Off-spec Houston bunker fuel triggers ‘explosion of claims’

Off-spec Houston bunker fuel triggers ‘explosion of claims’ | Insurance Business

Off-spec Houston bunker fuel triggers ‘explosion of claims’

Houston has long been one of the most reputable places for marine shipping firms to take bunkers (fuel) from. However, its reputation was tarnished in 2018 when more than 100 ships suffered engine complications after taking off-specification bunker supplies from the Houston area. Bunker contamination has since spread to other major maritime jurisdictions, including Panama and Singapore, triggering an “explosion of claims” in the marine shipping industry. 

The main contaminants in the fuel are phenol and styrene, both of which have natural binding and adhesive qualities that can cause engine fuel pumps and plungers to seize up. Between January and May 2018, more than 100 vessels suffered fuel pump failure issues after taking potentially contaminated bunkers from Houston. The severity and spectrum of claims ranges from ship owners suspecting they have a fuel problem and de-bunkering, to ships actually grounding because of engine failures.

“Why is this contaminant such an issue? Principally, because it’s not picked up by conventional testing,” explained Mark Church, director (FD&D) at leading marine liability insurer, The North of England P&I Association Limited (North). “You end up in a situation where the fuel you have stemmed as a ship owner is compliant with the ISO 8217 fuel standard, so the normal testing you would do would find the fuel on-spec and therefore you would assume it’s safe to burn.

“The problem is, the tests ship owners are doing are not the right tests to pick up this contaminant. Practically, it creates an issue because as far as the ship owner is concerned, when it comes to using the bunkers, they don’t know there’s a problem. Legally, that also creates an issue because it provides the potential for the supplier to say: ‘There’s nothing wrong with these bunkers. It complies with the specification that I said it would.’”

In order to identify and quantify the bunker contaminants, ship owners would have to carry out multidimensional gas chromatography mass spectrometry (GCMS) testing in addition to the standard tests of the bunker sample required under ISO 8217. However, North states that GCMS is not a standard testing procedure and there’s no benchmark at present for what an appropriate level of such contaminants in the bunkers might be.

Furthermore, the normal testing period for GCMS of five to 15 days can present challenges to ship owners, especially if they decide to de-bunker and bring a claim, because there’s often strict time bars in bunker supply contracts. According to Church, many ship owners believe they get an unfair bargain.

“One of the issues here is that there are often very strict time bars in the bunker supply contract. It may be that you discover there’s a problem after the time for notification of that problem to the bunker supplier has passed, which is obviously not a great position to be in if you’re a ship owner,” Church commented. “I think it’s fair to say a time bar is a defense to a claim. It doesn’t prevent a ship owner from bringing that claim. The claimant may have ways to argue around the time bar defense by arguing it was impossible to comply with the time bar, or that they were effectively on notice that there was this issue out there in the bunker supply chain and so the time bar shouldn’t actually have an effect. Obviously, it’s quite a high hurdle to get over.”

When it comes to making a claim, it’s also quite difficult for ship owners to find the exact causation of a problem. A ship owner might suspect bunker contamination but bringing a claim and proving that a loss has been caused by organic compounds in the fuel may not be straightforward. Fortunately for ship owners, most bunker supply contracts contain a clause that says bunkers must be fit for purpose, so, if a ship owner can prove otherwise, they should be able to make a successful claim.

In 2020, a global 0.50% sulfur cap will enter into force, which means marine firms will have to stop using high-sulfur fuel oil. According to Church, this could result in more fuel-blending and, therefore, more claims of this nature.

He said: “Although this year, we’ve seen this explosion of claims caused by contaminants in the bunkers, this may unfortunately be the start of the story rather than the end. Unfortunately, as more blending takes place in order to comply with the sulfur cap, there’s the potential for more issues [and more claims] to arise in the coming years.”