The upcoming MARPOL Annex VI requirements as of 1 January 2020 are expected to create a number of operational, technical, financial and legal challenges for Owners and Charterers. From 1 January 2020 (the “Effective Date”) vessels not fitted with scrubbers will no longer be able to burn fuel with a sulphur content in excess of 0.5% as a result of the implementation of the revisions to IMO Marpol Annex VI. Furthermore, under these regulations such vessels will no longer be able carry fuel in bunker tanks with a sulphur content in excess of 0.5% from 1 March 2020 (the “Carriage Ban”). As estimates predict that only around 5% of the world’s fleet will have installed scrubbers by this deadline the majority of vessels will face the switch to low sulphur fuels.
In response to the upcoming implementation of these revised regulations BIMCO has published two sulphur content related bunker clauses:
• BIMCO 2020 Marine Sulphur Content Clause for Time Charter Parties.
The 2020 Marine Fuel Sulphur Content Clause deals with the respective obligations of Owners and Charterers to comply with the low sulphur requirements from 1st January 2020. The Clause is intended to offer a balanced division between the parties. In principle the clause obliges Charterers to provide compliant fuels and if they fail to do so provides that the Charterers will indemnify Owners for the associated consequences (excluding consequential losses). The Clause also provides that Owners warrant that vessel will comply with the Sulphur Content Regulations. As the Clause refers to Marpol Annex VI “as amended from time to time” it is a natural replacement for the BIMCO Fuel Sulphur Content Clause 2005 and can be incorporated into time charter parties immediately. The new Clause forms an integral part of BIMCO’s Suite of Standard Bunker Clauses for Time Charter Parties.
- The Clause deals only with compliance with sulphur content. Owners need to ensure that other issues relating the specifications, grades, quality and suitability of the fuels supplied should be dealt with by existing bunker clauses in time charters.
- The parties should ensure that the fixture recap/rider clauses contain express reference to compliance with the revised MARPOL annex VI and the 0.5% limit.
- The switch to low sulphur fuels is likely to lead to an increase in bunker quality and contamination claims as fuel producers experiment with new blends to meet the new high demand for low sulphur fuel oil. We have recently commented here on the issues that can be faced as a result of off-spec/contaminated bunkers and in light of the anticipated issues with low sulphur fuel oils it is more than ever essential that the parties incorporate adequate bunker quality clauses into time charters.
- The 2020 Sulphur Content Clause does not deal with the issue of delivering/redelivering vessels with different grades/quantities of fuel and the effect that will have on prices of fuel on board upon redelivery. Time charters traditionally contain clauses agreeing approximately the same quantities on board at delivery and redelivery. Such a clause will clearly not be adequate for time charters spanning the Effective Date and consequently Owners and Charterers need to ensure that this eventuality is covered in a properly drafted bunker clause.
• BIMCO 2020 Fuel Transition Clause for Time Charter Parties
This Clause has been specifically designed to deal with the transition from high to low sulphur fuels for vessels on time charters that will or may span the Effective Date. As far as Charterers are concerned the Clause obliges them to supply the vessel with sufficient compliant bunkers to reach the nearest bunkering port where compliant fuel is available by the Effective Date and the further obligation to offload any non-compliant fuel prior to Carriage Ban or the date of redelivery, whichever occurs first. The Clause places the obligation on Owners to ensure that the vessel’s bunker tanks are fit to receive compliant fuel. Furthermore, the Clause requires Owners and Charterers to “…cooperate and use reasonable endeavours…” to ensure that non-compliant fuels are no longer carried no later than the Effective Date. This is clearly an attempt to encourage Owners and Charterers to come to an agreement to burn low sulphur fuel prior to the effective date in order to flush out non-compliant fuel and thereby avoid the requirement to offload non-compliant fuel and clean bunker tanks.
- In addition to time charters expressly spanning the Effective Date is recommended that this Clause or similar provisions should be incorporated into any time charter that may eventually span the Effective Date through delay or extension.
- The 2020 Transition Clause makes no provision for an off-hire event in case an Owner is in breach of its obligations under the clause. It is therefore essential that the off-hire provisions elsewhere in the charter-party need to be considered to ensure that such an event is adequately provided for.
- The terms in the Clause requiring Owners and Charterers to “…cooperate and use reasonable endeavours…” to ensure that non-compliant fuels are no longer carried no later than the Effective Date are very much open to interpretation and could therefore prove to be difficult to enforce. It is recommended that express terms are incorporated into time charters allocating the specific responsibilities of each of the parties with regards to the period leading up to the Effective Date.
Although these two time charter clauses may assist in the transition to the obligatory use of low sulphur fuels on 1 January 2020 they are by no means a “one size fits all” solution to the issues that will be faced by Owners and Charterers party to time charters spanning the Effective Date.
BDM can advise you with regards to compliance issues and assist you with recommended amendments/additions to these two Clauses or provide bespoke clauses that better protect your interests.