Business

North P&I Club: Beware the in-transit cargo loss clause

David Patterson and Simon Clarke of North P&I Club explain why it is in the shipowner’s best interests to avoid in-transit cargo loss clauses.

Published

3 years ago

March 1, 2022

Admin

It is common for charterers to make claims or apply deductions based on ‘in-transit loss clauses’ in the crude oil trade. North P&I Club’s David Patterson, Loss Prevention Executive, and Simon Clarke, Senior Claims Executive, explain why it is in the shipowner’s best interests to avoid this type of clause.

In-transit cargo loss clauses generally define an in-transit loss as the difference between the vessel’s gross observed volume (GOV) on completion of loading and before unloading at the discharge port. While this may seem a simple comparison, it is a fundamentally flawed measurement, reflecting a ‘paper shortage’ rather than any physical loss.

One of the main problems with these clauses is that Owners may not have the defences that would otherwise be available for an alleged shortage if the claim had been assessed with reference to, for instance, the Hague/Hague-Visby Rules. In addition to putting owners in a difficult position when trying to defend claims made by charterers referencing these clauses, this may adversely impact upon the scope of club cover available in respect of the claim.

Paper shortages

During measurement, the GOV is established by subtracting any free water and sediment from the total volume of fluids in the tank, providing the quantity of oil at the given temperature upon loading.

On the voyage to the discharge port, two factors can result in changes to the gross observed volume: a decrease in cargo temperature and an increase in free water.

Cargo temperature decrease

Cargo is likely to cool during the voyage, increasing in density and therefore reducing in volume while its mass remains the same. Even when cargo heating is employed, it is unlikely that tank temperatures at the discharge port will be same as they were at the load port during the tank survey. When the two gross volumes are compared – as required by in-transit loss clauses – this reduction in cargo volume will indicate a paper shortage.

Free water increase

The crude oil production process consists of separating fluids from an oil well into crude oil, gas and water/sediment. While this can be a highly efficient process, crude oil cargoes usually contain a small amount of water and some solids –known as the cargo’s ‘base sediment and water content’ (BS&W).

To put this into context, if a vessel loads 1 million barrels of crude oil with a BS&W of 0.3%, 997,000 barrels of the cargo will be crude oil while 3,000 barrels will contain water and some sediment. Free water is the term used to describe any water that has separated from the crude oil at the bottom of the cargo tank.

This can result in a difference in the reported amount of free water detected upon completion of loading and arrival at the discharge port. Typically, the tank survey at the load port will commence as soon as is practicable after the completion of loading. There is therefore minimal time for any water in the cargo to separate out, and the survey may detect only trace amounts of free water. Consequently, the GOV will be calculated as the entire volume of the cargo tank contents, including any water and sediment.

During the voyage, water and sediment contained in the cargo will have time to separate out, meaning that free water can be detected more readily in the discharge survey. This is done by establishing the interface between the water and oil. While the amount of sediment is not accounted for directly, it is included in the free water figure as the sediment will settle below the water.

When the GOV is re-calculated, free water and sediment is subtracted from the total contents of the tank, with the difference between the volume of free water and sediment detected at the load and discharge ports indicating a paper shortage.

Performing correct calculations

To account for variations in cargo temperature at the load and discharge ports, the cargo must be compared at a standard temperature. This is achieved by applying a volume correction factor to calculate the quantity of cargo at 15^oC or 60^oF. The term ‘gross standard volume’ (GSV) is used when the GOV is calculated at a standard temperature.

To ensure that any free water and sediment is accurately accounted for during the tank surveys, the total calculated volume of the cargo should be established. This is achieved by adding free water and sediment calculations to the GSV.

Checking cargo documents

The cargo documentation should provide details of the total volume of water and sediment for the cargo. This can be established by subtracting the gross and net quantities listed on the bill of lading or by the BS&W as stated on the Certificate of Quality.

Loss prevention

For Owners, it is better to avoid any in-transit loss clauses that may override clauses incorporating the Hague/Hague-Visby Rules, such as a Clause Paramount.

