency issues arise from switching fuels, then the vessel will be off-hire, and owners would not be entitled to an indemnity from Charterers. Such matters are for owners as they relate to the use and management of the vessel.

6) Performance warranties: Charterparties usually contain performance warranties giving specific speed and consumption allowances for different fuels. The performance warranties given on vessels with scrubbers are not likely to be affected. However, any warranty given for specific fuel types may no longer apply, or may need revision. Owners should check the wording of performance warranties in existing charterparties, and should not provide performance warranties relating to any new fuels without knowing how the vessel will actually perform whilst using them (owners may wish to speak with engine manufacturers in that regard).

7) Scrubbers – costs involved: The costs of scrubbers can range from around US$900,000 to US$3,500,000, and that does not factor in installation costs. If a vessel is fitted with scrubbers, then their maintenance is for owners as already noted. The cost involved in disposing waste from scrubbers is not expressly dealt with under the charter. However, even if owners need to foot the bill in the first instance, it is suggested that these costs would likely be recoverable by way of an indemnity from charterers. The logic of this is that waste is created by following their orders (to burn fuel with a higher sulphur content and use scrubbers).

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