31 Mar 2020
Chris Nolan, Partner at Holland & Knight New York, who authored an amicus brief on the prevailing side, told Lloyd’s...
Lloyd's List Business Briefing: London
Topic video - Global sulphur cap 2020: fuel management
With the global sulphur cap regulation to come in to force in two years time, this expert panel discusses the importance of ship owners' fuel management programmes, charter clauses, fuel testing and crew training.
Don't have time to watch? See the full video transcript below.
Tim, I know you are concerned not just for the shipowner but the much broader supply chain and how this is going to affect the entire industry.
There is no doubt that what’s going to happen in 2020 is going to happen. Earlier on we heard the question: ‘Might it be delayed?’ Absolutely not. The IMO regulations wouldn’t even begin to do that. The earliest that they could do that is 2022. So too late, we’re there. And it will affect, as I’ve seen, every element. Every stakeholder of the industry has been affected to a lessor or greater degree.
I sit on the European Sustainability Shipping Forum; I sit on the CIMAC; the ISO ARA Quality Forums, IBIA. Everybody is trying to address this issue with a focal point on PPR5, where the implementation plan will start to be formed. And every sector that we look at there are elements of risk. And I would say that for the ship operator, and this may sound controversial, availability of fuel is not an issue when it comes to compliant fuel. If it is not there then provision is made, whether you'll be able to fill forms out and say, ‘It wasn’t available, I bought 700 semi stokes, 3% fuel.’
However, the ship owner needs to realise the risk if they do not prepare in a way where their fuel management is very clearly defined to take into consideration the tremendous diversity and range of formulations of fuels that is going to be facing them from one bunker to the next. They could run huge operational risks on board ship. This is fundamental: One area which needs to be looked at very seriously, that every ship operator needs to assess their fuel management programme. Without that, that’s where the first element of risk needs to be addressed, and there are some legal implications on that. If something goes wrong; whose fault was it? Was it the supplier or not?
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The other element in the reality of the supply chain where there is concern is between the shipowner, the charterer, they make a bunker clause – the charter bunker clause. And then the charterer and the supplier, from which is another supply cause. Are they the same? What was asked for and how does that legally stand? I believe that really, that whole process and procedure needs to be looked at again, in the context that all fuels now will face a very defined limit that is going to be provided for. All fuels face the current challenges we have had with 0.1 with 0.5, as blenders will blend as close to 0.5. And the risk of regular non-compliant fuel being supplied is very high as everybody is trying to get rid of that sulphur. So those are elements which need to be looked at very specifically.
The other elements that ship operators, we’ve touched on before here, is the ship needs to be operating on 0.5 on the morning of January the first 2020. This is not a quick change over; this needs to start well before. Transition starts now, implementation starts January 2020 and that’s the understanding of the enforcement agencies. There is no tolerance, the limit is the limit. I leave that as a point for discussion and argument.
So, how does a ship know when he can buy 0.5? When does he start that process? He will ask the supplier ‘When can you supply 0.5?’. The supplier says, ‘Well when do you want it?’ The supply chain actually has the biggest problem more than the ship and the risk they have to get their barges cleaned out, their tanks stored up and prepared with sufficient quantities of 0.5, below 10,000 tons, or whatever is going to be asked of them, will be very, very high. But again, for the ship operator if they don’t have that available they can load their 0.5. But I put a twist on this, if there is not 0.5 there, there may well be plenty of distillate, the supplier will say, ‘Well we can give you 0.1% distillate 10,000 tons on your order.’ Consider the cost implication to the charterer who is thinking he is going to spend $100 a ton less. So, legally speaking your charter clauses need to be very clear; the word compliance is up to and including 0.5%, it doesn’t define what type of fuel it has got to be. Operationally, back to the ships, there is a responsibility to ensure that they are prepared for the diversity of that fuel.
So, I think that moving forward and looking at it, every element of the stage from refinery through to the supply to the ship operator and the responsibilities and risks need to be discussed and formed in a way that their processes are prepared and ready before 2020. Planning has got to be done. I see one of the greatest hindrances for preparation is commercialisation, is our commercial interests, we've heard it today. Refineries, there is a reluctance to let go what is going to happen. And one of the things we are asking for in CIMAC, in ISO is clarity of how these fuels will look. Until we know that, we will remain in that chasm of uncertainty.
Iain, we’ve talked a little bit there about the crews and how they could understand the fuel that they’ve got. But to a certain extent, it’s about when you ask for a test of the fuel and the test comes back you know whether it’s a good fuel or not a good fuel, don’t you?
