As the vast majority of the shipping community will already be aware, on 1 January 2020 the new sulphur content limits in Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL) came into effect. These new limits require the sulphur content of fuel oil burnt by commercial ships trading outside sulphur emission control areas to be 0.5% m/m or less, apart from those ships using equivalent compliance mechanisms (eg, using exhaust gas cleaning systems, also known as scrubbers or liquefied natural gas – see Regulation 4 of Annex VI).
With the upcoming carriage ban in the forefront of everyone's minds, this article outlines some of the contentious issues which have and may arise as a consequence of the shift to compliant fuels or scrubbers for shipowners, charterers and operators, from disputes with bunker or scrubber suppliers to challenges with regulatory enforcement.
The latest issue facing shipowners is the carriage ban of high sulphur fuel oil (HSFO) for ships without operational scrubbers which came into force on 1 March 2020. The carriage ban's introduction means that authorities will be able to fine ships carrying HSFO as fuel without needing to prove that HSFO has actually been used as fuel. Some jurisdictions have even banned, or are considering banning, the carriage of HSFO as cargo. To avoid falling foul of the ban, some ships may have to discharge the HSFO that they are carrying or ensure that it will be deemed as cargo. Shipowners and operators should also actively monitor regulatory activity relating to the carriage of HSFO in the areas in which they operate.
As of 1 January 2020, ships without scrubbers must burn bunkers which comply with the new sulphur limits. However, even though these new blends of bunker may be compliant in respect of sulphur content, they may also be incompatible with the ship's machinery. This could be due, for example, to cat fines or higher wax contents in new compliant blends, as well as different cold flow properties and flash point levels. Further, if not properly addressed, excess total sediment in compliant fuels could also result in clogged filters.
There are also mounting concerns about issues arising from the comingling of fuels. At present, compliant fuels may be stemmed from a number of providers adopting different blending methodologies which may be incompatible with each other, in the worst case leading to machinery failure.
It is important that shipowners, charterers and operators are aware of the potential risks from compliant fuels so that they can be carefully managed, with the risks appropriately allocated between shipowners, charterers and bunker suppliers. The responsible party for the quality of the bunkers must therefore ensure that not only does the fuel meet the required sulphur standard, but that it is compatible with the ship's machinery, as well as arranging adequate sampling, testing and comingling regimes.
Shipowners and operators must also ensure the proper management of different fuels and where necessary, segregate fuels from different suppliers. In addition, it may be appropriate to review the terms of bunker supply contracts and details of bunker delivery notes, particularly with a view to time bars for quality claims and procedures for adequate sampling. In charterparties, it will also be necessary to allocate risks and responsibilities in relation to bunker quality and claims between shipowners and charterers (with the Baltic and International Maritime Council and the International Association of Independent Tanker Owners having already published revised bunker clauses for time charters).
Just under two months after the implementation of the new limits, interesting questions have arisen in relation to the interpretation of marine fuel oil analysis test results to ensure compliance and avoiding enforcement measures from port state controls (PSCs). An understanding of the exact compliance requirements is particularly important in light of the recent reports of ship operators having purchased low sulphur fuel oil from bunker suppliers only for it to transpire that the sulphur levels exceeded the 0.5% m/m limit. This is likely due to erroneous blending while bunker suppliers try to get as close to the limit as possible.
Although as things currently stand the bunker delivery note is taken to be the initial indication of conformity to the new limits, PSCs can test fuel samples and there is no way of knowing whether they will decide to do so.
MEPC.1/Circ 882, as circulated by the International Maritime Organisation (IMO) Marine Environment Protection Committee, outlines amendments which have been made to compliance verification procedures. Importantly, it stipulates that to comply with the MARPOL delivered sample, which is the sample taken at the time of the delivery of the bunkers, should not exceed 0.5% m/m in sulphur content. However, the sulphur limit for a sample of fuel on board a ship or in use, which refers to a sample taken after delivery in the ship's storage tank, is slightly higher at 0.53% m/m.
The IMO has adopted these amendments in Appendix VI of MARPOL to ensure that a 95% confidence limit applies to on-board or in-use fuel oil samples so as to cater for the variation associated with different testing processes. In practice, this means that when a PSC takes and analyses an on-board or in-use sample for verification, a sample with a sulphur content of up to 0.53% m/m would still be considered to be compliant. The rationale behind this amendment is to ensure that ship operators are not penalised for nominally exceeding the 0.5% m/m limit.
However, there is no 95% confidence limit applied to the sulphur content of fuel oil which is supplied by bunker suppliers to ships. This means that if the fuel oil supplied by bunker suppliers is in excess of 0.5% m/m sulphur content, it is not compliant. If operators test the bunkers at the time of delivery and they are non-compliant, they are not under an obligation to inform the PSCs. However, this could be seen negatively by the PSCs when it comes to enforcement action and so shipowners, charterers and operators would be prudent to seek legal advice as soon as possible if this situation occurs.
The abovementioned limits and tolerances must be kept in mind by operators when sampling stems at the time of delivery and when appropriately blending bunkers on board for use.
Generally speaking, scrubber technology on board vessels is still in its developmental phase and has yet to be tested over time in the marine environment. Risks such as fire, corrosion and functional failure are envisaged, and already being reported, with the potential for claims being brought against technology suppliers and yards as well as between shipowners and charterers.
The procedures required for the maintenance of the scrubber technologies also adds new responsibilities for crews, shipowners and operators. When fixing a charterparty it will therefore be necessary to be mindful of the need to allocate the responsibilities and risks relating to scrubbers. It should also be noted that the discharge of scrubber water may amount to breach of environmental regulations. Certain states have banned such discharges and it is likely that others will follow suit. Proper handling of scrubber water is therefore important and it is necessary to put disposal procedures in place.
As mentioned above, governments and national authorities are responsible for the enforcement of the sulphur cap through flag state certificates and port state control. To enforce the limits in Annex VI of MARPOL, authorities will monitor bunker delivery notes and may use remote sensing and portable devices to test for compliance. The results of such remote or portable tests are merely indicative and authorities will therefore have to carry out further inspections if there are clear indications that there is a violation of the sulphur cap. During such procedures, it is important to ensure proper sampling and avoid undue delays.
Ships which find themselves operating without compliant fuels or functional scrubbers will be exposed to risks of penalties. There are concerns about the consistency of the enforcement and penalties under Annex VI. While the regulations require that the penalties be "adequate in severity to discourage violations… irrespective of where the violation occurs", the level of fines, for instance, varies greatly.
The submission of a Fuel Oil Non-Availability Report (FONAR) is a factor which could affect the level of the penalty imposed, documenting that the ship, despite its best efforts, is unable to acquire compliant fuel. Although the submission of a FONAR is not expected to result in a waiver or an exemption from the regulations, it will be an important piece of evidence when assessing whether the unavailability of compliant fuel is a reason for a ship not complying with Annex VI. That said, shipowners under time charterparties may be wholly dependent upon charterers' evidence of best efforts to avoid non-compliance.