26-09-2018

Is your charter party ready for 2020?

As the deadline for the IMO’s global low-sulphur fuel requirements fast approaches, it is necessary to carefully check the bunker clauses in the charter parties. The time to start thinking about what is in the charter party is not 1 January 2020. There will be an important transitional period in the run up to this date, during which owners and charterers need to prepare and plan for the switch to compliant fuels.

Many older forms of standard time charter parties do not contain the detailed and comprehensive provisions required to deal with modern bunkering issues. The industry needs to start thinking now about the implications of low-sulphur fuel requirements on long-term contracts of affreightment (COAs) and time charters that may begin before 2020, to avoid contractual disputes.

It is vital that charter parties and COAs make it very clear that the specifications of the fuel supplied to the ship by the charterers must be compliant. Many older standard forms do not have any provisions concerning fuel types, specifications, sampling and testing – but all these aspects need to be addressed.

BIMCO plans to supplement its existing suite of bunker clauses with a new clause dealing specifically with the 2020 global sulphur cap. Work on this high-priority new clause begins in September.

Who picks up the fine if the fuel is not compliant?

From 2020, it will be the shipowners’ responsibility to make sure the ship is compliant with the new low-sulphur fuel regulations – so the shipowner will be the one who is fined if the ship is caught without the right fuel on board. That makes the owner very dependent on the time charterer to provide the right type of fuel, and if the charter party is vague – or does not deal with the issue – there will be disputes.

Grant Hunter, Head of Contracts and Clauses, BIMCO

The industry needs a clause stating that, if the charterer does not deliver the right type of fuel, he will protect the owner from any consequences or fines if he gets caught by port state control. Such a clause also needs to deal with the potential complications of the many ways of formulating low-sulphur fuels. BIMCO’s head of contracts and clauses, Grant Hunter, says the industry does not yet fully understand what the effect might be on engines, even if the same type of fuel is mixed, but from different batches.

“If there is a delay or a problem with the engine because the fuel has been mixed – even if that fuel is compliant – who will pick up the cost for the delay? These types of questions are becoming urgent as we go through the transitional period,” Hunter adds.

“You cannot wait until 1 January 2020 to switch to these new fuels; you might be halfway across the Pacific, and you need the right type of fuel on board before finding yourself there. You will need to start before you are legally obliged to.”

Scrubbers – should the bill be shared?

Another area that BIMCO will be examining is the use of scrubbers. Some owners may decide to fit a scrubber on the vessel and, so, continue to use heavy fuel oil instead of buying the compliant, but more expensive, low-sulphur fuel. If a scrubber is installed during a long-term time charter contract, should the time charterer contribute to the cost of the scrubber?

“If the ship has a scrubber system, the charterer will benefit in the short term because they can continue to buy and use heavy fuel oil – which, initially, will be much cheaper than 0.5% low-sulphur fuel. The shipowner may then ask if that is fair, or if the parties ought to share the cost of fitting a scrubber on the vessel,” Hunter says, adding that such a cost-sharing agreement must be specified in the contract.

For these and many other reasons, BIMCO has gathered together an expert team of representatives – from shipowners, charterers, technical experts, and lawyers – with P&I Clubs to look after the insurance aspect. The group will start working on the new clause in September, with the aim of producing the clause as quickly as possible to help minimise the number of disputes as the 2020 sulphur cap deadline closes in on the industry.
Source: BIMCO Bulletin, By Mette Kronholm Fraende, Communications Manager at BIMCO

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