Commercial Practice in Bunkering 1ed 2011

Nigel Draffin
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COMMERCIAL PRACTICE
IN BUNKERING
i
COMMERCIAL PRACTICE IN BUNKERING
Dedication
This book is dedicated to Philip Basil Owen
I worked directly and indirectly for Phil Owen from 1977 until
his retirement in 1994. He was the Shell LNG fleet manager
in Japan when I served on LNG ships, the manager of new
construction when I worked on new ships at the shipyards,
manager of research when I worked on ship efficiency and fuel
systems research projects, and the manager of commercial
shipping when I was the bunker buyer for the Shell fleet.
When I moved into the commercial shipping section,

he said he thought it was about time we had more
engineers working there (he brought in three of us).
He demonstrated the reality of the guidance we were
given at college – ‘A marine engineer can do anything’.
Nigel Draffin
ii

COMMERCIAL PRACTICE
IN BUNKERING
by
Nigel Draffin
First Edition
Foreword by
Goris Vermeulen
Co-owner of independent Dutch bunker supplier Frisol b.v. (1989-2003)

Founding member of the International Bunker Industry Association
Former Vice President of Dutch energy association, NOVE
Founder of BunkerExperience and regular lecturer on bunkering issues
Published by
Petrospot Limited
England
2011
iii
Published in the United Kingdom by

Petrospot Limited
Petrospot House, Somerville Court, Trinity Way,
Adderbury, Oxfordshire OX17 3SN, England
www.petrospot.com
Tel: +44 1295 814455
Fax: +44 1295 814466
© Nigel Draffin 2011
First published 2011
British Library Cataloguing in Publication Data

A catalogue record
for this book is available from
the British Library
ISBN 978-0-9548097-8-2
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iv

Foreword
It is often easy to forget that the bunker industry as we know it today is still relatively
new, having begun in earnest in the mid-1970s as a direct result of what was to
be known as the first oil crisis. It was then, in 1973, that the oil majors first took a
step back from the market, leaving a narrow gap through which a small number of
independent oil traders managed to slip.
As oil prices surged and the risks became greater, opportunities for the new traders
to take advantage of the gaps in the market started to come thick and fast. Soon, a
whole new community of oil suppliers and traders was created in previously major oil
company-dominated markets such as Rotterdam and Houston.
As the old practices started to change, with long-term contracts with the majors rapidly
being replaced with spot deals between the fledgling suppliers and traders and the
end-customers, the bunker industry began to take shape. London and New York
shipbrokers developed bunkering departments which, as their employees recognised
the opportunities available to them, led to the creation of independent bunker brokers.
As the Asian markets began to grow, Singapore gradually assumed the dominant role
in the region, while the Iran-Iraq war gave rise to the creation of the Fujairah market.
Throughout this process, the shipping industry has alternated between years of feast
and years of famine; oil prices have soared, collapsed and soared again; the oil
majors have dominated the market, withdrawn, returned and retrenched; and all the
while, the bunkering community has found the ways and means to conduct business
and – by and large – remain afloat. But this is an ever-changing business and may
look very different in the years ahead.
As the new breed of bunker suppliers and traders has developed into a band of
better-educated, experienced and well-connected professionals, their commitment to
the industry has grown too.
Throughout this tumultuous period, there has been one constant in the marketplace,
and that is Nigel Draffin. He started in shipping long before the first oil crisis and has
seen it all. He has served at sea on tankers and gas carriers, worked for many years
as a bunker buyer for Shell, and has worked as a bunker broker for Gibsons and
LQM. During this time, Nigel has not only forgotten more about bunkering than most
people will learn in their lifetimes, but he has striven to share this information with
anyone who wishes to learn, not only through his growing list of bunker books but also
through his teaching activities.
It is great to see that Nigel has now committed to writing about his knowledge and
experience of the commercial issues in bunkering. This book will be of great value to
anyone who is involved in buying or selling bunker fuels, or supplying the banking,
credit, agency or other services to those in the marketplace. It will be of particular
interest to newcomers to the industry but also especially helpful to those who have
experience in some areas but need to refresh their knowledge of others.
v
For a quarter of a century, Nigel has left no stone unturned in his quest to improve his
own knowledge of the bunker industry and to share what he has learned with others.
On a personal note, I truly admire his enthusiasm and dedication to the industry and
admit that he is now, without question, a bunkering legend.
I thoroughly commend Commercial Practice in Bunkering and wish Nigel the greatest
success with his book.
Goris Vermeulen
Co-owner of independent Dutch bunker supplier Frisol b.v. (1989-2003)
Founding member of the International Bunker Industry Association
Former Vice President of Dutch energy association, NOVE
Founder of BunkerExperience and regular lecturer on bunkering issues
May 2011
vi

Preface
After fighting my way through three books on bunkers, I advised Llewellyn that I would
like to turn my attention to a history of the industry. His reply was simple: ‘You can’t,
no one has written about the commercial side of the business yet!’
He was correct, and comments from delegates on various courses who kept asking for
a commercial textbook encouraged me to write this one. I had planned a short book
that covered the commercial issues affecting buyers, brokers, traders and suppliers
of bunkers. It has turned out a little longer than I intended but I hope that the index will
help people to find what they want.
This book is based on my own experience, the advice and training I have been given
during my career and the constructive help of many friends and colleagues in the
industry.
As is always the case, I have had to decide what to include and what to leave out,
and I apologise in advance if readers feel I have omitted any topic which they had
hoped to find covered. Please let me know and, if a second edition is published, I will
endeavour to remedy any significant omissions. If readers need further operational
or technical information then I refer them to my other books or some of the sources
listed in ‘where to go next’.
I have no academic background in commerce, banking, the law or marketing so I
have consulted widely to try to ensure that the book is factually correct. Any errors
are, however, all of my own making.
I hope that this book will help people working in all sectors of the industry to understand
the commercial factors which influence the behaviour of their counterparties and will
help those at the start of their careers to understand what it is all about.
I have learned a lot of new things about our industry whilst researching different
sections of the book – this just reinforces my belief that the secret of success is to be
curious, ask questions and never feel that you can stop learning.
Nigel Draffin
May 2011
vii
viii

About the author
Nigel Draffin’s reputation as a teacher and as a writer is boosted still further with
the publication of Commercial Practice in Bunkering, his fourth specialist title on the
marine fuels industry and another very valuable addition to the growing library of
books on bunkering.
Nigel has been involved in shipping for over 45 years and with the commercial bunker
market for over 25 years. After joining Shell Tankers as an apprentice engineer in
1966, he progressed through the ranks, serving on all classes of vessel, including
very large crude carriers (VLCCs) and liquefied natural gas (LNG) tankers.
He came ashore in 1979 to join the newbuilding department of Shell International
Marine. After two years of new construction in Ireland, South Korea and the
Netherlands, he transferred to Shell’s Research & Development unit, specialising in
control systems, fuel combustion and safety systems.
In 1986, Nigel moved to the commercial department as a bunker buyer and economics
analyst. In 1988, he was promoted to be Head of Operational Economics, responsible
for all of the fuel purchased for the Shell fleet, the operation of the risk management
policy and the speed / performance of the owned fleet. In March 1996, he joined
the staff of E.A.Gibson Shipbrokers Ltd in the bunker department, and became
the manager. In 2006, this department merged with US-based broking house LQM
Petroleum Services, where Nigel is currently Senior Broker and Technical Manager.
Nigel is a founder member of the International Bunker Industry Association (IBIA)
and has served several times on its council of management and executive board. In
April 2011, he was elected Vice Chairman (Chairman Elect) and is a member of the
Education Working Group. He is also the author of IBIA’s Basic Bunkering Course.
He is the Technical Director of the Oxford Bunker Course and Director of the Oxford
Bunker Course (Advanced). Nigel is a member of the Institute of Marine Engineering
Science and Technology and Past Master of the Worshipful Company of Fuellers.
Nigel’s previous books have been sold all over the world and continue to contribute
enormously to the knowledge and understanding of hundreds of newcomers to the
industry. His first book, An Introduction to Bunkering (2008), provides a comprehensive
entry-level introduction to bunkering, offering newcomers bite-sized pieces of key
information in a format ‘packed with useful and relevant data, practical illustrations
and enough pictures to help anyone understand exactly what bunkering is all about’.
His second book, An Introduction to Fuel Analysis (2009), taps into a growing thirst
for information on bunker quality issues. It provides a reference for those who need to
understand the terminology and the reporting used in fuel analysis.
Nigel’s third title, An Introduction to Bunker Operations (2010), is filled with
photographs and graphics designed to help the reader visualise important aspects of
bunker operations, from choosing the right flanges, hoses and samplers, to handling
ix
barges, pipelines, road tankers and storage tanks. His latest book, Commercial
Practice in Bunkering, concentrates on the buyer and the seller and the contract
between them, and takes the reader to a higher level of understanding of this uniquely
global industry.
Llewellyn Bankes-Hughes
Managing Director
Petrospot Limited
May 2011
x

Acknowledgements
The team at Petrospot have worked really hard to produce a book that is well laid out
and easy to use. I cannot overestimate the effort Alison Cutler and Lesley Bankes-
Hughes put in to layout and proof-reading.
Angus Ogilvie has been my sounding board throughout. His experience in broking
and trading and his constant help and encouragement have been significant factors
in the quality of the information.
Gerry van Geyzel gave me help and encouragement and, based on his very many
years in broking, identified issues which needed explanation.
There are many others who helped, too many to be named here, but without their help
this book would never have appeared.
xi
xii

Contents
Foreword v
Preface vii
About the author ix
Acknowledgements xi
Introduction – The commercial deal xxi
Chapter 1 - The enquiry 1

Where, when, how much................................................................................................................1
Deviating for bunkers.....................................................................................................................2
Buyer’s name.................................................................................................................................4
Vessel name...................................................................................................................................4
Vessel type.....................................................................................................................................5
Port.................................................................................................................................................6
Bunker-only ports...........................................................................................................................6
Offshore – outside port limits (OPL)...............................................................................................7
Date and time ................................................................................................................................7
What grade – specification.............................................................................................................8
Quantity..........................................................................................................................................8
Special requirements......................................................................................................................9
When prices are needed................................................................................................................9
When to float the enquiry...............................................................................................................9
Who to ask...................................................................................................................................10
Chapter 2 - The offers 11

Details as enquiry.........................................................................................................................11
Price.............................................................................................................................................11
Delivery method...........................................................................................................................12
Concurrent bunkering...................................................................................................................12
Quality..........................................................................................................................................12
Delivery costs...............................................................................................................................12
Pumpback....................................................................................................................................13
Other costs...................................................................................................................................14
Calling costs.............................................................................................................................14
Bunker-only cost comparison...................................................................................................20
Overtime...................................................................................................................................20
Pipeline fee ..............................................................................................................................20
Anchorage charge....................................................................................................................21
Oil boom charge.......................................................................................................................21
Fuel surcharge on barge delivery costs....................................................................................21
Environmental fees and levies..................................................................................................21
Ice surcharge............................................................................................................................22
Harbour fee...............................................................................................................................22
xiii
MARPOL compliance fees........................................................................................................23

Fire watch charge.....................................................................................................................23
Watch boat charge....................................................................................................................23
Wharfage..................................................................................................................................23
Payment terms.............................................................................................................................24
Reference to INCOTERMS......................................................................................................24
Sales terms...............................................................................................................................24
Commissions............................................................................................................................24
Validity......................................................................................................................................25
Comparing offers – negotiation ...................................................................................................25
Check like for like.....................................................................................................................25
Give feedback...........................................................................................................................25
Assess subjective elements (quality, performance, flexibility)..................................................25
Counter offer if appropriate.......................................................................................................26
Observe validity / deadlines......................................................................................................26
Chapter 3 - Acceptance and post fixture 27

Acceptance is final.......................................................................................................................27
Subject to.....................................................................................................................................27
Date and quantity ranges allowed................................................................................................27
Confirmation messages................................................................................................................27
Post fixture...................................................................................................................................30
Notices......................................................................................................................................30
Time limits for quantities / dates...............................................................................................30
Operational changes................................................................................................................30
Invoice processing....................................................................................................................30
Payment processing.................................................................................................................30
Document / process control......................................................................................................31
Chapter 4 - The buyer 33

Owner...........................................................................................................................................33
Offshore companies.................................................................................................................33
Disponent owner..........................................................................................................................34
Buyer profiles............................................................................................................................35
Shipping pools..........................................................................................................................37
Buying style..............................................................................................................................37
In-house broker........................................................................................................................37
Trader ..........................................................................................................................................38
Buyer’s responsibilities.............................................................................................................38
Buyer’s intermediary.....................................................................................................................38
Agent........................................................................................................................................38
Broker.......................................................................................................................................39
Chapter 5 - The seller 43

Supplier........................................................................................................................................43
The refiner................................................................................................................................43
The importer.............................................................................................................................43
The blender..............................................................................................................................43
Trader...........................................................................................................................................44
The physical trader...................................................................................................................44
The credit trader.......................................................................................................................44
Seller’s responsibilities.................................................................................................................44
Seller’s intermediary.....................................................................................................................44
xiv

Chapter 6 - Terms and Conditions 45

Prices...........................................................................................................................................46
Specifications...............................................................................................................................48
Quality..........................................................................................................................................48
Measurements..............................................................................................................................49
Sampling......................................................................................................................................50
Delivery........................................................................................................................................51
Title and risk.................................................................................................................................53
Payment.......................................................................................................................................54
Claims...........................................................................................................................................55
Limitation of claim amount............................................................................................................56
Liability.........................................................................................................................................56
Force majeure..............................................................................................................................57
Cancellation..................................................................................................................................58
Environmental protection..............................................................................................................59
Law and jurisdiction......................................................................................................................60
BIMCO Fuelcon............................................................................................................................61
B.A.S.T.A.R.D.S...........................................................................................................................65
Is it fair?........................................................................................................................................69
Chapter 7 - Credit 71
Why?............................................................................................................................................71
Cash flow......................................................................................................................................72
Who is the real buyer? ................................................................................................................72
Credit security..............................................................................................................................73
Letter of Credit..............................................................................................................................73
Revolving Letter of Credit.............................................................................................................73
Bank guarantee............................................................................................................................74
Parent company guarantee..........................................................................................................74
Credit reporting.............................................................................................................................74
Credit insurance...........................................................................................................................75
Withdrawal of credit......................................................................................................................75
Managing credit lines...................................................................................................................75
How to get credit..........................................................................................................................76
For a new buyer:.......................................................................................................................76
For an established buyer unknown to the seller:......................................................................76
Chapter 8 - Payment 79
Methods........................................................................................................................................79
Cash in advance...........................................................................................................................79
Cheque.........................................................................................................................................79
Electronic transfer........................................................................................................................80
Deduction from freight..................................................................................................................80
Late payment................................................................................................................................80
Interest.........................................................................................................................................81
Bank transfers, SWIFT and IBAN.................................................................................................81
Correspondent banks...................................................................................................................84
Banks in shipping.........................................................................................................................84
Money laundering issues..............................................................................................................85
Chapter 9 - Physical suppliers 87

