BACKGROUND

The FuelEU Maritime Regulation is a part of the EU’s “Fit for 55” package intended to fight climate change by reducing greenhouse gas emissions in shipping.  It aims to achieve a reduction in the EU’s net greenhouse gas emissions by at least 55% by 2030. It supplements the EU Emissions Trading System, CII ratings and other decarbonisation initiatives.

FuelEU Maritime sets well-to-wake greenhouse gas (GHG) emission intensity requirements on energy used on board ships trading in the EU from 2025. The yearly average greenhouse gas (GHG) intensity of all energy used on board, measured as GHG emissions per energy unit (gCO2e/MJ), needs to be below a required level. The GHG emissions are calculated from a well-to-wake perspective, including emissions related to extraction, cultivation, production, transportation of the fuel and emissions from energy used on board the ship. Under the Regulation, vessels’ GHG intensity rating is to be reduced in steps, with a 2% reduction in 2025 and up to, ultimately, an 80% reduction by 2050.

Drafting Team

The FuelEU Maritime Clause for Time Charter Parties 2024 is the result of a collaborative and consensual process between owners, charterers, a P&I Club, legal experts and other stakeholders working to promote the green transition. BIMCO is grateful to the drafting team for their considerable time, effort and commitment in producing the FuelEU Maritime Clause for Time Charter Parties 2024:

• Juan J. Fernandez-Ricoy, Empresa Naviera Elcano, S.A. (Chairperson)
• Simon Spark, Oldendorff Carriers
• Mathias Drost, CMA CGM
• Anders Lindberg, Preem AB
• Anton Ivanov, Louis Dreyfus Company Suisse S.A.
• Pernille Palmelund Sørensen and Daniel Barcarolo, Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping
• Alexander Doijer, ACT Commodities
• Eleni Antoniadou, Gard P&I Club
• Antonia Panayides, Reed Smith

BIMCO Secretariat:

• Stinne Taiger Ivø, Contracts
• Natalie Wong , Contracts & Clauses
• Carl Wilhelm Lindahl, Contracts & Clauses
• Gudrun Janssens, Intergovernmental Engagement

As part of the development work, the subcommittee consulted a large group of stakeholders engaged in shipping and decarbonisation. BIMCO would like to thank them all for their support and valuable input to the process.

Explanatory Notes

These explanatory notes are intended to provide an insight into the thinking behind the FuelEU Maritime Clause for Time Charter Parties 2024. They also explain how the clause is intended to operate and the allocation of responsibilities and costs between the parties. If you have any questions about the clause, please contact us at contracts@bimco.org and we will be happy to assist.

Key Features of the Clause

Definitions

BIMCO FuelEU Maritime Clause for Time Charter Parties 2024

“FuelEU Penalty”: the reference to the “multiplier in this definition is to address situations where a vessel has a compliance deficit for two consecutive reporting periods or more during the charter period. Under Article 23(2) of FuelEU Maritime, the penalty shall be multiplied by 1 + (n -1)/10, where n is the number of consecutive reporting periods for which the vessel is subject to a FuelEU penalty.

“GHG Intensity”: the baseline is 91,16 g CO₂ equivalent per MJ based on the MRV data for voyages performed to, between or from the EU/EEA. Under FuelEU Maritime, the vessels’ GHG intensity rating is to be reduced in steps, with a 2% reduction in 2025 and up to, ultimately, an 80% reduction by 2050.

