In 2015, tanker rates soared to their highest amidst a surge of bookings following the drastic drop in oil prices. Vessels are being delayed during unloading as available on-land storage tanks are limited. Floating Storage Units (FSU) are becoming increasingly popular with the shortage of on-land storage availability. FSU's are a unique form of vessel which can expose both owners and charterers to increased risk. We look at the legal and regulatory risks you need to be aware of when using these vessels.
Where to anchor?
When deciding where to anchor, three risk factors need to be considered: piracy, weather and terrorism. Most owners have the technology to look out for these risks, but they may face difficulties if the vessel is situated away from a port. In particular, there are Special Areas listed in MARPOL Annex 1which are part of the seven main transit "chokepoints" for crude oil. These are obvious targets for pirates and terrorists, and also present an increased risk of collision and spills.
Charterers need to consider the ideal location to anchor the vessel so it fulfils its function as an FSU. Charterers have a continuing duty to employ the vessel at safe ports and within trading limits. This way owner's can object to instructions which take the vessel beyond trading limits and expose the vessel to increased risks. Charterers will be held liable if they breach these terms.
Ensuring the vessel is seaworthy
Owners have an on-going obligation to maintain, take reasonable care and carry out due diligence of the vessel to ensure that it is seaworthy. They need to be concerned with the strength of the hull, its ability to withstand fatigue cracks as well as the vessel's ability to cope with strong currents. Ensuring that the vessel has enough space to move in strong winds and currents in particular is crucial as owners could be held liable for the vessel's failure to remain stationed at sea if there is an incident.
In addition, owners need to be aware if the vessel is to remain stationary in a warm sea area as warm temperatures could have an impact on the vessel, and lead to hull fouling. This could result in loss of time from diminished vessel performance and costs associated with hull cleaning. In a worst case scenario this could end in an underperformance dispute between owners and charterers.
Satisfying charterparty requirements
Whilst owners will often define the vessel capacity to perform in 'good weather', charterers need to ensure that the vessel is in every way fit to satisfy the vessel's requirements as agreed under the charterpa rty. Most charterparty forms are yet to evolve to reflect the implications of the long-term anchorage of vessels at sea. For example, clause 4 of Shelltime 4 does not require a charterer to indicate how many voyages the vessel will undertake or whether it will be stationary. In fact, charterers could be forced to agree to onerous additional obligations if they specify the location and duration of the vessel's employment as an oil storage facility.
Strict liability for pollution damage
Permits are requ ired to use the vessel as a FSU. The International Convention on Civil Liability for Oil Pollution Damage 1969 imposes strict liability for pollution damage. It also allows limitation of liability if the owner is not at fault by allowing victims of pollution to have a direct access to a shipowner's insurer. The CLC Convention is the first tier of funding and supports the ship owners via their P&I clubs or similar insurers.
It should be noted that if a vessel becomes damaged, or new regulations are adopted which have an impact on the ability of the vessel to continue as "storage" this may qualify as a "frustrating" event (under English law). Advance hire paid by the charterers, may be repayable by owners.
In 2015, 40+ VLCCs were booked on long-term charters for the purpose of storing crude oil.
- Ensure its location fulfils its function as an FSU
- Employ the vessel at safe ports and within trading limits
- Ensure the vessel fulfils its requirements under the charterparty
- Maintain, take reasonable care and carry out due diligence of the vessel
- Ultimately ensure the vesel is seaworthy.