SHIPOWNERS and charterers should be aware of snares and pitfalls attendant to the UN's low-sulphur fuel rules in strict emission control areas (ECA) in northern Europe and North America this year.
"In the event a vessel is found non-compliant, delays and costs including penalties for de-bunkering and re-bunkering with compliant fuel, may prove significant," said barrister James Smithdale of London's Stone Chambers.
Under the UN's Annex VI, the International Convention for the Prevention of Pollution from Ships (MARPOL) sets limits on sulphur oxide and nitrogen oxide prohibiting emissions of ozone depleting substances, he said.
"Generally speaking, compliance is the responsibility of shipowners, but this has to be considered against a background of where charterers provide bunkers," he said.
"It is therefore important for shipowners and charterers to have a clear scheme of responsibility and appropriate indemnities to deal with non-compliance," said Mr Smithdale as noted in New York's Maritime Advocate,
To help, BIMCO has published the Bunker Fuel Sulphur Content Clause for Time Charter Parties 2005. This clause was intended to balance the rights and responsibilities of owners and charterers in relation to SOx emissions.
The clause provides that charterers must provide bunkers that will allow compliance with the sulphur content requirements in relation to any emission control zone in which the vessel must trade.
Moreover, charterers must declare the bunkers used during the currency of the charterparty comply with the sulphur content rules and will compensate owners for losses resulting from non-compliance.
Finally, owners must declare that charterers have complied with their obligations that the vessel will comply with the requirements and that the vessel will be able to consume fuels required within an ECA.
Mr Smithdale said charterers must keep in mind the vessel's limited capacity to carry enough compliant fuel and the limited availability of compliant bunkers.
It appears that so long as a vessel is capable of burning compliant fuel and the relevant tanks are available for use, the shipowner would not be in breach of the 2005 BIMCO clause, although this issue will prove ripe for litigation," said Mr Smithdale.
"As a consequence, charterers may be left with a vessel that cannot operate within ECA without frequent refuelling, and yet with no recourse against owners for the additional cost and inconvenience," he said.
"Such will prompt owners to modify the vessel, lest it lose its marketability. Such modifications may include adapting additional tanks for compliant fuel or installing a scrubber," he said.
Some owners may be induced to have charterers meet the cost, he said.
"Although charterers are unlikely to be liable for such improvements under the terms of the charterparty, if charterers require the vessel to trade in ECA and the costs associated with refuelling and/or using more expensive low sulphur fuel exceed the cost of tank adaptation or installation of a scrubber, then owners may find charterers choose to pay for the improvements, notwithstanding the incidental benefit to owners," Mr Smithdale said.
In the event that a vessel is found to be non-compliant with ECA sulphur restrictions, there may be penalties to be paid. But no set sanctions have been established.
"Instead, they are set by individual parties, flag and port states. With the new 0.1 per cent standard leaving even less room for tolerance on sulphur contents than previously, it is anticipated that there will be greater scope for disputes arising on this issue," he said.
Disputes are likely owing to the various ways in which the non-compliance may be caused. Often there may be multiple potential causes, including supply of off-spec fuel, improper sampling and testing as well as contamination of fuel by previous fuel residues etc, he said.
"As already noted, scope for disputed facts in these areas is likely to be exacerbated by the lower margins within which the owners and charterers must operate. Greater specificity and particularity in bunker clauses may start to appear in future charterparties to help address these issues," said Mr Smithdale.
He the warned carriers of running afoul of otherwise innocuous bills of lading fine print which obliges ships to "proceed with utmost despatch", which may end hopes of deviating to avoid entering ECA wherever possible.
Not only to save money, but to avoid disputes. "However, charterers will need to take care not to put themselves in breach of contract as a result of taking a route specifically to avoid ECA," he said.