The standard pre-printed charterparty clauses are preferable from an Owner’s perspective. For example, the widely used Asbatankvoy voyage charterparty has a Clause Paramount (clause 20(b)(i)) that incorporates the Hague/Hague-Visby Rules, as does BIMCO.

Find out more

Recommended clauses can be found on our website: North - Recommended Clauses (2021-2022)

North Members enjoy free access to our loss prevention guide: Shipboard Petroleum Surveys: A Guide to Good Practice

Published: 1 March, 2022

Business

Shell MGO bunker heist: Bunker clerk pleads guilty to helping Sentek acquire misappropriated fuel

Wong Wai Meng, who received more than USD 286,000 from Sentek Marine & Trading for his assistance, pleaded guilty to 12 counts of intentionally helping the firm acquire the misappropriated marine gas.

Published

8 hours ago

December 2, 2024

Admin

A bunker clerk, Wong Wai Meng, who received more than USD 286,000 (SGD 384,681) from Singapore-based Sentek Marine & Trading (Sentek) for his assistance, pleaded guilty to 12 counts of intentionally helping the company acquire misappropriated marine gas oil, The Straits Times reported on Friday (29 November).

The 58-year-old Singaporean was employed at the Sentek when he assisted in acquiring more than 28,000 metric tonnes (mt) of the misappropriated fuel worth USD 13.58 million (SGD 18.26 million).

Wong committed the offences over 46 occasions between August 2014 and December 2017.

Wong is among the three bunker clerks previously employed by Sentek, who were charged for offences under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and the Prevention of Corruption Act (PCA).

Another bunker clerk among the three charged, Wong Kuin Wah, 61, was sentenced to seven years and six months’ jail on 18 November for his role in misappropriating more than 27,000 tonnes of gas oil worth around USD 12.8 million (SGD 17.2 million).

The third individual who was charged, Boo Pu Wen, reportedly passed away in July 2023 and had his charges abated following his death, meaning Boo’s court proceedings over his 19 charges at the time came to an end.

Former Shell employees, who were key members of a group who dishonestly misappropriated fuel from Shell Pulau Bukom, were sentenced to jail in court earlier.

Earlier coverage of developments by Manifold Times regarding the Shell MGO bunker heist can be found below:

Photo credit: Katrin Bolovtsova
Published: 2 December, 2024

Biofuel

Singapore: GCMD introduces new technique for FAME bio bunker fuel fingerprinting

Fingerprinting identifies feedstock origins of FAME-based biofuels used in shipping industry; can be used as a potential tool to detect fraud in marine fuel supply chains and ensure biofuel authenticity.

Published

8 hours ago

December 2, 2024

Admin

Singapore: GCMD introduces new technique for FAME bio bunker fuel fingerprinting

The Global Centre for Maritime Decarbonisation (GCMD) on Monday (2 December) released its latest report, presenting a new technique that creates a fingerprint for Fatty Acid Methyl Esters(FAME) bio bunker fuels.

This fingerprint identifies the feedstock origins of the FAME-based biofuels used in the shipping industry.

GCMD said FAME fingerprinting is needed as the shipping sector is increasingly using biofuels, such as FAME, to reduce its GHG emissions. With that, concerns have arisen regarding the legitimacy of biofuels and whether they are truly sustainable.

Industry bodies are seeing a rising number of cases mislabelling biofuels purported to be made from recycled oils and fats, while suspicions persist that they might be produced from cheaper and less sustainable virgin oils.

“To address these concerns, FAME fingerprinting can be used as a potential tool to detect fraud in marine fuel supply chains and ensure biofuel authenticity. By providing a physical validation method that complements existing certification schemes, FAME fingerprinting can help justify the green premium with genuine environmental benefits and safeguard the integrity of marine fuels supply chain,” GCMD said.

FAME fingerprinting is based on the principle that the fatty acid profile of FAME is unique to its feedstock and can be preserved during feedstock transesterification to produce FAME. The "fingerprint" can then be compared against a database of known fatty acid profiles to identify the feedstock origin.