“Verification Period”: in practice, this will include the following keys steps as of the date of issuance of this clause:

• 31 January 2026 (thereafter, by 31 January every following year) of the verification period: the data and information monitored and recorded for the previous reporting period should be submitted to the verifier as a FuelEU report for each vessel. Subsequently, the report submitted will be assessed and verified by a FuelEU verifier, and the GHG intensity and verified compliance balance of the vessel will be recorded in the FuelEU database by 31 March 2026 (thereafter, by 31 March every following year).
• 30 April (thereafter, by 30 April every following year) of the verification period: any borrowing and pooling can only be registered in the FuelEU database after the FuelEU report has been verified and recorded in the FuelEU database by the verifier. Such registration shall be done no later than 30 April of the verification period.
• 30 June (thereafter, by 30 June every following year) of verification period: if the vessel has positive compliance balance, banking of such can be registered before issuance of the FuelEU Document of Compliance (i.e. 30 June). If the vessel has a zero or positive compliance balance meaning that the vessel meets the GHG intensity limit (89,34 grams of CO₂ equivalent per MJ for the period 2025-2029) applicable for the relevant reporting period, the verifier will issue the FuelEU Document of Compliance.

If the vessel has a negative compliance balance i.e. a deficit, the Owners shall pay the FuelEU penalty for that reporting period and the competent authority of the administering state will issue the FuelEU Document of Compliance.

“Voyage”: is defined under FuelEU Maritime by reference to the EU MRV (Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and amending Directive 2009/16/EC) which states that it is any movement of a vessel that originates from or terminates in a port of call.

It is important to note that the FuelEU Maritime applies differently to the following three types of voyages (Article 2(1)):

• Intra-European Union (EU)/European Economic Area (EEA) Voyages: in respect of the entirety of (100%) the fuels/energy used on voyages between ports of call under the jurisdiction of EU/EEA Member States.
• Voyages to or from Outermost Regions: for voyages that start or end in an outermost region under the jurisdiction of a Member State, FuelEU Maritime applies to vessels in respect of 50% of the fuels/energy used.
• International Voyages: for voyages between a port of call under the jurisdiction of a EU/EEA Member State and a port of call under the jurisdiction of a third country (or vice versa), FuelEU Maritime applies to vessels in respect of 50% of the fuels/energy used.

A "port of call" under FuelEU Maritime (as of the date of issuance of this clause) means a port where vessels stop to load or unload cargo or to embark or disembark passengers. However, the following are not considered a “port of call" (Article 3(10) of FuelEU Maritime):

• The ship stops in the port only for the purpose of:
  • refuelling
  • obtaining supplies
  • crew relief
  • dry-dock
  • making repairs to the ship and/or its equipment
  • taking shelter from adverse weather

• If the ship stops in the port because it is in need of assistance or in distress
• If the stop is rendered necessary by search and rescue activities
• If ship-to-ship transfers are carried out outside the port
• If containerships stop in a neighbouring container transhipment port which is listed in the implementing act under Article 2(2) of FuelEU Maritime.

Subclause (a)

Both owners and charterers are to acknowledge that the vessel needs to comply with FuelEU Maritime. The owners are responsible for ensuring the monitoring plan for the vessel is recorded in the FuelEU database (subclause (b)) and the charterers are responsible for providing fuel/energy in compliance with the GHG intensity limit or pay the “compliance fee” (i.e. FuelEU Penalty) in order to obtain the FuelEU Document of Compliance.

The obligation on the owners to provide the vessel’s compliance balance for  the two previous reporting periods and the aggregated compliance balance for the current reporting period up to the date of delivery ensures that the new charterers will be informed of the FuelEU status of the vessel including what the previous charterers have done and achieved in the previous and current year. It is vital for the parties to have transparency and a clear understanding of the FuelEU status so that they are able to plan their strategy to deal with FuelEU Maritime for the charter period and coming years.

To illustrate the importance of this obligation, we consider two scenarios where a vessel is on a one-year time charter from 1 January to 31 December 2025 and subsequently chartered to new charterers for a two-year time charter from 1 January 2026 to 31 December 2027:

Scenario A

If the vessel has been in deficit in 2025 and the new charterers trade the vessel in deficit for 2026 (10% FuelEU multiplier will be applied), if following delivery under the new time charter the new charterers decide they wish to comply with FuelEU Maritime by paying the FuelEU penalty for 2027, this will mean that the FuelEU multiplier applied to the FuelEU penalty in 2027 will be 20%. Hence the new charterers will be affected by the multiplier already after one year of paying the FuelEU penalty (as way of compliance by way of surcharge payment(s)) due to the decision taken by the previous charterers though this is outside the current charter period. The new charterers therefore have a key interest in getting the vessel’s previous compliance balance and addressing this matter during the negotiations and prior to fixing to make a meaningful commercial decision as to how to handle such impact.

