Session two of the Tanker Shipping & Trade Conference Exhibition and Awards saw an expert panel discus the challenges of regulatory compliance
There can be few people better positioned to explain regulatory compliance than Lloyd’s Register head of regulatory affairs Andrew Sillitoe. Speaking at this year’s Tanker Shipping & Trade Conference Exhibition and Awards, he said: “I consider my job is to ensure that fellow colleagues and our clients in the industry are not caught by surprise when the regulations change.”
For the purpose of the conference, his remit was to cover the changes taking place in EU regulations which impact shipping. He noted that the EU has not developed a specific package of regulations for shipping, but relies rather on a combination of initiatives which can be viewed as one package designed to steer tanker capital and operations in a greener direction.
This comprises: sustainable finance – EU taxonomy; FuelEU Maritime; Fit For 55; Emissions Trading Scheme; and Alternative Fuels Infrastructure. At the top level is the Green Deal, which aims for rapid GHG reductions and climate neutrality by 2050.
Mr Sillitoe noted that one of the key challenges involves bringing shipping into the existing Emission Trading Scheme (ETS), with a phased introduction for all ships over 5,000 gt in the EU. However, the final text on this is still to be published.
Funds raised by the ETS will be used to finance the research and development of sustainable alternative fuels. The EU is also applying pressure through an energy tax directive to try and shift financial incentives away from fossil fuel use towards cleaner options.
“The inherent, competing interests of the owner and the charterer have to be aligned”
The renewable energy directive is not just applicable to shipping and offers incentives at a state level for suppliers to help move away from traditional fuels. “FuelEU Maritime is intended to promote the renewable- and lower-carbon intensity fuels,” said Mr Sillitoe. “This links to renewable energy directly by trying to encourage the production and availability of such fuels.”
There are also penalties for the non-supply of contracted renewable fuels, he explained: “If the contract says that the charter is responsible for buying the fuel and operating the ship, they are also liable for the penalties.”
Penalties and the sharing of responsibility was the subject of a presentation given by The North of England P&I Association’s senior FD&D advisor, Dimitra Capas. Her message, as a litigator, was clear: “Regardless of whether or not it is in the charter party, if the Marpol regulations apply to your vessel, they are mandatory and they apply. So you are better off putting them in the charterparty and adding bespoke clauses to cover the situation.”
In her opinion, it is better in the long term that all parties are aware of their responsibilities and their portion of liabilities, instead of having to litigate later. For instance, it could be that in a long-term charter, the charterer may wish to have certain modifications to the vessel to lower emissions and fuel consumption. It is the owner that ultimately decides on modifications to the tanker and pays for them, but the charterer should consider some compensation for the work and reimburse the owner for any time in drydock.
Ms Capas added: “One very important thing that you need to include in your charterparty is the additional crew training that is going to be required with these technical modifications.” Why is this important? In some situations, a charterer could claim it was a lack of crew training that led to a claim, and this pushes the responsibility back to the owner.
Turning to the CII, Ms Capas said: “I think this is going to be one of the biggest challenges.” She noted that the traditional operation of vessels is to steam fast, then wait. “There are legal and contractual mechanisms in place to penalise inefficiencies,” she said. She noted demurrage, speed and performance claims, and failure to proceed with the utmost dispatch are all about penalising inefficiencies.
“Waiting, loading and discharge times are not something the owner can control”
“Rather than penalise inefficiencies, it should be about preventing inefficiencies,” she said. And this is where Mr Capas sees a conflict: “These regulations are a drastic change. It is a completely different mindset, in that now, the inherent, competing interests of the owner and the charterer have to be aligned.”
Ms Capas concluded: “We need to change the way we operate. We need to change our mindset. We need to change the way we share data. We need to change the way we train crew. Ultimately, it is up to us to make this cleaner world happen.”
HAFNIA vice president technical, Jørgen Thuesen, led a subsequent debate on regulation, risk and reward. Regarding regulations, he said: “As shipowners, we have always had to fulfil the regulations coming down the line; we have always done that one way or another and we will do it this time, too.”
He noted that there is a disconnect between the theory of CII and the reality. To explain the scale of the challenge in terms of the CII rating, he said: “We have 250 vessels that we operate and control. On average, they are only steaming 45% of the time – can you imagine the rating – it will be a D.” The main elements impacting the vessel’s CII rating are waiting time and loading and discharge time – and these are often outside an owner’s control. “An operational index based on uncontrollable sensitivities conflicts with reality,” he said.
