Insurers tell shipowners to solve fuel issues fast

Some owners have already installed scrubbers to avoid a last-minute push for yard access. Credit: Dietmar Hasenpusch
Some owners have already installed scrubbers to avoid a last-minute push for yard access. Credit: Dietmar Hasenpusch

Insurance broker Marsh has cautioned shipowners that they may face significant penalties unless they tackle the impending new rules for low-sulphur fuel emissions.

Its report, Emissions Regulations: Concerns for the Marine Industry, warns shipowners that if any of their vessels are deemed unseaworthy by failing to comply with the more stringent sulphur emissions regulations, their insurance cover could be affected.

The International Maritime Organization (IMO) is to implement new regulations to reduce the sulphur footprint of commercial shipping vessels on 1 January 2020. Under Annex VI of the IMO’s International Convention for the Prevention of Pollution from Ships (MARPOL), the global cap on sulphur emissions will be reduced from the current 3.5% to 0.5%.

As an alternative to burning low-sulphur fuel, shipowners can opt to continue burning high-sulphur fuel oil and treat the exhaust gas using a scrubber, or retrofit their vessels to burn an alternative compliance fuel such as liquefied natural gas (LNG).

The broker fears, however, that there will be a stampede to access yards to make such alterations in the run-up to the implementation date and that those who plan too late will be forced to use compliant low-sulphur fuel until the necessary work is carried out.

“As 1 January 2020 approaches, Marsh envisages large numbers of vessels seeking to book space in repair yards for the installation of equipment or conversion to LNG in an effort to comply with the MARPOL requirements,” said Marcus Baker, Marsh’s marine practice leader.

“Latecomers may find that convenient or preferred yards have no room and, being unable to comply with the new sulphur cap rules by 2020, may risk their vessels becoming non-compliant, which could have ramifications for their insurance provision. Shipowners should act early to ensure any modifications that are required can be carried out in good time.”

Shipowners should not assume that their insurance coverage will remain in place if their vessels are found to be non-compliant after the regulations are enforced, the report notes. Failure to comply with international conventions − and consequently losing flag state convention certification – may affect the validity of a shipowner’s insurance policy if it continues to operate without prior insurer consent.

Shipowners’ concerns about compliance extend beyond the implications for insurance coverage. Carrier organisations such as BIMCO, INTERTANKO, and the World Shipping Council have petitioned the IMO to institute a ban on carrying high-sulphur bunker fuel unless a vessel is outfitted with a scrubber as means of enforcing compliance.

The 2020 cap “will significantly increase ships’ operating costs and present major challenges to governments that must ensure consistent enforcement across the globe”, the groups said in a joint statement on 22 January. “Any failure by governments to ensure consistent implementation and enforcement could also lead to serious market distortion and unfair competition.”

The IMO’s Sub-Committee on Pollution Prevention and Response planned to take up the shipowners’ proposal at its 5–9 February meeting.

Shipowners hoping for a relaxation of the 2020 deadline − similar to what occurred with the implementation date of the Ballast Water Convention (BWC) − may be in for a disappointment, Marsh said.

“Confusion over the level of ballast water purification required and the cost and acceptability of equipment required to achieve compliance with the BWC made it necessary to relax the implementation of this convention, amending it to be brought in over a phased period between now and 2024,” the company explained. “However, shipowners are advised not to assume the same might happen with Annex VI of MARPOL. Coming to this conclusion about when the reduction in the sulphur cap will come into effect may be misguided.”

To underscore the point, the report cited comments made at the European Refining Technology conference in November 2017 by Edmund Hughes, technical officer with the IMO’s Marine Environment Division, who indicated the global sulphur cap reduction would come into force “on 1 January 2020 without any delay”.