BIMCO expands its ETS clause library – now for voyage charters

The clauses are well-drafted and should be expected to form the basis for ETS clauses in voyage charters throughout the industry. In this newsletter, we will comment on the clauses and highlight some additional aspects which the parties may consider in their commercial negotiations.

The reimbursement challenge

Under the EU ETS Directive, the regulatory obligation to surrender Emission Allowances (EUAs) is, as a starting point, on the registered owners^[1]. Still, the Directive is based on the principle of “polluter pays”. The Directive therefore stipulates that the Member States shall take “necessary measures” under national law to ensure that owners are reimbursed for the EUA costs by the entity which is ultimately responsible for determining the cargo to be carried and the speed of the vessel and/or is responsible for the purchase of the fuel^[2]. While this fits the role of the time charterer it less clearly fits voyage charterers’. Commercially, the costs will – as other operational costs – though ultimately be carried by the charterers. The owners under any voyage charter have, as a starting point, a reasonable expectation for the charterers to cover the costs.

Noteworthy, the Member States do not appear to provide this right in their implementing legislative acts and for obvious reasons, this right will not be provided under the laws of non-EU member states such as English law (which most charter parties are subject to). Owners will have to rely upon contractual solutions which, in any event, will be the only manner to effectively handle the Owners and the Charterers’ responsibilities.

BIMCO did in 2022 present an ETS clause for time charters, already widely in use. It is positive that BIMCO has now presented a solution to handle the same reimbursement issue in voyage charters.

The BIMCO voyage charter party clauses

BIMCO’s voyage charter party clauses intend to provide parties with options to choose a clause which fit their commercial needs. Mainly, the clauses set out to ensure either reliability or flexibility. In simple terms, the two main variables determining the EUA costs are (i) the quantity of the required EUAs for the voyage – a quantity which can only be estimated prior to the voyage – and (ii) the price of the EUAs which, on the marketplace, fluctuate daily. On this backdrop, BIMCO has adopted the following standard clauses:

1. The Freight Clause: This provides that the costs are covered by the freight. The clause does not allow for any price adjustments.
2. The Surcharge Clause: This provides that the costs are to be claimed by the Owners as a separate surcharge (and not strictly as freight). The clause allows the parties to agree upon a price adjustment mechanism based on an agreed index.
3. The Allowances Transfer Clause: This provides that the Charterers are to submit the EUAs (and not pay in cash). The clause allows for the parties to agree upon either (a) a fixed quantity of EUAs (‘pre-voyage’) or (b) for the Owner to notify the required EUAs after the completion of the voyage.

The Freight Clause will provide the most certainty and is likely suitable for most one-off fixtures or where the parties wish to fix the costs. The Surcharge Clause can be used in most trades and may be more suitable when the fixture is made well in advance of the planned voyage, by allowing for the freight to be changed based on price index developments. The Allowances Transfer Clause can be used when the charterer is willing to purchase and transfer the EUAs. This clause’s alternative B is the only clause which may ensure that the EUAs reflects the actually measured emissions (‘post voyage’) – but it is also more complex.

Demurrage and delay risks

All three clauses contain a sub-clause providing that the Owners shall have no right of recourse in respect of the costs for the EUAs once the Charterers have paid the agreed costs or transferred the agreed quantity of EUAs, depending on the clause, irrespective of the actual underlying costs.

Consequently, the Owners will have no recourse against the Charterers for additional Allowances costs if the vessels’ have further emissions due to factors outside of the Owner’s control (save in case of Charterer’s breach, see below), e.g. if the vessel as at waiting position due to congestion at the port^[3].

As noted in the Explanatory notes^[4], the parties should thus consider adjusting the laytime or demurrage terms. If the risk of congestion in port is on the charterer’s risk (under a port charter), the Parties could consider increasing the demurrage rate or incorporate a ‘demurrage surcharge’ which will depend on the actual costs. If the parties can agree on the EUA costs on the voyage (the ETS surcharge), the parties should also be able to agree on the additional costs for the laytime being exceeded (as demurrage).

Liquidated damages clause?

All the three voyage clauses allow the Owners to claim damages if the Charterer’s are in breach of the charter party. As noted in the explanatory notes, this may be applied to situations where there the vessel is detained due to Charterer’s breach. BIMCO has in this respect opted for a standard clause which will require the Owners to document their actual loss suffered as a consequence of the charterer’s breach.