Scenario B

If the vessel was in deficit in 2025 and borrowed from 2026 to achieve compliance, then in 2026, the new charterers will only be permitted to pool or bank up to a maximum of the compliance balance at 31 December 2026 minus the compliance surplus borrowed (up to a maximum of 2%) from the compliance balance in the year 2026. In addition, the new charterers will not be permitted to borrow in 2026 (from 2027) due to the restriction under FuelEU Maritime (see Article 20(2)).

Subclause (b)

Under this subclause, the owners have the responsibility of ensuring a monitoring plan is recorded in the FuelEU database. If the owners have engaged a third-party ship manager who has taken over the ISM responsibilities and is the DOC holder, they should delegate such responsibility within the ship management agreement (e.g. SHIPMAN 2024). For the avoidance of doubt, the owners shall always be responsible to the charterers under the charter party since the ship manager is not party to this charter party.

Subclause (c)

This subclause (c) is intended to enable charterers to supply biofuels and other alternative fuels so that they can take the benefits in FuelEU Maritime calculations stated in FuelEU Maritime and to allow owners to receive the relevant bunker documentation required by FuelEU Maritime for monitoring and reporting.  To this effect, the charterers are to provide owners with BDNs/EDNs in accordance with FuelEU Maritime and, if charterers wish to use fuels other than fossil fuels (e.g. biofuels and other alternative fuels like green methanol) they should provide the required documentation, sustainability certification and generally the documentation and information mentioned in FuelEU Maritime.

This subclause also contains an express reference to the “health warning” set out after the heading, as the charterers will have flexibility to procure and supply any type of fuel/energy as long as they are permitted in the bunker specifications and/or any other relevant bunker clauses contained in the charter party. It may be necessary to make amendments to the existing charter party to reflect the use of alternative fuels including biofuels.

Subclause (d)

This subclause introduces the concept of a surcharge, and it is also intended to allow the parties to agree on a frequency on which the aggregated compliance balance is provided. This allows charterers to be regularly updated and to keep track of the aggregated compliance balance during each reporting period. Furthermore, this notification will enable the charterers to determine their strategy on dealing with FuelEU Maritime (e.g. at what point in time they wish to switch fuels throughout the charter period). It is important to note that this subclause merely sets out the timing for receiving aggregated compliance balance updates while payment frequency is dealt with separately in subclause (f).

For the sake of clarity, the “aggregated Compliance Balance” is the cumulative compliance balance of the vessel at any point in time during each reporting period split into per month/per voyage basis. This may not be identical to the monthly compliance balance. An example where reporting is made on a monthly basis is illustrated below:

The surcharge(s) represents the owners’ exposure to payment of the FuelEU penalty and should follow the aggregated compliance balance since both elements are dynamic. An independent third-party validator is to validate the information used in the calculation of the surcharge(s) to ensure accuracy. The independent third-party validator could be a FuelEU verifier or another service provider offering similar services relating to FuelEU Maritime.

Subclause (e)

The charterers shall only be responsible during the charter period where they have the vessel at their disposal (i.e. time on hire). This subclause deals with this by excluding from the calculation of the surcharge: fuel and energy consumed during any undisputed off-hire periods, any actions taken prior to the commencement of the charter period in respect of any banking, borrowing or pooling decisions and the effect on the new time charter of a multiplier effect that has been triggered by the previous charterer.

In relation to off-hire periods, any grace period applicable under the relevant off-hire clause in the charter party should be taken into consideration in these calculations.

