July 31, 2019

Regulatory Update – All Set for Change?

With the maritime industry facing significant changes in its regulatory landscape in the coming years, it is important that maritime sector stakeholders understand the way in which these substantial modifications will affect them. Here, we briefly consider the notable legal changes set out in the BWM Convention, MARPOL 2020 and the Maritime 2050 Strategy.

Ballast Water Management Convention ("BWM Convention")

The IMO's BWM Convention, which entered into force on 8 September 2017, governs the legal requirements for most vessels to manage their ballast water to avoid the transfer of potentially invasive species between environments. Broadly, this consists of two requirements:

i) for vessels to exchange their ballast water in open seas ("D-1 requirement"); and

ii) for vessels to limit the amount of viable organisms discharged in ballasting operations ("D-2 requirement") (effectively requiring vessels to install ballast water treatment systems).

From the date of entry into force, all ships falling under the BWM Convention must conform to, at least, the D-1 requirement.

On 7 July 2017, at the 71st meeting of the Maritime Environment Protection Committee (IMO's decision-making body) ("MEPC"), the implementation schedule for the D-2 requirement was amended to allow shipowners at least two more years to install the required ballast water treatment systems. The new schedule, linked to a vessel's International Oil Pollution Prevention Certificate ("IOPP"), is as follows:

1. New Ships

New ships constructed with a keel lay date on, or after the 8 September 2017, to which the Convention applies, will be required to comply with the D-2 requirement upon delivery.

2. Existing Ships

If a vessel's last IOPP renewal survey was between 8 September 2014 and 7 September 2017, then the treatment system installation is required at the next IOPP renewal survey on, or after, 8 September 2017.

If, on the other hand, a vessel's last IOPP renewal survey was between 8 September 2012 and 7 September 2014, then the treatment system installation is required at the second IOPP renewal survey on, or after, 8 September 2017.

Finally, for vessels:

a) with a keel lay date before 8 September 2017; and

b) that are oil tankers smaller than 150 gt; or

c) that are other vessels smaller than 400 gt (i.e. not subject to Marpol Annex I surveys),

a ballast water treatment system is required to be fitted from the date decided by the Administration (i.e. flag State), but not later than 8 September 2024.

It is important to note, in parallel with the BWM Convention, the United States Coast Guard ("USCG") regulations generally require US-flagged vessels and vessels operating in US waters, to install ballast water treatment systems by 1 January 2021 (subject to the procurement of an extension letter).

Practical Considerations

The implementation of the BWM Convention gives rise to numerous practical considerations for shipowners, such as:

  • The increase in demand for ballast water treatment systems, as the deadlines approach, may increase the price of the systems and their installation;
  • Careful consideration must be given as to which systems will be compatible with any given ship;
  • If shipowners are considering a chemical system, the availability of chemicals and the safety of the crew must be borne in mind;
  • Vessels active in US waters will be required to install a USCG-compliant system;
  • Installing a treatment system may increase a vessel's resale value. However, it may be more costly to recycle a vessel which has a chemical system installed.

Ultimately, shipowners need to consider the time, resources and preparation that will be required to ensure compliance with the BWM Convention and, importantly, act sooner rather than later.

International Convention for the Prevention of Pollution from Ships ("MARPOL 2020")

Vessels commonly burn heavy fuel oil ("HFO") as bunkers. HFO is derived as a residue from crude oil distillation. However, HFO has high levels of sulphur which ultimately causes a vessel to release sulphur oxides within its emissions, which are harmful to human health. Since 2005, the IMO has incrementally introduced regulations to reduce the levels of sulphur oxide emissions.

The most recent of these regulations to be adopted is Regulation 14.1.3 of Annex VI of MARPOL 2020 (the "Regulation"). The Regulation provides that, as of 1 January 2020, the limit for sulphur in fuel oil used by vessels will be reduced to 0.50% m/m. This is a significant reduction considering the current permissible sulphur content of fuel oil is 3.5% m/m. However, the Regulation does not affect the more stringent requirement for vessels to use fuel oil with 0.10% m/m sulphur content when operating within an Emission Control Area (Regulation 14.4.3).

This limit will apply to all vessels:

i) registered with Flag States that have ratified Annex VI; and

ii) passing through, or calling at, waters belonging to Port or Coastal States that have ratified Annex VI.          