Trader...........................................................................................................................................87
Trading oil.................................................................................................................................88
xv
Trading credit............................................................................................................................88
Risk/exposure...........................................................................................................................88
Broker/trader/supplier...............................................................................................................89
Deliverers ....................................................................................................................................89
Barge........................................................................................................................................90
Road tank wagon (RTW) ........................................................................................................90
Contract arrangements ............................................................................................................91
Customs, duties and levies..........................................................................................................91
Duty free ..................................................................................................................................91
Taxes .......................................................................................................................................91
Exemption certificates..............................................................................................................91
Cabotage..................................................................................................................................93
Chapter 10 - Pricing 95
Spot prices...................................................................................................................................95
Term prices...................................................................................................................................95
Posted prices................................................................................................................................96
Price reporting..............................................................................................................................96
Volatility........................................................................................................................................96
Post fixture change.......................................................................................................................97
Port arbitrage................................................................................................................................97
Chapter 11 - Hedging 99
Term deals....................................................................................................................................99
Fixed price physical................................................................................................................101
Floating price physical............................................................................................................101
Over-the-counter derivatives......................................................................................................101
Swap..........................................................................................................................................101
Call option..................................................................................................................................102
Collar..........................................................................................................................................105
Chapter 12 - Claims 107

Quality........................................................................................................................................107
Quantity......................................................................................................................................107
Demurrage / delay......................................................................................................................108
Notice of claim............................................................................................................................109
Time bar.....................................................................................................................................109
Use of surveyors........................................................................................................................109
Payment default.........................................................................................................................109
Bankruptcy.................................................................................................................................110
Bankruptcy of disponent owner..............................................................................................110
Bankruptcy of trader...............................................................................................................110
Vessel arrest...........................................................................................................................110
Lien......................................................................................................................................... 111
Maritime lien........................................................................................................................... 111
No lien stamp.......................................................................................................................... 111
Attachment.............................................................................................................................112
Freezing order (Mareva injunction).........................................................................................112
Debunkering...............................................................................................................................112
Defects in quality....................................................................................................................112
Removal for operational reasons............................................................................................112
Debunkering costs..................................................................................................................113
xvi

Chapter 13 - Bunker software and the Internet 115

Internet.......................................................................................................................................115
Market information......................................................................................................................116
Ship information.........................................................................................................................116
Contact information....................................................................................................................118
Pricing information......................................................................................................................118
Web-based systems...................................................................................................................119
Chapter 14 - Commercial responsibility for operational issues 121

Regulatory issues.......................................................................................................................121
MARPOL 73/78..........................................................................................................................121
Sulphur...................................................................................................................................121
International rules...................................................................................................................121
EU rules: Directive 1999/32/EC and Directive 2005/33/EC........................................................122
ISO 8217................................................................................................................................123
Implications for owners...............................................................................................................123
Samples..................................................................................................................................123
Bunker delivery note...............................................................................................................123
Alternative control...................................................................................................................123
Applicable areas.....................................................................................................................124
Suppliers and samples...........................................................................................................124
In an ECA...............................................................................................................................124
California Air Resources Board (CARB).....................................................................................127
Penalties.....................................................................................................................................127
Supply implications of sulphur regulations.................................................................................128
Abatement technology................................................................................................................128
Safety of Life at Sea (SOLAS)....................................................................................................129
Flash point .............................................................................................................................129
Material Safety Data Sheet (MSDS) ......................................................................................129
International Ship and Port Facility Security (ISPS) Code .....................................................129
Greenhouse gases.....................................................................................................................129
Slow steaming............................................................................................................................130
Bunker clauses in charter parties...............................................................................................131
Charterer to provide...................................................................................................................131
Appendix 1 - Where to go for help 133

Non-governmental organisations...............................................................................................133
Technical and legal information..................................................................................................134
General bunkering......................................................................................................................135
Credit issues...............................................................................................................................135
Ship arrest..................................................................................................................................135
Useful websites..........................................................................................................................136
Appendix 2 - Abbreviations 137
Appendix 3 - Glossary of terms 141
Appendix 4 – ISO: 8217:2010 145
Appendix 5 - ISO 8217: 2005-2010 - Differences 149
Index 15
xvii
xviii

List of Tables and Figures

Figure 1. A sample quantity estimation spread sheet for a tanker...............................................1
Figure 2. A deviation for bunkers estimation spread sheet..........................................................3
Figure 3. An example of a ship’s identification.............................................................................4
Figure 4. Vessel types and capacities ........................................................................................5
Figure 5. Date and time acronyms...............................................................................................7
Figure 6. Different ways to define bunker prices........................................................................11
Figure 7. Example of barge delivery costs.................................................................................13
Figure 8. Pro forma disbursement estimate...............................................................................17
Courtesy of Wilson, Sons Agência, Brazil (www.wilsonsons.com.br)
Figure 9. Another example of a pro forma disbursement estimate ...........................................19
Courtesy of Shipping and Signalling Services n.v. (www.sss.be)
Figure 10. Comparison of costs at different ports .....................................................................20
Figure 11. Example of a model confirmation .............................................................................28
Figure 12. A typical bunker delivery...........................................................................................29
Schematic courtesy of Cockett Marine Oil Ltd (www.cockettgroup.com)
Figure 13. BIMCO Standard Bunker Contract ..........................................................................65
Figure 14. B.A.S.T.A.R.D.S. terms and conditions....................................................................69
Courtesy of Trevor Harrison
Figure 15. The cost of credit......................................................................................................71
Figure 16. Bank transfers .........................................................................................................81
Figure 17. Example of a SWIFT message ................................................................................82
Figure 18. More detailed example of a SWIFT message...........................................................83
Reproduced from information on the SWIFT website (www.swift.com).
Figure 19. Example of a tax exemption certificate.....................................................................92
Figure 20. Weekly price comparison between Singapore and Fujairah.....................................97
Figure 21. Bunker hedging .....................................................................................................100
Diagram courtesy of LQM Petroleum Services Inc. (www.lqm.com)
Figure 22. A typical market movement over 12 months (swap)...............................................103
Figure 23. An example of swap settlement levels....................................................................103
Figure 24. A typical market movement over 12 months (option)..............................................104
Figure 25. An example of option settlement levels..................................................................104
Figure 26. A typical market movement over 12 months (collar)...............................................105
Figure 27. An example of collar settlement levels...................................................................105
Figure 28. Seasearcher...........................................................................................................117
Screenshot courtesy of Lloyd’s List Intelligence (www.lloydslistintelligence.com)
Figure 29. PortVision...............................................................................................................118
Screenshot courtesy of PortVision (www.portvision.com)
xix
Figure 30. LQM iPhone app ....................................................................................................119

Screenshot courtesy of LQM Petroleum Services Inc. (www.lqm.com)
Figure 31. The Baltic, North Sea and English Channel Emission Control Areas ...................125
Figure 32. The Puerto Rico / US Virgin Islands Emission Control Area .................................126
Figure 33. The United States / Canada Emission Control Area .............................................126
Figure 34. California’s exclusion zone ....................................................................................127
Figure 35. The effect of slow steaming....................................................................................130
All figures are copyright of the companies/individuals named below them. Permission to reproduce
extracts from BS ISO 8217:2010 is granted by BSI. No other use of this material is permitted.
British Standards can be obtained in PDF or hard copy formats from the BSI online shop: www.
bsigroup.com/Shop or by contacting BSI Customer Services for hard copies only: Tel: +44 20 8996
9001, Email: cservices@bsigroup.com
xx

Introduction – The commercial deal
This book is intended to provide a source of information and guidance on the process,
methods, problems and pitfalls in buying and selling bunkers. It assumes a little
knowledge of ships, commerce and marine fuel but is not intended as a definitive
guide for the experienced, rather a ready reference for those new to the commercial
side of the bunker industry or for people who need to understand how the commercial
side of the business works.
Every bunkering starts with the buyer seeking offers from sellers to supply the
quantity and grade of fuel required. The commercial deal is secured by the making
of a contract between buyer and seller with regard to the supply. Each party enters
into an agreement to meet their obligations under the contract which covers many
points. These range from the information required to schedule the delivery, actions
required by the ships (on behalf of the buyer) and the delivery facility (on behalf of
the seller) to expedite the delivery, the production and mutual acknowledgement of
the agreed documentation and, finally, the settlement of the seller’s invoice for the
product supplied and any agreed additional costs (such as pre-testing, survey fees,
delivery charges, etc.).
The deal can be frustrated at any stage of the process, by either party or – on occasion
– by third parties.
The commercial agreement is almost always controlled by the sales terms and
conditions (T&Cs) of the seller but there may be alternative terms agreed by buyer
and seller, especially when the buyer has considerable commercial ‘power’. Even
when the sale is controlled by the seller’s terms, the seller may accept specific buyers’
clauses – most often with specific remarks on quality, delay or some other issue.
Outside the operational obligations of the contract, the next commercial involvement
will be the acceptance of the delivery and the submission to the buyer of the proof
of delivery, together with the invoice by the seller. Once the payment is made, and in
the absence of any unresolved disputes between the parties, the commercial bunker
deal is accomplished.
xxi
xxii
The enquiry
Chapter 1 - The enquiry
Where, when, how much

The buyer (or his colleagues in the commercial chartering or operations department)
has to decide where he wants to buy, when he wants to take delivery and how much
product he needs. The seller has almost no influence on this and it is actually the area
where the buyer’s skill and judgement can have the greatest impact on the economic
outcome of a voyage.
The choice of location is determined by the anticipated future voyages of the vessel,
the amount of fuel needed for the intended voyage and the overall cost of the operation
at any possible bunkering ports.
Estimating requirements Fill in blue cells
Consumption Distance Time
Primary
Laden speed 15 kt 45 mt/day 1500 nm 4.2 days 187.5 mt
Ballast speed 16 kt 45 mt/day 1100 nm 2.9 days 120.3 mt
Idle 2 mt/day 2.0 days 4.0 mt
Heating 10 mt/day 4.2 days 42.0 mt
Cleaning 5 mt/day 2.0 days 10.0 mt
Pumping 10 mt/day 1.0 days 10.0 mt
Total 373.8 mt
Secondary
Laden speed 15 kt 3 mt/day 1500 nm 4.2 days 12.5 mt
Ballast speed 16 kt 3 mt/day 1100 nm 2.9 days 8.6 mt
Idle 3 mt/day 2.0 days 6.0 mt
Heating 0 mt/day 4.2 days 0.0 mt
Cleaning 2 mt/day 2.0 days 4.0 mt
Pumping 5 mt/day 1.0 days 5.0 mt
Total 36.1 mt
Primary fuel
Initial ROB 200 mt
Safe reserve 175 mt
Requirement 348.8 mt
Secondary fuel
Initial ROB 30 mt
Safe reserve 40 mt
Requirement 46.1 mt
Figure 1. A sample quantity estimation spread sheet for a tanker
The time to launch the enquiry will depend on the logistics of the intended bunker port
and the anticipated market movements. Some locations will require the enquiry to be
1
worked at least five working days prior to the estimated time of arrival (ETA), while
others can be worked up to 10 working days in advance of ETA. Buyers need to be
aware that when product is in short supply, delaying the enquiry will at best reduce the
number of sellers offering or at worst will mean that all product has been committed
to others before he makes his enquiry.
The quantity to buy is a balance between the quantity needed for the voyage, the
available storage on board and the anticipated cost of fuel at subsequent ports. It
must always take into account the draft limitations of the vessel at the bunkering
port and subsequent ports and any cargo quantity commitments that the vessel
charter might contain. For example, a 45,000 deadweight tonne (DWT) tanker might
have the capacity to lift 1,500 metric tonnes (mt) of fuel but might also have a cargo
commitment to lift a minimum of 43,500 mt of cargo. The maximum DWT will be made
up of cargo, bunkers, water, stores and a minor adjustment ‘deadweight allowance’.
With 150 mt of water, 50 mt of stores and a 75 mt allowance, that will restrict the
maximum bunkers on sailing to 1,225 mt. Assuming the vessel arrives with about 200
mt of fuel on board, that will limit the bunker lifting to 1,025 mt. The buyer needs to
liaise closely with the vessel and the operations staff to stay within the limits.
Deviating for bunkers

In many instances the price or availability of bunkers at ports of call on the voyage
may prompt the buyer to investigate the possibility of making a bunker-only call at a
port, or lifting bunkers at an offshore location en route. It is vital that the buyer checks
to make sure he has permission under his voyage charter (if the vessel is loaded) to
deviate for bunkers. Although there may be a general ‘liberty’ clause in the charter,
this is not sufficient as he will need the permission of the owners of the cargo to
deviate, otherwise it may impact on their insurance cover. This is not normally refused
unless the deviation is unreasonable. The principle is that no action should be taken
on the voyage that is not for the ‘joint benefit of the adventure’. If the buyer deviates
just to save himself money without advising the cargo interests, then it would breach
that principle. If the vessel is not carrying cargo then he can, of course, go where he
likes. The buyer must then compare the costs of the intended alternative for bunkering
and consider not just the different price of fuel, but any port costs, additional fuel
consumed and, of course, the cost of the time of the vessel.
2
The enquiry
Bunker deviations Fill in red numbers only

Assuming bunkers concurrent with cargo at first port
Direct distance 450 nm
Deviated distance 517 nm
Total deviation 67 nm
Speed 14 kt
Deviation time 0.20 days
Consumption 21 mt/d
Deviation consumption 4.19 mt
T/C rate $15,000.00 day Time charter hire

Deviation time cost $2,991.07
Port calling cost $1,000.00 Port dues, agency, pilot, etc.

Additional costs $0.00
Port time 0.5 days Time in deviation port

Port time cost $7,500.00
Port consumption 3 mt
Bunker price $470.00 /mt del At deviation port