Referring back to our previous example where a vessel is on a one-year time charter from 1 January to 31 December 2025 and subsequently chartered to new charterers for a two-year time charter from 1 January 2026 to 31 December 2027:

Scenario C

If the new charterers have a negative compliance balance in both 2026 and 2027 and subsequent charterers taking delivery on 1 January 2028 and trade the vessel in a way where they end with a negative compliance balance on 31 December 2028, then the multiplier effect will be triggered under FuelEU Maritime. The effect of the multiplier (20% interest in this case) shall not affect the calculation of the subsequent charterers’ surcharge.

Subclause (f)

This subclause allows parties to select a payment frequency which is appropriate for their commercial relationship. The options provided are as follows:

1. on a monthly basis;

2. per Voyage basis; or

3. together with final hire payment or within the first 7 days of June of the Verification Period(s) - whichever is earlier.

The rationale behind the reference to “within the first 7 days of June” is that by 1 June, the owners will know the amount of the FuelEU penalty to be paid for the relevant reporting period (see Article 23(2)). However, if the vessel has been redelivered prior to this date, then the surcharge shall be payable together with final hire.

Subclause (g)

This subclause captures the dynamic nature of both the aggregated compliance balance and the surcharge. The rationale is that the charterers shall only be liable to pay a surcharge which corresponds to the owners’ exposure to payment of the FuelEU penalty during the charter period and this should follow the aggregated compliance balance.

The first sentence of this subclause is intended to capture the situation where the charterers have supplied fuels and energy with a GHG Intensity equal to the required GHG Intensity for that particular year which maintain the aggregated compliance balance at precisely the same figure as the previous month i.e. owners’ exposure is therefore not increased nor decreased and no surcharge is payable for that particular month. This is illustrated in April and May in the example below.

The second sentence of this subclause is intended to capture the situation where the charterers have supplied fuels and energy with a GHG intensity that is lower than the required GHG intensity for that particular year which improves the aggregated compliance balance for that particular month. In this scenario, the owners’ exposure has consequently decreased and an amount equal to such improvement (i.e. reduction of exposure) is to be reimbursed back to the charterers. This is illustrated in February, March, August, September, November and December in the example below. In the example below, for the month of February the charterers would receive reimbursement of EUR 2000* for the corresponding improvement.

It is important to note that if the parties agree that payment of the surcharge is with the final hire payment or within the first 7 days of June, then this will become a virtual accounting exercise with no regular payment or reimbursement of a surcharge throughout the reporting period.

Below is an example where reporting and payment frequency is on a monthly basis:

*The surcharge amounts represented above are purely illustrative and are not indicative of the actual FuelEU penalty.

Subclause (h)

This subclause addresses the situation where charterers fail to pay the surcharge as agreed which gives the owners the right to suspend performance. The subcommittee was of the view that a right to terminate the charter party would be too harsh in this context. If the parties agree to have payment of the surcharge with the final hire payment, then they need to be aware that this provision may not be sufficient.

Subclause (i)

This subclause gives charterers the flexibility to elect to bank any positive compliance balance or pool any positive or negative compliance balance generated by their supply of fuel and energy. Two conditions for such right are:

1. that the charter period covers a complete reporting period, and
2. that such instructions are received by the owners on or before [X**] days prior to 30 April of a verification period.

The reason for the reference to a complete reporting period is that it is difficult to cater for apportionment of such rights between multiple charterers during one reporting period. The subcommittee acknowledged that the parties may make separate arrangements to allow for pooling where the charter period is less than a complete reporting period outside of the scope of this standard clause.

The deadline for such instructions to be received should be agreed between the parties to allow for sufficient time to register any banking or pooling in the FuelEU database, particularly where there is also a third-party ship manager involved.

The last sentence in this subclause addresses the fact that there may be fees for joining a FuelEU pool. The charterers should indeed bear such costs as well as the risk of the pool not being compliant or the vessel itself not achieving full compliance under FuelEU Maritime after the pool allocation of surplus. On the other hand, if charterers pool positive compliance balance, they should also obtain any benefits from the pool.

