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Bunker disputes: common pitfalls and guidance

Posted: 07/09/2020


The significance of bunkers in shipping is unquestionable. After the crew, they are the single item without which a vessel would remain idle and they give rise to a wide range of disputes from off-hire claims to catastrophic engine failures.

This article will briefly consider the characteristics of some of the main fuel disputes.

Quantity

Quantity of bunkers stemmed

Owners often complain that they have been charged for bunkers in excess of the quantities received. In that regard, if operational circumstances permit, bunkers stemmed can be loaded into previously empty tanks, so that it becomes more straightforward, from an evidentiary point of view, to show what quantities were actually received. It is therefore of paramount importance to follow the agreed procedures and keep records and contemporary evidence.

Quantity of bunkers on delivery/redelivery

Bunker prices are particularly volatile as they depend on a host of factors relating to the global supply/demand as well as the location of the bunkering terminal. Charterparties often provide that a vessel is to be redelivered with “about” the same quantities of bunkers as she had on delivery. Less often, a charterparty will be silent on the question of redelivery bunkers but will provide predetermined prices.

A large excess or shortfall of bunkers on redelivery may give rise to arguments that the relevant charterparty clauses are not applicable and that different prices (for example, referable to the market on redelivery) should therefore be taken into account.

Quality

Fuel sampling

It is estimated that considerably less than half of all marine fuel delivered to ships trading internationally is tested. With nearly 100 ships suffering substantial damage due to off-spec bunkers per year, and given also the environmental concerns associated with high-sulphur bunkers, a wealth of rules and associated guidelines have been issued to deal with fuel sampling and testing.

The starting point is to consider the IMO guidelines (“Guidelines for the sampling of fuel oil for determination of compliance with Annex VI MARPOL 73/78”) which provide, amongst other things, that “a sample of the fuel delivered to ship should be obtained at the receiving ship’s bunker manifold and should be drawn continuously throughout the bunker delivery period”.

Under the current MARPOL Annex VI requirements (which are kept under constant review and are sporadically revised), a bunker delivery note is to be retained on board for a minimum of three years. Every bunker delivery note is to be accompanied by a representative sample of the fuel supplied.

The sample is to be retained on board for a minimum of 12 months. The sample is to be minimum 400 ml and labelled with information stating the location where the sample was taken, sampling method, bunkering date, name of bunker barge/pier, receiving ship’s name and IMO number, sample seal number and bunker grade.

Every sample is to be sealed by the supplier and the label is to be signed by both the officer in charge of the bunkering and the supplier’s representative. If the supplier does not provide a MARPOL sample or if the bunker delivery note does not contain all the required information, a notification to the ship’s flag state and the bunker port state is to be issued.

Fuel testing

The testing should be conducted by a suitable accredited laboratory (and charterparties often provide for an agreed laboratory). Witnessing of the tests is to be encouraged as is the agreement of a common testing methodology under a charterparty and a bunker supply contract.

Sulphur cap

Yet another challenge that shipowners have had to deal with, which has also had a substantial impact on the fuel price market, has been the implementation of:

  • Regulation 14.1 of MARPOL Annex VI which provides that the sulphur content of any fuel oil used on board ships is not to exceed 0.50% m/m as of 1 January 2020; and
  • Regulation 14.4 of MARPOL Annex VI which provides that, while a ship is operating within an emission control area (eg the Baltic Sea, the North Sea, the North American area, the US Caribbean Sea area etc), the sulphur content of fuel oil used on board that ship is not to exceed 0.10% m/m (as of 1 January 2015, which has remained unchanged).

Ship Energy Efficiency Management Plan (SEEMP)

A prudent owner should ensure compliance with the SEEMP. This is a management tool designed to assist shipowners in managing the energy efficiency of their ships and is mandatory for all ships under MARPOL Annex VI. The SEEMP provides the framework against which an owner can develop best practices and energy-efficient operations.

Energy Efficiency Design Index (EEDI)

A prudent owner should also ensure compliance with the EEDI. This has been mandatory for all new ships since 2011 and is a technical measure that aims to promote the use of more energy-efficient equipment and engines. The EEDI requires a minimum energy efficiency level per capacity mile (eg tonne mile) for different ship type and size segments.

Other considerations

The party contracting with the bunker supplier may have to act with considerable speed, as it is often a characteristic of a bunker supply contract that, should claims not be presented or proceedings commenced within a short period of time, the purchaser may be deemed to have waived all its rights against the bunker supplier.