Cost of dev bunker $1,968.13
Cost of port bunker $1,410.00
Total cost of time $10,491.07
Total cost of fuel $3,378.13
Total port + additional $1,000.00
Grand total $18,247.32
Original bunker price $505.00 /mt del At first port
Quantity 1,000 mt
Price saving $35,000.00 Net saving $16,752.68
per tonne $16.75
Figure 2. A deviation for bunkers estimation spread sheet
3
Buyer’s name
The enquiry should state clearly the name and full style of the buying account.
If the buyer is an agent for a principal, that must be made clear and the name and full
style of the principal should be included in the enquiry.
If the buyer is a trader buying for his or her own account, that should be made clear.
Many buyers with large fleets have a number of different buying accounts (usually
for tax or corporate reasons). This must be checked, as trying to change the account
after a nomination has been made can cause problems.
Some shipowners will have fleets where a single ship company owns each individual
vessel and that company is the buying account. This can be an issue with credit lines
and must be made clear to sellers at the time of the enquiry.
Vessel name
This should seem obvious but, regrettably, all too often the vessel name introduces
confusion. Whilst there is only one vessel called Dyonisos, there are five called Dion.
Many owners prefix their vessel names with a house name (British Willow, British
Progress, etc.), but it is not unknown for them to refer to the ships internally just by the
second part of the name (Sky for Catalan Sky, Sea for Catalan Sea, etc.). If the buyer
uses the ‘internal’ name on the enquiry, this can cause BIG problems.
The certain way to avoid this problem is to quote the vessel’s International Maritime
Organization (IMO) number as well as its name when sending out an enquiry. The
IMO number is unique and stays with the vessel from construction to demolition. This
also helps when the vessel is to undergo a name change in the port where she is
bunkering.
IMO number : 9295323
Name of ship : TORM SAONE
Call Sign : OYMM2
Gross tonnage : 23246
Type of ship : Chemical/Oil Products Tanker
Year of build : 2004
Flag : Denmark
Figure 3. An example of a ship’s identification
This information comes from the website of a European Commission (EC) organisation
called Equasis (www.equasis.org). You must be registered to use the system but
registration is free. As long as you have the name, a call sign or the IMO number, you
can find the ship.
There can be complications when bunkering a new ship at the shipyard, as the
bunkering may need to take place before the vessel has been named. In such cases
it is usual to quote the name of the shipyard and the shipbuilder’s own ‘hull number’
or ‘ship number’ which will have been allocated as soon as the newbuilding contract
was signed.
4
The enquiry
Vessel type
It can be a great help to sellers if the enquiry mentions the type of vessel, as this will
highlight some of the restrictions that may apply to bunkering operations in a port.
Deadweight
Fuel
/ cubic
consu-
capacity / Fuel grade
Type Description Shorthand mption
number of (typical)
/ day mt
containers /
(typical)
LOA
Oil tanker Very Large Crude Carrier VLCC 300,000 85 RMG
Suezmax (maximum size to
Suezmax 150,000 65 RMG
transit Suez Canal laden)
LR
Long range or Aframax 85,000 45 RMG
Aframax
Medium range MR 40,000 30 RMG
General purpose GP 25,000 20 RMG
Gas RMG plus
Liquefied natural gas LNG 215,000 m³ 90
tankers boil off cargo
Very large gas carrier VLGC 80,000 m³ 60 RMG
Liquefied petroleum gas LPG 6,000 m³ 15 RMG
Dry bulk Very large ore carrier VLOC 220,000 75 RMG
Too big to use Suez Canal
Capesize 150,000 60 RMG
loaded
Small enough to use
Panamax 75,000 45 RMG
Panama Canal
Handy size 25,000 20 RMG
Dry cargo Roll-on roll-off cargo Ro-Ro 10,000 20 RMG / RME
Too big to use Panama Post
Container 12,000 TEU 300 RMK
Canal Panamax
Maximum size for Panama
Panamax 6,000 TEU 220 RMK / RMG
Canal
Smaller vessel serving
Feeder 2,400 TEU 100 RMG / RME
intermediate ports
Reefer Refrigerated cargo ship 10,000 m³ 35 RMG / RME
Car carrier 6,500 cars 40 RMG / RME
Passenger
Cruise liner 2000 pax 100 RMG
ship
Ferry 800 pax 35 RMG
Utility / 10 tonne
Harbour tug 8 DMA
offshore pull
Research vessel 80 m 15 DMA
Seismic survey vessel 80 m 30
100 tonne
Salvage tug 60 RMG / RME
pull
Anchor handling / offshore
10 DMA
supply
Warship 150 m 30 DMA
Coaster Dry cargo / tanker/container 100 m 8 RMG/ DMA
Figure 4. Vessel types and capacities
5
Port
What is a port? Most ports are easy enough to identify unless another port exists
with the same name (e.g. Portland, UK; Portland, Maine; Portland, Oregon; Portland
Australia). Always adding the country name will help. There is a port code administered
by the United Nations (UN), similar in concept to the IMO number. This is called the
UN / LOCODE, a five-letter code unique to each port. However, this has not seen
general application in the bunker industry.
Some buyers refer to terminals instead of port names. Unfortunately, especially with oil
terminals, not only do the names of terminals change when ownership of the terminal
changes, but not everyone is aware of the change and many people may continue to
use the historical name of the terminal. Some terminal operators have more than one
terminal in a port (e.g. IMTT has four different terminals on the Mississippi river, three
of them close to New Orleans). If in doubt, always check precisely which terminal is
being referred to. It will also help if the buyer is able to indicate if it is a bunker-only
call.
If the enquiry is for delivery outside port limits, on the roads or offshore, this should
be made clear.
In some ports there are specific locations within the port where bunkering is prohibited
by the port authority or by the owner of a particular quay or berth. The restriction
may apply to selected ship types (e.g. gas tankers), selected cargo types (e.g. grain
cargoes), or it may be a blanket restriction. In such cases there will usually be a
specified anchorage or a lay berth available for use by vessels for bunkering. A lay
berth is a berth where vessels are permitted to moor for purposes such as running
repairs, bunkering, taking stores, etc. It is not normally used for cargo operations.
In some significant bunker ports, the bunkering anchorages can be affected by
inclement weather and the port authority may suspend all bunkering operations until
the weather moderates. These various restrictions will have an impact on the price
and on the time taken to perform the bunkering.
A message here to the intermediaries and sellers – if you are not certain of the location
of the enquiry port / terminal then ask the buyer for clarification. It is not an indication
of incompetence but a sensible way to avoid potential problems.
Bunker-only ports
Whilst it is possible to make a call just to lift bunkers at very many ports worldwide,
there are some that have established a reputation as pre-eminent bunker-only
locations, in particular Singapore, Fujairah, Gibraltar and Falmouth. Some consider
Suez and Panama (Cristobal and Balboa) as bunker-only locations but in practice,
vessels bunkering there are usually engaged in canal transit.
Bunker-only ports acquire their reputation by virtue of a good geographical position,
sheltered waters, plenty of product storage, sufficient barges to meet the demand
and an efficient and ship-friendly port administration. A successful bunker-only port
will attract vessels to call for bunkers and will attract other businesses and service
6
The enquiry
providers such as hull cleaning companies, propeller polishing companies, ship repair
specialists and spares and stores providers.
Offshore – outside port limits (OPL)

Bunkering can be arranged at a number of offshore locations, especially off West
Africa and East Africa. Some suppliers have vessels stationed at these locations to
service passing trade and also service fishing boats, offshore oil support ships and
geophysical survey vessels. The commercial activity is the same, whilst there is much
more liaison required on the operations side. These bunkering operations do not have
a normal ship’s agent to coordinate them so it must all be done by the receiving vessel
and the deliverer.
Some deliveries are made close to shore but outside port limits. This will allow the
buyer to avoid entering the port and save the costs of clearance, documentation
agents, etc. There are disadvantages, as the buyer loses oversight of the local
authority and the operation is unregulated.
Offshore and OPL locations by definition are more exposed to weather restrictions to
the extent that, although large vessels may be easily able to manage the wind and
swell, the much smaller bunker barge may be unable to operate unless the weather
is moderate to calm.
Date and time

The enquiry should identify as much scheduling information as is available at the
time. If you are using acronyms, try to avoid ambiguity.
ETA Estimated time of arrival

ETB Estimated time of berthing
ETD Estimated time of delivery ambiguous
ETC Estimated time of completion
ETD Estimated time of departure ambiguous
ETS Estimated time of sailing
Figure 5. Date and time acronyms
If the timing of the delivery is critical, such as for passenger vessels and vessels on
liner trades, then the buyer should give timing information to the sellers at the time
of making the enquiry. If there are known operations that will have to be completed
prior to bunkering – such as tankers performing ship-to-ship transfers, dry bulk ships
discharging to barges, etc. – it will help the seller to make a better assessment of his
costs and therefore his offer.
The seller / supplier will have to schedule the delivery and cannot do that unless he
knows how much time he has to make the delivery. It is important to advise if there
are any known restrictions on the receiving vessel, such as maximum receiving rate,
working dangerous cargo, etc. The best solution to this is to advise the name of the
7
agent at the time of the enquiry, as long as the agent has been made aware of the
restriction!
Remember that changes to the date of the delivery may impact on the price. The
supplier’s terms will cover this eventuality. It may also upset the scheduling and
trigger further delays in ports where there are difficulties in arranging barge loading
slots (for example, in Rotterdam) or allocation of bunkering positions in an anchorage
(for example, in Gibraltar).
What grade – specification

The best approach to giving the grade is to use ISO 8217 standard grades, spelling
out any specific additional requirements, including specific sulphur requirements
(especially with the ISO 8217:2010 standard). If the buyer needs a particular
specification, then this should be made very clear. Include the specification in the
enquiry in full if there is any doubt that the sellers are not fully aware of what is
needed.
If the buyer intends to use the fuel in areas where there are legal restrictions on the
sulphur content of the fuel, for example, in a MARPOL Emission Control Area (ECA)
– or in ports – for example, European Union (EU) ‘at berth’ rules – then the maximum
sulphur level must be clearly stated. These requirements are covered in Chapter 14.
Buyers, especially those who are buying for vessels owned by someone else (a time
charterer, for example), may have to meet particular contractual requirements with
regard to the fuel quality. This is something that cannot vary without the agreement of
the vessel owner. If the charter party agreement requires a particular fuel specification,
the buyer should make this very clear in the enquiry. There are other specifications that
are used by buyers such as those of the engine builders’ association, the International
Council on Combustion Engines (CIMAC), and the North Atlantic Treaty Organization
(NATO) fuel codes for warships. There are a number of countries where fuel is only
available to local standards; buyers and sellers need to be aware of local differences
between what is wanted and what is available.
The ISO 8217:2010 quality standard and a summary of the differences between that
and the ISO 8217: 2005 standard are included in Appendices 4 and 5 for reference.
Quantity
The quantity must be clearly stated and the quantity units shown. If the exact quantity
is not yet known, then a quantity range for each grade should be stated. However, this
should be a realistic range as a supplier cannot be expected to quote for a range of
200 mt up to 3,000 mt. If there is a situation where the quantity may be either small or
large, then the best solution is to request offers for either 200 mt or 3,000 mt and let
the suppliers offer two different prices.
In some ports there are minimum quantities that can be supplied for reasons of quality
and / or quantity control. Small quantities make it difficult to compare prices with the
market reports, as the impact of delivery costs will be disproportionate.
8
The enquiry
Special requirements
A buyer should always specify if the vessel has exceptional freeboard (vertical distance
between the waterline and the point of connecting the bunker supply line), specific
pumping restrictions (a minimum or maximum flow rate for receiving bunkers), if there
will be a surveyor attending or any requirement for extended credit.
If the buyer wants the seller to offer a lump sum calling cost or to assist with any
agency requirement, this should be made clear in the enquiry. Any special invoicing
instructions should be mentioned on the enquiry. If the buyer has particular
requirements with regard to MARPOL compliance (for example, sampling location),
or with Safety of Life at Sea (SOLAS) compliance (for example Material Safety Data
Sheets), this should be made clear as not all bunker ports are in countries which are
signatories to MARPOL or SOLAS conventions.
There may be an absolute need for the buyer to receive original documentation to
process payment, a requirement for an authorisation to pay a seller who is not the
physical supplier (a No Objection Certificate (NOC), see section on invoice processing
in Chapter 3) or, for those with a ‘paperless office’, a requirement for all documents to
be submitted electronically.
When prices are needed

The enquiry should make it very clear when the offers are required by the buyer and
if there is a specific validity needed on the price. In situations where geographical
differences mean that buyer and seller are in very different time zones then it may be
appropriate for the buyer to request a price with ‘overnight’ validity so that he can give
acceptance of an offer by email before the start of the next day in the seller’s location.
If a buyer has a specific procedure for assessing a variety of offers in a tender process,
there will usually be a cut-off date and time for the buyer to receive offers. Any offers
submitted after that cut-off will probably not be included. Some buying offices have to
obtain management approval before making a nomination. That approval may have
to come from vessel technical managers or the head owners. Although the buyer
cannot expect a seller to leave a price in place for an unreasonable time, the seller
should be aware that the approval process may take one or two hours. Buyers need
to be aware that most sellers do not like to offer too far ahead (seven to 10 days is the
normal maximum) in case the market moves up significantly after the offer has been
accepted and the bunkers are delivered.
When to float the enquiry

In some ports the price can vary by up to 2% within a day or 5% over three days
without any major changes to world markets. Examples are Amsterdam, Rotterdam,
Antwerp (ARA), Singapore and the US Gulf ports. In most ports prices only move
from one day to the next but there are some where prices are static for periods of one
week or longer. The decision on when to float the enquiry will depend on the buyer’s
perception of the market direction and on the ability of the sellers to meet short notice
requirements.
9
There are no easy rules and buyers are advised to seek advice (from sellers or
intermediaries) unless they have sufficient market understanding to form a judgement
themselves. When buyers are considering a number of ports, the decision of when to
float an enquiry may depend on the logistical and timing constraints of more than one
of the ports. Sometimes, it is necessary to float an enquiry early for port B just to allow
comparison with the price in port A.
Who to ask
Offers should be sought from all of the physical suppliers who offer the grades
required. If the buyer does not have established credit with any particular physical
supplier then the buyer should approach reputable traders with whom they have an
established credit line.
The buyer may choose to use an intermediary. Many buyers will choose to use a
broker to cover all or part of the market on their behalf. This has an advantage,
especially if the buyer does not have specific knowledge of the suppliers in the port.
A competent broker will not only know the physical suppliers but will also be able to
represent the buyer’s commercial bona fides to the suppliers.
If the buyer has an on-going business relationship with a trader, then that trader may
be able to cover the suppliers directly, selling on to the buyer for a margin.
The use of an intermediary can reduce the manpower effort required by the buyer.
10
The offers
Chapter 2 - The offers
For the seller, making an offer requires the same degree of care and attention to
detail that the buyer has to use in putting out his enquiry and assessing the offers he
receives.
In general, all of the elements of the offer are as detailed below, but a seller has to be
sure before offering to do the job.
Details as enquiry
Offers will be received by a variety of methods (irrespective of how the buyer asked
the offers to be submitted). They should be compared with the details on the outgoing
enquiry to ensure that what is being offered is what the buyer wanted – in every
detail!
Price
Prices may be offered in a great number of different combinations. Generally all
suppliers in a port tend to offer prices in the same way but there are significant
exceptions.
US$ pmt. wh. US $ per metric tonne ex-wharf

US$ pmt. del. US $ per metric tonne delivered
US$ per bbl. wh. US $ per barrel ex-wharf
US cents per AG US cents per American gallon
US$ per cu. m / m³ del. US $ per cubic metre delivered
€ per cu. m / m³ del. Euro per cubic metre
Sterling Pounds per metric
£ pmt. Del.
tonne delivered
The price paid per tonne as
mtd. or mt. del. Metric tonne delivered
received on board
The price of the product. All
mtw. or mt. wh. Metric tonne ex-wharf
delivery cost to be added to this
The price paid per tonne as
mt. ex pipe Metric tonne ex-pipeline
delivered on board by pipeline
bbl. Barrel Volume measurement
Cu. m or m³ Cubic metre Volume measurement
mt Metric tonne Mass measurement
AG American gallon Volume measurement
kl Kilo litres Volume measurement
Figure 6. Different ways to define bunker prices
11
If the price is quoted as ex-wharf then the appropriate delivery cost must be added in
order to compare with any delivered cost. If the price is quoted as ex-pipe, then the
delivery cost is included. If the price is quoted as delivered, then the delivery cost is
included.
Delivery method
The offer should detail the delivery method and should state any particular restrictions
associated with it. If the seller has the possibility to deliver concurrent with working
cargo, this should be made clear; it can influence the choice of port and supplier.
Concurrent bunkering can easily save thousands of dollars worth of a ship’s time.
The buyer needs to be aware that if the delivery is to be by truck, there may be issues
concerning access to the vessel, the provision of additional hoses, and the time taken
to deliver. Truck sizes vary from the smallest at 10 mt to maximum sizes of 25 mt
in Europe and the United States, up to 40 mt in Canada and up to 60 mt in Mexico,
Australia and the Middle East. Many countries prohibit truck deliveries at night and
some prohibit them at weekends.
Concurrent bunkering
If bunkers can be taken at the same time as the vessel is loading or discharging its
cargo, then the value of the time saved can be significant – the receiving vessel may
be worth many thousands of dollars per day. In addition, there may be other costs
associated with shifting the vessel to a lay berth or an anchorage to take bunkers
which must also be accounted for (extra tugs, lay berth fees, missing a tide, etc.).
Quality
The offer should detail the quality or grade being offered. If it is different from the grade
requested, then it is advisable to indicate why the requested grade is not offered, if
there are any particular exceptions and, if available, if there is a typical analysis.
Delivery costs
The offer should state the delivery costs (unless the price is a delivered price). Typically
if a barge or road tank wagon (RTW) delivery is involved, there may be a minimum
delivery charge and this should be clearly stated. With RTW deliveries it is sometimes
necessary to use additional lengths of hose and this will usually incur an additional
cost, which should be stated. Remember that the supplier cannot assess the length of
additional hose unless he knows exactly where the vessel will be berthed.
The cost of a barge delivery may be expressed in different quantity units than the
product price (especially using volume rather than mass) and may even be in a
different currency.
Barge charges can be expressed very simply in $ per mt or $ per barrel (bbl), but there
may well be a minimum charge levied. In some US ports, the barge charging structure
12
The offers
is very complex, with different rates and different charging methods according to the
quantity involved.
Example: New York Harbor
From 1-565 mt $6,010.20 lump sum

