Low Sulphur Fuel Compliance

What it does

A low sulphur fuel compliance clause addresses the parties' obligations in relation to fuel that meets the environmental limits on sulphur content applicable to the vessel's trading, including the stricter limits that apply in designated emission control areas. It allocates responsibility for ensuring compliant fuel is supplied and used, and for the consequences if compliant fuel is not available or not used.

Because using non-compliant fuel can expose the ship and the parties to penalties and detention, the clause sets out who must supply compliant fuel, how the obligation works where the charterer stems bunkers, and how the cost difference and any compliance issues are handled. It connects to the bunker quality and supply provisions and to the wider regulatory environment governing ship emissions.

Commercial effect

The clause allocates both a compliance risk and a cost. Compliant low-sulphur fuel typically costs more than higher-sulphur fuel, so the clause's treatment of who bears that cost, and of any price adjustment for it, has a direct financial effect, particularly where fuel is a large share of voyage cost. The consequences of non-compliance, including penalties and delay, add to the stakes.

Which party must supply compliant fuel, and who answers for a failure, depends on the charter structure, since the charterer often supplies bunkers under a time charter while the owner buys fuel under a voyage charter. The clause is read with the bunker quality and price provisions and against the regulatory framework, and its allocation of cost and risk reflects the trade and the applicable limits.

Owner's perspective

The owner wants clarity that, where the charterer supplies bunkers, the charterer must supply compliant fuel, so that the ship is not exposed to penalties or detention for burning non-compliant fuel the charterer stemmed. It wants protection against the consequences of non-compliance that arise from the fuel it was given rather than from how the ship was operated.

Where the owner buys fuel, it wants any additional cost of compliant fuel recognised in the freight or through an adjustment, so it is not left absorbing the higher price. It treats compliance as a shared regulatory necessity and negotiates the clause alongside the bunker quality and price provisions so that both the cost and the risk of non-compliance fall fairly.

Charterer's perspective

The charterer, where it supplies bunkers, accepts responsibility for stemming compliant fuel but wants the owner's responsibility for operating the ship and its equipment preserved, so that compliance failures caused by the ship rather than the fuel do not fall on the charterer. It wants the boundary between fuel supply and ship operation clear.

The charterer is also focused on the cost of compliant fuel, wanting any price difference and adjustment to be fair and transparent, since it can be significant. It negotiates the compliance clause together with the bunker quality and price provisions so that the obligation to use compliant fuel, and the cost of doing so, are allocated in a way that matches the charter structure and the trade.

Negotiation points

• Which party must supply fuel compliant with the applicable sulphur limits.
• How the cost difference for compliant fuel is borne or adjusted.
• Responsibility for penalties and delay arising from non-compliance.
• The boundary between fuel supply and the ship's operation and equipment.

Common variations

• A clause requiring the charterer to supply compliant fuel for the trade.
• A provision recognising the additional cost of compliant fuel in the rate.
• A clause allocating responsibility for emission control area requirements.
• A compliance clause coordinated with the bunker quality provisions.