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Gard: Bunker supply contracts – key considerations for the buyer

Guest authors from law firm Holman Fenwick Willan provided a checklist for buyers as a starting point to to negotiate on key items including identifying correct specifications of the bunker fuels.

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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

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Biofuel

GCMD concludes its final biofuel blend supply chain trial with Hapag-Lloyd

bp provided the B30 biofuel blend to the “TIHAMA”, a 19,870 TEU container vessel operated by Hapag-Lloyd in final trial; marks the end of a series of trials initiated in July 2022.

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GCMD concludes its final biofuel blend supply chain trial with Hapag-Lloyd

The Global Centre for Maritime Decarbonisation (GCMD) on Thursday (18 July) said it has successfully completed its final supply chain trial for biofuel blended with very low sulphur fuel oil (VLSFO). 

This marks the end of a series of trials initiated in July 2022 as part of a larger pilot to develop a framework to provide quality, quantity and GHG abatement assurances for drop-in fuels.

In this final trial, bp provided the B30 biofuel blend to the TIHAMA, a 19,870 twenty-foot equivalent unit (TEU) container vessel operated by Hapag-Lloyd.

The biofuel component used is certified to the International Sustainability & Carbon Certification (ISCC) standard – a multistakeholder certification scheme for biobased materials. The biofuel component comprised neat Fatty Acid Methyl Ester (FAME) produced from food waste.

Authentix, a tracer solutions provider, supplied and dosed the FAME with an organic-based tracer at the storage terminal outside the Netherlands. The dosed FAME was then transported to the Port of Rotterdam for blending with VLSFO to achieve a B30 blend, before the blend was bunkered onboard the TIHAMA.

Similar to previous trials, GCMD engaged fuel testing company Veritas Petroleum Services (VPS) to witness the operations at all stages – from biofuel cargo transfer to bunkering. VPS also collected and conducted extensive laboratory tests on samples of the biofuel and biofuel blend collected at pre-determined points along the supply chain to assess quality per Standards EN 14214 and ISO 8217.

With well-to-wake emissions of 13.74 gCO2e/MJ, the neat FAME presented a 85.4% emissions reduction compared to the emissions of the fossil marine fuel. The reduced emissions complies with the MEPC 80, which requires a minimum emissions reduction of 65% in order for biofuels to be classified as sustainable.

GCMD and Hapag-Lloyd determined that consumption of the 4,500 MT B30 blend of FAME and VLSFO resulted in 27.9% emissions reduction compared to sailing on VLSFO.

A newly developed tracer deployed with this supply chain

GCMD collaborated with Authentix to develop and deploy a new organic-based tracer to authenticate the origin and verify the amount of FAME present in the blend. The proprietary tracer blended homogeneously with FAME and was detected at expected concentrations at all sampling points along the supply chain.

This trial marks the first deployment of this tracer in a marine fuel supply chain. Previously, similar tracers were used to authenticate and quantify biofuels in road transport and LPG supply chains.

Development of a comprehensive biofuels assurance framework underway

With the completion of this trial, GCMD has deployed a diverse range of tracer technologies, including synthetic DNA and element-based tracers, in addition to the organic-based tracer used in this trial. The trials have also included the development of a chemical fingerprinting methodology and the evaluation of lock-and-seal and automatic identification systems (AIS) as additional solutions to ensure the integrity of the biofuels supply chain.

Learnings on tracer limitations and benefits will be incorporated into a framework that recommends appropriate use to ensure consistent and robust performance. This effort will complement existing ISCC by providing additional supply chain assurance through physical traceability.

The insights from these trials will be shared in a series of reports covering issues, such as traceability, biofuel degradation, supply chain optimisation and abatement costs. These findings will culminate in a comprehensive assurance framework to provide guidance on biofuels use, slated for release in the fourth quarter of 2024.

 

Photo credit: Global Centre for Maritime Decarbonisation
Published: 19 July 2024

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Ammonia

MPA, ITOCHU and partners sign MoU on ammonia-fuelled bulk carriers study

As a government agency, MPA,will review and provide their views to the designs of the ammonia-fuelled ships to ensure their safe operations, says ClassNK.

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Classification society ClassNK on Thursday (18 July) said it signed a Memorandum of Understanding (MoU) with ITOCHU Corporation, Nihon Shipyard Co., Ltd., and Maritime and Port Authority of Singapore (MPA) regarding a joint study for the design and safety specifications of ammonia-fuelled ships which are under development by ITOCHU and partners.

“The discussion for a specification of ammonia-fuelled ships with a governmental body related to their operation is essential for a social implementation of ammonia-fuelled ships,” ClassNK said. 

“As one of parties of the MoU, MPA, a government agency overseeing the world’s busiest bunkering hub, will review and provide their views to the designs of the ammonia-fuelled ships to ensure their safe operations.”

The MoU is based on the premise that 200,000 deadweight ton class bulk carriers will be built by Nihon Shipyard with an ammonia dual-fuelled engine.

“The necessary clarifications of the specification for the ammonia-fueled ship to carry out ammonia bunkering in Singapore will be conducted among parties of this MoU, for the commercialisation of ammonia-fuelled ships,” ClassNK added.

 

Photo credit: Venti Views on Unsplash
Published: 19 July 2024

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Biofuel

“K” Line to use biofuel on three Gram Car Carriers-chartered vessels in Singapore

Biofuel will be supplied to the sister vessels “Viking Ocean”, “Viking Diamond” and “Viking Coral” while bunkering in Singapore, says Gram Car Carriers.

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“K” Line to use biofuel on three Gram Car Carriers-chartered vessels in Singapore

Norwegian transportation firm Gram Car Carriers (GCC) on Thursday (18 July) said Kawasaki Kisen Kaisha (“K” LINE) will use biofuel on three vessels chartered from GCC from July onwards. 

“The biofuel will be supplied to the sister vessels Viking Ocean, Viking Diamond and Viking Coral while bunkering in Singapore, an Asian hub for marine biofuels,” GCC said on its social media. 

“The use of biofuel is a key environmental initiative to reduce emissions across the entire value chain (well-to-exhaust) and an effective way of transitioning to low-carbon marine fuels amid globally tightening environmental regulations.”

“We support the green mobility shift. This means that GCC commit to supporting the transition of both vehicles and their logistic chain towards a zero-emission future in close cooperation with leading customers such as K-Line,” said Georg A. Whist, CEO of GCC.

 

Photo credit: Gram Car Carriers
Published: 19 July 2024

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