Tanker owners are happy. VLCCs and Suezmaxes are generating strong cash flows and charterers are rushing to procure tonnage in an increasingly  tight market.  Commentators estimate that 40-50 older VLCCs have been commissioned on long-term charters to store  crude. Are there any legal concerns with tankers being used for floating storage? Tanker owners see  less risk in their tankers sitting stationary than sailing the high seas, but need to ask where  they will anchor, for how long and whether this changes the applicable regulatory regime. If a  ‘storage tanker’ is actually a floating storage unit (FSU), there is increased permitting required  and a reduced ability to limit liability under the International Convention on Civil Liability for Oil Pollution Damage. While the Convention  imposes strict liability for pollution damage on the Owner, it does allow for this liability to be  limited, absent actual fault of the Owner. This reduction in liability does not apply to FSUs  though.

Owners will need to know up front where the tanker will sit. This is for maintenance and staff planning even if it is not  a concern to the insurers. There are  obligations under Flag and Class for the Owner to fulfil, plus the requirements of the Hague or  Hague-Visby Rules and the law of the relevant coastal states.

Looking through the Tankers Fixtures List of the Lloyd’s  List on the day of writing, 25 VLCCs and  Suezmaxes were chartered, with two thirds of the VLCCs taken by Unipec for China with Reliance, oil  majors and traders accounting for the next. At the recent Marine Money, London Ship Finance Forum, it was reported that Chinese shippers were shopping for several VLCCs on 2 year charters  after concluding an agreement with Russian sellers desperate for cash as the sanctions take hold.

Where in the World...?

For the sovereign charterers, it makes sense to anchor close to home. The three big risks facing  tankers in parts of Asia are piracy, weather and terrorism. Owners have the technology and systems to look out for all three but may face reduced control so far from port.  Good intelligence is given by the live IMB Piracy and Armed Robbery Map and there may be metocean  data available for the area. It is this which will inform the tanker requirements, from global  strength of the hull to structural design of both hull and topsides to withstand fatigue cracks. If there is  a disaster, the Owner will be fully liable for a vessel failure which results from the strain of  standing too long at sea. Of concern is not only the financial liability, but also the  environmental damage that will ensue and the potential for loss of life.

Wherever located, the tankers will need space to move in strong winds and currents. With almost all tankers being double-hulled now, they are not as stable  in strong currents. Movement of the crude in ballast and cargo tanks can cause the tanker to sway  suddenly and, in addition, there may be leakage from the inner layer.

Other seas are off limits as they are Special Areas listed in MARPOL Annex 1 or are part of the  seven main transit ‘chokepoints’ for crude oil. These are obvious targets for pirates and  terrorists, as well as the risk of collisions and spills.

Some charterers choose much quieter locations as we saw from recent attempts to work around Iranian  sanctions. The ‘storage tankers’ were well hidden in the South China Sea. Not to the extent of the  United Kalavryta which disappeared from radar in the Gulf of Mexico for three days in Summer 2014  when the transponder was turned off (to help it hide from a legal arrest). It sat completely  invisible with a million barrels of crude even from informed Texan coastguards.

The Charter allocation of duties

So are Owners using their negotiating strength to pass the additional vessel and environmental  risks to the charterers? This still leaves the Owner with the scheduling burden of dry docking, SIRE inspections  and Class surveys. Modification to the vessel and additional legal documentation may be required to ensure  the vessel is in every way fit for long term storage and MARPOL compliant.

Charter forms have not yet evolved to reflect the different consequences of a long anchorage at  sea. Clause 4 of Shelltime 4 does not require a charterer to indicate how many voyages the tanker  will undertake or whether it will be stationary. Relevant charter considerations remain:

  • The continuing duty to employ the tanker at safe ports and within trading limits. The Owner may  object to instructions which take the vessel beyond trading limits and expose the vessel to  increased risks. The liability for this will sit with the charterer even if the additional insurance premiums are borne by them,  because of the safe port obligation
  • The Owners will usually define the capacity of the tanker to perform as contracted in ‘good weather’. It must still be capable of satisfying the Vessel  requirements set out in the charter and be in every way fit for the service contracted
  • The nature and extent of the Owner’s obligation to maintain depends on the exact wording agreed  by the parties to the charter. Additional attention is required if the tanker is to sit in warm  seas as the marine growth will undermine performance of the vessel
  • Due diligence and reasonable care in cleaning the hold and tanks will be both an express and  implied obligation of the Owner. The Shoko Maru explosion was caused by a crew member cleaning  paint off the deck when a little crude was remaining
  • Responsibility for cargo stowage frequently sits with the Owner but the charterer may accept  this liability to obtain its choice of vessel and location. The Oil Majors (led by Shell) who are  seen chartering the most VLCCs, perhaps for storage, are more amenable to this

Worst case

If the tanker becomes damaged or new regulations are adopted which impact on the ability of the  tanker to continue as a ‘storage tanker’, this may be a ‘frustrating’ event (under English law) and  may mean that any advance hire paid will be repayable by the Owner. A claim to the insurer for  ‘lay-up’ will not be possible because the tanker has been carrying crude.

And if there is an explosion, the Owner will look first to the insurance taken out in accordance  with the International Convention on Civil Liability for Oil Pollution Damage. This is an amount equal to the Owner’s total prescribed liability according to the tanker’s gross  tonnage. Even the amount applicable to VLCCs of up to 320,000 GT will pale in comparison with the  likely third party claims though.

In the haste to sign up another charterer and dust off another underutilized VLCC, Owners will be  asking where and for how long the tanker will be a storage unit and how the Owner will reconcile  that with its international legal and environmental obligations.