Marine market roundup – May 2019

Our Singapore office recently briefed the market on some key issues impacting the marine sector including the forthcoming sulphur cap, the increase of phishing scams and the effect of sanction clauses.

2020 sulphur cap

The IMO has issued a 0.5% global sulphur cap on marine fuel which comes into effect 1 January 2020. This has a significant impact on the maritime sector (owners, charterers, bunker suppliers) given that the present sulphur limit is 3.5%. Its introduction will affect around 70,000 vessels.

Implications

The 2020 sulphur cap will likely lead to a hike in costs of owning/chartering a vessel as there are cost implications to each compliance option:

  • Implementation of scrubbers costs between US$2-5 million; there is a lead time of 40-50 weeks; there’s a ban on open loop scrubbers in some jurisdictions (e.g. Singapore and Fujairah); and there may be technical issues involving performance / maintenance to be resolved.
  • Low Sulphur fuels: market factors are difficult to predict; unknown spread between heavy fuel oil (HFO) and low sulphur fuel oil (LSFO) supply; potentially low availability of HFO outside major bunkering ports; issues of blending and contamination of fuels.

Transitional clauses (the Fuel Transition Clause and the Marine Sulphur Content Clause) have been provided by BIMCO for time charters to help with the transition.

Ultimately, the manner of compliance will be determined by the costs involved. This is a difficult decision to make because:

  • Nobody yet knows the price of LSFO
  • Nobody knows how the suggested compliance methods will affect the freight/ hire market
  • Quality issues of blended fuels and their long-term impact on the vessels
  • Each compliance method will lead to potentially new legal or compliance issues – and therefore more costs.

Many are adopting a wait-and-see approach for now – although time is running out.

Contact: Nick Francis

Related item: BIMCO issues new bunker clauses in advance of the 2020 sulphur cap

Phishing emails and dangers of making payment on email instructions

The increase of fraudsters masquerading as someone else in order to trick the victim to make payment into the fraudsters’ designated bank accounts is prevalent in the marine industry. Examples include:

  • Intercepting emails between a party and their broker and sending a forged invoice with the fraudster’s bank details/sending the fraudster’s details instead
  • Gaining access to broker’s email server to change the owner’s bank details.

Generally, the loss lies where it falls but it is possible to obtain worldwide freezing orders which can then be used as a springboard for other ancillary reliefs.

Measures to help prevent these scams include:

  • Allocating a certain employee specifically to deal with a particular charter/transaction
  • Advice counterparts to deal with specific parties only
  • Inform counterparts in advance on any change in banking details or contact information
  • Provide training to prepare employees to learn how to identify phishing emails (grammatical errors, email addresses, change in banking details)

Contact: Joseph Tan

Related item: Evolving cyber risks and the benefits of cautious opportunism in the face of uncertainty

Sanction clauses

Non-compliance with economic sanctions can lead to fines or imprisonment, harm to a company’s reputation, issues with insurance cover, and potential restrictions or difficulties in transferring funds cross-border.

To manage these risks, a company with international reach should have in place sufficient compliance processes and ensure that they keep up to date on the applicable sanction affecting the company and the company’s contracts and transactions.

The sanction regime that a company is subject to is jurisdiction-specific (depending on where it carries on business at) for example. Singapore does not enforce the laws or sanctions of other countries. However, such parties may nonetheless be affected commercially by the extraterritorial reach of such unilateral sanctions.

Contact: Karnan Thirupathy

Related item: Sanctions: fear of breach not enough

Read other items in Marine Brief - May 2019