Classification society DNV on Thursday (5 December) said compliance with FuelEU Maritime requirements will be expensive but applying certain strategies can significantly reduce the cost.

This was one of the main highlights of its latest white paper outlining FuelEU Maritime requirements and compliance strategies for shipowners. 

Effective from 1 January 2025, the rules mandate stringent greenhouse gas (GHG) emission intensity requirements for ships over 5,000 gross tonnage (GT) transporting cargo or passengers for commercial purposes in the EU/ EEA. GHG emissions are calculated from a well-to-wake perspective. In addition to emissions from onboard combustion, this calculation also includes emissions related to the extraction, cultivation, production, and transport of the fuel. 

The regulation includes provisions for crediting ships using wind-assisted propulsion.

The DNV paper provides shipowners with insights to reduce compliance expenses and avoid major penalties. It contains a comprehensive overview of the regulation, including a case study which highlights a range of different compliance strategies. 

This shows how the adoption of the most cost-effective strategy can result in savings of up to 16% or USD 21 million over a vessel’s lifetime compared to using Bio-MGO as a compliance option.

Knut Ørbeck-Nilssen, DNV Maritime CEO, said: “It is essential that shipowners understand the requirements and compliance options related to the FuelEU Maritime regulation to make informed business decisions. Adopting a cost-efficient strategy with the right combination of measures can help shipowners reach compliance at reduced costs.

“Just paying the penalty could prove a more costly option. All parties must understand their potential obligations and privileges, and how these might affect their commercial and compliance agreements. Crucial to this is verified emissions data, which can maintain operational and commercial integrity across the maritime value chain.”

The report provides recommendations for shipowners including securing long-term fuel agreements and implementing energy efficiency measures. It also recommends considering pooling as a mechanism for sharing and optimizing costs. This is underpinned by a call to begin preparations immediately. The report also highlights how, by leveraging digital tools, maritime stakeholders can access verified emissions data, a key factor in compliance and maintaining both operational and commercial integrity throughout the value chain.

A key point emphasized in the report is that the International Maritime Organization is also set to introduce similar regulations in the near future, with a net-zero framework expected to be adopted in the fall of 2025 and come into force around mid-2027.

It is absolutely essential that shipowners understand the requirements and compliance options related to the FuelEU Maritime regulation so that they are equipped to make informed business decisions. Adopting a cost-efficient strategy with the right combination of measures can help shipowners reach compliance and significantly reduce costs.

“Doing nothing and paying the penalty could prove to be a costly option. All parties must understand their potential obligations and privileges, and how these might affect their commercial and compliance agreements. Crucial to this is verified emissions data, which can maintain operational and commercial integrity across the maritime value chain.”

The report provides recommendations for shipowners including securing long-term fuel agreements and implementing energy efficiency measures. It also recommends considering pooling as a mechanism for sharing and optimizing costs. This is underpinned by a call to begin preparations immediately. The report also highlights how, by leveraging digital tools, maritime stakeholders can access verified emissions data, a key factor in compliance and maintaining both operational and commercial integrity throughout the value chain.

A key point emphasized in the report is that the International Maritime Organization is also set to introduce similar regulations in the near future, with a net-zero framework expected to be adopted in the second half of 2025 and come into force around mid-2027.

Note: The full whitepaper titled ‘FuelEU Maritime: Requirements, compliance strategies, and commercial impacts’ by DNV can be downloaded here.

Photo credit: DNV
Published: 6 December, 2024

The current BIMCO draft provides a foundation but leaves substantial room for improvement and charter party specific clarifications, said Hamburg-based technology platform OceanScore on Wednesday (27 November). 

The company was commenting on BIMCO recent release of its much-anticipated clause for Time Charter Parties under the FuelEU Maritime Regulation. 

“Practical solutions must address timing constraints, pooling frameworks, surplus incentives, and pricing disputes,” OceanScore said in a statement. 

“We applaud BIMCO for taking this admittedly difficult first step. The result is balanced, which is appreciated, but quite a few gaps remain that individual charter party clause discussions will have to close. It will be critical to mirror these into the Shipmans with the DOC (Document of Compliance) holders eventually being responsible.”

OceanScore added it is already working with customers to implement forward-thinking FuelEU strategies that fill these gaps, supporting smart decision making and efficient processes between the different stakeholders. 

“Our insights and solutions have demonstrated multiple pathways for turning regulatory challenges into opportunities – requiring proper understanding of these rules and quantification of different pathways,” it added. 

Here are some of OceanScore’s key observations and comments:

Key Observations and Challenges

1. Alignment with Long-Term Charters

The solutions proposed for long-term Time Charter Parties (those covering entire reporting periods, typically a year) are broadly aligned with market expectations and appear balanced between the needs of owners and charterers. 

2. Role of DOC Holders

Under the regulations, DOC holders are the designated responsible parties for FuelEU compliance. This means that any clauses within the Time Charter Party must also be reflected in the ship management agreement (shipman). Ensuring consistency across these agreements will be critical for seamless compliance, especially in the case of third party managers.

3. Timing Considerations

The clause proposes providing compliance balances for the prior two years, but this won't be feasible until at least 2027 due to the rollout timeline.

Proofs of Sustainability (POS), which are critical to FuelEU compliance, take 4–6 weeks to become available post-bunkering. The proposed 15-day reporting deadline for “verified” compliance balances can be unrealistic.