In practice, the Owners may not succeed by simply pointing to the difference between the agreed surcharge and the Owners’ actual costs relating to the voyage (taking the Charterers’ breach into account) as the surcharge may not necessarily had reflected the Owners’ costs for the voyage (assuming no breach). The Owners may even have had a loss on the agreed surcharge which might thus not fairly reflect the baseline cost. In such case, the actual loss relating to e.g. delay caused by Charterer’s breach (leading to excessive emissions and thus the need for further EUAs) may need to be determined based on the data on the actual bunker consumption during the voyage/delay^[5]. It underlines the importance of recording the bunker consumption at all times and the ability to substantiate the asserted baseline emissions (assuming no breach).

The parties could, at least in respect of losses caused by delay, therefore consider a liquidated damage clause similar to the demurrage mechanism. Alternatively, the parties could merely agree upon certain principles for the determination of Owners’ claim. The Parties may for instance agree that the costs of any additional EUAs should not be based on Owners’ actual losses (which may depend on the timing of the Owners’ purchases of the EUAs) but instead based on the price at the time of the voyage according to a given index.

Data and calculations

The Allowances Clause, sub-clause (b) allows for the costs of the EUAs to be based on the Emissions Data calculated in respect of the voyage. In brief, the sub-clause provides as follows:

• No later than at the first day of laycan, the Owners are to notify the Charterers of the estimated quantity of required EUAs for the voyage.
• At the due date for the payment of the freight or within a default period of 14 days following loading of the cargo, if sooner, the Charterers are to transfer the requested quantity of EUAs to the Owners’ designated EUA account).
• No later than 14 days after discharge of the cargo, the Owners are to notify the Charterers of the “actual” quantity of required EUAs for the voyage together with the “relevant calculations and data”.
• If the quantity of the required EUAs is lower than the early estimate, the Owners are to return the surplus to the Charterers’ nominated EUA account, and if the required quantity is higher, the Charterers are to transfer the deficit to the Owners’ nominated EUA account, in both instances within 14 days.

This seems to be a suitable mechanism as the obligation to transfer the estimated EUAs before or in connection with the freight payment, limits the Owners’ risks of not recovering the costs while also allowing for the costs to be based on the data for the voyage as performed and not pre-voyage estimates (as with the other clauses). Still, this may not end up reflecting the final costs as this is only clear once the verified MRV data is available after the end of the reporting period and approved by the authorities^[6]. This solution will however likely not be commercially viable in most instances as the parties will not have the final, verified data  before long after the voyage is completed.

For the same reasons, the Charterers may not be satisfied with the clause relying solely on Owners’ “relevant calculations and data” as the clause does also not allow for any explicit right to counter the Owners’ calculations. The clause can be altered to require the Owner’s data to be verified by the independent verifier under the MRV Regulation or another third-party data verifier. This may limit the risk that the Owners are providing calculations which are not fully aligned with the regulations and industry practices.

One vessel – several charterers

The standard clauses do not as such consider the reimbursement of EUA costs when the vessel is carrying cargoes for more than one charterer. In this instance, in the Allowances Transfer Clause, sub-clause (b), the

Charterers may insist on an explicit obligation for the Owners not only to provide Emissions Data (relating to the Vessel) but also information on the various cargoes to ensure that the Owners are not being compensated for the same EUA costs twice. As to the other clauses, the information could be provided prior to entering into the voyage charter meaning that the amendment may not be needed in those charter parties.

Looking ahead

It will be interesting to see which of the BIMCO clauses will become prevalent in the industry and how the stakeholders may mix the options provided by BIMCO. Parties may for instance apply the Allowances Transfer Clause, sub-clause (b) to ensure that the EUA costs are based on voyage data but merely pay in cash instead of in kind (EUAs).

In any event, these clauses should not be transposed, without adjustment, into long-term Contracts of Affreightment (CoA) which BIMCO readily admits: BIMCO is preparing a standard ETS clause for CoAs which is expected to be published later this year. As always being the case with BIMCO, the industry is keenly awaiting to see this standard clause.

[1] Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading system (the “ETS Directive”).

[2] ETS Directive, Art. 3gc, and para. 32.

[3] This is based on the assumption that this is the Charterers’ risk as in a port charter or otherwise provided in the charter, see e.g. GENCON 1994, cl. 6 (c).

[4] BIMCO’s Explanatory Notes to the Surcharge Clause.

[5] The emission levels are thus as a starting point based on the ratios set out in Regulation (EU) 2023/957 of the European Parliament and of the Council of 10 May 2023 amending Regulation (EU) 2015/757 in order to provide for the inclusion of maritime transport activities in the EU Emissions Trading System and for the monitoring, reporting and verification of emissions of additional greenhouse gases and emissions from additional ship types (the “MRV Regulation”), Annex I, see  Art. 8.

[6] I.e. the data under the MRV Regulation.