With over 30 years’ experience in the shipping industry and many IMO meetings under his belt, Lars Robert Pedersen is well versed in regulations; indeed, he was Director of Regulatory Affairs at A.P. Moller-Maersk prior to joining BIMCO in 2010.
With less than a year to go before the MARPOL Annex VI sulphur limit drops from 3.50% to 0.50% on January 1, 2020, what’s the outlook according to the world’s largest international shipping association?
UE: Is the 0.50% sulphur limit in 2020 the main focus for BIMCO’s members these days, or are there other issues that are of equal or maybe even greater importance?
LRP: Yes. Without doubt, the 2020 sulphur limit is the issue. The reason is that the cost implications may well become far reaching, but we do not know to what extent. Will ships with scrubbers become a stranded investment because the price spread between compliant fuel and high sulphur fuel is not widening enough? Everyone makes their own decisions and the eventual success of the decisions taken now will only be known on the other side of 1 January 2020. That does not bode for sleeping well at night.
UE: What are your members’ main concerns regarding implementation of the 0.50% sulphur limit?
LRP: Did I make the right decision on how to comply? Will enforcement, or lack thereof, place me in an uncompetitive situation? Can I get the fuel at the right price to support my compliance method? There is a lot of uncertainty and no one has the answers.
UE: The IMO is developing a standard format for reporting fuel oil non-availability, known as a FONAR. Do you think it will work? Are you concerned that FONARs could be abused?
LRP: First of all, the regulation is clear. A ship is non-compliant if it burns fuel with more sulphur than 0.50%. This cannot be debated. The FONAR is just a uniform way to present the mitigating circumstances that port state control shall take into account when they assess how to take actions against a non-compliant ship. It is not a “get out of jail card”. There is no assurance that a FONAR will result in a free ride. We can hope that ships which present FONARs in good faith will not be unduly penalised. There is however no assurance.
BIMCO is recommending to seek compliance at all times. We are convinced that any abuse of FONARs will not be looked at mildly. Lastly, we do not know how the ban on carriage of non-compliant fuel will work with the FONAR. A ship may be allowed to arrive non-compliant, but will it be allowed to depart again with non-compliant fuel onboard? This is one area that we need to look at with the IMO member states.
UE: BIMCO has been working on a suite of so-called 2020 bunker clauses, divided into four distinct projects. What’s the status on these?
LRP: The general sulphur compliance clause is now out which clearly sets forth each party’s obligations. The transition clause is also out. This clause is for use in charter parties which span beyond 1 January 2020. The clause deals with making ships ready for compliance by 1 January 2020 and also the carriage ban which enters into force by 1 March 2020. In general, the transition clause is about ensuring that the parties work together in preparation for the new regime.
UE: Did decisions by Singapore and others to ban discharges from open-loop scrubbers surprise you? What impact do you see from this?
LRP: Reading from press articles, one could get the impression that this is both very surprising and something devastating for ships with open loop scrubbers. I am not sure however, that this is necessarily correct. Firstly, it is entirely within the sovereign rights of states to put such measures in force in their waters. Secondly, the consequence of not being allowed to use the scrubbers in ports is relatively limited. The vast amount of fuel is burned when ships steam between ports and that is where a scrubber is being paid back.
UE: How long do you think it will take for the industry to adapt to the 0.50% sulphur limit and any disruption caused by it to settle down?
LRP: Adaptation to this by the shipping industry will be very fast. I am much more concerned with the bunker supply industry and the refining industry. This is where we may see a prolonged adjustment phase – one which will likely affect the wider oil product markets and eventually consumers around the world.
UE: IMO’s Maritime Safety Committee has agreed to add a new item to its agenda to address concerns about fuel safety, separating the subject from discussions around implementation of the 0.50% sulphur limit. What’s your view on this and what do you think MSC can achieve?
LRP: The idea of getting MSC to engage is about making sure the safety aspects of fuels are thoroughly addressed. In fairness, it is likely limited what MSC can do. Much more important is it to ensure that both authorities and ships are aware of the elevated risks that follow with more blending of residual fuels. We must ensure that ships’ crews are aware and able to handle the new fuels in a safe manner.
UE: What is your impression of the bunker supply industry? How can relations between suppliers and buyers be improved?
LRP: There appears to be a perception amongst some in the shipping industry that the bunker supply industry’s reputation is somewhat shady. Whether this is fair is another question. When we look at MARPOL Annex VI, and regulation 18 in particular, the elements to ensure a degree of responsibility placed on the suppliers are already in place. It is more that implementation and enforcement is lagging in the IMO member states which are parties to the Annex. Too often, non-compliance with the sulphur or quality requirements of Annex VI is left to commercial disputes, when these could and should also be dealt with as MARPOL violations on the side of the suppliers.
Ensuring a fair distribution of the obligation to deliver and use compliant fuel is the one element that could improve the relationship between buyers and sellers of fuel.