566-628 mt $10.63 per mt
629-1,025 mt $6,678 lump sum
1,026-1,632 mt $6.51 per mt
1,633-2,300 mt $10,629.15 lump sum
2,301-2,493 mt $4.62 per mt
2,494-3,400 mt $11,520 lump sum
over 3,400 mt $3.39 per mt
In addition, the barge operator will have a published
scale of other charges
Demurrage:
Tug: $350 / hr
Barge $175 / hr
Allowed Laytime:
Delivery 150 mt / hr, 4 hour min, 18 hour max
Loading 375 mt / hr, 4 hour min, no max
Figure 7. Example of barge delivery costs
Demurrage is a charge for delaying the barge and is explained more fully in Chapter
12. Laytime is the time permitted for the loading and for the discharge (barge laying
alongside either wharf or ship). In the United States, the barges are moved by tugs,
hence there is a separate demurrage charge for a tug. The time allowed may be
exceeded for a number of reasons: late arrival of receiving vessel; slow pumping
because of high freeboard on the receiving ship; cold oil on the barge (especially if it
has been sitting laden waiting the ship); or pipeline restrictions on the receiving ship.
Pumpback
If the barge was loaded for one specific delivery and the ship could not take the
full quantity, the remainder will be returned to the terminal where there will be a
pumpback charge levied for the time and fuel cost of pumping the oil off and possibly
a downgrading charge if the product has to be returned to a tank that contains an
inferior grade. The seller may also seek compensation if the value of the product
has fallen because of market movements. However, there may be scope to use an
increase in market level to offset some or all of the pumpback charge.
Example: Houston, United States
Pumpback: $370/hr, min $2,705.
13
Just because there is to be a barge delivery, and a barge rate is quoted, that does
not preclude other delivery costs in addition to the barge charge. The buyer must
especially be aware of pipeline fees and wharfage where a barge is going to deliver
at a terminal.
Other costs
There are a variety of additional costs that may be charged and many of these are
location dependent. The most common of these are:
• Calling costs (usually for bunker-only calls at anchorage or offshore), which
normally encompass all the delivery charges
• Taxes (local and national)
• Overtime
• Pipeline fees
• Anchorage charges (some US locations)
• Harbour fees (some US locations)
• MARPOL compliance fee
• Oil boom charges (also called oil fence charges)
• Fuel surcharges on barge delivery costs
• Environmental protection fees and levies
• Ice surcharges
• Fire watch charges
• Watch boat charges
• Wharfage.
Note: this list is not comprehensive.
Many sellers have a specific clause in their terms to cover additional charges. For
example:
BUYER shall pay for any and all applicable duties, Goods
and Services Tax, taxes, fees, costs (including those
imposed by government authorities), wharfage dues,
barging / jetty fees, delivery charges and such other
costs and expenses arising from the delivery which shall
be included in SELLER’s invoice to BUYER.
Calling costs
These cover port dues, harbour dues, pilotage, agency and all of the costs incurred
for a bunker-only call to a bunkering location. They are usually expressed as a lump
14
The offers
sum. In many ports the seller will need to know some details of the vessel (for example
DWT, NRT, LOA draught – see explanations in Appendix II) in order to be able to
quote the charge. Not all sellers will offer this, even in ports where it is the norm.
Example calling cost: World Fuel Services, Falmouth
$8/mt [minimum $4,000] – covers all costs for a

‘bunkers-only’ call at anchorage (i.e. barging, calling-
costs, pilotage and Tamlyn Shipping’s agency fee for a
bunker-only call).
Example port cost ‘pro forma’

This is usually referred to as a pro forma disbursement estimate and will be calculated
for the subject vessel and its intended call. The following example is for a laden tanker
of 35,000 DWT at the port of Rio de Janeiro.
15
16
The offers
Figure 8. Pro forma disbursement estimate

Courtesy of Wilson, Sons Agência, Brazil (www.wilsonsons.com.br)
17
The pro forma disbursement is a guide and many agents will be willing to negotiate
their fee level but the dues, taxes, pilotage, etc. are non-negotiable.
Here is another example for the same vessel at Flushing Roads.
Shipping & Signalling Services n.v.

Boulevard de Ruyter 34 telephone: + 31 (0) 118 412 392
4381 KB Vlissingen telefax: + 31 (0) 118 419 919
telex: 51 949594 ssserv g
email: sss@sss.be
To : LQM Petroleum Services
Attn. : Nigel DRAFFIN
From : Ronny SNIJDERS

(0) 118 412392
Date : 16-02-11
Subject : Pro forma D/A
Ship’s name : Splinded

Port : Flushing
Berth : Everingen
Purpose : Bunkers-Only Call
GT : 22.184
DWT : 35.000
LOA : 170 m
Draft in/out : 11.5 m
ETA : 04 January 2011
Dear Nigel,
Economical bunkering arrangements can be made by us at

the Schaar van Everingen, off Flushing Inner Roads. No
harbor dues involved and towage is as a rule not required.
Full range of services available, including slop/waste
oil reception, repair / drydock facilities, crew-change,
technicians, launch service for stores, and ship chandler.
Costs worked out as follows on basis of the above

parameters:
Pilotage (in and outwards) EUR 9.864,--
Vts/shore radar tariff EUR 600,--
Communication by launch EUR 700,--
Petties EUR 36,--
Agency fee, as per tariff EUR 2.200,--
Total port expenses EUR 13.400,--
18
The offers
Note: Pilotage is calculated on vessel’s draft, thus when

she arrives in ballast these costs will be considerably
lower.
• Agency fee negotiable
We hope that we have made you a favourable offer and look
forward to hearing from you.
Yours faithfully
PILOTAGE
A certified pilot will guide your vessel to the sheltered
anchorage. The pilotage dues are a payment for the
services of pilots. All dues received are paid to the
pilots in full. The tariff is based on the actual draught
of the vessel, and on the piloted distance, and divided
into a sea and river pilotage tariff
VTS-TARIFF
The VTS-tariff aims to recover government costs for
individual Vessel Traffic Services to ships. This system,
also known as the ‘shore radar’, is a government matter.
The tariff is based on the length of a seagoing vessel and
is payable by all seagoing vessels. This is the length
according to the International Certificate of Registry 1969
(ICR 1969), the so-called London length.
COMMUNICATION BY LAUNCH
A manned motor launch can be made available on behalf of
a specific vessel for conveying crew and personnel of the
Owner and his agents and for watchmen and officials for
their activities on board at EUR 152 p/hour or weekend and
holiday tariff EURO 198 p/hour. 10% bunker surcharge to
apply to above rates.
If the principal wants to make use of a stores barge this
is possible at EUR 300 p/hour or weekend and holiday
tariff EUR 372 p/hour with a minimum of 2 hours p/trip.
CLEARANCE OF VESSELS: AGENCY FEE
Services as per General Conditions and Rules for Dutch
Shipbrokers and Agents (2009).
Figure 9. Another example of a pro forma disbursement estimate

Courtesy of Shipping and Signalling Services n.v. (www.sss.be)
19
Bunker-only cost comparison

The table below gives the costs for a variety of ports, all based on the same vessel.
Bunker-only calling cost

Singapore $2,000
Fujairah $0
Gibraltar $1,270
Las Palmas $1,850
Piraeus $2,200
Kingston $1,250
Suez $2,000
Malta $500
Istanbul $750
Falmouth $4,000
Skaw $0
Kali Limenes $600
Rio de Janeiro $12,000
Flushing Roads $14,000
Montevideo $2,400
Jeddah $1,500
Hong Kong $2,110
Figure 10. Comparison of costs at different ports
Overtime
Overtime charges apply in many ports, with different rates, different applicable times
and special rates for local and / or national holidays. Whilst there are many ports
where overtime is not charged on the invoice, there may well be overtime charges
paid by the supplier to his delivery contractor but these are built in to his quoted
price.
Example overtime charge: Rubis Energy, Bermuda
Normal Working Hours: Mon - Fri 0800 to 1700 ex-pipe and

0800 to 1600 ex-truck. Overtime: $85 per man per hour
with 3 hour minimum call-out on Sat/Sun, Public Holidays
and outside normal working hours.
Pipeline fee
This may be charged for a ‘normal’ ex-pipe delivery if the product price is offered as
ex-wharf. However, there are circumstances where it may also be levied where a
barge has to use a shore fixed pipeline in order to supply a vessel delivery. This is
normally only seen in the Americas. In some US ports this charge can be levied via
20
The offers
the agent. The seller is unaware of the amount as it is an issue between the terminal
and the vessel. The amount can be as high as $2,000.
Example: Balboa, Panama
Plus $0.50/gross bbl. pipeline charge, min $750.
Anchorage charge
This charge is levied by the port authority on vessels using the port anchorage. In
the case of the receiving vessel, the charge will be paid via the agent as part of the
normal port disbursement. The delivery barge will also have to pay the port to use the
anchorage, and this is the anchorage charge that will be passed on to the buyer on
the bunker invoice.
Example: Los Angeles, United States
Anchorage fee $500 lump sum.
Oil boom charge

The oil boom charge (also called oil fence charge – especially in Japan) is levied when
the port requires a boom to be deployed during bunkering as a precaution against oil
pollution. The charge will appear on the invoice. In ports where the boom is provided
by a specialist contractor and billed in local currency, the seller will usually charge in
the same currency as the bunker sale and include supporting documentation with the
main bunker invoice. There may be a charge for a boom to be on standby during a
delivery – even if the boom is not deployed.
Example: Yokohama, Japan
Oil Fence Fee $450 lump sum.
Fuel surcharge on barge delivery costs

In ports where separate charges are made for the barge delivery, barge operators will
impose surcharges to compensate for significant changes to their own fuel costs. The
barge rates are usually only reviewed every six or 12 months so the fuel surcharge
gives some compensation for large cost increases caused by fuel price movements in
between barge rate reviews. This practice is generally only seen in North America.
Environmental fees and levies
In certain locations, additional charges are incurred through local or national fees as
part of generating funds for cleaning up spills and contamination. In the United States
there are a number of programmes that may generate charges on a fuel invoice,
21
such as the Superfund (the tax is currently in abeyance but the fund is still active) or
the leaking underground storage tax (LUST). In some ports there will be a separate
environmental fee, but all of these should always be clearly identified.
$0.08/bbl. Federal Oil Spill Tax (as applicable)

For MGO: Plus $0.001 per gallon Leaking Underground
Storage Tank (LUST) Tax plus $0.0019 /gallon Federal Oil
Spill Tax.
Ice surcharge
In ports that are affected by ice in winter months, the deliverer may have to pay
additional fees to the port authority for general ice control costs or may have to get
specific ice breaking assistance to move his barges. In such cases he will look to pass
this cost on to the bunker buyer.
Example: New York, United States
Ice Surcharge, if applicable, billed at Demurrage Rate

plus 50% $350 hr + $175 = $525. The odds of seeing this
are very rare. Any delays that are a direct result
of ice shall be considered used laytime. Buyer shall
be responsible for ice delays from load location to
delivery location and return to original load location
or next scheduled load location, whichever is less
distant.
Buyers shall be responsible for any assist boats,
pilotage and any other cost necessary for ice transit
and any other necessary assist tugs.
Harbour fee
This is a charge levied by the port authority on a bunker barge for an operation in the
port. It is seen in some US ports.
Security fee of $0.033 per Short Ton

Harbour Fee is $28.50 per call ($57 with MGO)
22
The offers
MARPOL compliance fees

In some ports, an additional fee is charged for providing a fully-compliant delivery.
This practice started in locations where the state was not a signatory to MARPOL but
the buyer requested the service. It is still being applied in some MARPOL signatory
state ports where the buyer insists on certain sampling procedure details but the port
state control does not require the supplier to do this.
Example: Matrix Marine Fuels LLC
An independent inspector is to be hired at $75 per

hour (four hour minimum) in order to board vessel.
Ship to supply properly functioning drip sampler to
be used to pull one (1) MARPOL documented sample and
three (3) commercial samples of each product delivered.
If a drip sampler is not on board the vessel or is
deemed improperly functioning, the inspector will
have no alternative than to manually pull samples
throughout bunkering from the barge designated manifold
sampling location. Costs to be for the Buyer’s account.
Independent inspector fees are subject to change.
Fire watch charge

In certain ports (notably in Pakistan) there is a specific charge for a fire watch to be
kept whilst bunkering operations are being conducted. The cost is low (normally less
than $100) but should not be overlooked.
Example: Karachi, Pakistan
Fire charges $80 lump sum.
Watch boat charge

This charge is levied at some specific locations (such as some shipyards) where the
local regulations require additional precautions against fire and pollution. The charge
is variable but can be at least four times higher than the fire watch charges listed
above. The decision to use a watch boat is taken on the day of the delivery.
Example: Yokohama, Japan
Watch boat charge $400 - $600, if required.
Wharfage
This is a charge imposed on the product ‘passed over’ a quay or wharf owned by
another. It is a charge related to cargo quantity and, in this context, the charge is
23
levied against the barge lying alongside the wharf (its cargo being the bunkers going
on to the receiving ship) and that fee is then recovered via the bunker invoice.
Occasionally, the wharfage may be levied directly on the vessel owner via the agent.
Wharfage $0.27 per mt (min $10.00).
Payment terms
The payment terms need to be clear. There are a number of options:
• Payment by cash in advance
• Payment xx days after delivery
• Payment xx days after receipt of fax/electronic invoice
• Payment by deduction from freight.
The seller may require additional security for large invoices, e.g. a Letter of Credit.
The payment method is almost always to be by telegraphic transfer although in some
circumstances it may be acceptable to pay by cheque.
Reference to INCOTERMS
Some sellers will stipulate that they are selling on INCOTERMS. This needs to be
treated with caution and clarification sought as INCOTERMS, developed by the
International Chamber of Commerce (ICC), are designed for general international
trading. Each element has very specific meanings that do not always reflect the way
that bunkering transactions progress. Expressions such as ‘FOB’ (Free On Board)
and ‘ex-wharf’ are defined in INCOTERMS but some have disappeared from the
latest edition of the terms (INCOTERMS 2010).
Be aware that expressions such as FOB can have slightly different meanings with
different sets of terms and they should therefore only be used with caution. (In the
United States, FOB stands for Freight On Board and has to be qualified with a note
of which party pays the freight.)
Sales terms
The offers should indicate the applicable sales terms and conditions that would apply
to the sale and, if the enquiry had any specific buyers’ clauses, whether these are
acceptable to the seller. Where the seller is not the supplier, he may be using the
supplier’s terms rather than his own. This must be made very clear.
Commissions
If the enquiry is through a broker, the offer should either indicate if the price is net of
commission or state the level of commission if commission is already included in the
24
The offers
price. Broker commissions are discussed in Chapter 4, in the section on brokers, but
are usually in the range of $0.50 to $1.00 per mt.
Validity
If the price has a specific validity then this should be stated clearly in the offer. In
general, if no validity were stated, then the offer would be valid to close of business at
the location where the seller’s business is based. If the buyer has asked for overnight
validity of a price, this should be either confirmed in the offer or the offer should state
that the price is not valid overnight. Usually, overnight validity requires an acceptance
before the start of business at the seller’s location on the following day.
Comparing offers – negotiation

