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

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When it comes to the impact of the 2020 sulphur cap operational and regulatory issues have received a lot of attention, but there is also a commercial angle an North P&I is highlighting the possibilities of disputes and losses from charter party agreements.

North's Freight, Demurrage and Defense (FD&D) department is encouraging its members to review their charter parties as soon as possible and new charters drafted with clauses that take the 2020 sulphur cap into account. This applies to both owners and charterers when it comes to charter party contracts.

It is a view that fuel tester Douglas Raitt, global FOBAS manager for Lloyd's Register agrees with. "Charter parties will have to be looked at," he told a Wilhelmsen Ship Management seminar.

According to North there is no single clause in charter party contract that covers the potential issues that may arise from the 0.5% sulphur cap for marine fuel which comes into force globally from 1 January 2020, with the exception of Emission Control Areas (ECAs) where the limit will remain 0.1% as it is currently.

North says that all clauses related to bunkers and bunkering will almost certainly need reviewing. It also advises that instead of using the terms low sulphur or high sulphur fuel, specific sulphur limits such as less than 0.5% sulphur for operation outside ECAs, or more than 0.5% sulphur for vessels using a scrubber, should be inserted into the charter party.

The other clauses that require review depend on the contract itself, vessel type, the trade it is on, the method of compliance be it low sulphur fuel, scrubbers or other alternative fuels. These include:

  • When will the switch be made from non-compliant to compliant fuel, if this is to be in advance of 1 January 2020?
  • Performance warranties might be affected by fuel choice or if using scrubbers.
  • Trading warranties might be impacted by fuel availability.
  • Bunker tank cleaning might be required when switching between different fuels – even a small amount of non-compliant fuel could make otherwise compliant fuel, non-compliant - parties to agree who is to be responsible for cost and time.
  • Waste discharge from closed loop scrubbers and/or bunker tank cleaning – parties to agree who is to be responsible for cost and time.
  • Drydock clauses - not all current dry dock clauses will allow vessel to be taken out of service for scrubber installation so amendments might be needed.
  • Indemnities for non-compliance fines or detentions – Owners will bear the cost initially and might wish to be indemnified by Charterers.
  • MARPOL Annex VI responsibilities - setting out who is responsible for ensuring compliance, discharging non-compliant fuel etc.
  • Scrubber clauses - who will pay for installation; dry docking for installation; waste removal for closed loop scrubbers; off-hire in case of breakdown; bunker price adjustment if installed etc.

Owners and charter also have to consider other clauses that may relate to the 2020 sulphur cap.

To both raise awareness of the need to review charter party agreements and advise what needs to be done North P&I has been holding members seminars on the issue, has a 2020 Vision section on its website, and a new loss prevention guide on marine fuels.