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

The global regulatory framework aiming to decarbonize the shipping industry has reached a considerable level of complexity, confronting Asian shipowners and operators with the challenging task of collecting, managing, verifying and reporting emission data on a regular basis. DNV has developed a comprehensive online emission data validation and management tool that helps the industry share trustworthy data:

New rules require a new approach

The IMO’s Carbon Intensity Indicator (CII), the management of EU allowances (EUAs) within the EU Emissions Trading System (ETS), and the forthcoming FuelEU Maritime Regulation come with challenges for the maritime industry. There are still wide-spread misconceptions about the EU ETS scheme, and many registered owners have not realized that it is their responsibility to report emissions and purchase EUAs for their vessels operating in European waters.

“Purchasing and surrendering emission allowances under the EU ETS can be costly for shipping companies,” explains Dominic Ng, Head of APAC Veracity at DNV in Singapore. “This has consequences for contractual agreements between parties across the value chain.”

For shipowners, ship operators and managers, charterers and cargo owners, it is crucial to collaborate closely to ensure compliance and avoid the risks of defaulting on emission reporting duties, incurring unnecessary costs, and experiencing data handling errors. For example, to compute ETS exposure and file the consolidated end-of-voyage emission reports, charterers need daily emission data feeds from their ships.

A digital tool establishing a single source of truth

Of critical concern is the accuracy and reliability of the reported emission data because it influences the number of EU allowances that must be purchased. The data collected on board should therefore be verified and receive a “stamp of approval” from a trusted third party.

Recognizing these needs, DNV developed its online tool Emissions Connect, available on the Veracity platform. “Emissions Connect combines three key functionalities the shipping industry needs to comply with decarbonization regulations: consistent management of emissions data, easy integration of business partners, and quick generation of the mandatory statements,” Ng points out. “It provides the trusted single source of truth everyone needs for efficient emission reporting.”

Union Marine believes in being proactive

Many shipowners in Asia erroneously believe that EU ETS compliance is exclusively the charterer’s responsibility, says Vinay Gupta, Founder and Managing Director of Singapore-based Union Marine Management Services Pte. Ltd. (UMMS). “We started our EU ETS compliance programme in August of 2023. I personally held a two-hour session with each of our 18 clients operating ships in EU waters, explaining to them what EU ETS stands for and how it will affect them, how they can manage it, and how they can mitigate any inherent risk.”

UMMS had been using DNV’s Veracity data platform for IMO DCS and EU MRV verification since 2019. When Emissions Connect was added, DNV helped UMMS integrate the solution with their ERP system through an application program interface (API). Today UMMS uses Emissions Connect for all vessels going on EU voyages, or roughly 25 per cent of their managed fleet.

Convenience, transparency and data security

“Emissions Connect has added value by streamlining the way our data is arranged,” Gupta continues. “Following integration of Emissions Connect, we were able to identify the gaps in our reporting system and now the data undergoes many more levels of checks and sanitation before it is synchronised with the Emissions Connect portal for verification.”

“Verified EU ETS statements can be generated quickly and submitted to the owner or charterer within seven days of voyage completion”, Gupta adds. “Emissions Connect has a user-friendly interface, and its voyage simulation feature assists in planning future CII ratings for an intended voyage, helping managers proactively maintain vessel emission levels. All this brings added value to our clients.”

When a German bank offered its emission allowance trading services to UMMS, Gupta opened a certificate trading account as the final element in a seamless EU ETS value chain: Fuel consumption data captured on board and transmitted to shore in the noon report is subsequently routed through the API to DNV’s Veracity and Emissions Connect, where it is quality assured and verified. From here the trusted data is seamlessly transmitted to the trading account. “This end-to-end process is so convenient we are now offering it as a service to many clients, including some whose ships are not even under our management,” says Gupta.

“With the DNV Emissions Connect, we can have transparency and effective monitoring of the data being submitted and verified,” explains Gupta. “All the calculations on Emissions Connect are in line with the latest requirements and are accepted industry-wide.” Thanks to its EU ETS know-how, UMMS can now be of help to companies struggling to understand the regulation. “Many owners still don’t know what it is they need to know to carry on with their business,” Gupta points out.

Getting ready for FuelEU Maritime

“DNV are very mature in their understanding of the regulations and how they have to be implemented,” summarizes Gupta. “They are a good partner to have in the current situation – a very collaborative, proactive, forward-thinking organization.”

As both companies’ experiences with the EU ETS introduction have shown, this proactive mindset is enormously helpful in coping with regulatory challenges. Both organizations strongly believe in helping shipowners understand that increasing the efficiency of their vessels can improve CII ratings, lower EU ETS costs incurred and enhance the competitiveness of their vessels.

The next major challenge, FuelEU Maritime, will add further complexity to emissions reporting: Reconciling regulatory deadlines and commercial obligations will require even closer alignment and synchronization between the stakeholders. However, with a unified, common data architecture and a centralized “single source of truth” available for secure data sharing, and with a smooth emission reporting process in place, that next step should quickly lose its scare.

Photo credit: DNV, UMMS
Published: 22 November, 2024