Check like for like
When all offers have been received, the buyer needs to compare all the offers. In
order to do this, the offers need to be assessed to ensure that the basis of the offers
is the same. This may involve comparing prices that are in different units and prices of
which some are delivered and some are ex-wharf with separate charges for delivery.
Some sellers may quote additional charges for tax, overtime, oil boom, etc. but others
may not have mentioned these. The buyer should seek clarification if some sellers
mention additional charges and others do not.
Make sure to adjust for different credit terms and to allow for any additional elements
or guarantees offered by some sellers (guaranteed timing of delivery, superior quality,
etc.) if those are of genuine advantage. Some comments on the ‘value’ of credit
periods can be found in Chapter 7.
The buyer is strongly advised to seek clarification about any omissions from the offer
as the seller’s sales terms may have a general clause allowing them to pass on
additional charges incurred without having mentioned them at the time of offer.
Give feedback
By advising each seller of price competition that makes his offer appear uncompetitive
he may be prompted to improve his offer. If, for example, one seller has included
certain cost elements in his price, another seller may be willing to follow suit in order
to stay in competition.
A seller will often not know how competitive his offers are until he receives feedback
from a buyer or broker.
It is at this stage where mistakes in quoting can be picked up and remedied. If one
seller has offered a price substantially lower than all the others, there is a strong
chance that he has offered for a different grade, or he has missed a significant
restriction in the enquiry. It is better to discover this before fixing than after.
Assess subjective elements (quality, performance, flexibility)
Some aspects of the seller’s offers are not so easy to assess. If, as the buyer, you
have knowledge of past performance of the seller, his product quality and his ability to
25
be flexible in deliveries, you will be able to adjust the raw economic calculation. After
all, engaging in any bunker contract is an exercise in risk reduction. If the buyer has
access to the quality statistics provided by his fuel analysis service, this might be a
useful guide in assessing different offers.
If the grade being offered is different to that requested, then make an effort to identify
the differences and determine if the grade offered is acceptable. It is common to find
that although sellers cannot offer the requested grade, the specification that they can
offer is acceptable for the ship. The buyer may need to take advice on this issue.
The energy content in the fuel is a function of water, sulphur, ash and density. The
difference in density between suppliers’ offers may represent up to 1.5% difference
in energy per mt of fuel. But remember that sellers, whilst they may give a typical
analysis, will only guarantee a maximum and therefore there is no certainty that a
claimed advantage will be realised.
Counter offer if appropriate
Remember the features of a contract: an offer, an unqualified acceptance and a
consideration. If you choose to make a counter offer to a seller then he has no further
obligation to maintain the original offer he has made to you. Some buyers choose to
make a counter offer to the second best offer they have received. In any case, it will
be a judgement on the part of the buyer as to whether a seller is likely to withdraw his
original offer if given the opportunity (is the market firming, may he have a chance to
offer the product to a less aggressive client at a higher price?).
It may be more appropriate to negotiate on minor elements of the offer that will
enhance the buyer’s position without risking withdrawal of the offer.
Observe validity / deadlines
Do not lose an offer by exceeding a validity deadline unless you have alternatives. In
markets where prices move quickly, such as Rotterdam, price validities of as little as
15 minutes are common and exceeding the validity even by one minute will be met
with the offer being withdrawn. As a buyer working against a deadline, if you want to
accept an offer but do not yet have the final quantity or do not have the name of the
agent, it is advisable to place your acceptance immediately with the final quantity or
agent’s name (or other similar details) to be confirmed later.
26
Acceptance and post fixture
Chapter 3 - Acceptance and post fixture
Acceptance is final
Once an unconditional offer has been accepted and a price agreed, there is a contract
in place (under English law). The acceptance can be made by speech (face to face or
telephone), email, fax or telex.
Subject to
If there are any details that need to be resolved in order to complete the contract
these are called ‘subjects’. These can be very minor (subject to final confirmation
of quantity), more significant and operational (subject to barge loading schedule) or
potential deal breakers (subject to head owner’s acceptance of specification). Both
parties should make subjects very clear at the time of acceptance.
Date and quantity ranges allowed

If there is flexibility on quantities and/or the delivery date then the cut-off dates for
finalising this information should be agreed. A seller may require the range limits to
be narrowed down at time of nomination – for example an enquiry for 400 mt up to
1,000 mt may be too large for the seller to leave open after acceptance but he may
be willing to allow a range of +/- 150 mt on a nomination of 700 mt. The issues for the
seller are those of product availability and of exposure to price movements. If a range
is agreed, the confirmation should state who will nominate the final quantity (buyer,
agent, ship’s master) and when the quantity must be declared.
Confirmation messages
Both buyer and seller should send confirmation messages summarising every
element of the contract as per the enquiry and the accepted offer with details of any
‘subjects’, time limits on declarations and special instructions regarding the operation
and invoicing.
If an intermediary is involved, they should send confirmation messages with all details
to both principals.
27
From Splendid Bunker Brokers

Following confirmation has been sent to:
Camptown Bunker Supplies Ltd
Tarka Marine Ltd
This message to confirm the nomination as follows:

Vessel : Golly Tarka (tanker) IMO 9292345
Account : Tarka Marine Co Ltd
c/o Tarka Marine Europe Ltd
5 Foregate Street
London, EC94 UK
INVOICING INSTRUCTIONS:
Send Originals To:
Tarka Marine Co Ltd
Operations Dept
c/o Tarka Marine Europe Ltd
5 Foregate Street
London, EC94 UK
Port : Rotterdam, Netherlands
Delivery Date: ETA 6 June 2011 – 7 June 2011
Quantity : 380 cSt: -440 mt
Fuel Specs : LS 380 cSt: Within ISO 8217 2010 RMG380
with maximum sulphur content of 1.00%
Price for LS380 cSt RMG380 $495 pmt del
Terms 30 days from date of delivery.
BUNKER SUPPLY QUALITY, DELIVERY DOCUMENTATION AND
SAMPLING FOR ALL FUELS PERTAINING TO THIS DELIVERY TO BE
GOVERNED BY ALL PERTINENT REGULATIONS ESPECIALLY 14 AND
18 OF ANNEX VI OF MARPOL 73/78.
Please note that buyer requires original documentation
in order to process payment.
Camptown sales terms are NOVE sales terms as at www.
NOVE.nl
Thank you.
Ian Again
(as brokers only)
Splendid Bunker Brokers
ian@sbb.com
tel : +44 184 742749
fax : +44 807 1322471
cell: +44 7878 638548
Figure 11. Example of a model confirmation
28
The following shows the flow of information during a typical bunker enquiry.
1 Enquiry for bunkers
2 Enquiry acknowledged Shipowner 12 Ship’s agent
3 Enquiry to suppliers
Ship
4 Quotation or refusal 12
5 Optimum price option

10 1 6
6 2 5
Counter or accept quotation, delivery
details, agent's name
Broker/trader 11
7 Further possible price negotiations 11
7
8 Firm nomination plus delivery details
29
8
Chosen oil supplier Supply /
9 Acceptance of nomination Distribution
9
department
10 Confirmation: nomination placed and 11
accepted
4 3 4 3
4 3 4 3
11 Instructions to supply ship, liaise with
ship’s agent
12 Instructions to ship/ship's Local oil
agent and vessel supplier Oil
supplier
Local oil Oil
supplier supplier
Figure 12. A typical bunker delivery


Post fixture
Notices
The buyer is responsible for ensuring that the vessel and/or agent pass on the
required ETA and scheduling details to the local deliverer in accordance with the
supplier requirements. Failure to comply may mean a delay for the vessel (see the
remarks in Chapter 4 under the section on the ship’s agent).
Time limits for quantities / dates
The buyer, vessel or agent must pass on the final date/time for delivery and final
quantities. The ETA requirements are usually in the seller’s terms of sale. The details
for declaration of final quantities should be made clear in the confirmation messages
and declared in good time by the person agreed in the nomination.
Operational changes
The buyer, vessel or agent must pass on any operational changes on the vessel
programme to the deliverer. The deliverer must pass on any changes in his schedule
to the agent and seller who will in turn advise the vessel and buyer.
Invoice processing
The seller has a responsibility to obtain the documentary confirmation of the delivery
(plus any note of protest) and to issue a correct and valid invoice to the buyer. This
will follow any specific invoicing instructions. Almost all companies have a degree of
bureaucracy involved in processing invoices, and this takes time. The seller must
ensure that the buyer receives the invoice in sufficient time to permit routine payment
processing.
Sellers must take note of the documentary requirements stated in the enquiry as,
for many buyers, they are bound not only by their own internal procedures but also
their national legislation requirements with regard to exchange controls. Most bunker
invoices for non-US companies involve a foreign currency transaction. Their tax and
accounting requirements may also impose particular requirements.
In most cases where these issues are raised, it will be with regard to the need for
original documents (invoice and bunker delivery note). However, for some, it may
also require a note from the physical supplier authorising the payment to be made to
the seller where the seller is not the physical supplier. This is sometimes called a No
Objection Certificate or NOC.
Payment processing
The seller must make sure that the invoice has full details to allow the buyer to pay in
accordance with the agreed method. Some sellers print the banking instructions on
the back of the invoice. This is never a good idea as often invoices are passed around
by fax and the payment instructions are then omitted.
It is the responsibility of the buyer to pay on time.
30
The buyer will always know (from his vessel) that the bunkers have been delivered. A
conscientious buyer will advise the seller if the invoice has not been received before
the deadline for payment processing has passed.
If the payment is late and the seller had correctly submitted the documentation
required in good time, then the buyer would be liable to pay interest as laid down in
the terms of sale.
Document / process control
Many buyers, brokers, traders and suppliers use formal procedures to control the
process, some using ISO 9000 or similar. In a quality assurance procedure there
needs to be a routine (either on paper or with computer software) to record and
monitor that all of the steps in the process have been followed. The simplest control
is to use a paper form which acts as a negotiation / record sheet and when completed
will be a record of the whole deal from the details of the enquiry to the approval of the
invoice and payment.
When buying, I used a computer programme for operational control and recording
but the fiscal control was a paper form, coloured pink, so it was easily recognised on
a crowded desk. Each part of the process had its own check box on the form and no
invoice could be passed for payment without the completed ‘pink form’ attached. The
bunker management software referred to in Chapter 13 is designed to provide the
appropriate level of control and audit trail on each deal.
Whilst advocating the use of formal quality control procedures, it should be
remembered that ISO 9000 accreditation is no guarantee of ‘quality’ or ‘performance’;
all it does is show that the holder has an accredited system that satisfies the minimum
standards of each procedure category of ISO 9001 and is subject to routine internal
and external audit.
.
31
32
The buyer
Chapter 4 - The buyer
The fuel buyer is the key decision maker in any bunker deal. He (or more often she)
is the party who issues the bunker enquiry to the market place, assesses the offers
received, negotiates the details, including the price, and will usually be the initial
recipient of the invoice. The buyer is presumed to have the authority to act for his
company (the buying account). The buyer may work for a variety of different types of
company and his approach to the deal will be governed by his particular position in
the overall chain of the deal from the head owner to the ship’s crew via charterers,
sellers, suppliers and deliverers. It is important for the sellers to understand the
contractual position of the buyer as this may affect the way they offer and the way
they negotiate.
Owner
The owner of the vessel, often called the head owner, is the company that owns
the ship. It is complicated by the fact that many ships are ‘owned’ by single ship
companies although the ship itself is controlled by others. Lloyds List Intelligence
splits the ownership definition into two.
The registered owner is the company or individual to whom the ship’s legal title of
ownership has been registered. This is where ‘open registry’, ‘paper’ or ‘name-plate’
companies are often involved, with ships being registered in a country whose tax on
the profits of trading ships is low or non-existent or whose requirements concerning
manning or maintenance might be more relaxed.
The beneficial owner is deemed to be the ultimate owning entity or representative
thereof (individual, company, group or organisation). The beneficial owner may be
the vessel’s management company or the trading name of a group, both of which are
generally perceived to represent the ultimate owners of the vessel.
Offshore companies
It is common practice for some ship owning and trading companies to register as
‘offshore companies’. This means that their registered address is in a country other
than the one where they carry out their business. The practice is legal and has certain
financial and business advantages. One authority has cited the following specific
advantages:
• International trading, especially where the owner has no fixed residence
• Asset protection
• Captive insurance
• Ship registration
• Tax avoidance
33
• Protection of intellectual property

• Succession planning
• Confidentiality (non-criminal).
The biggest issue for parties dealing with offshore companies is that it can be very
difficult to discover the identities of the principals involved, especially in certain
offshore jurisdictions.
One example of the use of an offshore company is where a seller operates with a
particular company name and an office and staff located in the country of supply but
the invoice is raised crediting a separate company name that is registered ‘offshore’.
It can cause confusion when, for example, the normal office, place of business, etc,
for a buyer is in the EU but the company concerned is registered offshore. All EU
companies will have a Value Added Tax (VAT) number but in this case the buying
account does not have a VAT number, as it is not registered in the EU.
Disponent owner
When the owner charters his vessel to another on the basis of a time charter, the time
charterer has the responsibility of arranging and providing bunkers as detailed in the
charter party agreement. The time charterer will decide where the vessel goes, what
it loads and discharges, how fast it goes – in effect the commercial use of the vessel
is at his disposal. He is called the disponent owner.
The same term is used when a vessel is chartered by the head owner under a
‘bareboat’ or ‘demise’ charter. These charters transfer all responsibilities to the
charterer including elements not transferred in a time charter, such as crewing,
insurance, maintenance, stores and victualling.
In practice, if the head owner keeps full control of his vessel then he is, in effect, the
disponent owner.
The consequence of all of the above is that the disponent owner is the person who
has to buy the fuel for the ship. If the disponent owner is the head owner of the ship
he has complete freedom to buy whatever quality of fuel he chooses. If the disponent
owner is controlling the vessel though a time, demise or bareboat charter, he has to
purchase the quality of fuel specified in the charter party. This quality is detailed in the
bunker clause of the charter party and is discussed in Chapter 14.
The head owner may be willing to pay a premium for a superior grade or quality of fuel
in order to protect his engine.
A bare boat or demise charterer has to pay for all maintenance so he may be willing to
pay a premium for a superior grade or quality of fuel in order to protect the engine.
A time charterer will not want to pay for anything over and above the quality as
stipulated in his charter party as he does not pay for the maintenance and it is not his
engine.
34
The buyer
The disponent owner is the person who will own the bunkers once supplied and,
as he will not usually be present at the delivery, he should make sure that he has
given the ship’s staff detailed instructions on how he wants them to protect his
commercial interests. In the case of a head owner, he will have all of this in his
own shipboard procedures. With a time charterer, it is easy to forget that, without
explicit instructions, the staff on board will be focussed on their employer’s interests
(the head owner). Therefore, the time charterer should give direct instructions on the
aspects of bunkering which are his commercial concern (witnessing measurements
and sampling, making protest, giving proper notice to suppliers, etc.). Both buyer and
seller need to be aware of the issues of procedure that affect the rights of the seller to
seek redress for non-payment. See Liens and ‘No lien stamps’ in Chapter 12.
Buyer profiles
Different buyers have different priorities. The examples below give some guidance on
what to expect and the specific issues affecting them.
Liner / container / reefer
• Fixed routes / ports
• Draught / stability
• Reliability / speedy supply
Vessels on liner trades will know well in advance the ports, dates and general
bunker requirements. This enables good bunker planning and lends itself to contract
purchases. There may be a need for last minute changes to the plan in order to
respond to a need to adjust draught or to maintain the stability of the ship. Short port
stays with large quantity requirements place a premium on suppliers with very good
pumping capacity and guaranteed delivery times.
Tramp general cargo
• Bunker price variations
• Bunker availability
• Cargo versus bunkers
• Uncertain routeing / many ports
These vessels will look for each future cargo based on current location, market rates
and cost of voyage, so the price of bunkers is very significant. Even when calling
at a port with low prices, the buyer has to consider the possibility that putting on
a large quantity of fuel may restrict the amount of cargo he can carry on his next
laden voyage. The trade makes forward planning very difficult and quantity decisions
will frequently involve very large quantity ranges (where the operator is working two
potential voyages with very different bunker requirements).
Tankers and bulk carriers
• Cargo lifting port limitations
• Discharge port restrictions
35
• Time charter restrictions

