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Bunkers - a looming nightmare


We thought that the Ballast Water Convention had caused the largest ripples in the shipping industry for some time. We were wrong.

This accolade, if you could call it that, goes to IMO’s low sulfur cap and zero emissions decrees.

Although I am in complete agreement with the reasoning behind these edicts, unlike a certain US President, there is no doubt that the result will cost the shipping industry billions.

As has been well documented and debated upon, shipowners and operators have to do something and pretty quickly to comply with the 1st January, 2020, 0.5% low sulfur cap.

Next year’s IMO MEPC and MSC meetings are going to prove pivotal in laying down the guidelines needed to the various industry segments involved.

One of these segments is the bunker supply sector. There is no doubt that bunker suppliers could be caught out by different blended fuels, taken from different refinery runs.

But this has been a problem before, illustrated by the 100 or so vessels hit by bad bunker stems in Houston and elsewhere earlier this year.

Both BIMCO and the P&I clubs are suggesting new clauses in charterparties to cover any liability problems coming to light.

It basically depends on who is operating the vessel at the time of a bunker stem. Normally it is down to the owner or manager on a voyage charter and the charterer who is responsible for bunkering the vessel.

BIMCO’s new timecharter clause states that charterers (operators) are obliged to provide fuel that complies with MARPOL requirements, grades and specifications set out in the charterparty, and it is a general compliance clause.

It also states that charterers must use suppliers and bunker barge operators who comply with MARPOL and that shipowners will remain responsible for the fuel management.

Another clause focuses on co-operation between owners and charterers to minimise quantities of non-compliant fuel on board by 31st December, 2019.

It states that any remaining non-compliant fuel on board after 1st January, 2020 has to be removed no later than re-delivery or 1st March, 2020 – whichever comes first. It also says that removal of non-compliant fuel must be done at the charterers’ cost, while tank cleaning must be done at the shipowners’ cost.

The 1st March, 2020 date is significant as from that day ships will not be allowed to have non-compliant fuel on board unless fitted with a scrubber.

Although still relatively small, scrubber orders have accelerated recently and we have even seen Frontline and TORM invest in scrubber manufacturers to guarantee availability of equipment for their vessels.

 

Fraud question

It is not just bad stems that are affecting the bunker supply market. Fraud seems to be another problem, especially dealing with the large sums involved in a bunker stem.

In November, 2014, at the time the world’s largest bunker supplier, OW Bunker became insolvent, resulting in some shipowners paying twice for their stems, due to not being diligent over who they had made a contract with. This led to a hasty revision of bunker supply clauses to state clearly who the parties involved are.

The insolvency was due to an executive of OW’s Singapore subsidiary allowing a large amount of credit to an alleged dubious bunker supplier.

A couple of months ago, Aegean nearly suffered the same fate, due to alleged misappropriation of funds to the tune of about $300 mill.

However, the company already had a ‘white knight’ willing to invest in the company, which was accepted by the US Bankruptcy Court in which Aegean had filed for protection under Chapter 11.

The significance of this is that Aegean claims to be the world’s largest independent bunker supplier and has operations worldwide, so the knock-on affect of the company ceasing trading would have been substantial.

Of course, bunker suppliers are subject to the vagaries of oil price volatility and as yet, nobody has said with any clarity, what the cost of IFO, LNG or other blended types of fuel will be come 1st January, 2020.

This appears to be what the scrubber supporters are gambling on - the price of HFO and its continued availability. If there is a wide price difference between HFO, distillates and LNG, the scrubber manufacturers claim that the payback time could be as little as 12 months.

Another argument being banded about is that period charterers will opt for vessels, especially large tankers, fitted with scrubbers, as the fuel could be considerably cheaper.

IBIA has pointed out that IMO member states that are parties to MARPOL Annex VI are supposed to tell the organisation of the availability of compliant fuel oils in their ports.

There is an established mechanism to do so and now it is hoped this can be used to help shipping companies prepare for 2020 with detailed information about where and when compliant fuels will be available.

It follows a proposal by Liberia put to MEPC 73 to ‘issue a resolution urging states to report the availability of compliant fuel oil well in advance of 1st January, 2020 to enable shipowners and operators to gain experience on the carriage and use of the new fuels on their ships and with proposed ship implementation plans to enhance a smooth and effective transition to the new regulatory requirements, IBIA said.

 

 

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