IMO 2020 focus shifts to commercial contract preparations

The IMO 2020 timetable has been confirmed by two key decicions at MEPC73. Credit: Dietmar Hasenpusch
The IMO 2020 timetable has been confirmed by two key decicions at MEPC73. Credit: Dietmar Hasenpusch

Amid ongoing technical wrangling about the implementation of the IMO 2020 sulphur cap, preparations for the legal implications for shipowners and charterers are now also taking centre stage.

Speaking to IHS Markit on 8 November, Rory Butler, a partner at law firm HFW (formerly Holman Fenwick Willan), emphasised the importance of preparing now, while there is still time, to ensure charterparties and other commercial contracts are drafted to deal with the issues thrown up by the sulphur cap.

His colleague, Alessio Sbraga, is part of a drafting subcommittee which has been working with BIMCO to develop two new standard bunker clauses for use in charterparties: one to cover the ‘transitional period’ leading up to and immediately after 1 January 2020; the other, the main ‘compliance clause’, setting out the parties’ obligations and liabilities in providing fuel of the required sulphur content during the charterparty. The subcommittee is made up of experts from across the maritime industry representing owners, charterers, fuel suppliers, P&I clubs and HFW.

BIMCO had hoped to have the compliance clause ready by the end of October but this has not proved possible. The plan now is for the clause to go before the BIMCO documentary committee in mid-November for adoption, together with a first draft of the transitional clause. The aim then is to further refine the transitional clause and for both clauses to be published as a package as soon as possible thereafter.

A third BIMCO clause dealing with scrubbers is expected in early 2019. This is likely to address possible sharing of installation costs between an owner and a charterer, responsibilities between the parties regarding maintenance of the scrubber, and what happens in the event of a scrubber breakdown.

According to Butler, scrubbers are increasingly featuring in his conversations with HFW clients. Over the past three or four months a number of charterers have asked owners to install scrubbers, particularly on container vessels on long term timecharters. HFW is working with its clients to draft suitable terms into charterparties.

The bigger issue for Butler, though, is to ensure that all clauses in new and existing charterparties relating to bunkers are reviewed to identify potential sulphur cap issues.

These include determining when the switch from high-sulphur to low-sulphur fuel should be made, when to carry out bunker tank cleaning to ensure compliant fuels are not inadvertently made non-compliant by the presence of residual high-sulphur fuel, and the valuation of bunkers at delivery and redelivery.

These issues are similar to those highlighted by North P&I’s Tiejha Smyth when she spoke to IHS Markit last May and were emphasised again by her when speaking at a UK Chamber of Shipping event last week. However, both Butler and Smyth believe that many of the potential problems can be avoided if proper due diligence is carried out now, although Butler still expects a spike in charterparty claims relating to bunkers in early 2020.

The debate about the 2020 sulphur cap in recent months has centred, largely, on lingering questions about the timetable for enforcement: whether to allow an experience-building phase and when to impose the carriage ban on non-compliant fue, and on the commercial and environmental conundrum of whether or not to fit scrubbers.

But with the timetable for implementation now confirmed by two key decisions taken at the recent meeting of the Marine Environment Protection Committee (MEPC73) and with the pre-2020 orderbook for scrubbers more or less full, shipowners and charterers are being urged to begin preparing in earnest to meet the technical, operational, and legal challenges they will face from the introduction of new low-sulphur fuels and blends about this time next year.

Speaking at the UK Chamber of Shipping sulphur cap event last week, Rob Cox, technical director at IPIECA, the oil and gas industry association for environmental and social issues, acknowledged there would only be sufficient compliant fuel to meet the needs of the shipping industry if blended fuels were used and that these posed potential risks to ships and their crews if not managed properly.

Cox and other speakers at the UK Chamber event highlighted the risks of switching between different fuel types and of mixing different blends of compliant fuels. A short film produced by BP demonstrated the result of mixing equal amounts of compliant aromatic and paraffinic fuels: the formation of significant amounts of sediment, sufficient to clog filters and cause possible loss of power on the ship. Other hazards, including fires and explosions, may arise from an increase in leaks caused by switching between different fuel types.

Concerns about safety have been raised at successive meetings of the International Maritime Organization, prompting IPIECA, together with the Oil Companies International Marine Forum (OCIMF), to work to develop guidance for the shipping industry on the handling, storage, and use of new fuels.

IPIECA and OCIMF are being supported in this work, known as the Marine Fuels Joint Industry Project (MFJIP), by the International Council on Combustion Engines (CIMAC), the Energy Institute, the International Organization for Standardization (ISO), and by other experts nominated by delegations to the IMO such as BIMCO, the International Chamber of Shipping, the International Association of Classification Societies, and Intertanko.

An outline guidance document is expected to be ready by December. Further details will be added as the specifications for marine fuels in ISO 8217 and the associated publically available specification (PAS 23263) are updated with the specifications for 0.5%-sulphur fuels and other considerations that may apply under the sulphurcap.

The MFJIP document will include the latest information available on fuel characteristics and potential compatibility issues between fuels as well as on the methods available for testing fuel quality. It will also include guidance on information that fuel suppliers should provide about the supply of existing and new fuels and measures they should take to ensure the fuel they supply will not adversely affect the safe operation of the ship. Once completed, the document can be used to develop training materials for ship operators and crews.

Despite the increased technical and operational variables associated with the new types of fuel, Cox’s overall message is that these can be managed with thorough planning and training. “It is quite a simple issue if preparation is done properly”, is the message he is taking to shipping companies and other organisations around the world.

At least some shipowners are heeding his warnings. Charles Maltby, CEO of Epic Gas, for example, told IHS Markit he had “put together an in-house team to prepare for IMO 2020”. The team is preparing contracts with charterers to make sure vessels will have the correct fuel qualities on board on delivery and redelivery and stemmed during the charter, while his operations team are working with their key bunkering ports to determine likely availability of low-sulphur fuels. He also has a technical team making sure they understand the potential risks of bunker contamination through use of incompatible fuels.

Another key element of preparing for the sulphur cap for shipowners and operators will be understanding the rules on enforcement, particularly the rules governing when they are entitled to use a Fuel Oil Non-Availability Report (FONAR) to obtain a waiver from using a compliant fuel. The rules, which are still being developed at the IMO, are due to be presented to a Pollution Prevention Response working group in February and then agreed at the next meeting of the MEPC in May.