Many tankers and bulkers are operated as tramp shipping rather than liner trades,
so many of the same points will apply. The larger vessels, Capesize, Suezmax and
VLCC, will have significant voyage lengths of some 20 to 40 days, so there is scope
for pre-planning. However, smaller tankers frequently have uncertainty over discharge
ports, often only resolved a day before arrival. This means that bunker nominations
may be at very short notice. Many vessels in this group are on time charter, which
means that the buyer is constrained by the charter party bunkering clause and cannot
easily get permission to vary the quality required, even when it is not available in
the port the vessel is going to. The vessels in this group will frequently be affected
by restrictions on bunkering due to the nature of their cargo or the regulations of the
bunkering port. This group is the largest user of bunker-only ports (Gibraltar, Fujairah,
Singapore, etc.).
Large fleet or group
• Geographically widespread
• Several trades
• Bunker purchasing department
• Purchasing power
Large shipping groups will usually have a dedicated purchasing unit that will either be
integrated with their general procurement function or with the operations department.
In some cases, the purchasing may be split between different operational offices,
while in others it will be centralised. The buyers for large groups usually have a lot of
experience in the market and a good understanding of the trades and ports where they
are active. The style of buying is influenced by the rigidity of their internal procedures,
the degree of authority of the individual buyers and the level of involvement in
the trading of the vessels. The volume of business means that they should have
reasonable credit coverage and they will have significant purchasing power. This
does not make them immune to concerns over credit.
Small fleet
• Split responsibility
• Small purchasing power
• Limited market contact
Small fleets will seldom have the manpower to use a dedicated bunker buyer. The
function will often be just one of the tasks of their vessel operators and he will be
subject to many other demands on his time. The smaller the fleet, the less well known
they will be to the bunker supply market and they will probably not have many active
credit lines unless they operate on a very specific trade route. As their total volume
will be modest, this will make them less attractive as a customer to suppliers who are
targeting volume.
36
The buyer
Shipping pools
In some trades, especially with tankers, groups of owners can form a kind of joint
venture agreement to pool the availability of a number of ships of similar size and
type. This allows them as individual owners to spread the risk of market exposure
(as with a time charter out to another operator) whilst retaining some ability to get
advantage from fluctuations in the earning potential of the ship as the spot market
moves.
In these pools, the pool acts as a collective time charterer of all of the ships but
the costs and earnings are redistributed to the actual disponent owners. The pool
operator is paid a fee for managing the pool.
The pool operator will buy the bunkers in the name of the pool although the bunkers
will almost always be the property of the disponent owner. The pool will need to
establish credit lines, usually by means of parent company guarantees from the
owners of the ships.
Buying style
Different buyers approach the enquiry and the negotiation in different ways. The seller
needs to understand the way they work in their choice of enquiry channel (direct to
sellers, via a broker, using more than one broker or a mix of these), the amount of
planning of the enquiry (well in advance, five days prior delivery, last minute), the way
they respond to offers (feedback to all sellers offering, feedback only to preferred
sellers, feedback only to best prices), and the way they negotiate (always countering,
countering when prices from sellers are close, accepting lowest price). No single
solution is best for all enquiries and an intelligent buyer will adapt his style in order to
get the best result for each situation. Appreciating when a prompt reply will mean the
difference between getting the cooperation of a seller and the seller losing interest
in the business is as important as understanding when to be patient, watch market
movements and notice when a seller is quite keen on capturing a particular enquiry.
In organisations with rigid procurement procedures there is little scope for subtlety
but the buying can be done in a predictable and structured way. In organisations
with a dedicated bunker buying unit, the buyer can spend time and effort on
planning, watching the market and working the enquiry. There is a trade-off between
responsibility and ability and between authority and risk.
In-house broker
An owner may treat his buyer as an in-house broker. The function will sometimes
be self financing through ‘address’ commissions. The in-house broker will invoice
any seller (or external broker, if used) for a commission on each fixture. This is often
used when the buying company and its commercial staff are domiciled in different
countries and reflects a style of shipping which is becoming less common. Brokers
and sellers need to be aware of address commissions, and to make sure they have
been incorporated in any prices passed over to the buyer.
37
Trader
Many buyers may need to buy fuel from a seller other than the physical supplier in the
port. This may be for reasons of credit or payment terms, time difference or even of
language. In such situations the buyer for the ship is using a trader and the trader has
to act as a buyer for that trader’s account. In that situation the trader buys in the same
way as a time charter buyer but with the advantage that the trader does not ‘have’ to
buy the fuel – he can walk away unless he has already sold on to the ship’s buyer.
Buyer’s responsibilities
The buyer, once he has accepted an offer at an agreed price, has also accepted the
responsibility to comply with the various provisions of the contract such as (but not
limited to):
• Provision of notice of delivery to vessel
• Final local confirmation of quantities and grades
• Provision of safe berth or free side for the delivery
• Buyer’s vessel to make all connections and disconnections to vessel intake
• Advise seller of any deficiencies in buyer’s vessel
• To indemnify seller against claims caused by the buyer’s actions
• Provision of tax exemption declaration or proof of exemption
• Payment in full in accordance with agreed terms.
The operational aspects of the above would normally be dealt with by the staff of the
receiving vessel or the buyer’s agent in the port.
Buyer’s intermediary
Buyers often choose to have a broker to act as their intermediary or to use a trader.
The trader is not a true intermediary as he will effectively become the buyer for the
oil, although many traders do use a broker as their intermediary when they are buying
in a location where they have no local presence or particular expertise. The other
intermediary involved for the buyer is his agent in the port.
Agent
The ship’s agent is appointed by the disponent owner and acts as his representative
in almost all commercial and operational matters during the vessel’s stay in port.
If the vessel is voyage chartered out, it might be a condition of the charter that the
disponent owner uses the charterer’s nominated agent but it is still the disponent
owner who appoints the agent. The party who appoints them pays the agent an
agency fee and the fee varies with the amount of work performed. It is the job of
the agent to advise the deliverer of the vessel schedule in port and when bunkering
will be possible. The responsibilities are usually laid down in the seller’s terms and
conditions of sale. The requirements should be very straightforward but because of
38
The buyer
the routine unpredictability of ship operations there will always be scope for the agent
to use his skill and his relationships with the deliverers in order to minimise any costs
and risks for the owner.
Advice on the time that the bunkers are required is the most difficult area. The buyer
(for whom the ship and therefore the agent is the local representative) must advise
the seller not only the ETA but also the time the delivery is required in sufficient time
for the deliverer to schedule his barge or road tankers to arrive at the agreed delivery
location. If the fuel arrives before the vessel is ready to receive it, then the buyer
will have to compensate the deliverer for the delay. If the fuel arrives late, then the
buyer will have lost time on his own vessel. The agent will often be asked for the
time of delivery by the deliverer before he knows the exact schedule of the vessel.
He will often try to avoid stipulating a time until he is sure, but the notification has to
be made in sufficient time for the deliverer to make his schedule arrangements. This
is a frequent cause of friction between the two parties and needs to be managed
carefully.
Broker
A buyer may choose to use a broker. The broker brings three things to the table. He
will have good local knowledge of the market, the suppliers and the local conditions.
He will be able to take over some of the more mundane tasks of collating and checking
offers, comparing offers and giving feedback. He will have considerable experience in
negotiating, probably having had recent dealings with the local sellers and knowing
their style of negotiation.
A broker is in effect a facilitator. He is not part of the contractual agreement between
buyer and seller. The broker is normally paid a commission (the old expression was
fittage) at a flat rate per tonne of product; the commission is paid by the seller. The
broker will normally carry errors and omissions insurance and will normally be a
member of the International Bunker Industry Association (IBIA). Just as with finance
brokers, some will operate just as a deal by deal broker, working only on specific
enquiries. Others will be the equivalent of ‘full service’ brokers who provide reporting,
research, and advisory services.
The nature of the business is that brokers need to turn over a reasonable number of
deals with reasonable volume in order to make a living – the level of commissions
on bunker broking is considerably lower than the levels enjoyed by their ship broking
cousins. By comparison, ship brokers normally earn 1.25% of the freight, but bunker
brokers normally earn between $0.5 and $1.0 per mt, which is less than 0.2%. On
very small quantities, a bunker broker may be paid a lump sum commission of $100
or $200.
The following is a list of the advantages of using a broker, compiled by Cockett Marine
Oil Ltd.
For a ship operator:
• A ready-made and experienced bunker purchasing department
• Substantial savings in overheads, fuel costs and voyage costs
39
• Extensive worldwide professional contact with all bunker suppliers

• Negotiating skills
• Up-to-the-minute knowledge of prices and availability
• Knowledge of bunker oil technology
• An expert adviser and mediator on bunker disputes and claims
• Voyage bunker schedule planning
• Strategic long-term operational and chartering planning.
For a supplier:
• Introduction and convenient marketing channel to international shipowners,
operators and charterers
• Substantial savings in overheads and sales staff costs
• Knowledge of the credit status of bunker buyers
• A convenient and expert mediator in bunker disputes
• A deep fund of current international bunker market intelligence.
In addition to the above, a good broker expands the supplier coverage for the buyer,
introducing new suppliers and assisting in establishing credit lines. Bunker brokers
provide a degree of market exposure which smaller buyers would not be able to
achieve by direct contact with suppliers.
Remember that a broker is not a party to the contract, he does not take risk or title to
the product and his payment is commission from the seller. There is no free lunch – the
commission is built into the price the buyer is paying but the good broker gives a cost
advantage to the buyer that considerably outweighs the cost of the commission.
The broker has to maintain his knowledge and skills and, above all, his reputation. He
needs the trust and confidence of the buyers and sellers who use him.
In the 1980s, there were dozens of bunker brokers in each of the main shipping
centres worldwide, many of them being part of a shipbroker’s establishment. Because
of the difficulties in communicating worldwide outside normal office hours, the brokers
established a network of co-brokers with bunker brokers in other centres. These would
collaborate on enquiries, with one broker dealing with the buyer in location A and the
other broker dealing with the suppliers in location B. The seller’s commission would
be split between the two brokers.
As the world shrank with the appearance of relatively cheap international telephone
calls, mobile phones and email, the co-broking networks have almost disappeared.
In addition, with competition, relatively low rates of commission and the buyer’s
demand for more and better information, the number of bunker brokers has shrunk.
There are very few companies now who act only as bunker brokers; the shipbroker’s
bunker departments have virtually all gone and many of the independent bunker
brokers became bunker broker/traders, fulfilling both functions. There is an issue
40
The buyer
over transparency. Some believe that it is difficult for a broker/trader to maintain his
‘neutrality’ as a mediator in disputes if he is also a direct buying client (as a trader)
with the seller in the dispute.
41
42
The seller
Chapter 5 - The seller
The seller is the one who takes the financial risk. He has to acquire the product, find
.
a client, arrange the delivery and collect the funds. The seller may be a refiner who
produces and blends the product, selling directly to ships. He may be an importer,
importing the fuel and blendstocks, blending the product and selling direct to ships. Or
he may be a blender who takes a position on residual fuel already stored in common
storage and on blend stock which is either from common storage or from his own
storage. He blends per enquiry, selling directly into ships or to a trader, buying from
one of the two above and selling on immediately to the ships. The seller will always
have a risk that the product he is selling may not meet the specification he has agreed
in his sales contract. The seller will also have a risk that the buyer may not pay the
invoice (or may short pay) unless the deal is cash in advance. Each type of seller has
a different business model and a different attitude to risk and opportunity.
Supplier
The refiner
The refiner will be buying crude oil to process and then selling the refined products.
The products he produces will range from high value gasses and light distillates to the
‘low’ value residue. The refiner needs to sell the residue in order to be able to continue
refining and producing his high value products. This makes the fuel oil a distress sale
for him.
The maintenance of a credit system for marine fuel buyers will be seen as a
complication. For that reason, refiners tend to restrict the number of open credit lines
and will favour the large enquiries from well-known buyers.
The importer
The importer will know how much fuel he wants to sell and will import and blend
accordingly. He will have a wide spread of credit lines and his business model will
work with all but the smallest stem sizes. If he has regular imports there will be times
when he needs to make space (ullage) in his storage for an incoming cargo which will
cause him to be aggressive in chasing business.
The blender
The blender, like the importer, knows how much he wants to sell and will arrange his
business around that. As he is not importing directly, he avoids the ‘ullage’ problem.
If he has the opportunity to get a particularly economic blend stock, he may increase
his uptake of residue from common storage to take advantage of this. His attitude to
credit is like that of the importer, with more credit lines but often with shorter payment
terms.
43
Trader
The trader may be a ‘physical’ trader taking short-term positions on product already
blended or may be just operating with back-to-back deals. Alternatively, he may just
be a ‘credit’ trader, standing in to cover the credit required between supplier and
buyer. Whatever his stance, he will have two contracts; one with the supplier to buy
the oil and another with the buyer to supply the oil.
The physical trader
The physical trader gets involved with the deal, often anticipating a requirement and
taking a position on a quantity of product with a limited delivery date range from
an established importer or blender. He takes ownership of the product before the
delivery and his link to the physical oil means that he may be under pressure to sell
some of the oil aggressively to fulfil his obligation and avoid storage charges. He will
have a large credit library with a sophisticated credit management system.
The credit trader
The credit trader relies on his knowledge of the buyer to make his margin (the profit
on the deal). He will work each enquiry just like a disponent owner but has much more
financial power than most buyers and has the possibility of walking away if he does
not like aspects of the deal, as long as he walks before the nomination is made. The
credit trader usually takes title to the oil as it goes on to the receiving ship, the title
resting with the physical supplier until that point. The deals are called back-to-back
deals as, in theory, every aspect of the supplier’s contract (except the price) with
the trader is mirrored in the trader’s contract with the buyer. In practice, the match is
never quite perfect, giving some small additional risk to the trader.
Seller’s responsibilities
The seller must meet his contractual obligations with regard to delivery, quality
invoicing and compliance with regulations. He has very specific responsibilities if he
is a registered supplier in a port that is in a state which is a signatory to MARPOL
Annex VI and Safety of Life at Sea (SOLAS). He may have additional responsibilities
with regard to local port regulations but these will usually be on operational rather
than commercial issues in most ports. There are exceptions, one of these being
Singapore where the local regulations have some impact on the commercial aspects
of the contract.
Seller’s intermediary
Sellers, especially traders, may choose to use a local agent to act for them in some
ports. In ports where they have limited local representation, they may use a broker
to assist them as an intermediary in their deal between themselves as buyer and
the supplier providing the product and the delivery. The broker’s input in this case is
exactly the same as it would be for any buyer for whom the broker is acting.
44
Terms and Conditions
Chapter 6 - Terms and Conditions
All sellers and suppliers will have a document generally referred to as ‘Terms and
Conditions’ of sale (T&Cs). These can be called ‘General conditions of sale’, ‘Terms
of sale’, ‘General terms and conditions’ or any similar permutation. They are designed
to minimise the risk and liability of the seller for acts or occurrences which he feels
are outside his control and to set down the definitions, responsibilities and obligations
of all parties involved. The document can be from one to 10 pages long and the
language will usually be very precise.
A seller will be very reluctant to waive or modify his terms as they will have been
carefully written by his legal advisors. Changes would need to be approved by them
in order to ensure that the proposed changes only affected the particular aspect of the
conditions under discussion and did not impact any other part of the document.
Most sets of terms and conditions follow a set pattern with separate headings denoting
the subject of each set of clauses. The following examples are illustrative only and are
not intended to reflect the current terms of the companies shown.
Example: Shell Marine Products
1 Definitions
2 Third party ports
3 Charges
4 Invoices
5 Payment
6 Credit
7 Delivery and HSE requirements
8 Documents
9 Risk and title
10 Quality
11 Measurements
12 Restrictions
13 Indemnity / liability
14 Agents
15 Termination
16 Exceptions
17 New and changed regulations
18 Notices
19 Waiver
20 Severability
21 Succession
22 Language
23 No partnership
24 Information
25 Contract (rights of third parties)
26 Confidentiality
27 Amendments
28 Governing law and jurisdiction
45
Other examples may not have exactly the same headings but will have similar
contents.
It is not the place of this book to examine terms and conditions in great detail or to
discuss them in anything other than the most general way. The remarks here should
be taken as those of a layman rather than a legal practitioner.
The attitude to contract terms varies, especially in the way they are viewed by different
cultures. I was once told that in the Western Hemisphere the contract is negotiated
only superficially, then forgotten until something goes wrong, at which point it is
scrutinised in great detail in order to assign blame. In the East, however, the contract
is negotiated in very great detail covering all eventualities. When a deal turns sour,
the contract is almost ignored, as ‘it obviously was not good enough to prevent the
problem’. This is clearly no longer the case, but there is an element of truth in the
remarks.
The terms applicable will normally be the seller’s general terms. However, buyers
should note that some traders would use the supplier’s terms of sale in place of
their own. Some buyers have been able to get their own terms accepted by certain
suppliers, either on a general basis or just for a particular port, but this is very much
the exception.
The Baltic and International Maritime Council (BIMCO), which is a shipowners’ body,
introduced a set of model terms some years ago called Fuelcon. This is discussed
later in this chapter.
Sellers maintain that they need the protection of their terms to ensure they are not
left exposed, as they are offering product, generally on an unsecured basis with 30-
day terms. Their terms are their security. If the buyer does need a particular clause
adjusted, this will depend on whether the sales staff have the authority to change the
terms. In many cases the seller may be required to sell only against his terms in order
to have valid cover from his credit insurer.
Specific clauses found in some terms and conditions:
Prices
Example: Lukoil Neva LLC
a) Unless a different price is agreed in writing by