Well you do if you have a test. Good practice would suggest that you should always test any fuel that’s brought on board a ship but part of the challenge going forwards is going to be the nature of these fuels is going to be different. And therefore, you could have two fuels on board a ship which independently are entirely useable but when you put them together you run into problems. So, people on board ship are going to have to be much more attuned to the likelihood or potential of this issue and really understand what the implications are, and it’s difficult for them to know. There is a limited amount of tests that you can do on board a ship to determine the risk immediately. But they’re certainly going to have to be getting their fuel looked at more. And I think that crew training, the fundamentals of crew training and awareness is something that shipping companies can start to address sooner rather than later.
Joe, this is a real problem for you because the crew could have done what was expected of them and yet there is still an issue – Joe Walsh.
We’ve had situations in California, I was thinking back as I was listening to Iain talk, where we’ve had black outs, at least in the early stages of trying to switch over to the right kind of fuel. And that after studies, after studies, and at first it was easy for industry to say look what you are doing, you are going to cause a bigger environmental risk by having the crew switch over. One thing that we’ve taken out of the equation with the 2020 component is taking out the switch over. So, there’s that part of it.
Now the question is still in the management of, as Joe Hughes mentioned, whether you are going to have a black out, or you are going to have engine issues, or break downs and those types of things. And we have had claims, I’ve dealt with them myself, where you’ve had two compliant fuels but for some other chemical reason there is a reaction where they are incompatible and they can gum up the system so to speak – that’s lawyer talk and I have no idea technically of what that meant. But that’s the issue, and so, as our technical folks will tell us, that yes both are compliant, both come back from laboratories as being compliant but when you do draw from one tank and you switch over to another tank, which may be another parcel that you loaded in some other port, all of a sudden, you’ve got this component of fuel that the engines just can’t operate with. I think that’s going to be the kind of issues we are going to see until we get a balance of exactly we are looking at, until we can figure out whether fuel picked up in West Africa versus, something that’s picked up in Asia, are compatible.
I think where the challenge will come in, as it has even now, is not only do the crews have to be aware and keep things segregated as good practice suggests now, but the lab results and the testing will have to be done quicker and little bit more real time to be able to assure the crews that what they have on their portside tanks, or starboard side tanks, is something that they can actually consume. That the charterers have certified that the owners are agreeable that they can go ahead and burn that fuel.
Tim, classification societies have changed from what they were even five years ago and they are now much more involved in the fuel type and fuel trends. How can Class talk to the challenges that Joe Walsh has just outlined?
Very good. We should remember Class is involved in the statutory side as a recognised organisation. So, Class is looking at the safe operation of the ship. And absolutely the fuel system design of a ship, there are certain rules that are laid down which is fundamental in the design. And interestingly, Lloyd’s has been very centrally involved with IACS in the development of an update on the universal recommendations for petroleum diesel systems, fuel treatment systems – just come out in July. And with this in mind specifically and I’ve been heavily involved in that as well, looking at the way the ship's fuel systems are designed from the start. There are basic fuel systems, you can get away with a flat tank service tag; you can get away with one fuel pump; absolute basic but that is not good enough for today.
We are going to get these diverse fuels out there. Two tank fuel ships should, in my opinion and this is my opinion only, should be banned because it does not fit the requirements of the industry worldwide today. Unless they particularly are just going from A to B and they only have one type of fuel. But if they are going to go into a round global operation, you need a multiple number of fuel tanks and that is a nightmare for tankers, the bulkers, which were originally built for just two or four tanks. So, there are cost implications on that. Should we be saying that you need to increase the number of tanks on ships?
So, a lot of work has gone into looking at systems design, but not only that but from our side, recommendations for ships to carry out fuel system audits on board, which the surveyors would check on an annual basis, to have a log. What are you doing to actually manage your fuel? Are you testing the fuel at the bunker station? It’s not a requirement, it’s a recommendation. We would have liked to change it to a requirement but unfortunately, it’s quite difficult in this marine industry to move things. But if it’s there as a recommendation, those companies that want it will get notification of the fact that they are taking that on. And not only that but they are looking at the fuel system treatment plant, they’re are doing audits to make sure they are working properly. On a regular basis they take more samples, see how their system is audited. So, say for insurance companies, I would be saying, do you have one of these special fuel system audit programs you have on board? So, you know then that actually the ship has got the right attitude and I loved that word earlier, if everybody had the right attitude we wouldn’t need the regulations, we’d know what to do.
