BIMCO, the world’s largest international shipping association, is developing various clauses and contracts to help shipowners prepare for the International Maritime Organization’s global sulfur limit rule for marine fuels, starting January 1, 2020, BIMCO’s head of contracts and clauses Grant Hunter said Tuesday.
“Our big focus is keeping the industry informed…how you can put it into practice,” Hunter told S&P Global Platts on the sidelines of the 11th International Fujairah Bunkering & Fuel Oil Forum, or FUJCON 2019.
The IMO will cap global sulfur content in marine fuels at 0.5% from next year, from 3.5% currently. This applies outside the designated emission control areas, where the limit is already 0.1%.
“We’ve recently developed two clauses to help the industry,” he said, adding that the association was also developing a contract for LNG bunkering, which is scheduled to be ready in 2020.
This comes as alternative fuels, such as LNG, are being increasingly touted as a viable option to comply with the 2020 rule.
Meanwhile, BIMCO’s two recent clauses include the ‘BIMCO 2020 Marine Sulfur Content Clause for Time Charter Parties’ and the ‘BIMCO 2020 Fuel Transition Clause for Time Charter Parties’.
The ‘BIMCO 2020 Marine Sulfur Content Clause for Time Charter Parties’ is written as a straightforward compliance provision with the sulfur content requirements of MARPOL Annex VI, Hunter said.
MARPOL VI, developed by the IMO, deals with the prevention of marine pollution from ships.
Issues relating to the specifications, grades and quality/suitability of the fuel supplied by time charterers are mostly covered by existing standard bunker clauses in time charters, so these should not need to be amended in relation to sulfur content alone, he said.
The primary objective of this clause is to protect the shipowner in a situation where the charterer provides the fuel, because it’s the owners on the hook if MARPOL is breached, Hunter said.
If the charterers are buying bunker fuel, they should ensure that suppliers, traders and even the barges are MARPOL compliant, he said.
The ‘BIMCO 2020 Fuel Transition Clause for Time Charter Parties’ deals with the one-off event of switching from 3.50% sulfur content fuel to 0.50% sulfur content. The clause is designed to provide a fair allocation of responsibilities and liabilities between the owners and charterers in managing remaining stocks of fuel that will become non-compliant under MARPOL from January 1, 2020.
THE IMO 2020 LANDSCAPE
Although less than 10 months remain for the rule to be implemented, a fair amount of uncertainty still prevails in the shipping industry as it embraces a multitude of fuels, Hunter said.
Scrubbers uptake will likely remain a small percentage of the world fleet with most shipowners expected to switch to low sulfur fuel oils, Hunter said.
This comes as the price spread between heavy fuel oil and LSFO is not expected to be as wide as previously thought, resulting in a longer payback period for the shipowner or charterer, making the scrubber option possibly less attractive, he added.
Meanwhile, in the long term, there may also be a big question mark on HFO supply as refineries upgrade and contemplate whether it is really worth continuing to produce HFO, he said. In the long run, reduced availability of heavy fuel oil may see ships with scrubbers switching to LSFO over time, Hunter added.
Over 65% of the attendees at FUJCON who responded to a poll said that they believed the IMO 2020 regulation was set to lead to a clamp down of HFO bunkering infrastructure due to a dramatic drop in demand for HFO at ports.
However, with the new fuels, people should be much more vigilant in carrying out bunker quality sampling and testing, he said.
Shipowners without scrubbers will have to manage the transition from HSFO to LSFO and should be encouraged to work closely with charterers, Hunter said.
Another consequence of the IMO rule is that shipowners might try to recoup their costs from customers, either through a bunker surcharge or by pressing for higher freight rates, he said.
“Somebody has to pick up the bill…but the market for shipowners is still tough,” he said.
Due to rising costs, some less well-financed shipowners may go out of business or merge with bigger players, while slow steaming may gather momentum in the liner segment, to cut bunker bills and reduce emissions, Hunter said.
In response to compliance to the IMO 2020 rule, Hunter said that port states have a vital role to play in ensuring a fair and uniform enforcement regime.
Source: S&P Global Platts