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IMO 2020: Impending Carriage Ban - “Legitimate” de-bunker/disposal practices

News / / Singapore

The International Maritime Organisation’s (“IMO”) “carriage ban” rule makes it an offence, as of 1 March 2020, for ships to carry fuel oils that contain sulphur content higher than 0.5%, unless the vessel has a scrubber or the fuel is carried as cargo.

We have been advised by bunker traders in Singapore of some risky, and perhaps unethical practices that have arisen since the beginning of 2020:

  1. Before the carriage ban takes effect, the last opportunities for disposal or removal (where fuel oil with sulphur content of 3.5% still has a market elsewhere i.e., for power generation) are fast approaching. This could prove highly problematic for those players who have planned inadequately or failed to plan for the proper disposal of non-compliant fuels on board in timely fashion.
  2. We understand some vessels are deliberately moving and anchoring in outer port limit (“OPL”) in order to de-bunker non-compliant fuel to other vessels such as physical suppliers or slop receivers. In reality, the ‘receiving’ vessel will either sell and transfer the fuel, or burn it or carry it elsewhere (which would be a breach of the IMO 2020 Regulation if on board on 1 March 2020 or thereafter, unless it is carried as cargo[1]).
  3. This unregulated practice is riven with risk not only for the receiving vessel but interestingly perhaps to the ‘giving’ vessel. The closer one gets to 1 March, the more difficult it will be, in principle, for the giving vessel to assert it has clean hands for compliance purposes. For example, a Ship Implementation Plan (“SIP”) may more likely be considered deficient as far as the relevant port state authority is concerned and this may attract closer scrutiny for monitoring and enforcement purposes.
  4. It is also anticipated that some rogue receivers/vessel operators (without scrubber-fitted vessels) may well be prepared to risk receiving non-compliant fuel to use or burn as bunkers on board at such a late stage, because demand for this fuel specification is likely to fall which may also trigger a drop in the price.
  5. There is also potential scope for fraud or even the creation of an illicit secondary market, where vessel operators could under-declare received bunker fuel oil cargo volumes with the aim of burning certain non-declared quantities of this fuel oil whilst transiting in the high seas hoping to go undetected. It is acknowledged that this practice may be inevitable as the approach to enforcement evolves and becomes more sophisticated.
  6. As the 1 March 2020 date draws closer, the giving vessel (which will often be the physical supplier or barge operator etc.,) may, in the plainest terms of the Regulation, not be considered to be acting in breach or even irresponsibly if it does not check or inquire for what use the non-compliant fuel is to be put by the receiving vessel.
  7. Several questions arise: would it be incumbent on the giving vessel to ensure that the receiving vessel could lawfully receive or carry or burn (for example, because of the presence of scrubbers) or dispose of the non-compliant fuel? Is the giving vessel’s only responsibility with respect to carriage to ensure that, as of 1 March 2020, it has no non-compliant fuel on board its own vessel (excluding those vessels carrying non-compliant fuel as cargo)? Might the relevant port state authorities hoping to enforce the Regulation target giving vessels in circumstances where they may be viewed as aiding and abetting a breach by the receiving vessel[2]?
  8. Indeed, the purpose of MEPC.1/Circ.881 dated 21 May 2019 was to encourage Member Governments to bring the annexed Guidance to the attention of their administration, the industry and relevant shipping companies and stakeholders. The Guidance provides:

ANNEX

GUIDANCE FOR PORT STATE CONTROL ON CONTINGENCY MEASURES FOR

ADDRESSING NON-COMPLIANT FUEL OIL

In the case of non-compliant fuel oil, communication between the ship and the port State should occur. The ship and the port State should consider the following as possible contingency measures:

  1. actions predetermined in the Ship implementation plan, if available, for consistent implementation of the 0.50% sulphur limit under MARPOL Annex VI (MEPC.1/Circ.878);

  2. discharging non-compliant fuel oil to another ship to be carried as cargo or to an appropriate shipboard or land-based facility, if practicable and available;

  3. managing the non-compliant fuel oil in accordance with a method acceptable to the port State; and

  4. operational actions, such as modifying sailing or bunkering schedules and/or retention of non-compliant fuel oil on board the ship. The port State and the ship should consider any safety issues and avoid possible undue delays.

Having considered all of the options in paragraph 1 above, the non-compliant fuel oil may be discharged to the port or retained on board, as acceptable to the port State. Port State consideration may include environmental, safety, operational and logistical implications of allowing or disallowing the carriage of non-compliant fuel oil. The carriage of non-compliant fuel oil is subject to any conditions of the port State.

...

  • 9. The Guidance clearly supports collaboration between port States and giving vessels. It also confers a fairly broad discretion on port States as to how to implement, police and enforce the Regulation. Vessel operators would be well advised therefore to have a sensible and workable SIP in place for the particular port state in question.
  • 10. Even if, however, the above mentioned considerations do not ultimately fall within the sphere of responsibility of the giving vessel, the Guidance does suggest a potential exposure of the giving vessel to reputational (and unnecessary financial) risk and/or damage. No well-meaning or reputable trader or vessel owner will want their reputation impacted by being publicly associated with the improper carriage and/or disposal of non-compliant fuel or a breach of the Regulation[3].

[1] The ban does not apply to non-compliant fuel carried on board as cargo Paragraph I of Annex VI of MARPOL provides “The Sulphur content of fuel oil used or carried for use on board a ship shall not exceed 0.50% m/m.”

[2] This query is underscored by the IMO Guidance for Port State Control on Contingency Measurers for Addressing Non-Compliant Fuel Oil (MEPC.1/Circ.881) recommends as a contingency measure discharging non-compliant fuel oil to another ship to be carried as cargo.

[3] According to various maritime media sources, it is interesting to note that:

4,000 plus scrubbers were expected to be installed by the end of January 2020, which is approximately 11% of the global fleet by tonnage and

4.5% by vessel count. This unintentionally may provide a significant commercial advantage to scrubber fitted vessels as we aware of some diligent credit control departments of certain physical suppliers insisting on checking whether the receiving vessel is scrubber fitted – whereby if it is found not to be, the supplier will not agree to supply it with non-compliant fuel.

Wole Olufunwa

Wole Olufunwa Director (Partner)

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