the Seller, the price of Marine Fuel delivered hereunder
shall be the selling price established by the Seller
and effective for the time and place of delivery by
the Seller for the grade of Marine Fuel delivered. The
Buyer shall be liable for all costs, expenses and/
or charges incurred by the Seller on account of the
Buyer’s failure, breach and/or non-compliance with his
obligations under any agreed Nomination as set out in
Clause 5 herein.
46
The Buyer shall also pay all applicable duties, taxes,

fees and other costs including, without limitation,
those imposed by government and authorities, and barging
and other delivery charges, all of which shall be
included in the Seller’s invoices to the Buyer.
Prices quoted as ‘delivered’ comprise the ex-wharf price
and delivery charges only.
(b) The Buyer shall begin to take delivery within 4
(four) days’ range commencing three days after the
earliest estimated lifting date notified by the Buyer
to the Seller and confirmed by the Seller in writing on
conclusion of the contract.
(c) If after the contract is concluded, the Buyer
begins to take delivery, or requires delivery to begin,
outside the said 4 days’ range in sub-section (b), the
Seller shall be entitled to amend its quoted price to
take account of prevailing market prices. This right
is without prejudice to any claim the Seller may have
against the Buyer for damages for failing to take
delivery within the 4 days’ period.
Example: Singapore Petroleum Company Ltd
9. PRICE
The price of Marine Fuel delivered shall be as agreed
in the Contract of Sale. BUYER shall pay for any and
all applicable duties, Goods and Services Tax, taxes,
fees, costs (including those imposed by government
authorities), wharfage dues, barging/jetty fees,
delivery charges and such other costs and expenses
arising from the delivery which shall be included in
SELLER’s invoice to BUYER.
Note the seller’s right to adjust the price if vessel
delivery date is outside the agreed range. Also note
the seller’s right to charge for all other taxes, dues,
levies and charges from delivery.
Other seller’s clauses may also reserve the right to
adjust prices if the price of the source fuel changes
(giving the right for buyer to withdraw) or give the
seller the right to withdraw if price controls are
imposed by the local authorities.
47
Specifications
Example: ExxonMobil Marine Fuels
The Marine Fuel Oils to be sold shall be the grades

of Bunker Fuel Oil, Intermediate Bunker Fuel Oils,
Marine Diesel Oil and/or Marine Gas Oil (collectively
‘Marine Fuel’) offered at the time and place of delivery
by Seller or other Supplying/Delivering Company
(‘Supplier’) referred to in Section 3. Buyer shall have
sole responsibility for selection and acceptance of
Marine Fuel, including determination of compatibility
with Marine Fuel already on board the vessel, for use in
the vessel to which it is delivered. Buyer may inspect
the Marine Fuel before it is pumped out of Supplier’s
shore tank or barge. Unless otherwise indicated to
Buyer in writing by Seller or Supplier, any information
provided to Buyer regarding the characteristics of
Marine Fuel at any delivery location shall not be
construed as specifications of the Marine Fuel to be
delivered hereunder, but only as indications of the
characteristics of the Marine Fuel available at that
location from time to time. THERE ARE NO GUARANTEES OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE SATISFACTORY
QUALITY, MERCHANTABILITY, FITNESS OR SUITABILITY OF THE
MARINE FUEL FOR ANY PARTICULAR PURPOSE OR OTHERWISE,
WHICH EXTEND BEYOND THE DESCRIPTION IN THIS SECTION.
There is rarely any more commitment other than that above. Some suppliers’ terms
do state that the fuel will be in accordance with ISO 8217, but that is quite rare.
Quality
Example: ExxonMobil Marine Fuels
a) The quality and quantity of Marine Fuels nominated

to be delivered are those stated in the Sale Contract.
The tonnage requested by the Vessel shall not fall short
or exceed by more than 10 pct the tonnage so stated
without the prior agreement of Seller. The Seller shall
measure the quantity and take samples of the Marine
Fuels delivered. The Seller shall take three samples
in accordance with his normal sampling procedures at
the port in question. Two samples shall be retained
by the Seller and one sample shall be passed to the
Buyer (or his representative) for his retention.
The Buyer (or his representative) may witness such
measurement and sampling. The Seller’s measurements
of volume and calculations of quantity shall, subject
to the provisions of sub-clause (b), be conclusive of
the volume and quantity of Marine Fuels delivered. The
results of the analysis of the Seller’s samples shall be
conclusive of the quality of the Marine Fuels delivered.
48
(b) The Buyer shall not be entitled to complain of an

incorrect measurement of the volume of Marine Fuels
delivered unless the Buyer or his representative has
witnessed such measurement and has made the complaint in
writing at the time of delivery.
(c) The Seller shall not be liable for any defects in
the quality of Marine Fuels unless the Seller receives
notice in writing of a complaint within 14 days of
delivery and receives full details of the claim with
supporting evidence within 30 days of delivery. Anything
herein contained to the contrary notwithstanding,
Seller’s obligation to make any delivery hereunder is
subject to the availability to Seller or Supplier at the
port at which delivery is requested, of the particular
grade of Marine Fuel requested by Buyer.
In the example clause above, reference is made to both quality and quantity. Note
that the initial notice of a quality claim must be advised within 14 days, even though
the buyer has 30 days to provide the full claim in writing.
Measurements
Example: O.W. Bunker & Trading AS
(c) The Seller shall measure the quantity of the Marine

Fuels delivered and the Buyer (or its representative)
may witness such measurement. The Seller’s measurements
of volume and calculations of quantity shall, subject to
the provisions of sub-section (d), be conclusive of the
volume and quantity of Marine Fuels delivered.
(d) The Buyer shall not be entitled to complain of an
incorrect measurement of the volume of Marine Fuels
delivered unless the Buyer or its representative has
witnessed such measurement and has made the complaint in
writing at the time of delivery.
Some clauses provide more detail on measurement methods
but all stipulate seller’s measurements and seller’s
choice of location and method of measurement.
49
Sampling
Example: BP Marine Ltd
(a) The Seller shall take three samples of the Marine

Fuels delivered and the Buyer (or its representative)
may witness such sampling.
The Seller shall provide the Buyer (or his
representative) with a sealed sample of the fuel
supplied, such that in the event of a dispute relating
to fuel quality the Buyer can send this sample to an
independent fuel analysis company. The Seller shall
seal all the samples taken by the Seller and record the
seal numbers on the delivery receipt note. The Seller’s
samples will be taken in accordance with one of the
following procedures:
(i) MARPOL Regulations
(ii) Statement of equivalence for sampling of Fuel Oil:
Special Circumstances, or equivalent, issued by the
regulatory authority responsible for MARPOL.
(iii) Normal sampling procedures where no MARPOL
regulations apply at the port in question.
The results of the analysis of a sample taken by the
Seller with the Seller’s seal number recorded on the
bunker delivery receipt note shall be conclusive of the
quality of the Marine Fuel delivered.
(b) When the Buyer (or its representative) or the Master
of the vessel requests that sampling is carried out in
accordance with the MARPOL requirements and the Seller
confirms it is safe to do so, the Seller reserves the
right to appoint an independent surveyor to take such
samples. The costs incurred by the Seller for this
service and any consequential costs will be charged to
the Buyer. In making such arrangements, no liability for
delaying the vessels will be accepted by the Seller.
Many clauses contain much less detail and many suppliers confine their number
of samples to two – one for the seller, one for the ship. The reference above to a
statement of equivalence is a mechanism agreed between suppliers and port
authorities to permit submission of a valid MARPOL sample without that sample being
taken at the vessel’s bunkering manifold (as laid down in the sampling guidelines of
the appendix to MARPOL Annex VI).
50
Delivery
Example: O.W. Bunker & Trading AS
G.1 The time of delivery, as given by the Seller, has

been given as an approximate time, unless it has been
otherwise specifically agreed in writing between the
parties.
G.2 The time of delivery will only be binding upon the
Seller when all information necessary for the Seller to
comply with its obligations hereunder have been properly
delivered to the Seller in reasonable time before the
delivery.
G.3 In any case the Buyer, unless otherwise agreed in
writing, must give not less than 72 (seventy two) hours
approximate notice of delivery, which is to be followed
by 48 (forty eight) hours and 24 (twenty four) hours
notice, where the last notice must specify the exact
place of delivery. The notices of delivery must be given
to Sellers and/or the Seller’s representatives/agents.
G.4 The Seller shall be entitled to deliver the Bunkers
in special part deliveries, in which case each part
delivery shall be construed as a separate delivery.
G.5 The Seller shall not be required to deliver any
bunkers for export if any government permit required has
not been obtained in due time before the delivery.
G.6 If the Seller at any time for any reason believes
that there may be a shortage of supply at any place and
that it as a result thereof may be unable to meet the
demands of all its customers, the Seller may allocate
its available and anticipated supply among its customers
in such a manner as it may determine most reasonable in
its sole discretion.
G.7 The Vessel in question shall be bunkered as promptly
as the circumstances permit. The Seller shall not be
liable for any demurrage paid or incurred by the Buyer
or for any loss, damage or delay of the Vessel of any
nature whatsoever due to congestion at the loading
terminal, prior commitments of available barges or tank
trucks or any other reason.
G.8 The Buyer shall ensure that the Vessel provides a
free, safe and always afloat and accessible side for the
delivery of bunkers and that all necessary assistance as
required by the Seller or the Seller’s representative is
rendered in connection with the delivery.
51
G.9 The receiving Vessel shall moor, unmoor, hoist

bunkering hose(s) from the barge(s) and respectively
lower hose(s) whenever required by the Seller or the
Seller’s representative, free of expenses, and in any
way requested to assist barge equipment to a smooth
supply. The Buyer shall make and be responsible for all
connections and disconnections between the delivery
hose(s) and the Vessel’s bunker intake manifold/pipe
and ensure that the hose(s) are properly secured to the
Vessel’s manifold prior to commencement of delivery.
During bunkering the Vessel’s scuppers must be safely
blocked, which blocking must be made by the Vessel’s own
crew. Furthermore the Vessel must ensure that all pipes
and manifolds and receiving tanks are completely checked
and being ready to receive the bunkers, including but
not limited to ensuring proper opening/closing of
relevant valves, without any risk for spillages, etc.,
during the bunkering. Local further special requirements
for receiving bunkers must be followed strictly by the
receiving Vessel, whether advised or not by the Seller
or the Seller’s representative, as it is always the
Vessel and the Buyer who remains solely responsible for
the awareness of such eventual additional requirements
for safety reasons.
G.10 In the case that the Buyer’s Vessel is not able
to receive the delivery promptly, the Buyer shall pay
reasonable demurrage claim to the barging/supplying
facilities.
G.11 Delivery shall be deemed completed and all risk,
including loss damage, deterioration, depreciation,
evaporation, or shrinkage as to the Bunkers delivered,
shall pass to the Buyer from the time the Bunkers
reaches the flange connecting pipe lines/delivery hoses
provided by the Seller.
G.12 If the Buyer for whatever reason is unable to
receive the full quantity ordered and rendered, the
Seller shall have the right to invoice the Buyer for the
loss incurred by having to transport the Bunkers back
to the storage or by having to sell the bunkers in a
degraded form at a lower price than that applicable to
the grade originally nominated by the Buyer. The Seller
may use this right without prejudice to the Seller’s
other rights for damages or otherwise pursuant to these
terms.
G.13 If possible, the Vessel shall provide segregated
tankage to receive the contracted quantity of bunkers;
and the Vessel shall always be able to perform its own
blending on board.
G.14 If delivery is required outside normal business
hours or on local weekends, Saturday, Sunday or national
Christian holidays, the extra expenses incidental to
such delivery shall be reimbursed by the Buyer as
additional costs.
52
This example covers the physical delivery in some detail. Many others limit themselves
to detailing the notice periods, provision of assistance from the vessel and liability for
delays.
Title and risk

Example: Chevron USA Inc.
a) Delivery shall be deemed completed and title to and

risk of loss of Marine Fuels shall pass to Buyer at the
permanent intake connection between Seller’s loading
hose and the Vessel.
(b) If delivery is made to barge, truck or coastal
tanker nominated by Buyer (hereinafter ‘Buyer’s delivery
vessel’), delivery shall be deemed completed and title
to and risk of loss of the Marine Fuels shall pass
to Buyer at the last flange of Seller’s or Seller’s
supplier’s loading hose at the loading terminal.
(c) Buyer shall be responsible for connection of the
loading hose to the intake of the Vessel or Buyer’s
delivery vessel and pumping shall be performed under the
direction of Buyer’s representative.
Example: Akron Trade & Transport
A. Risk in the Marine Fuels shall pass to Buyer once

the Marine Fuels have reached the flange connecting the
delivery facilities provided by Seller or Supplying
Company with the receiving facilities provided by
Buyer. Buyer’s risk includes, but is not limited to,
loss, damage, deterioration, contamination, evaporation
and responsibility for loss, damage and harm caused by
pollution or in any other manner to third parties.
B. Title to the Marine Fuels shall pass to the Buyers
upon payment in full for the Marine Fuels delivered,
pursuant to the terms of Clause 3 herein. In the event
that Buyers fail to pay and the Marine Fuels have
been commingled with other bunkers, the property of
the Buyer on board the Vessel, the product thereof
shall become and/or shall be deemed to be the sole
and exclusive property of the Seller. If the Marine
Fuels are commingled with other bunkers or product the
property of any third party, the product thereof shall
become and/or shall be deemed to be owned in common
with such third party. Buyer shall indemnify and hold
Seller and its supplier harmless from any and all
losses, damage, demands, claims, suits or liability for
damage to property for injury or death caused to any
person arising out of or connected with an action or
omission on Buyer’s part, their officers, crew, servants
or third parties acting on their behalf in receiving,
using, storing or transporting marine fuels delivered
hereunder.
53
There are two main positions taken on this:

1) Risk and title pass at the point of delivery
2) Risk passes at point of delivery, title on full payment for the product.
The oil majors tend to favour Option 1 and independents and traders, Option 2.
Option 1 gives the seller some comfort that the oil is still his until he has the money,
but there are numerous cases to show that this is not always so. In any case, the
point only becomes relevant if the buyer defaults and the buyer is someone other
than the owner of the ship. The danger with Option 2 is that if the oil is spilled after
delivery and before payment, there is an exposure for the seller under some strict
liability legislation.
Payment
A. Payment shall be made by Buyer as directed by Seller.

