Sulphur Emission with respect to Marpol Annex VI – Expert comment

The forthcoming changes to the rules governing Sulphur emissions in MARPOL Annex VI present tricky technical challenges to interested parties. We believe no other regulations in recent history of shipping has invoked the multitude of responses than the Sulphur 2020 cap.

Being unprecedented in nature, numerous meetings, conferences, programs and discussions have been held, many papers and articles propagated on this subject.
Constellation Marine services, in addition to being the regions premiere Marine Survey Company, puts great emphasis on consultancy too, and to that end, our organization has had the good fortune of being represented in various forum discussions, and we work closely with regulatory bodies to decipher the requirements behind this forthcoming change. It is, thus, with some degree of certainty, we state that the challenges introduced by the global Sulphur cap are not exclusively technical. Very little though has been discussed on its potential impact on contracts and charter parties. Although the new global Sulphur cap will not arrive until 2020, (now not too far away) forward planning now could help to avoid painful charter party disputes in the future. In our assimilation of various discussions Constellation marine have participated in, we firmly believe Time charter parties may require close attention, with more challenges anticipated for vessels already in long-term charter parties that are likely to go beyond the enforcement date of 1 January 2020. For the benefit of our clients, Constellation Marine services has assimilated the below narrative with a perception that this may be useful for our clients that enter into marine contracts and charter parties prior to and post enforcement of the Sulphur cap regulations. Based on our understanding there is no one “Magic Charter party” that would deal with all of the issues that may arise. However, there is no denying that most bunker clauses will require review, not to mention other clauses, entirely dependent on the chosen method of compliance. For vessels in existing charter parties and to be redelivered post 1st January 2020, the below may be a few points to consider: • What will be done, and at whose cost, with any non-compliant fuel on board that can no longer be used or is not allowed to remain on board? A prohibition on the carriage of non-compliant fuels will come into force on 1 March 2020 for vessels not fitted with scrubbers. Non-compliant fuels will have to be removed to avoid fines or the vessel being detained. If non-compliant fuel is not consumed before 1 January 2020, who will be obliged to arrange or pay for the removal of such fuel will depend upon the wording of the charter party. The parties may wish to agree in the charter party that non-compliant fuel will be used before 01/01/2020 to avoid extensive discharge costs and to maximize bunker tank capacity for compliant fuels, could be an option. • What is the definition of ‘high Sulphur’ and low Sulphur’? – This is a tricky one At the moment, vessels burn either ‘low Sulphur’ (0.1%S max) fuel in ECAs or ‘high Sulphur’ (3.5%S max) fuel outside ECAs. In 2020, there will be three Sulphur types (<0.1%S, <0.5%S and >0.5%S). This raises the question: what will ‘low Sulphur’ and ‘high Sulphur’ mean in 2020? The meaning of such terms we understand may have a significant impact on bunkers on redelivery calculations. • If scrubbers are being considered, who will pay for the installation and any associated delay or deviation? Will the vessel need to go to dry dock to fit scrubbers and will this be allowed under the charter party? It is seen unlikely that existing charter parties will expressly say who is to pay for a vessel to have a scrubber installed. It is only if the charterer is likely to benefit in fuel cost savings then there may be scope for a commercial agreement as to who will pay. At this moment the cost differential is up for argument. • Can Owners be compelled to fit scrubbers? Precedence has shown that the Courts have found that the owners were in breach of certain clauses in the particular charter parties for not having carried out the necessary modifications to comply with changes to MARPOL Annex I. But, the absence of scrubber on a vessel will not necessarily put the vessel or its owner in breach of MARPOL Annex VI or impact on the vessel’s documentation. (Reference Elli and the Frixos [2008] 2 Lloyd’s Rep. 11) In conclusion, where long term charter parties are already being in force, there is less scope for planning ahead. However, it might be possible to agree amendments to the charter party following commercial discussions and consultancy, if needed about how some or all of the issues will be dealt with. Where charter parties are entered into after 01/01/20, the issues to consider will we believe depend upon the chosen method for compliance: • Exhaust gas cleaning systems (scrubbers) The biggest debate we have observed here is – who will be responsible for waste effluent removal? Depending on the type of scrubbers used, effluent removal is necessary, either to sea or to a reception facility. It is imperative that who will be responsible for scrubber waste disposal will depend upon the wording of the charter party. For owners choosing open loop scrubbers, peculiar problems arise whether a particular port / territorial waters permit them to discharge effluents – posing another set of problems. • Will a higher daily hire rate be justified? In the present scenario, forecasts indicate HSFO (suitable for use with scrubbers) will be around USD 250/- to USD 300/- cheaper than distillates. Therefore it was seen argued that charterers may benefit financially from the installation of scrubbers, but industry pundits imagine this will lead to higher charter party rates for vessels fitted with scrubbers. • Will performance warranties be affected by the power demands of scrubbers? There is an unprecedented need to review performance clauses, in view that at this moment, the percentage of ships fitted with scrubbers is low to merit any viable performance data being validated. • Will the fuel prices agreed in the charter party need to be changed? Owners choosing blends, distillates and hybrids as the methodology for compliance have often remarked on who would be responsible for the cost and time of any bunker tank cleaning required due to switching between certain fuels? Will the bunker quality clause need to be amended, particularly given that some hybrid fuels do not fit comfortably into ISO8217, is posing a significant challenge to this method of compliance. Another often discussed aspect posing a challenge – Will suitable and compliant fuel be available during the vessel’s chosen trade? If not, who will be responsible for any additional expenses, fines etc.? Will the trading clauses need to be varied in view of any known (or non-compliant) fuel availability issues on the vessel’s chosen trade? We have also observed that similar challenges will prevail if emerging fuels (LNG) are to be used, and may also apply to existing long-term charter parties It has thus been observed that that charter parties that extend into 2020 may not clearly allocate responsibility between the ship-owner and the charterer for ensuring that their ships – and the bunkers they have on board – are compliant with the new rules. Thinking ahead starting now may be one option, in addition to any consultancy or expert assistance they clients may require, where Constellation Marine services are well placed to offer. SOURCES: UKDC defense Club – Soundings FAIRPLAY – FD&D conference article by Tiejha Smyth, dy. Director – North of England P&I FUJCON 2019 ASIAN MARITIME INSURANCE CONFERENCE – 2018 BOMIN GROUP HAMBURG HFW PRESENTATION AT FAIRPLAY 2018