Gard on FuelEU: BIMCO’s new clause and its implications

Maritime protection and indemnity (P&I) club Gard on Thursday (19 December) published an insight on BIMCO’s long-awaited FuelEU clause that was published last month, which includes alternative bunker fuels.

The following are excerpts from the article written by Oliver Goossens:

BIMCO’s long-awaited FuelEU clause has now been published. This is a helpful and welcome starting point for Owners and Charterers to agree how calculations and costs will be dealt with under their charterparties. However, as it does not cover everything in detail, Owners and Charterers should be mindful of certain issues when incorporating this clause wholesale into their charterparties. This article takes a closer look at these issues, and where parties may wish to consider adding to or amending the standard wording.

Alternative fuels

Sub-clause (c) is intended to enable Charterers to supply biofuels or other alternative fuels to the vessel to comply with FuelEU requirements. Parties should remember that any agreement to supply biofuels, or any other compliance technologies, may require corresponding amendments to speed and performance warranties, bunker specifications and potentially provisions for on-board fuel trials, tank cleaning / preparation as well as agreement on the time and cost for these. A good starting place for agreement to burn alternative fuels is class and engine manufacturers’ comments whose approvals are likely to be required from Owners’ H&M insurers.

Reporting of Compliance Balance on delivery

Sub-clause (a) requires Owners to inform Charterers upon delivery of the Vessel’s compliance balance for the previous two reporting periods. ‘Reporting period’ is defined in the clause as from 1 January to 31 December.

This transparency is necessary to allow Charterers to understand how any penalties may be calculated in future years. Under the FuelEU regulation, a negative compliance balance in consecutive years will increase the size of the penalty payable by the vessel – 10% for the first year, 20% for the following year and so on. So a Charterer needs clear information on what previous balances have been to know what their exposure may be.

If a Charterer takes over a Vessel which had a negative compliance balance in the previous year under the previous charter, and then proceeds to register a negative compliance again, the Vessel will be left with a 10% extra (‘multiplier’) which arises partly because of a previous charterers’ performance. Ideally therefore a Charterer taking over such a ship will seek to negotiate terms so that the effect of a multiplier is not for their account.

Conclusion

The BIMCO clause provides a starting point for how the various mechanisms of the FuelEU regulation could work under a charterparty. Given that the industry is still familiarizing itself with how things will work in practice, the BIMCO clause is helpful for negotiations but it is not a panacea for all parties. There will still need to be some careful thought on how this clause should be amended in order to fit different parties’ needs and their plans for how to use vessels operating in the EU. 

Note: The full article by Gard can be found here. 

Related: BIMCO adopts FuelEU Maritime clause for charter parties
Related: OceanScore reviews BIMCO FuelEU clause for time charter parties

Photo credit: Guillaume Périgois on Unsplash
Published: 23 December, 2024