‘It’s going to be a disaster for the industry.’
So said George Chalos, maritime lawyer, speaking at the recent TradeWinds' IMO 2020 Disruption Forum on the topic of IMO 2020 enforcement.
Chalos was referring specifically to the heavy-handed enforcement he expected from the US Coast Guard after the IMO’s new sulphur (sulfur) regulations go live on 1 January 2020.
But his words echo an increasingly popular sentiment. Many in the industry are behind the curve in preparing to comply with the new rules.
Some shipowners have played a wait-and-see game in deciding which of the three compliance routes they should take: switch to 0.5% low sulphur fuel oil (LSFO), install an exhaust gas cleaning system (scrubber), or convert to a non-petroleum fuel such as LNG.
Lax enforcement could encourage low compliance
This has been partly driven by prevailing uncertainty around fuel prices, fuel supply and scrubber availability. But shippers have also been watching the IMO to determine how seriously the body would take enforcement of IMO 2020.
Lax enforcement could encourage low compliance, which could impact fuel demand for LSFO and high sulphur fuel oil (HSFO), which could shift the decision around the best compliance solution, if any, to adopt.
But that scenario now seems unlikely.
A proposal by various flag states that an experience building phase (EBP) be added to the regulations was rejected at MEPC 73, and recent amendments to Marpol Annex VI will prohibit non-scrubbing vessels from carrying >0.5% fuel oil on board from March 1, 2020.
The IMO has no authority to enforce the new regulations itself
The IMO appears firmly committed to demanding adherence to the reduced sulphur cap. But, how? As a special agency of the United Nations, the IMO has no authority to enforce the new regulations itself.
Pressure could come from the markets. Global customer-facing businesses like IKEA and Walmart have an inherent brand-protective interest in requiring shipping firms to comply with the new rules to avoid bad publicity.
Failure to comply with the global sulphur cap may also deem a vessel ‘unseaworthy’ for insurance purposes, relieving insurers of liability for claims.
The latter would require a vessel’s flag state to withdraw the ship’s MARPOL certificate on grounds of non-compliance with the new SOx rules. But, this is untested territory and only part of the authority flag states have in promoting compliance.
Most flag states outside north America and northwest Europe tend to be low on resources
In practice, the 0.5% requirement will be enforced globally by Port State Control (PSC) authorities.
At the start of April, the Maritime and Port Authority of Singapore, which has already banned open loop scrubbers, announced that, from the start of 2020, captains and owners of vessels that burn high sulphur fuel in the Asian country’s territorial waters, without using sulphur-reducing technology such as gas scrubbers, could face as long as two years in prison.
But other flag states outside north America and northwest Europe tend to be low on resources and commitment to meaningful penalties. Globally, though, only a small number of port states have experience in this arena. The global average sulphur content of HSFO is 2.7%, which is below the existing IMO emissions limit of 3.5%.
As a result, compliance has not, until now, been much of a concern. 91 states have ratified MARPOL Annex VI. All are required to enforce IMO 2020. However, of those only 31 currently have sulphur regulations in place and only 16 are ECA regions.
This represents a widespread lack of experience in enforcing sulphur regulation compliance.
Even ECA countries are used to just policing their own waters, not the wide open seas.
This is the motivation behind new legislation prohibiting all vessels without scrubbers from transporting HSFO after 1 March 2020.
It is true that ships with scrubbers could continue burning HSFO fuel without using the scrubber, but the cost of scrubber installation makes the economic benefit of this tactic marginal.
Shipowners to get their house in order, and fast
So, the new amendment to Annex VI promises to make PSC authorities’ jobs a lot easier.
But, as suggested by Trident Alliance Chair Roger Strevens, ‘Information on the approach to enforcement, including the details of how compliance checking will be done and the penalties for non-compliance are, with few exceptions, hard to find.’
For now the letter serves as a reminder to shipowners to get their house in order, and emanates from checks on SOx records, sulphur oxides, sulphur content of fuels used, and any alternative arrangements for SOx management, such as scrubbers.
From 1 January 2020, however, the checks will become more stringent, including
- That the ship carries on board fuel oil with a sulphur content matching the area of operation
- There are records of the bunker delivery notes (BDNs) and associated samples or records on board
- Where appropriate, there are written procedures on board covering fuel oil changeover
- That the Master and ship’s personnel are familiar with essential fuel oil management procedures
- That the ship has an appropriate approval for any scrubbers, or equivalent
But what happens when operators fail to comply? Potential penalties remain unclear, but they could include civil and criminal sanctions.
The IMO has not set any fines or sanctions for non-compliance
The IMO seems to be working on this and we may expect further clarity to emerge from MEPC 74 in April 2019, but for now it’s every port state for itself.
The IMO has not set any fines or sanctions for non-compliance, leaving this to the discretion of individual member states. MARPOL does say, however, that penalties should be ‘sufficient to discourage violation … irrespective of where the violations occur.’
Some, like the Trident Alliance, believe that enforcers should differentiate between gross or intentional contravention, and mild or unintentional contravention.
With so much uncertainty around the availability of LSFO come January 2020, this seems a prudent approach. But there is a lot of room for movement.
The United States has played a historically significant role in MARPOL enforcement, with vigorous work by the US Coast Guard and Department of Justice securing major fines and criminal sanctions for past violations.
Perhaps Chalos will be right. Perhaps the US and the rest of the world will clamp down hard on operators transgressing IMO 2020 regulations. And perhaps that will be ‘a disaster’.
But with only nine months to go until the new laws take effect these are still murky waters with few clear answers. It is equally possible that a more measured approach reigns, taking into account the tremendous complexity of this dramatic switch to a 0.5% maritime world.
Either way, shipowners are well advised to take IMO 2020 seriously.
In a few months’ time there will be nowhere to hide.