Subclause (j)

This subclause gives charterers the flexibility to elect to use borrowing as a way to comply with FuelEU Maritime. It is a requirement that the following reporting period must fall entirely within the charter period to ensure that the owner or next charterer is not impacted by this decision after the charter period. The deadline for such instructions to be received should be agreed between the parties to allow for sufficient time to register any borrowing in the FuelEU database, particularly where there is also a third-party ship manager involved.

Subclause (k)

This subclause addresses circumstances where charterers elect to borrow or pool to reduce or eliminate the negative compliance balance and where they have paid a surcharge to owners. The charterers are thus entitled to reimbursement of such surcharge based on the improvement to the compliance balance i.e. reducing the owners’ exposure. The timing of the reimbursement should be after the parties are aware of the actual pooling allocation and/or borrowing outcome.

An example is as follows:

Vessel A has a negative Compliance Balance -80

Vessel B has a positive Compliance Balance +100

The total pooled compliance is therefore (-80 + 100)/2 = +10

This positive value of +10 indicates that the pool is compliant under FuelEU Maritime (see Article 21(4)).

However, if the actual pool allocation is such that Vessel B only gives away +50 of its positive compliance balance to Vessel A, the vessels (on an individual basis) will end up with the following after the pool allocation:

Vessel A has a negative Compliance Balance = -80 + 50 = -30

Vessel B has a positive Compliance Balance +100 - 50 = +50

Since Vessel A does not have a higher negative compliance balance after pooling allocation and Vessel B does not have a negative compliance balance after allocation of pool compliance, the pool is compliant under FuelEU Maritime (see Article 21(4)).

As this scenario illustrates, the charterers of Vessel A still have a deficit after pooling and in this instance, they can pay the FuelEU penalty for the remaining -30 negative compliance balance.

Subclause (l)

This subclause is only intended to operate if the parties agree to insert a currency and amount of liquidated damages into the subclause itself – if no such figure is inserted, then this subclause does not apply. The rationale is that perhaps not all parties would want to agree liquidated damages.

This subclause deals with the situation where the charterers paid the FuelEU penalty as a way of compliance with FuelEU Maritime for two or more consecutive reporting periods prior to redelivery. Under FuelEU Maritime (Article 23(2)), a multiplier will be applied where the vessel has a negative compliance balance for two consecutive reporting periods or more. This multiplier will increase based on the number of consecutive reporting periods where a FuelEU penalty is paid i.e. 10% for the first year, 20% for the following and 30% for the following and so on.

Parties should be aware that based on the wording of Article 23(2), there appears to be some uncertainty around the interpretation of this provision. Article 23(2) of FuelEU Maritime states: “...If a ship has a compliance deficit for two consecutive reporting periods or more, that amount shall be multiplied by 1 + (n -1)/10, where n is the number of consecutive reporting periods for which the company is subject to a FuelEU penalty for that ship.”

This means that if the vessel was non-compliant for two years in a row, then the multiplier (10%) will already be added to the penalty in that second reporting period. Using the same example, where the new charterers have a negative compliance balance and choose to pay the FuelEU penalty for 2026 and 2027, then the interest applied on the penalty in 2027 would already be 10% x (FuelEU penalty for 2027) and the multiplier in 2028 would be 20% x (FuelEU penalty for 2028). The interest element for 2027 will be confined to a reporting period where the charterers still have the vessel on charter. However, if a new charterer takes the vessel in 2028, then there is a risk that the previous charterers will be responsible for the interest element which will be calculated on an unknown figure based on what the new charterers decide to do in the year 2028. In order to tackle this problem, the parties can utilise this subclause (l) to agree on liquidated damages as a way of compensating the owners for the effect of the multiplier, which will not be assumed by the new charterers by effect of subclause e(iii). 