When I was at sea, we didn’t have any of this paperwork, I left just before it came out. We knew we had to run the ship properly, we were proud of it. That’s not to say they are not today, there is a lot of extra equipment on board today. And I think, with the whole operation on board a ship, yes Class, we are looking at that on the fuel systems, where our role is. We get the feedback from statutory and we have our consultancy side on all class societies, we are getting huge demands and an increase of queries. ‘How can we better improve our system?’ ‘How can we make it more efficient?’ ‘What filter sizes?’ So, we link in with cross industry forums, such as the CIMAC working group for fuels; the ISO for fuel standards and other industry organisations, like IBIA and other forums which are looking at the fuel supply chain.
And it’s important that we are talking together across the industry, with all stakeholders, because there is no point one just coming out with an article saying this is the way to do it, we need to get buy in in the industry. And never before have we need this more than now. I know it’s difficult; people say I’m just an idealist – you can’t get everyone round to agree on something. But gentlemen, there’s enough money for everybody here to make together. We have to get this through this stage; we have no choice and it’s all for the betterment of the environment that we have.
We believe that in Class and we look at designs. We’re getting a lot of new fuel types coming in, some very interesting ones from plastics, from waste. Even the idea of going back to boilers using fluidized boilers, using solid municipal waste. So, we are very much a central part of that because of course how do you fit that on a ship? What are the class rules? What is, how is that approved statutorily? We are part of that; it’s an important part. It gives assurance and independent verification that this will work and it’s going do what it needs to do.
So just to kind of complete this part of the circle. Iain, how are you working with Class to answer some of the crisis issues that you see coming forward?
Well, one of the lessons we learned when the ECA came out at 0.1%, we brought out a couple of new fuels, one of them at the time of the regulation and one shortly afterwards. And we didn’t send those fuels to the labs immediately. And we learnt the lesson that there was a little bit of confusion with the likes of FOBAS and other fuel testing agencies. So, we will most definitely be sending any new fuel that we're going to bring to the market, not only do we test it but will be sending it to, these guys, who are independent, for them to at least learn about it and form a view on it and be able to help their customers with commentary about its suitableness for use. So, certainly as soon as fuels are coming out we will be working with them to basically ensure that everybody understands it. That's the key.
So, there will be hopefully an increased degree of communication between the industry because the challenges over the next couple of years are going to be pretty tough for all of us.
We run a number of technical programs helping shipowners manage their engines and their equipment and increasingly we find that the engineering crew on the ship don’t understand how to run the equipment that they’ve already got. Particularly when with relation to fuel treatment. A lot of vessels are slow steaming, particularly container ships. That means you can run the through-put rate on your fuel purifiers at a much lower level, lower rate, which will give you a much better cleaning capability. And yet we still see problems of contaminants coming through and causing damage. And it’s just evidence to us that the guys on the ship don’t know how to run the equipment that they have got today. So, it’s really important that the people on board know how to run their fuel treatment plant. I mean it’s important today, it’s going to be increasingly important as we move into the multi-fuel world in the future.
But again, it comes back to risk management, doesn’t it? Training is very much part of your risk management strategy, it’s not a saving.
No, no, it’s not a saving. You’ve already paid for the kit; you might as well learn how to use it right.
Simon Grant of Fostering Recruitment. I was quite keen to reflect on a point that was made a little earlier. You described one of the risks is crew training and crew skill sets. We’re seeing an ever decreasing, well shortage of industry skills across the maritime industry. With the ever-increasing intelligence around the industry, with the type of ships coming, the ballast water, how can the industry reflect and learn or improve the skills in the industry to ensure that’s not a huge risk going forward?
I don’t know if I’m particularly well qualified actually to answer a question as specific as that in relation to crew training and so on. I ship manager would probably have the best idea as to what direction ought to be taken in encouraging this sort of thing more generally. I am reminded though that there were similar problems that were arising back during the boom in shipping, of course, from about 2003 onwards to the precipitous fall of 2008 and many occasions that I would attend like this, owners would say, ‘I can’t find the crew; there just aren’t enough to go around’, at the right level of training obviously.
I don’t know; maybe more traditional shipping nations ought to encourage people to serve at sea more enthusiastically. We ought to expand our ship training and cadet academies more.
