INSIGHT: The Contractual Pitfalls of FuelEU Maritime

Julien Rabeux is head of claims for Singapore at West of England P&I Club. Image Credit: West of England P&I Club

FuelEU Maritime entered into force on 1 January, 2025 and aims to, firstly, reduce the greenhouse gas (GHG) intensity of the energy used by ships, secondly increase the use of onshore power supply (OPS) in major European ports and, thirdly, incentivise the uptake of green fuels.

The 'Shipping Company' will be responsible for complying with the regulation and is defined as the shipowner, the manager or the bareboat charterer assuming responsibility for the operation of the ship, or the technical manager i.e. Document of Compliance (DOC) holder.

Ships with a higher GHG intensity than the threshold (a 'compliance deficit') will pay a remedial penalty proportional to their deficit. Ships may also be issued an expulsion order if they are non-compliant for two consecutive years.

Shipping Companies will be able to 'bank' compliance surpluses, 'borrow' when in deficit and 'pool' ships together in order to meet GHG intensity targets.

The use of alternative fuels is also encouraged to attain compliance, though not all fuels will qualify. In particular, biofuels must comply with the Renewable Energy Directive (RED). Many contractual considerations must therefore be taken into account.

Ship Managers

As the DOC holder will be responsible for complying with the regulations, it is important to amend the ship management contract.

It should ensure that the managers are responsible for compliance and fulfilling certain obligations, such as reporting and submitting a monitoring plan to the administration.

It is also key for owners to keep track of the aggregated compliance balance during each reporting period. This will help inform the owner's FuelEU strategy.

As the ship manager will be responsible for paying fines, the parties should agree on an appropriate process and timeframe, as well as consequences if funds are not transferred.

Lastly, the contract should clarify who is entitled to take any benefits from banking, borrowing and pooling. All the above issues (and more) are dealt with in the BIMCO FuelEU Maritime Clause for
SHIPMAN 2024.

Time Charterparties

In the absence of a clause, it is unlikely that owners will be entitled to either refuse to allow charterers to sail to the EU to avoid paying fines or claim an implied indemnity from charterers if they are subject to a fine.

The following are issues which parties should consider.

The Ship and Warranties

In order to avoid disputes on the bunker tank capacity of the ship, the charterparty should clearly identify which tanks will be segregated for the use of biofuels so that the charterer can plan ahead when ordering VLSFO and biofuels.

Furthermore, alternative fuels can have a lower calorific content compared with traditional fossil fuels. As such, owners should think about suspending performance warranties when using alternative fuels.

Use of Biofuels

To comply with the regulations and benefit from a lower GHG intensity, biofuels must comply with the RED.

The charterparty should therefore set out the required specifications and certifications. Evidence of certification should be provided and the bunker delivery note (BDN) include details of the GHG intensity.

The charterparty should also identify what standards the fuels should apply. For example, ISO 8217:2017 only allows for 7% FAME.

Biofuels will have significantly higher FAME contents. ISO 8217:2024 allows up to 100% FAME.

'FuelEU' Clause in Time Charterparties

The BIMCO FuelEU Maritime Clause for Time Charter Parties 2024 provides a useful starting point for allocating compliance responsibilities between owners and charterers.

It allows charterers to either supply compliant fuel or pay a surcharge, and includes mechanisms for managing banking, borrowing and pooling.

The clause also covers how surcharges should be calculated and when they are payable, helping to reduce ambiguity in these areas.

Another key consideration is determining who benefits from any compliance surplus resulting from the use of alternative fuels. If the owner receives the benefit but the charterer incurs the additional fuel costs, the charterparty should clearly set out how compensation is handled.

While this issue is addressed in the clause, it remains important that the contract reflects a fair and transparent allocation of cost and benefit.

However, the BIMCO clause does not cover every risk or scenario arising under the regulation. For example, it does not address whether owners can refuse to sail to the EU if the charterer fails to supply compliant fuel, nor whether charterers may terminate the charterparty in the event of an expulsion order.

These issues should be considered and addressed separately in the contract.

At West, we strongly encourage Members to adopt the BIMCO clause as a contractual foundation, while also ensuring that any additional risks under FuelEU Maritime are clearly addressed through
supplementary provisions.