GCMD worked with VPS who modified existing fuel testing methods to carry out sample analyses using a gas chromatograph with flame-ionisation detection, an instrument commonly found in fuel test laboratories.

The analysis takes about an hour, comparable to the turnaround time for current marine fuel quality testing in the supply chain.

“We have tested this method on a variety of FAME samples from different suppliers, including virgin oils, used cooking oils, palm oil mill effluent, beef tallow and food waste and were able to identify the feedstock origins for each sample,” GCMD added.

Manifold Times previously reported Captain Rahul Choudhuri, President, Strategic Partnerships at marine fuels testing company VPS, forecasting the use of finger printing technology today will likely establish a blueprint of how future alternative bunker fuels’ feedstocks are authenticated.

Captain Choudhuri said this when he gave an update of VPS’ biofuels finger printing trials with GCMD.

Note: The full report, titled ‘Rapid forensic analysis of FAME-based biofuels: Potential use of its fingerprint as a fraud detection tool’, can be downloaded here.

Photo credit: Global Centre for Maritime Decarbonisation
Published: 2 December, 2024

Methanol

PLAGEN to produce and supply green methanol bunker fuel with Latvia plant

Korean firm’s MoU with AE Risinājumi will see construction of Latvia’s first commercial-scale green methanol production plant, which will supply green methanol to ships in EU’s maritime fleet.

Published

8 hours ago

December 2, 2024

Admin

PLAGEN to produce and supply green methanol bunker fuel with Latvia plant

South Korean clean energy firm PLAGEN on Friday (29 November) signed an MOU with Latvian company, AE Risinājumi, for the production of green methanol in Latvia at the “2024 Latvia-Korea Business Forum” hosted by the President of Latvia.

The agreement will result in the construction of Latvia's first commercial-scale green methanol production plant, which will supply green methanol to ships in the EU's maritime fleet, contributing to the reduction of greenhouse gas emissions from maritime transportation.

PLAGEN's MoU aims to produce 20,000 metric tonnes (mt) of green methanol per year and will begin feasibility studies in the first half of 2025, and full-scale production will begin in 2028.

With 53% of Latvia's land area covered by forests, timber production and wood processing make a significant contribution to Latvia’s economic production, which generates a large amount of forest residues and wood wastes. In addition, Latvia also has an abundance and low price of renewable electricity from wind power.

Latvia is one of the most competitive countries in the European Union, as it can produce clean methanol at a competitive price by using abundant wood waste as a raw material and renewable electricity from cheap wind power.

The use of abundant forest residues and wood wastes as a feedstock and cheap renewable electricity from wind power makes it possible to produce green methanol with a competitive price, making Latvia is one of the most competitive countries in the EU.

In the European Union, the European Emissions Trading Scheme (EU-ETS) will come into effect in 2025, requiring shipping companies to purchase carbon credits for their greenhouse gas emissions.

In addition, the EU is implementing FuelEU Maritime, which aims to reduce greenhouse gas emissions by 2% below the 2020 average by 2025 and 80% by 2050. This is expected to result in an energy transition to green methanol.

In July 2023, the International Maritime Organization (IMO) adopted a revised strategy that calls for reducing greenhouse gas (GHG) emissions from ships to net-zero by or around 2050, and plans to introduce full-scale regulations from 2027, and shipping companies have begun ordering methanol-powered ships fueled by green methanol, a carbon-neutral fuel.

“We expect to start producing green methanol in Latvia in 2028, which will reduce greenhouse gas emissions from EU maritime transport vessels and contribute significantly to the revitalization of the Latvian economy and national energy security,” said John Kyung, CEO of PLAGEN.

In November 2024, PLAGEN completed the purchase of an industrial complex and received a government permit for the construction of the country's first green methanol plant in Dongjeom Industrial Complex in Taebaek City, Gangwon-do.

The project, which will produce 10,000 mt per year, is scheduled to begin construction in the first half of 2025 and begin production in the second half of 2027.

Photo credit: PLAGEN
Published: 2 December, 2024