Norwegian maritime insurance company Gard on Wednesday (15 March) published an insight to discuss on bunker supply contracts and provided a checklist for buyers to protect themselves when negotiating contracts:

Bunker sales are generally offered on terms prepared by the sellers and should there be a problem with the quality or quantity of the bunkers supplied, the rights of the buyers may well be restricted by the sale contract terms.  Our guest authors update their previous article to point out ways buyers can protect themselves.

Introduction

Purchase of bunkers can generate significant risks/claims and sellers’ terms often incorporate fixed (often low) limits on sellers’ liability, exclusions for certain types of loss (e.g. loss of time, profit, indirect or consequential loss), short time bars for buyers’ claims, and evidential and law and jurisdiction clauses in sellers’ favour. There have been moves to try and work towards standard bunker purchase contracts with BIMCO introducing the BIMCO Bunker Purchase Terms in 2015 which were updated in 2018. These contracts are generally more balanced than typical sellers’ standard terms, and representatives from owners, charterers and bunker companies were all involved in the drafting process.

From a commercial bargaining perspective, it may be easier to negotiate more balanced terms if they are agreed in advance as part of a worldwide framework agreement to buy bunkers from a single or small number of sellers instead of making more ad hoc arrangements. This is also sensible in terms of reducing compliance/KYC/sanctions checks and risks by having a reduced number of counterparts.

The BIMCO Bunker Terms 2018 attach an Election Sheet as Appendix A which allows for easy customisation if the Parties as well as a space to add additional clauses or make amendment to the standard BIMCO text.

Bunker supply contracts – key issues checklist

Taking the BIMCO 2018 Terms as a starting point buyers may try to negotiate on some of the following key items:

• Due diligence with respect to the seller: consider market reputation and financial standing of sellers, in terms of financial standing and insurance position (see below) and involvement in previous supply issues. Are they also a physical supplier or only an intermediary? How do they verify the quality and origin of the fuel supplied and how will they evidence this to buyers if required? What are their supply chain quality management procedures?

• Greater focus on KYC/vetting and who the seller is for sanctions purposes: this ties into conducting proper compliance checks for general KYC and for sanctions purposes.

• Due diligence with respect to the fuel: consider what information you need about the fuel and its origin. Are there any special parameters regarding storage, handling, treatment and use of the fuel on board? Do you require specific information in the Certificate of Quality?

• Fuel specification: the contract should identify the correct specification of the fuel - for example by expressly stating the relevant ISO specification. For residual fuels, the most widely used specification is ISO 8217 Table 2. ISO 8217 is periodically revised and the industry guidance recommends the most recent version, ISO 8217 2017. Check whether the fuel specified in your bunker supply terms complies with up to date IMO and Marpol regulations and any local regulations that apply to the vessel based on the trade conducted and that this also accords with charterparty and main engine maker's requirements. A further point to consider adding is an express contract term that the fuel is free of contaminants, is fit for purpose and complies with MARPOL. If the buyers have a strong bargaining position, then consider also if contractually you can negotiate that sellers will take back proven off specification bunkers.

• Sampling and quality testing: the contract should specify the agreed sampling and quality testing regime, including for sulphur content. Ideally, a sample from each of the bunker supplier/barge and the vessel should be analysed as opposed to only the supplier’s sample. Again, insofar as possible, sampling and testing requirements need to match the charterparty so the buyers are not exposed to different test standards. Ideally, the sampling process should be set out in detail in the contract together with the agreed analysis regime that is to be used. Consideration should also be given as to whether preferred accredited labs for testing should be identified in the contract (we recommend they are). In the event there is a dispute about the quality or characteristic of the particular stem, an inability to agree to a lab for testing may complicate and delay resolution.
• Non delivery/delayed delivery of the bunkers: consider the delivery clauses of your contract and whether they give buyers a right to cancel the contract/bunker supply promptly in the event of a delay. Consider also specifying in the contract what constitutes a delay (by setting out the relevant period) following which a cancellation right in buyers' favour arises.   Where charter rates are high buyers may not want to be obliged to "wait" for supply of bunkers if they are not ready to be supplied.
• Force majeure duration: consider how long the duration of a force majeure event is reasonable for the trade conducted by the vessel. The BIMCO Bunker Terms 2018 for example provide for a 10 day period. Buyers may wish to opt for a much shorter force majeure period so as to reduce delays to the vessel as much as possible.

By Rory Butler, Partner and Louise Lazarou, Senior Associate of Holman Fenwick Willan, London

Note: The full article on ‘Bunker supply contracts – key considerations for the buyer’ by Gard can be viewed here. 

 

Photo credit: Shaah Shahidh on Unsplash
Published: 21 March, 2023