In light of the soon approaching Sulphur cap, both shipowners and charterers should prepare to comply with the SOx regulations and potentially deal with the risks and responsibilities of each party associated with the new regulations in chartering contracts, the Japan P&I Club advises.
It is said that unless provisions in chartering contracts are in place, with the aim to deal with responsibility sharing, it will be challenging to deal with any problems if and when they arise. In such case, any potential tension leading to a legal process could be expensive, which is undesirable for either party, the Club notes.
Thereafter, it is proposed that charter contracts could include language that clearly stipulates that the shipowner guarantees that the ship will be able to use fuel oil that meets the sulfur standards as stipulated in MARPOL Annex VI.
Usually, charterers are responsible for providing fuel oil to ships, but in order to clarify the contract, the fuel oil supplied to the ship must meet the SOx regulatory sulfur content and that should be clearly stated in the charter contract.
If this the suitability of the oil is unclear, the ship apart from extremely limited circumstances, will not be able to use any non-conforming oil; it is thus a possibility that the ship may be stuck.
The next point to be addressed is who will be responsible for removing the nonconforming oil from the ship’s fuel tank after 1 January 2020.
Since the non-conforming oil is liquefied, extractable and discharged from the ship, there will be a problem of cleaning the fuel oil tank; if the fuel oil tank containing the nonconforming oil is not cleaned, the residue of the nonconforming oil may be mixed with the conforming oil when supplied to the vessel.
Many standard charter contract forms stipulate that the responsibility of cleaning a ship’s fuel oil tank in preparation for receipt of compliant oil is included in the owner’s maintenance obligations. However, the scope and extent of cleaning and the entity performing the individual work can be lead to a dispute.
It is said that if there is already an arrangement between the parties to the charter contract for the fuel tank cleaning procedure, it is effective to include in the charter contract the details of the party responsible for the cleaning procedure and the time and cost of cleaning.
It is advised to use up all the nonconforming oil until the first of January, yet it is best to keep the effective arrangements in advance between the parties, as it may not work for various reasons.
However, this issue is important because some ports may not be able to dispose nonconforming oils easily; only non-conforming oils can be properly treated and used as fuel on some ships with special equipment. Some ports are also expected to pay a third party for disposal of nonconforming oil.
Further to this, the Club is concerned about the operation performance of the ship, as it may deteriorate if the compatible oil is burned. For this reason, it should be considered to deal with speed claims when using compatible oil and claims to deal with insufficient vessel performance.
In addition to this, shipowners can consider inserting provisions into chartering contracts to address cases where the combustion of compatible oil can cause the degradation of operational performance.
In addition, it is necessary to consider the regulations regarding the handling of fuel oil when the ship is delivered and returned in relation to its quantity; it is noted that compliant oil is more expensive than non-compliant oil.
Charter contracts must be adjusted for risk and responsibility distribution and sharing according to each party’s position. While negotiating clauses tailored to individual circumstances takes time, unclear language used may not properly address the risk and responsibility sharing between the parties. For this reason, it is recommended that standard format is used, or that reference is made at the beginning of the negotiation.