Knowledge & Insights
As of 1 January 2020, the International Maritime Organisation will introduce the Global Sulphur Cap by way of amendment to Regulation 14 of MARPOL Annex VI. This will limit the sulphur content of ships' fuel oil from 3.5% m/m to 0.5% m/m. The lower cap of 0.1% m/m in Emission Control Areas, as introduced in 2015 will remain. In addition, as of 1 March 2020 vessels will be prohibited from carrying fuel with a sulphur content in excess of 0.5% m/m (except as cargo or where a scrubber is fitted).
There are two broad options to ensure compliance with the new requirements:
- To use fuels falling within the specific 0.5% m/m cap i.e. Low Sulphur Fuel Oil (LSFO)
- To fit scrubbers to their vessels which strip the Sulphur Oxide from the exhaust before it is emitted.
The choice between these two options (although it should be noted use of LNG is an alternative means of compliance) presents significant commercial and legal considerations for traders, charterers and owners alike. Market reports indicate that LSFO is the overwhelmingly preferred means of compliance and that relatively few ships have been retrofitted with scrubbers. Nevertheless, as many as a quarter of new builds have been commissioned with scrubber technology fitted. The market is not, however, homogenous and the economics of scrubbers changes depending on the consumption of the vessel. Scrubber fittings are most heavily concentrated in the Capesize and larger classes. It should be noted that it is believed that all scrubber fitting capacity is full well beyond 1 January 2020, and thus any owners who have not yet committed to a solution will need to switch to LSFO at least in the short to medium term.
This pack and its follow up editions, which will be published over the coming year, provide an introduction for charterers and traders to some of the commercial and legal issues that will need to be resolved ahead of the introduction of the cap. Brookes Bell have also contributed a technical analysis of scrubber technology.
This pack also provides an update on the current state of the OW Bunker litigation following the 2016 Supreme Court decision. Montgomery McCracken Walker & Rhoads LLP provide an update on ongoing US proceedings and different states' findings on the availability of maritime liens to bunker suppliers. Bech Bruun offer a survey of the Danish side of the OW Bunker equation, including a review of a leading ISDA derivatives case in which HFW were instructed.
We are working with clients across our international network to help them minimise the impact of COVID-19 on their business and to prepare for what's next. To find out more, visit our dedicated Covid-19 hub.