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SPOTCHECKLEGAL


Who pays for the soaring costs of cleaner air at sea?


January 1, 2020 saw the implementation of the much-anticipated sulphur cap, cutting the allowable sulphur content in marine fuel from 3.5 percent to 0.5 percent. The switch from high-sulphur fuel oil to low-sulphur alternatives has led to an increase in operating costs, which is being passed on to shippers and beneficial cargo owners.


December 2, 2019. The price rise reflected the introduction


V


of International Maritime Organization (IMO) regulations on January 1, 2020 that cut the allowable sulphur content in marine fuel from 3.5 percent to 0.5 percent, unless the ship is fitted with an exhaust gas cleaning system. The global sulphur cap marks a


milestone for the shipping industry and is likely to affect the profitability of many shipowners and operators. According to BIMCO, the price spread


between low-sulphur fuel oils and high- sulphur fuel oil (HSFO) widened markedly in the second half of 2019, mostly due to the price volatility of HSFO. Through December, low-sulphur fuels


started to increase significantly in price, added BIMCO.


VLSFO-HSFO spread At the start of January 2020, BIMCO’s data suggested that the VLSFO-HSFO spread in Singapore was USD340 per metric tonne, the third-highest level since low-sulphur fuel became widely available. Similarly, the low-sulphur marine gas oil (MGO)-HSFO spread was at USD346 per metric tonne, the highest level since 2014. “Translating the VLSFO-HSFO price


spread into shipping terms, a ship burning 20 metric tonnes of fuel per day will effectively double its daily fuel costs from USD7,400 per day to USD14,200 per day when switching from HSFO to VLSFO,” said BIMCO. “Such an uptick in fuel oil costs will surely have financial implications for many companies.”


86 January/February 2020


ery-low sulphur fuel oil (VLSFO) prices had risen to USD710 per metric tonne in Singapore on January 2, 2020, a price increase of 30 percent when compared with


Most shipping lines making the switch to


low-sulphur fuels introduced bunker adjustment clauses in the latter part of 2019, in a bid to offset the effects of the significant hike in operating costs. However, as 2020 began, the Global


Shippers Forum (GSF) encouraged ocean freight customers to scrutinise these surcharges. The GSF said shippers should challenge


the basis of any surcharges to make sure they understand what they are being asked to pay extra for, and whether such charges can be properly explained and justified by carriers. James Hookham, GSF secretary general,


explained: “The shipping industry has widely assumed that the costs of cleaning up its environmental act can simply be passed on to its customers [shippers] in the form of surcharges. Whether that will be the case will be the subject of individual negotiations over the coming months. “However, shippers should be


demanding clear and consistent explanations of any surcharges demanded and GSF’s ‘Top Ten Tips for Sulphur-Surcharged Shippers’ reminds our members of the ground rules and to scrutinise carefully any surcharge demands made during contract negotiations.” He added that the industry needs to


“wean itself off surcharges, just as much as it does high-sulphur fuels” and called for a more mature pricing regime, with confidential contracting and all-inclusive charges becoming the new normal.


Shippers should be demanding clear and consistent explanations of any surcharges demanded. – James Hookham, GSF


“In 2020 the environmental performance


of the shipping industry will come under intense scrutiny in the world’s regulatory forums. The IMO low-sulphur fuel regulation will be followed by crucial meetings on reducing greenhouse gas emissions and shipping’s carbon footprint. The industry needs to demonstrate a responsible attitude to meeting the costs of its environmental responsibilities to retain the confidence of customers and regulators.”


Carriage ban On March 1, 2020, ships not fitted with exhaust gas cleaning systems will not be permitted to carry fuel exceeding the 0.5 percent sulphur limit. This poses the question as to how such fuel will be disposed of in the run-up to that date. P&I provider Standard Club believes that


owners will be conscious that a charterer may be less likely to charter a vessel that still has a large quantity of HSFO on board. Shipowners will need to consider the


timing of the removal of residual HSFO. They will also be necessary to clean vessels’ fuel systems to enable them to be in a position to receive, store and burn compliant low-sulphur fuels. Standard Club added that owners need to


ensure this does not conflict with any existing charter party obligations. Furthermore, charter party terms dealing with price of bunkers on delivery/redelivery may need to be updated to reflect the change in market prices. Blending fuels aboard ship has also been a


cause for concern. A Bunker Delivery Note (BDN) is the legal proof of a fuel’s sulphur content. In the event of any challenge from port state control (PSC) officials over compliance with the new rules, shipowners may not be able to demonstrate that the blending resulted in a compliant fuel.


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