Be prepared! North P&I club warns of fuel transition problems
Tiejha Smyth sketched out an apparently confusing picture when she addressed last week’s UK Chamber of Shipping/IBIA seminar, ‘Be ready for the 2020 global sulphur cap’ on 18 June. She is the North Group’s deputy director for FD&D and echoed the former US Secretary of State for Defense Donald Rumsfeld, who famously spoke about ‘known knowns’ and ‘unknown unknowns’ in 2002.
Ms Smyth said that a number of charterparty clauses were available to address some of the challenges that owners and charterers will face in the final few months of this year and into the first quarter of 2020 but there is still “quite a lot of uncertainty” over such things as fuel availability and enforcement. But some things have become more clear: “In comparison to last year, what we do know is what we don’t know, whereas last year we didn’t really know everything that we didn’t know,” she said.
In other words, we now recognise the areas where there are still gaps in our knowledge and that, she said, “is a bit more helpful” than the level of knowledge a year ago although she fears that many of those gaps will not be plugged until after the turn of the year. Before then, preparing for that transition is “the big concern” she told the seminar’s attendees as she outlined some of the commercial challenges that owners and charterers must face. If they do not, the transition will not be smooth, leading to financial impacts and lost time “because of people arguing over what should or shouldn’t be done.”
For example, for a charterparty that is due to redeliver the ship in the final quarter of this year, “what bunkers should be on board on redelivery?” she asked. If a ship is redelivered close to the 1 January deadline with a large quantity of high-sulphur fuel, there may not be enough time for that to be used, leaving the owner “having to go through the expensive, time consuming and difficult process of discharging that fuel in the first quarter of next year.”
To avoid this, there should be an agreed cut-off date for when vessels may be supplied with high-sulphur fuel so that there is time for it be used and for any tank cleaning or pipework preparation to be carried out. “Whatever is going to be done to prepare the vessels, there has to be enough time,” she said.
Meanwhile, charterers have their own concerns, she pointed out, because they do not want their commercial operations being interrupted and would like to leave it as late as possible before having to purchase more-expensive compliant fuel. If these details are not dealt with in the charterparty “there could be a difficult situation,” she said, predicting “disputes in the final quarter [with] clashes about when compliant fuel is to be supplied to the vessel.”
To avoid these disputes, suitable charterparty clauses have been developed, such as one drafted by the North P&I Club itself, in response to demands from both its shipowning and chartering members, she said. Some law firms and shipping associations, such as BIMCO and Intertanko, have also issued clauses that each have a particular focus.
Ms Smyth welcomed their differences, which she said reflect the variety of preparations necessary for a range of vessel types and trades. “It is impossible to produce one charterparty clause that can fit every single scenario,” she said. BIMCO’s for example, “could just be slotted into charter parties” but is only relevant for charter parties that will span 1 January 2020. “It won’t help if the vessel is going to be redelivered in the final quarter of this year,” she said.
Intertanko’s clause, by contrast, deals with that transition period but also covers parameters such as bunker quality and sulphur content. It can also be amended to suit charterparties that will be redelivered at the end of the year. North’s own clause is also capable of being used in that way, she said, although “our clause very much focuses on transition” and guides agreement on both technical and commercial aspects, “having in mind a very clear timetable as to what needs to be achieved and when.”
Ms Smyth provided ShipInsight with a summary of those three clauses, which can be found at the end of this article.
For any owners or charterers considering fuel oil non-availability reports (FONARs) to avoid complying with the sulphur cap, she had a warning: filing a FONAR “does not create an exemption or a waiver. The vessel would still be non-compliant.” And it will not be acceptable to file a FONAR because the desired compliant fuel is not available. “It does not matter what the cost is. If there is any complaint fuel available that the ship can use safely, it should be bought to avoid a non-compliance situation.”
So a FONAR is simply a document that that port state control inspectors can take into account when considering whether or not to carry out enforcement action, she said, and that action could be severe. Singapore has already announced that criminal sanctions may apply and others might be thinking the same. “Anybody who is subject to enforcement action really should be quite concerned about that,” she said.
Transition clauses: A summary
BIMCO 2020 transition clause
This is only for charterparties spanning 2020 but it is advisable that the clause is used in charterparties that will end in 2019 in the event that redelivery is delayed.
- The main objectives of the clause are to:
- Ensure that the switch over to compliant fuel takes place before 01.01.2020;
- Ensure that any necessary bunker tank cleaning/preparation required before a vessel can be supplied with compliant fuel is done in time, ie before 1 January 2020;
- No non-compliant fuel is put in the tanks once they have been prepared for compliant fuel. Owners can agree to take non-compliant fuel if they want to in this kind of scenario but if they do then it would be sensible to agree what further cleaning will be required to prepare the tanks again for compliant fuel, and perhaps make this something for which charterers will pay. Owners might also want to limit the quantity of high sulphur fuel stemmed); and
- Ensure that any non-compliant fuel remaining on board the vessel after 1 January 2020 is discharged by 1 March 2020.
- The clause provides that:
- Owners will be responsible for bunker tank cleaning (at their cost, risk and time);
- Charterers will be responsible for removing non-compliant fuel (at their risk, cost and time);
- Both parties will co-operate to agree the finer detail of how this will be achieved and with a view to trying to ensure that all non-compliant fuel will be consumed by 1 January 2020, which will be the easiest, cheapest and quickest way to meet the carriage ban.
- This clause is much broader in scope than the BIMCO clause because it covers sulphur content, transition to compliant fuel and quality issues, amongst others.
- This clause has the potential to cover a range of different scenarios but, as a result, it will always need to be carefully considered and amended before use.
North Transition Clause
This clause covers/includes:
- A cut-off date (before the end of 2019) for supply of high sulphur fuel to the vessel;
- An agreement to consume all high sulphur fuel before the end of the year;
- A deadline for discharging all non-compliant fuel from the vessel in advance of the carriage ban date of 1 March 2020;
- Owners to pay for discharging bunkers if they couldn’t be consumed because of a vessel fault (eg engine damage, arrest (not charterers’ fault) etc);
- Owners also to pay to discharge any non-compliant fuel owned by them which couldn’t be consumed by the end of the year;
- Otherwise, Charterers to arrange and pay for discharge of non-compliant fuel in advance of the carriage ban;
- Bunker tank cleaning to be carried out by Owners at their time and cost;
- Only compliant fuel to be put into clean bunker tanks (although the parties can, of course, agree to vary this if compliant fuel is not available, which can be done without any special wording to that effect in the clause);
- Charterers to ensure there is enough compliant fuel on board by 1 January 2020;
- A limit on the quantity of high sulphur bunkers on redelivery if the vessel is to be redelivered within a range of dates at the end of 2019;
- A minimum quantity of compliant bunkers on redelivery if the vessel redelivers before 1 January 2020 but after the agreed date by which all high sulphur fuel has been consumed.
Source: This summary has been provided to ShipInsight by North P&I Club