Also, as a result of the litigation following the collapse of OW Bunker and the Supreme Court’s guidance provided in 2016 in the seminal case of RES COGITANS, an owner purchasing bunkers will need to carefully consider the terms under which bunkers are purchased (or accepted) and particularly as regards:

  • title retention clauses;
  • clauses expressly providing that the Sale of Goods Act 1979 will not apply;
  • potentially insisting on obtaining a confirmation from the contractual bunker suppliers that they have paid the physical suppliers;
  • seeking an indemnity from the contractual bunker suppliers in respect of claims that may be pursued by the physical suppliers;
  • ensuring that any receipt signed at the time of delivery states that it does not establish a contractual relationship or give rise to a lien and be aware (and wary) of “lien” and “no lien” stamps;
  • agreeing “no lien” clauses with their charterer.

 

Guidance

Evidence is key

A good case without good evidence is simply a bad case. The provenance of the samples of the fuel alleged to have caused the problems must be clear. The link between the fuel in question and the damage would also need to be proven.

A prudent owner should be able to provide copies of:

  • the vessel’s oil record book;
  • Planned Maintenance System (PMS) records;
  • pre-arrival and pre-departure checklists;
  • bunker tank soundings and measurements;
  • consumption records;
  • bunker delivery note(s) and bunker receipt(s), as stamped (if applicable);
  • third party fuel oil analysis for previous stems;
  • engine lubricating oil analysis results;
  • photographs of any physical damage (it goes without saying that any damaged parts removed or replaced should be preserved).

The seven golden rules of bunkering

Rule no.1

Always order or accept fuel according to the engine maker’s recommendations, using the agreed version of the industry fuel oil standard ISO 8217.

Rule no.2

Check the supplier’s paperwork to ensure that the bunkers delivered conform in terms of quantity and specification with what has actually been ordered.

Rule no.3

Whenever possible, place new bunkers into empty tanks. New fuel oil should not be used until analysis results have been received. Even if this is not possible, it is essential that the chief engineer carries out a compatibility test which is quick and cheap.

Rule no. 4

Use an independent fuel analysis contractor such as Lloyd’s Register, FOBAS (Fuel Oil Bunker Analysis & Advisory Service) or Veritas Petroleum Services. The cost is a few hundred dollars and test results are usually available within 36 hours.

Rule no.5

Regardless of whether the services of an independent fuel analysis contractor are retained, an owner should ensure that the vessel’s chief engineer takes a continuous drip sample at the manifold throughout the entire bunkering procedure. The equipment required to do this comes at a relatively small cost compared to the cost of the bunkers.

Rule no. 6

The chief engineer should check that the bunkers to be loaded do not contain an unacceptable amount of water. In the case of distillates, a simple test involving a dip tape and water finding paste can be used. For fuel oil, this may not always be accurate and a water test kit can be used. The kit is cheap and simple to use.

Rule no.7

If the bunker supply is from a barge, the chief engineer should be wary if the supply is continually being circulated in the barge tanks. The circulating process may be disguising a nasty cocktail and one should also be wary of the “cappuccino” effect.

Conclusion

With around a third of hull and machinery claims relating to main and auxiliary engine problems and with industry statistics indicating that 80% of all engine breakdowns relate to fuel oil and/or of lube oil, a prudent owner can leave nothing to chance when it comes to bunkers.

Here are our 10 top tips to avoid the pitfalls:

  • Be selective when choosing or accepting a supplier. Order or accept fuel to the desired ISO grade and, ideally, describe the required ISO grade and standard in the charterparty as well as when ordering or accepting the bunkers.
  • Take samples properly at the time of delivery.
  • If the supplier takes other samples at the time of the delivery, try to establish how and when they were taken. A master should issue a letter of protest if the vessel officers are not invited to witness the sampling.
  • Use a fast, reliable testing service to have the samples analysed.
  • Have new bunkers segregated from bunkers already held on board.
  • Avoid using new bunkers until the analysis results have been received and considered.
  • Maintain accurate daily records of the contents of and consumption of each fuel tank.
  • If off-spec bunkers have been delivered, they should be off-loaded and replaced with new on-spec bunkers.
  • If off-spec bunkers have to be (or have already been) used, then:
    • The bunker supplier should be notified and sent a copy of the test results.
    • A suitably qualified expert should be retained and a reliable fuel testing service such as FOBAS should be used to provide advice on how to proceed in order to solve the particular problem and/or to avoid or mitigate potential damage.
    • Contact the engine manufacturer for advice. Further action will depend on what parameter is off-spec and/or what the particular problem is.
    • The charterer and the vessel’s insurers should be notified.
  • Lawyers should be retained.

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