The clause proposes for the charterer to notify the owner “x days before April 30” of their intent to pool the compliance deficit. These requests should be made as early as possible., If the charterer decides to not pool but pay the “surcharge”, an earlier notification will help the owner (and DOC holder) to identify the commercially most attractive alternative – especially when it comes to finding an alternative external pool.

4. Pooling – Incomplete Framework 

Pooling compliance balances is likely the most efficient way to secure compliance. But while the clause mentions this in the context of long-term charters, it does not offer a meaningful framework for short-term or broader application. Charterers and owners might benefit from a clear, common understanding of how pooling will be used to achieve compliance – especially as this might be the commercially most attractive choice.

5. Compliance Surpluses – Practical Solution

The proposal on how to deal with compliance surpluses is balanced, the timing of the proposed steps practical. It will be critical to define the right applicable price (and not fall for a price at the level of the penalty in the case of compliance deficits). Given that pool prices will not be known until well into 2025 or even only when pooling starts in April 2026, it might make sense to opt for some flexibility mechanism in this proposed price for surpluses. 

6. Pricing Compliance Balances – Unrealistic Approach

The guidance provided that compliance deficits will be compensated for at the level of the penalty (€2.400 / ton VLSFOe) is an attractive, clear solution for the owner. But we do not see this stand the test of intense C/P negotiations, as there will be cheaper ways to comply than to pay the penalty. Realistically, there will be two options: Either an adjusted surcharge below the penalty level or a flexibility mechanism reflecting the pool prices. It should be secured though that the DOC holder receives a fair compensation for his extra effort in securing compliance and for the risk he carries in doing so. 

Related: BIMCO adopts FuelEU Maritime clause for charter parties

Photo credit: OceanScore
Published: 29 November, 2024

International shipping association BIMCO on Monday (25 November) said it has adopted a new contractual clause for time charter parties relating to the FuelEU Maritime regulation, which will come into force on 1 January. 

The BIMCO FuelEU Maritime Clause for Time Charter Parties 2024, which is designed for incorporation into time charter parties, is developed to help stakeholders align their contractual frameworks.

The focus of the BIMCO’s Documentary Committee has been on developing a standard clause that is workable for most scenarios and commercial relationships. For longer period charter parties, the charterers will have the flexibility to decide on their compliance strategy whether that be utilising pooling, banking or borrowing. 

“This clause has been eagerly awaited by the industry. January is almost here, and the FuelEU Maritime regulation is complex. Because of this, we have carried out several industry consultations during the drafting process to make sure that we arrived at a clause that works in practice,” said Stinne Taiger Ivø, Deputy Secretary General and Director of Contracts at BIMCO.

“The FuelEU Maritime regulation will significantly impact the shipping industry, even more so than the EU Emissions Trading System. The clause we have adopted today is the result of a collaborative process between owners, charterers, P&I and legal experts and other stakeholders,” says Nicholas Fell, Chair of BIMCO’s Documentary Committee.

The company responsible for compliance with FuelEU Maritime under the new BIMCO clause is the shipowner. In reality, however, it may be a third-party shipmanager who has agreed to take over all the duties and responsibilities imposed by the International Management Code for the Safe Operation of Ships and for Pollution Prevention (ISM). BIMCO is therefore working on developing a clause for BIMCO’s ship management agreement, SHIPMAN.

In December last year, the Documentary Committee adopted a new Emission Trading Scheme Allowances Clause for BIMCO’s ship management agreement, SHIPMAN, and three ETS clauses for Voyage Charter Parties. Moreover, in June this year, the Documentary Committee adopted three ETS clauses for Contracts of Affreightment.

Other published decarbonisation clauses in BIMCO’s carbon clauses portfolio include the Emission Trading Scheme Allowances Clause for Time Charter Parties, CII Clause for Voyage Charter Parties, CII Operations Clause for Time Charter Parties and the EEXI Transition Clause for Time Charter Parties.

Antonia Panayides, partner in Reed Smith’s Transportation Industry Group who serves on the BIMCO drafting committee for FuelEU Maritime, said: “The new FuelEU Maritime Clause for Time Charter Parties is important for the industry, as the Regulation expressly provides that parties should look to their contractual agreements to implement the ‘polluter pays’ principle.

“It is not only time charter contracts that need to take FuelEU Maritime into account, many shipping contracts will need to consider the impact of FuelEU Maritime such as contracts of affreightment, ship management agreements, bunker supply agreements and sale and purchase contracts.

“The clause for time charter parties introduces an approach whereby charterers pay a ‘surcharge’ to owners if the vessel incurs a compliance deficit during the charter period. The parties are to agree when such payment should be made. The surcharge represents the owners’ exposure to a FuelEU penalty, proportionate to the charter period.

“Where the charterer redelivers the vessel with a surplus, the parties can agree on a sum to be paid by owners to charterers for generating such surplus, where that surplus remains with the vessel and has value.

“Subject to the duration of the charter period, charterers may also instruct owners on pooling, borrowing and banking.

“The clause can be adapted by the parties to suit their commercial arrangements, such as taking into account charter duration and whether owners have already committed to pools etc.

“Everyone affected by the Regulation feels strongly about its impact, and the clause has been structured to help achieve compliance. By offering guidelines and accommodating flexibility, the clause aims to provide a foundation for parties to collaborate and meet the Regulation's requirements.

“The new clause ensures that FuelEU Maritime compliance is integrated into time charters, emphasising shared responsibility under the ‘polluter pays’ principle.”

Related: BIMCO adopts new CII clause for voyage charter parties 

Photo credit: BIMCO
Published: 28 November, 2024