Shipowners and charterers face Brexit like uncertainties with IMO 2020 sulphur cap

Lawyers from Reed Smith liken the raft of uncertainties facing shipowners and charterers in their charter contracts relating to compliance with the IMO’s 2020 sulphur cap to that of the UK with Brexit.

Speaking to Seatrade Maritime News, Reed Smith Singapore partner Daniel Perera, and S Mohan, managing director of Reed Smith’s Singapore alliance firm Resource Law, listed a range of uncertainties around sulphur cap compliance including fuel price in 2020, availability of low sulphur fuels, fuel quality and engine compatibility, and the regulation of open-loop scrubbers.

“It’s a little bit like Brexit because no-one actually really knows what is going to happen and how this is all going to come out in the wash,” Perera comments in an interview.

“You’ve still got all sorts of new developments to deal with on almost a daily basis, and there is no doubt there will be disputes arising out of this.”

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With strong practices in both shipping and commodities Reed Smith is seeing the equation both from the shipowner’s and charterers perspectives.

From the shipowner perspective Mohan says that in Asia they see a lot anecdotal evidence that smaller owners were, “still waiting to decide when to get their act together in terms of installing scrubbers”. Given the lead time for ordering and installing a scrubber this he says means owners are “technically left themselves with just one option” come 1 January 2020 - to use low sulphur fuel oil. Perera comments that these owners will be “hostage to price and availability”.

Mohan foresees a “discernible increase” in the number of disputes arising from the use of low sulphur fuels due to the nature of the fuels themselves, issues of engine incompatibility and the inability of crew to deal with issues arising from the new fuels.

Looking at the charter said Perera explains, “We act for some of the world’s largest charterers, including the largest charterer, and they all have this level of uncertainty as to how this will play out and how their charters will be affected by this, what they need to do and ultimately how they will impacted by this.”

Read more: The 2020 sulphur cap – Why you need to review your charter parties

There is a question of how it will impact the price of commodities as ultimately someone in the chain will have to pay for the cost of compliance with the low sulphur regulation.

“We’ve seen clients approach it from a number of different angles and what’s clear is there is no firm industry view as to how this will play out, and this prevails,” he says.

In terms of clauses for the sulphur cap that are being written into charter contracts Perera questions the ability to enforce these clauses given the way they are written.

“We’ve seen a number of attempts by parties dealing with it [IMO 2020] in charter clauses and one of the prevailing themes is a large part of it is vague or banking on the ability to review all of this closer to the time or post implementation. How easy any of this is going to be to enforce within charter parties is anyone’s guess at this stage.”

Posted 15 February 2019

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Marcus Hand

Editor, Seatrade Maritime News

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