Dual-Fuel Vessels: Operational and Contractual Considerations under New Regulations

Driven by the shipping industry’s shift toward green transformation—especially with the EU Marine Fuel Regulation taking effect on January 1, 2025—the number of dual-fuel vessels has increased significantly. These vessels typically operate on both conventional fuels (such as very low sulfur fuel oil, VLSFO) and liquefied natural gas (LNG). Recently, there has been a rise in claims related to dual-fuel vessel management, highlighting the need to adjust operational practices and time charter agreements to accommodate advanced fuel technologies.

Fuel Management Challenges

A notable trend is that when LNG prices are lower than those of conventional fuels, charterers often prioritize LNG to reduce costs. However, this can render conventional fuel unusable before its expiration date, requiring it to be offloaded. The diminished value of such fuel is usually not covered by insurance, posing a financial risk to charterers.

According to the International Combustion Engine Association (CIMAC), high-sulfur fuel oil (HSFO) can be stored for up to two years, while very low sulfur fuel oil (VLSFO) may only last three to six months. This short shelf life is especially problematic when natural gas prices are low and shipowners prefer to use VLSFO as an auxiliary fuel.

Responsibility for Fuel Monitoring

Determining who is responsible for monitoring fuel condition is complex. While it may seem that charterers should decide when and what type of fuel to use, the reality is more nuanced.

Time Charter Agreements:
Time charter contracts typically require charterers to supply fuel that meets minimum quality standards (e.g., ISO 8217:2017). BIMCO has also introduced LNG fuel quality clauses to standardize LNG specifications. Contracts may further require charterers to ensure fuel compatibility with the vessel’s engine and may hold them liable for damages resulting from the use of unsuitable fuel. However, these provisions often lack clear guidance on monitoring fuel condition and managing fuel shelf life.

Shipowner Obligations:
Under the International Safety Management (ISM) Code, shipowners must establish and maintain a Safety Management System (SMS) that includes risk assessment, bunkering procedures, pre-use fuel quality testing, and ongoing monitoring of different fuel grades. For dual-fuel vessels, especially those using VLSFO as a backup with a short shelf life, shipowners should update their SMS and planned maintenance systems (PMS) to include regular fuel sampling and testing. This ensures both fuels remain usable and supports safe fuel switching, particularly in ports where LNG use may be restricted or where a reserve of conventional fuel is required for emergencies.

Shared Responsibilities and Legal Implications

While shipowners are responsible for monitoring and testing fuel, this does not absolve charterers from the risk of fuel deterioration. Proactive monitoring by shipowners is essential to avoid claims of inadequate fuel management and to fulfill seaworthiness obligations, as highlighted by legal precedents such as the CMA CGM LIBRA case.

Under a time charter, the charterer owns the fuel, but the shipowner acts as a custodian. The shipowner must safeguard the charterer’s property but is not liable for natural fuel deterioration. However, the shipowner should reasonably monitor fuel condition and promptly notify the charterer of any issues.

Commercial and Environmental Considerations

Dual-fuel vessels offer the advantage of lower carbon emissions, helping operators comply with regulations such as the EU Maritime Fuels Regulation and potentially generating revenue through emission-reduction pooling mechanisms. If a shipowner fails to meet contractual or monitoring obligations, resulting in the charterer’s inability to use low- or zero-carbon fuel, the charterer may suffer commercial losses. Calculating such losses can be complex, especially for short charter periods. To avoid disputes, parties should agree in advance on compensation mechanisms for breaches of the charter agreement.

Recommendations for Charter Agreements

To prevent future disputes and ensure effective fuel management, it is recommended that time charter agreements for dual-fuel vessels include:

• Clear obligations for managing, monitoring, and reporting the condition of both fuel types.
• Defined response measures if either fuel becomes unavailable.
• A penalty and compensation mechanism for losses caused by fuel unavailability.

As dual-fuel vessels become mainstream, it is prudent for shipowners and charterers to develop robust operating procedures and clear contractual terms to avoid complex and costly disputes in the future.