Bunker quality claims in 2020 – issues to consider

Clyde & Co has published a two-part piece on the issues that need to be considered in bunker quality claims

Clyde has noted that in recent years the shipping industry has faced a significant number of bunker quality claims, most notably arising out of the so-called “Houston problem”, where there were numerous complaints that contaminated fuel had caused engine problems, including sludge blocking fuel filters and the sticking and seizure of fuel injection components. In the most serious cases, there were reports of vessel blackouts and groundings. The global impact of shipping problems was also evident.

While complaints regarding the “Houston problem” were originally concentrated around the US Gulf region, complaints regarding off-specification fuel quickly spread across the globe, including to Panama and Singapore.

The IMO’s 2020 0.50% sulphur cap has seen the shipping industry face a new set of potential issues regarding bunker quality. Concerns have been raised about the quality of some blends of low sulphur fuels, and in particular, the potential impact on vessels which may not have implemented comprehensive fuel management procedures to store and consume low sulphur fuel.

Clyde warned that, owing to different fuel blends, the compositions and properties of low sulphur fuel on the market could vary widely. Experts had raised concerns about the level of catalytic fines (catfines) which can often be at relatively high levels in non-distillate low sulphur fuels, owing to the refining processes and blends with cutter stock to reduce sulphur content.

If catfines levels are high and/or vessels do not have adequate purifiers in operation, then these small, hard particles can embed in soft metal surfaces in fuel pumps, injectors and cylinder liners in engines, and act as an abrasive, dramatically increasing the rate of wear of engine components, with the risk of wear beyond maximum limits occurring in weeks.

Concerns had also been raised about the stability levels of blended low sulphur fuel, and the risk that asphaltene content might precipitate out of solution, causing the formation of sludge which could block engine filters and pipes, leading to the potential loss of power and propulsion.

There were also numerous potential issues which could arise with the enforcement of the lower sulphur limits in MARPOL Annex VI, which could result in legal claims. Potential claims could arise where the MARPOL bunker sample tests on specification, but other samples when tested, generate results which narrowly exceed the prescribed 0.50% m/m limit.

Under the New IMO regulations, from March 1st 2020, vessels without scrubbers will not be permitted to carry fuel over the 0.50% m/m limit. Clyde said that this could lead to potential enforcement action against such vessels and disputes between Owners and Charterers regarding any losses arising out of such enforcement action.

Disputes might also arise where Port State Control obtained their own bunker samples from bunker tanks, but these test off-specification due to high sulphur content. In such cases, a vessel might be detained and/or forced to debunker by the authorities.

Clyde said that, where there were complaints about bunker quality, a number of potential legal claims could arise between different parties concerned with the bunker supply. Disputes between Owners and Time Charterers concerning bunker quality regularly occur, and Clyde said that it expected  the impact of IMO 2020 to lead to an overall increase in the number of these disputes. There might also be an increase in the number of claims by bunker purchasers against bunker traders and suppliers, as well as claims by vessel Owners under H&M policies, if there is an increase in the number of reports of engine damage.

Whilst the IMO has commented that, so far, there had been a “relatively smooth transition” to the new sulphur limit, Clyde & Co noted that it had not been without issue, with breaches of the new limit being identified by authorities and enforcement action taken against a number of vessels. There had also been reports of high sedimentation levels in low sulphur fuel blends in the Americas, Singapore and Europe, which had the potential to cause clogged filters and engine damage, and generate legal claims.

Clyde emphasized that the key upcoming deadline was March 1st.

To comply with the carriage ban, vessels without scrubbers will need to take steps to debunker any remaining high sulphur fuel on board ahead of March 1st. The nCoV outbreak has made it hard for any vessel planning a quick install of scrubbers before March 1st. Clyde noted that there had been reports of delays at Chinese repair yards, and concerns have been raised that this might impact on the ability of shipowners to have scrubber installations completed by March 1st.

The purpose of the carriage ban is in part to provide a means for the effective enforcement by States of the new sulphur limits set out in MARPOL Annex VI. After March 1st, Clyde said that it might be more straightforward for port authorities to pursue enforcement action against vessels; a breach will be clearly evident to authorities if a vessel without scrubbers is found to have fuel above the 0.50% m/m limit in any of its tanks. Clyde warned that this might prompt increased enforcement action in coming months.

Clyde said that there was a risk that high sulphur fuel residues in tanks and fuel systems might combine with otherwise compliant low sulphur fuel to push the overall sulphur content of the fuel above the 0.50% m/m limit. This issue had already been seen in China, where a vessel which loaded low sulphur fuel was found to have exceeded sulphur limits, because originally compliant fuel mixed with high sulphur fuel residue which was still in the fuel systems. Authorities ordered the vessel to take measures to clean its fuel system.

Clyde said that, if similar issues arose, vessels faced the risk of penalties being imposed by port authorities, of the costs of remedying the problem (which could include debunkering a bunker stem that has become non-compliant), as well as delay. It was likely to be difficult for owners to recover any of these losses from their charterers, and vessels might be placed off-hire during any period of delay.

Concerns about the quality of low sulphur fuel blends also remain, with complaints in a number of jurisdictions regarding sedimentation levels.

Tests run by FOBAS in Singapore on low sulphur fuel blends identified that a number of blends tested in January 2020 were above the total sediment potential (TSP) limits in the ISO 8217: 2017 standards.

Separately, the IMO has said that it has received complaints regarding the level of black carbon emissions from low sulphur fuel with high aromatic content, and this could in future lead to legislative changes impacting on the standards and use of low sulphur fuel.

https://www.clydeco.com/insight/article/bunker-quality-claims-in-2020-issues-to-consider-part-2