Failure to Comply

Although enforcement will vary between jurisdictions, MARPOL 2020 requires non-compliance to be adequately punished so as to discourage violations. In most cases, this will often include financial penalties. Nevertheless, Port States may separately exercise their powers to arrest vessels under local regulations.

Flag states that have ratified Annex VI could, as a minimum, suspend the MARPOL certificate of a non-compliant vessel. Owners should be aware that if this happens, or alternatively, if the vessel is deemed to be unseaworthy or no longer in class, then the owner of the vessel may be in breach of the warranties provided in their Hull and Machinery and/or Protection and Indemnity policies.

Compliance issues may also potentially lead to a rise in charterparty claims between owners and charterers. These could manifest themselves in a variety of ways, including claims relating to unseaworthiness, fitness for service, off-spec bunkers and contamination. Accordingly, owners and charterers should now be considering the risk allocation within their charterparties. Where appropriate, they may wish to consider re-negotiation of their contractual relationships to minimise their exposure in the event of non-compliance with the Regulation. Specific care should be taken to review clauses concerning the supply of fuel and the installation, maintenance and repair of scrubbers.

Practical Considerations

Undoubtedly the largest concern for the maritime sector regarding the Regulation is the cost associated with compliance. Recent research suggests up to 90% of vessel owners will opt for the use of Low Sulphur Fuel Oil ("LSFO") as a method of compliance. This rise in demand of LSFO in the coming years will inevitably see a corresponding increase of its price in the market.

The availability of LSFO at a vessel's port of call will also be a consideration. Large ports with developed bunkering infrastructure will likely be prepared for the Regulation, however, smaller ports may not offer facilities for vessel to replenish their LSFO bunkers, and this should be considered before finalising vessel routes.

Lastly, an increase in the supply of compliant blended LSFO is expected in response to the Regulation. This poses problems in itself, as there is no international standardisation governing these blended fuels. The uncertainty of the composition and properties of these fuels risks unknown environmental damage, increased dangers to crew and damage to vessel.

Ioanna Tsekoura and Benjamin Bryant of Clyde & Co published an in-depth three-part series on the topic. The first part can be found here.

Maritime 2050 Green House Gas Strategy (the "Strategy")

On 13 April 2018, the IMO adopted the Strategy which outlined its initial plans to reduce greenhouse gas emissions ("GHG Emissions") over the next century. Unlike the BWM Convention and MARPOL 2020, the Strategy is currently in its infancy, and consists of:

i) the future visions for international shipping;

ii) levels of ambition to reduce GHG Emissions and guiding principles;

iii) proposed short, medium and long-term measures to facilitate the reduction in GHG Emissions; and

iv) barriers and supportive measures applicable to the overall plan.

Most striking of all, within the "levels of ambition", is the commitment to cut GHG Emissions from international shipping by at least 50% by 2050, as compared to levels in 2008. Equally, there is a commitment to reduce carbon intensity by at least 40% by 2030, and 70% by 2050 (both also compared to 2008 levels).

The Strategy will be replaced in spring 2023 by a long-term plan based on data collected from vessels between 2019 and 2021. In the interim, the IMO will be deliberating the short-term decarbonisation measures to facilitate the Strategy's goals. Indeed, a programme of short-term, mid- and long-term measures aiming at reducing GHG emissions from ships were discussed by the MEPC, in May 2019, and will be considered further at their next sessions.

At this stage, it is very difficult for the maritime industry to anticipate specific measures which will result from the Strategy. Hence, the sector is focused on preparing for the more immediate implementation of the BWM Convention and MARPOL 2020.

Nevertheless, the transformative impact of the Strategy should not be overlooked. The Strategy will likely require the application of currently under-developed technologies, speed restrictions and reliance on carbon-neutral fuels. The ambitious targets will mean that the resulting measures will most likely be mandatory for most of the world's vessels. As such, the maritime industry will have little respite following the implementation of the BWM Convention and MARPOL 2020 before they must consider new requirements arising from the Strategy. The industry should keep sight of Strategy developments and attempt to tackle upcoming requirements early, to manage costs more efficiently and avoid the risk of non-compliance.

First published in Maritime Risk International, March 2019