I think part of the big challenge is going to get worse before it gets better. If you look at, we talk about the multi-fuel world in, as we see the future. And so, there is going to be challenges with switching fuels on ships, we’ve seen some of that with the coming in and out of the ECA areas. We know it happens off the coast of California, there are so many blackouts a year, 24 miles off the coast. It’s happened a little around the ECA areas.
And then if you look there is going to be the more exotic fuels coming into the mix LNG, maybe LPG, methanol, that’s going to bring a level of complexity, that you only see today on a gas carrier, into every engine room. And there are a relatively small number of gas carriers in the world now, there’s only a few hundred of them and so the level of expertise, which is quite particular, is not great.
And if you’re going to then put LNG on a container ship, or a bulk carrier, or whatever in future, that’s going to make it a very complex operation. Certainly, from our perspective as we are looking to plan to make that available from the supply-side, you start to realise that the days of sending the hose pipe up and connecting it up and asking the crew if they are ready to go and then pressing the button, that won’t be happening when we're bunkering LNG.
The supplier will be doing all of the operation because it’s a whole cooling down operation; loading LNG is a serious business. So, it’s going to get very complicated in future, as these new fuels come through the business. So even on a ship which is theoretically running, or even a shipowner who decides that he is going to do nothing new and therefore, he’s going to have to use the 0.5 compliant fuel, he’s going to have to live with the complexity that comes with that. And anybody that goes down the route of new fuels has really got a complex challenge on their hands with crew training.
I cannot help but to recognize the irony in the question. I mean it is true that finding qualified seafarers has been an issue for some time. As Joe Hughes mentioned, I think, there must be at least three or four different seminars this week on autonomous vessels. So, I kind of wonder where those two will merge and how that works actually. I just kind of make the observation with absolutely nothing in mind other than that.
Thank you for that Joe. Just a quick question to each of you. 2020 is definite, Tim, and we are looking at two years of challenge, what is going to happen in 2020
It will be chaotic, but we have a chance to manage that chaos as from one port to another, availability will vary. Crews will very quickly have to become used to the fact that these various bunkers will be coming on board. And there will need to be tolerance from the enforcement working with ships, looking to those ships that are sincerely trying to comply and working with that. The limit is the limit, but there needs to be understanding of the reality for ships to take this over. This came about with 2015, there was a lot of information and direction to the enforcement agencies, to understand the complexity of the switch over for the crew and I think there was a lot of that. There is going to be a lot more inspections on board and there again the inspectors need to understand where the crews are. So, is the intent of the crew to comply? And that is one of the first things to do.
The other thing with 2020 to minimize the chaos, then it is important for ships to plan, and the changeover needs to start, we need to start seeing that happening in August/September of 2019. Because barges need to clean up, storage tanks need to clean up, ships' tanks need to clean up. So, I think the concept of being a number one lead green ship, the marketing concept with big traders that carry all their cargo. Say look, let’s be first. But that can only come about by discussion, co-operation and planning needs to be there. And preparations for even light scrubbers, for example, there is an intermittent step and that is to prepare your ship for putting in a scrubber in the event that that will be financially viable, or more clear to the management. Certainly, with Class, we have a scrubber ready notation as others do, to help ships go forward on that. But talk to us, come to us, there are a lot of consultancies and we are taking information for training and if you are not sure there, we provide courses etcetera to help companies see through it.
But 2020 will be chaotic, I do believe. There will be ships coming in, ‘Oops made a mistake, still got 500 tons of high Sulphur fuel oil, what do I do with it?’ I’m challenging one or two in the EU Commission on that one, come on let them burn it. ‘Oh, no, no, no, its 0.5.’ So, we have to have/see what questions need to be addressed. Hopefully, we’ll come out with the implementation plan from PPR, with some of these questions addressed and scenarios, so there is clarity to the market.
So, communication is key to this isn’t it?
Communication, co-operation and integration as an industry.
Can I just leave the last word to Iain? Chaos or co-operation?
Well I think everybody needs to co-operate. I think undoubtedly there is going to be some supply disruption in some places. The major ports will have the new fuel available, undoubtedly. I mean just a word of warning to the owners that do commit themselves and think that the scrubber route is the right answer, which we would support. Be careful to get a supply contract of the high Sulphur fuel because everybody, as Tim said, will be busy cleaning up their tanks ready for the low Sulphur world. So whatever route you take, remember to think through the whole supply consequence of it. Certainly, at ExxonMobil, we are involved in many of the new types of fuel that are going to be involved and we are talking to our customers to try and help them understand the consequences right through the process here to try get this right.
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