There are several ways of quantifying those liquidated damages, such as based on the fees for entering into a pool in order to make the vessel compliant the following year, the cost of bunkering with a biofuel or other alternative fuel or calculating an estimate of the FuelEU penalty for the vessel on the future expected trade to the EU/EEA using a fossil fuel emission factor. Thus, the subcommittee has left open both the amount and the currency to be agreed by the parties, and also acknowledges that this may not be a perfect way of determining the precise amount of compensation.

Subclause (m)

This subclause is only intended to operate if the parties agree to insert a currency and amounts within the subclause itself – if no such figures are inserted, then this subclause does not apply.

This subclause allows the parties to agree to insert a rate to compensate charterers for any additional positive compliance balance remaining (after any banking and/or pooling, if applicable) up to an agreed maximum cap. This subclause was added bearing in mind that some shorter-term time charters may not entitle charterers to bank or pool. This optional subclause gives the parties a possibility to agree on a compensation scheme for charterers that redeliver with a positive compliance balance. It could also apply to long-term charters if parties agree on this provision. The rationale behind inserting a cap is to avoid the undesired situation of charterers supplying fuels benefiting from FuelEU Maritime calculations in such a way that they may cash in the surplus from owners unlimited. The charterers will always have the option to stop supplying such fuels if they see that it will create too much surplus, considering also that pursuant to subclause (d) they will receive regular reporting from owners on the aggregated compliance balance.

Subclause (o)

This subclause outlines the additional requirements under FuelEU Maritime, effective from 1 January 2030. These requirements are only applicable to container and passenger vessels. This provision is important to consider in the context of longer-term charter parties.

The rationale behind this clause is to ensure that the vessel is fully equipped to connect to onshore power supplies, as mandated by FuelEU Maritime. Consequently, owners’ obligations under this subclause are limited “in accordance with FuelEU Maritime” which means they must meet the requirements but should also take into account a number of exceptions (as set out in Article 6(5)).

Moreover, subclauses (o)(i)-(iii) make the distinction that energy consumed for the sole purposes of the owners will be for to their account and shall otherwise be for charterers’ account to divide the costs fairly.

Additional Elements to Consider:

Shorter-term time charters

Where the parties enter into a short-term time charter (for example, a 3-month charter period which is less than a reporting period), they may wish to consider amending the clause to use a different methodology for calculating a surcharge under subclause (d). This could, for example, be a surcharge equivalent to the cost of supplying a particular alternative fuel or the cost for owners to enter a pool.

Delivery and redelivery

The parties should carefully consider where delivery and redelivery is to take place – for example, whether this is an EU/EEA port or a non-EU/EEA port. The next/last port may determine whether it is 100% or 50% of the fuels/energy used on voyages which must be included in FuelEU calculations.

Where the time charter party terminates on redelivery in the EU/EEA, the charterers’ corresponding responsibility for FuelEU under this clause terminates. Consequently, it is important to note that owners are responsible for the FuelEU Maritime cost associated with getting to the next port of call be it in the EU/EEA unless otherwise agreed.

One may also encounter situations where the vessel is delivered and/or redelivered upon “passing” a certain place. The vessel may (or may not be) on a voyage to or from an EU/EEA port at this point in time, but parties should be aware that this may impact the surcharge calculation under this clause.

Pooling strategy

It is important to consider any long-term pooling strategies or fleet pooling strategies before incorporating this clause into a time charter party. Owners might have a plan to create a pool within its own fleet in order to comply with FuelEU Maritime. One example could be an owner with a fleet of 12 vessels: two LNG vessels and 10 vessels running on traditional fossil fuel. The two LNG vessels are chartered out under time charter parties. The owner intends to make use of the two LNG ships’ surplus to offset the otherwise FuelEU penalties that would be payable due to the other 10 traditional fuelled ships. In these circumstances, if the owners want to retain the right to pool as per their strategy, they will need to amend the clause to delete charterers’ right to pool and consequently agree a settlement mechanism in subclause (m).

Copyright and Availability

Copyright in the FuelEU Maritime Clause for Time Charter Parties 2024 is held by BIMCO.