Ship managers must navigate tricky commercial terrain to mitigate their financial exposure as DOC holder with responsibility for compliance under FuelEU Maritime. An effective compliance strategy requires an understanding of the various operational scenarios to formulate sound ship management agreements aligned with their interests, according to OceanScore.

“A one-size-fits-all approach is risky when it comes to finalizing contractual agreements. Running the numbers and performing your own analysis of different scenarios to cover all possible outcomes is vital for informed decision-making to avoid potential pitfalls,” says OceanScore’s Managing Director Albrecht Grell.

“The key is understanding the cost implications of each scenario to secure solid ship management clauses that are mirrored in charter parties.”

He says this is “a non-negotiable” given the ISM company is held accountable for compliance – and the penalties that come with it – under FuelEU where the ‘polluter pays’ principle does not presently apply, unlike the EU ETS where the shipowner is the responsible entity.

Securing commercial agreements

As DOC holder, the ISM company is responsible for monitoring and reporting of data under FuelEU, as well as management of compliance balances and payment of penalties due to deficits.

Consequently, watertight commercial agreements need to be in place to ensure accountability so the burden or benefit of compliance deficits or surpluses are properly allocated among stakeholders, based on verified data supplied by the ISM company to the shipowner and charterer.

These can ensure the DOC holder can secure coverage from the shipowner for any FuelEU-related liabilities, while compensation for surpluses or deficits, and vessel pooling rights are regulated between shipowner and charterer.

Grell cautions: “It is tempting to simply follow a charterer’s ‘proposal’, but we have seen drafts that appear rather one-sided. Trusting blindly such proposed agreements could leave you exposed.”

Broad and dynamic approach

He advocates taking a broad and dynamic approach by evaluating available options, rather than opting for a blanket solution, to take account of deployment patterns, vessel types and chartering situations that can vary widely and therefore will dictate the optimal solution.

“It is important to defy conventional wisdom that bunkering biofuels is the best route to compliance as alternative pathways – such as running a deficit and pooling with another entity’s surplus – could yield significant cost savings,” Grell explains.

“Therefore, clauses in ship management agreements should encompass operational scenarios that generate compliance deficits or surpluses, while having options to pay penalties, pool, bank or borrow.”

Indeed, market dynamics suggest a substantial surplus in the pooling market could lead to cheaper compliance through pooling than with potentially expensive biofuel purchases, according to maritime technology and data firm OceanScore.

‘No rush’ on bunkering

“There is no rush with a bunkering strategy and taking your time is advisable as it can be possible to achieve major savings by monitoring developments in pooling agreements and biofuel price spreads,” Grell says.

He believes switching to biofuels can be done most efficiently by identifying a few vessels and trades that would benefit most from biofuel usage and meet technical prerequisites, given variable availability of the fuel, to avoid spreading it too thinly. Discount mechanisms for certain biofuels also differ under FuelEU versus EU ETS, so it is important to master the fine print on these, he adds.

OceanScore’s newly unveiled Compliance Manager, a combined solution for FuelEU and EU ETS, is geared to supporting a data and fact-based approach to compliance strategy.

“A well-considered strategy can make the difference between financial strain and a cost-efficient pathway to compliance. Conscious data-driven decision-making, rather than just going with the flow, can put the DOC holder in a financially superior position,” Grell concludes.

Source: OceanScore