Use of tankers as floating storage – arising legal issues

Sally-Ann Underhill and Peter Glover of Reed Smith have written for Swedish Club on the potential legal issues arising from the use of tankers as floating storage, which was very much a matter of current importance, given a lack of demand for oil and a concomitant shortage of land-based storage.

The absence of terminal and tank farm capacity had generated renewed global interest in and a growing demand for oil tankers to be used as floating storage. This increase in demand for floating storage was being reflected in daily hire rates, with VLCC rates being pushed from averages closer to $100,000 to reportedly in excess of $300,000 a day, according to industry sources.

While no doubt compounded by the Covid-19 outbreak and the resultant uncertainties it has generated for international trade, the current macroeconomic climate means that there will be potentially very long periods during which tankers will be used as floating storage, the writers said.

Given that most charterparties did not contain storage clauses, or had clauses which were legally or practically deficient when considering long-term storage, owners and charterers alike were presented with an array of issues that needed to be carefully considered and the risk allocated to avoid legally significant and potentially expensive consequences.

Any failure to do so might result in legal implications which could be far-reaching. Swedish Club has therefore published a briefing note that discussed a number of legal issues that might arise under a charterparty or bill of lading contract, where owners accept charterers’ requests to employ their tankers as floating storage.

A comprehensive  analysis of the various scenarios is at:

https://www.swedishclub.com/media_upload/files/Use_of_tankers_as_floating_storageRS.pdf