Contractual & Charterparty Issues

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Whether you are an owner or a charterer, you will need to consider both technical issues and review your contacts when preparing for 2020. Time charterparties will require particularly close attention, especially those that span the enforcement date of 1 January 2020 or end just before.

Unfortunately, there is no single “magic” charterparty clause to deal with all of the issues that might arise and we recommend that you review the entire charterparty. We are happy to help our Members with this review and to provide draft clauses when required. We have already drafted a number of clauses to deal with 2020 issues. Please ask your usual FD&D contact for more information.

The most important thing for you to consider as soon as possible is preparation for the switchover (please see our “Preparing for the big switch” section). We recommend that you include a transition clause in all time charterparties that will span 1 January 2020 or end in the final quarter of 2019. There are a number of transition clauses to choose from.

BIMCO 2020 transition clause

  • This is only for charterparties spanning 2020 but it is advisable that the clause is used in charterparties that will end in 2019 in the event that redelivery is delayed.
  • The main objectives of the clause are to ensure that:
    • the switch over to compliant fuel takes place before 1 January 2020;
    • any necessary bunker tank cleaning/preparation required before a vessel can be supplied with compliant fuel is done in time, i.e. before 1 January 2020;
    • no non-compliant fuel is put in the tanks once they have been prepared for compliant fuel – if you are an Owner, you can agree to take non-compliant fuel if you want to in this kind of scenario but if you do then it would be sensible to agree what further cleaning will be required to prepare the tanks again for compliant fuel, and who will pay for it. You might also want to limit the quantity of high sulphur fuel stemmed; and
    • any non-compliant fuel remaining on board the vessel after 1 January 2020 is discharged by 1 March 2020.
  • The clause provides that:
    • Owners will be responsible for bunker tank cleaning (at their cost, risk and time);
    • Charterers will be responsible for removing non-compliant fuel (at their risk, cost and time);
    • Both parties will co-operate to agree the finer detail of how this will be achieved and with a view to trying to ensure that all non-compliant fuel will be consumed by 1 January 2020, which will be the easiest, cheapest and quickest way to meet the carriage ban.

Intertanko clause

  • This clause is much broader in scope than the BIMCO clause because it covers sulphur content, transition to compliant fuel and quality issues, amongst others.
  • This clause has the potential to cover a range of different scenarios but, as a result, it will always need to be carefully considered and amended before use.

North transition clause

We have also drafted transition clauses for our Members (owners and charterers), which deal with:

1. A cut-off date (before the end of the year) for supply of high sulphur fuel to the vessel;

2. An agreement to consume all high sulphur fuel before the end of the year;

3. A deadline for discharging all non-compliant fuel from the vessel in advance of the carriage ban date on 1 March 2020;

4. What happens if non-compliant fuel can’t be consumed or discharged in time.

5. Who is to arrange and pay for discharge of non-compliant fuel in advance of the carriage ban.

6. Who is to pay for Bunker tank cleaning. 

7. Only compliant fuel to be put into clean bunker tanks (although the parties can, of course, agree to vary this if compliant fuel is not available).

8. Who is to ensure there is enough compliant fuel on board by 1 January 2020.

9. Bunkers on redelivery.

Please see your usual FD&D contact if you would like to receive copies of any of these clauses.

Other points that you should consider

1. Definition of 'high sulphur' and ‘low sulphur'

At the moment, vessels burn either ‘low sulphur’ (0.1%S max) fuel in ECAs or ‘high sulphur’ (3.5%S max) fuel outside ECAs. In 2020, there will be three sulphur types (<0.10%S, <0.50%S and >0.50%S). So, what will ‘low sulphur’ and ‘high sulphur’ mean in 2020? If this is not clear in your charterparties then you might find yourself in a dispute about what these terms mean. This could be a particular problem when discussing bunkers on redelivery (“BOR”) calculations, particularly if there is a big price difference between different types of fuel and the charterparty price.

2. Bunker clauses

a. Specification

Owners and time charterers who want to use a particular type of fuel will need to make sure that this is specified in the charterparty and bunker supply contracts.

Owners of vessels fitted with scrubbers should check with scrubber manufacturers if fuel of a maximum sulphur content should be provided to the vessel to avoid having to reduce the performance of the vessel so that the scrubber system can work effectively. If so, this should be specified in the charterparty.

b. Quality

Whenever there has been a change in the global and ECA sulphur caps in the past, there has been an increase in fuel quality issues. New “hybrid” fuels will not be covered by ISO8217 and we anticipate that there will be a risk of compatibility and stability issues with these new fuels. Owners and operators should check that quality clauses are wide enough to provide good protection in case there are fuel quality issues. We recommend that the BIMCO quality clause is included in all time charterparties.

c. Sulphur content

We recommend that the BIMCO 2020 sulphur content clause is included in all time charterparties. This clause provides a balanced regime for both Owners and Charterers.

d. Bunkers on delivery/redelivery

If you are a charterer, you will want to make sure that vessels delivered at the end of 2019 have enough compliant fuel on board to ensure the vessel will be in compliance on 1 January 2020 and until the vessel reaches the next bunkering port. It is unclear if there will be enough compliant fuel available everywhere so you might want to consider this too.

If you are an owner or an operator, you will want to make sure that vessels redelivered near the end of 2019, or at the beginning of 2020, have minimum non-compliant bunkers on board and enough compliant bunkers. Watch out for BOR clauses providing for same quantities and prices both ends and make sure these are amended.

e. Prices

It can be easy to forget about price provisions hidden away in proforma charterparties so please don’t forget to look for these and check if they need to be amended. This is a particularly tricky area because we don’t know exactly how the bunker markets will look in 2020 but we expect that there will be fluctuations as we approach the end of this year and throughout next year.

3. Performance warranties

New fuels and scrubber systems might have an impact on a vessel’s performance so if you are an owner or an operator then you might want to check this with engine manufacturers. You might also want to amend the performance warranties so that they will only apply when particular fuel is provided to the vessel.

4. Trading clauses

If you have any concerns about fuel availability in certain parts of the world then you might want to review and amend the trading clauses.

5. Scrubbers

If you are the owner or time charterer of a vessel fitted with a scrubber system then we recommend that you include a clause to deal with issues specific to scrubbers e.g. maintenance, breakdown and off-hire. If the vessel has a closed loop or hybrid system then the clause should also cover who will be responsible for discharge of scrubber wash waste and providing consumables. If the vessel has an open loop system then the clause should cover provision of compliant fuel if the scrubber can’t be used because of local regulations or breakdown. Please see your usual FD&D contact if you would like to receive the scrubber clauses that we have prepared for our members.

6. Other clauses

There might be other clauses that you want to review, depending upon the method of compliance, type of vessel and trade.