Invoices will be based upon telegraphic advice of
delivery details in lieu of delivery documents. Delivery
documents may be provided to Buyer at his request but
payment shall not be conditional upon Buyer’s receipt of
such documents.
B. Payment shall be made by Buyer in full, without set-
off, counterclaim, deduction and/or discount, free of
bank charges in the manner and at the place as directed
by Seller. Buyer shall not make any deduction for
claims relating to quantity, quality or service and
payment in full shall be a pre-requisite for any review/
negotiation / settlement of such claims. Seller may
immediately recover any amount withheld from the full
payment and Buyer agrees that any claims related to the
delivery of Marine Fuels shall not constitute a valid
defence against Seller’s claim to the withheld amount.
C. Unless otherwise agreed, prices shall be deemed to
be nett in US dollars. All applicable taxes, levies,
duties, tolls, fees, import charges and other costs
including those imposed by governments and local
authorities shall be for Buyer’s account and will not
ordinarily be included in the price quoted.
D. Should Marine Fuels be ordered by Agent, then such
Agent, as well as the Principal, shall be bound by, and
liable for, all obligations as fully and as completely
as if the Agent were himself the Principal, whether such
Principal be disclosed or undisclosed, and whether or
not such Agent purports to contract as Agent only. Both
Principal and Agent shall be considered Buyer for the
purposes of this Agreement.
54
E. Deliveries of Marine Fuels hereunder, if sold on

a credit basis, are delivered not only on the credit
of the Buyer, but also on the credit of the receiving
Vessel and the amount due shall become a maritime lien
against the Vessel immediately upon each delivery. Until
payment has been received in full, the Seller has a
right of lien over the Marine Fuels delivered.
F. Overdue payments shall bear interest at the rate of
1.5 per cent per month or any part thereof.
The purpose here is to bind the buyer to pay in full and on time, irrespective of any
claims or disputes – the mantra is ‘Pay then claim’. It also sets out the penalty for late
payment.
Claims
Example: Chemoil Energy Ltd
Any claim by Buyer as to shortage in quantity must

be noted on the marine fuel delivery receipt signed
by Master or Chief Engineer at time of delivery. Any
claim by Buyer with respect to deficiency in quality of
marine fuels delivered by Seller, or claim by Buyer that
Seller delivered improper or the wrong kind of marine
fuels, must be made as soon as possible, and in no event
more than 30 days from date of delivery to the Buyer’s
vessel. On making claim, Buyer shall furnish to Seller a
sample of the marine fuel delivered by Chemoil as well
as all necessary information, including all analysis
made by Buyer and/or vessel interests of the product, as
shall be required by Seller to satisfactorily evaluate
the claim. Buyer shall immediately give Seller all
reasonable opportunity to inspect the vessel, including,
without limitation, its engines, fuel tanks, equipment,
logs, records and copies of communications, including
communications between vessel and Buyer (and/or between
vessel and owner or operator) as well as communications
to and from fuel testing organisations consulted by
Buyer or vessel interests. If these conditions are not
met within said 30 day period, Buyer shall be time-
barred from making claim. See further Article 9(e).
Seller shall not be responsible for any claim arising
from the commingling of marine fuel delivered by Seller
with other fuel or substances aboard Buyer’s vessel or
aboard the fuel barge. Claim of any nature does not
relieve Buyer of responsibility to all amounts billed by
Seller as provided in Articles 1 and 8.
The key point here is setting out the maximum time limit for lodging full details of a
claim after which time further action is barred (the so-called time bar).
55
Limitation of claim amount

Example: Sumitomo Corporation
53. In the case of any breach by the Contracting Company

of its obligation hereof, its total liability shall in
any event be limited to the price of the Marine Fuel
delivered under the Bunkering Commitment.
In addition, the Contracting Company shall have no
liability to the Buyer for any incidental, consequential
or special damages of whatsoever kind (including but not
limited loss of profit) arising from such breach by the
Contracting Company.
Even if the buyer’s vessel sustains $1,000,000 damage caused by the fuel, if the
invoice was only $100,000, then that is the limit on the claim. Such limitations have
been upheld at arbitration but only in confidential awards. There may be other routes
to recover more.
Liability
Example: Singapore Petroleum Company Ltd
13.1 BUYER shall indemnify and hold harmless SELLER or

its supplier from any and all claims, costs, damages and
liabilities, fines, penalties including injury, loss,
damage caused to persons or property arising out of or
in connection with any breach of the contract of sale,
or from any act, omission, negligence or misconduct by
BUYER.
13.2 Notwithstanding anything contained herein, SELLER
shall not be liable to BUYER for consequential, special
or economic loss or damage including loss of profit or
business, demurrage, loss of time or hire, cost of
overheads thrown away, costs of substituted vessel,
physical loss or damage (in whole or in part) of or to
vessel or cargo due to delay or by reason of shutdown,
non-availability of supply of Marine Fuel, non-operation
or the like.
13.3 Any loss of, or damage to, Marine Fuel or to
property of SELLER or its supplier or any other party
caused by BUYER’s designated vessel shall as between
parties hereto, be borne by BUYER and BUYER shall to
such extent indemnify SELLER or its supplier for the
same.
56
Example: Chemoil Energy Ltd
Seller is not liable for supplying defective or improper

marine fuel, or marine fuel other than as ordered by
Buyer, unless the same is directly and solely caused
by the negligence of Seller’s own employees, which
negligence must be affirmatively proved.
The purpose of these clauses is to ensure that the seller is held harmless from any
claims made against the buyer or his vessel by a third party and that the buyer has
no claim against the seller for losses he (the buyer) suffers as a consequence of the
seller’s actions (e.g. missed business though a delay to the vessel).
Force majeure
Example: Cepsa Marine Fuels S.A.
None of the parties will be responsible in the event of

breach or defective fulfilment of any of the terms of
same when this is due to causes of Force Majeure.
For the purposes of these General Terms of Sale,
Force Majeure is understood as all foreseeable or
unforeseeable events that, being beyond the control
of the parties, could not be avoided by these by use
of reasonable means, that have a direct effect on its
execution, preventing or hindering, beyond what is
reasonable, the fulfilment of the obligations arising
from these General Terms of Sale. This item expressly
excludes the payment obligations of the ‘BUYER’ with
regard to the ‘MARINE FUEL’ supplied.
The party that, due to this reason, is prevented from
performing the Contract, shall inform the other party
without delay and will take all measures reasonably
available to it to eliminate the cause of hindrance, or
to palliate its effects on the Contract, it being duly
understood that it will re-establish fulfilment of the
Contract as soon as possible after elimination of that
cause. If the situation persists for more than one (1)
month, the party not affected by the Force Majeure may
decide to terminate this Contract.
Under no circumstance will Force Majeure cause
obligations to pay money to be waived. Moreover, in the
event of Force Majeure preventing or suspending the
supply for a term exceeding 15 days, ‘THE SELLER’ may
terminate the Sale.
57
To these ends, Force Majeure is understood (without

this being limiting) as all causes of such like: (1)
War, hostilities, blockades, riots, civil uprising,
strike, lockout, labour or employment litigation,
epidemics, fire, flooding, ice, hazards of the sea,
other eventualities caused by nature, (2) prohibition
to import, export or on transit, or other executive or
legislative action by any government in the country
of origin, or within the territory to which it or its
raw materials are to be supplied, (3) total or partial
failure of the means of supply, problems in transport
that affect the fuel that is to be supplied, or its
raw materials, outage in the supply of energy or other
causes or circumstances that aggravate any existing
difficulty at the time of the contract and that affect
the possibility of supplying the ‘MARINE FUEL’ ordered.
Cancellation
Example: Bunkers International Corporation
The BUYER shall be charged a minimum fee of $5000.00

for cancellation of delivery in addition to any and all
costs incurred by the SELLER.
Cancellation of bunker nomination should be advised to

Seller at least three (3) days before the ETA of Vessel.
Nevertheless Buyer shall support his cancellation for
bunker nomination with reasons that should be considered
by Seller as acceptable. If Seller is not satisfied
with Buyer’s justification for cancellation, the Seller
reserves the right to recover from Buyer all damages and
costs resulting from the cancellation.
58
Environmental protection
Example: Bunkers International Corporation
BUYER represents and warrants that the Vessel is

properly equipped, maintained and operated so as to
avoid the escape, spillage or discharge of oil (a
‘spill’) at the time of all deliveries of Marine Fuel
hereunder. If a spill does occur while Marine Fuel is
being delivered by the SELLER or its Supplier to the
BUYER and the Vessel, then BUYER shall promptly take
such action as is reasonably necessary to remove the
oil and mitigate the effects of such spill. However,
notwithstanding the cause of such spill, SELLER and/or
its Supplier is hereby authorized, at its/ their option,
to take such measures and incur such expenses (whether
by employing its own resources or by contracting with
others) as are reasonably necessary to remove the oil
and mitigate the effects of such spill. In the event
SELLER and/or its Supplier have exercised its/their
option to remove the oil and mitigate the effect of
such spill, BUYER agrees to cooperate and render such
assistance as is reasonably required by SELLER and/
or its Supplier. All expenses, damages, costs, fines and
penalties arising from a spill or any pollution caused
thereby shall by paid by the party that caused such
spill by a negligent act or omission. If both parties
have acted negligently, all such expenses, damages,
costs, fines and penalties shall be divided between the
parties in accordance with their respective degree of
negligence. BUYER shall furnish to the SELLER and/
or Supplier photocopies of all documents and any other
information concerning any spill, or a program for
the prevention thereof that is reasonably required
by the SELLER and/or its Supplier, or required by
any regulation application at the Supply Port on the
Delivery Date.
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Law and jurisdiction

This Agreement is governed by English Law. All disputes

arising out of or under this Agreement which cannot be
amicably resolved shall be referred to London Maritime
Arbitrators’ Association (LMAA) arbitration in London.
Unless the parties agree upon a sole arbitrator, one
arbitrator shall be appointed by each party. In the case
of an arbitration on documents, if the two arbitrators
so appointed are in agreement, their decision shall be
final. In all other cases the arbitrators so appointed
shall appoint a third arbitrator and the reference shall
be to the three-man tribunal thus constituted.
If either of the appointed arbitrators refuses to act
or is incapable of acting, the party who appointed him
shall appoint a new arbitrator in his place.
If one party fails to appoint an arbitrator, whether
originally or by way of substitution for two weeks after
the other party, having appointed his arbitrator, has
(by telex, fax or letter) called upon the defaulting
party to make the appointment, the president for the
time being of the LMAA shall, upon application of the
other party, appoint an arbitrator on behalf of the
defaulting party and that arbitrator shall have the like
powers to act in the reference and make an award (and,
if the case so requires, the like duty in relation to
the appointment of a third arbitrator) as if he had been
appointed in accordance with the terms of the Agreement.
Provided that the amount in dispute does not exceed
title sum or US$ 50,000 (or such other sum as the
parties may agree), any dispute shall be resolved in
accordance with the Small Claims Procedure of the London
Maritime Arbitrators’ Association.
Sellers will usually choose the law and jurisdiction to suit them, although in practice
it often becomes the first round in the legal contest of a dispute. It should be noted
that the choice of law (i.e. which legal system’s rules are applied) and the choice of
venue (jurisdiction) do not have to be the same. It is possible to hear a case in one
state following the laws and conventions of another, although in practice this is not
common. Where they have guidance on arbitration, it will normally be either London
or New York and held in accordance with the rules of the LMAA or the New York-
based Society of Maritime Arbitrators (SMA).
I have included below an example of a complete set of terms, BIMCO’s Fuelcon,
and a selection from B.A.S.T.A.R.D.S., a light-hearted education tool devised by UK
lawyer Trevor Harrison. Unfortunately, the latter is closer to everyday use than the
former.
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BIMCO Fuelcon
Fuelcon was produced by the documentary committee of BIMCO as a set of model
terms some years ago. It was intended as a template where buyer and seller could
negotiate individual clauses just as is done with standard charter party forms (NYPE,
ASBATANKVOY, Shellvoy, etc.). However, Fuelcon did not gain general acceptance
and it is currently seldom used. BIMCO replaced Fuelcon with the BIMCO Standard
Bunker Contract which was approved by IBIA. This has also failed to gain wide
acceptance. The terms are a genuine attempt to balance the rights of both buyer and
seller but, in general, sellers have been unwilling to contract to anything that they
believe increases the risk that they already have to carry.
61
62
63
64
Figure 13. BIMCO Standard Bunker Contract
B.A.S.T.A.R.D.S.
The following example clauses are a selection of those contained in a model set of
terms and is reproduced by kind permission of Trevor Harrison. They show how every
clause can be weighted in the interest of one party. The examples are fictional, even
though some people might feel that they have seen them in a genuine document!
65
The Bunkering Association’s Standard Terms and

Regulations for Delivery and Supply
INTRODUCTION
1.01 These are the terms under which we are prepared to
supply you with marine bunker fuels. They stitch you up
something rotten but, as you must be desperate to call
us, you clearly do not have much choice.
1.02 In the event of any conflict between these terms and
any terms agreed elsewhere, the terms most favourable to
us shall prevail.
2.06 Notice: Any notice from us to you may be given by
letter, telex, facsimile or, if urgent, by leaving a
message on your answering machine after you have left
for the day. Any important notice from you to us must
be executed by a director in duplicate before a notary
public and legalised at the nearest British Consulate
before despatch.
HEADINGS
3.01 The use of headings and explanatory notes is to
confuse you. They are not part of the Agreement unless
we think they will help our case.
FORCE MAJEURE
4.01 We shall not be liable for any failure to fulfil our
part of the Agreement if we come up with a good excuse
blaming someone else.
ASSIGNMENT
5.01 You shall not assign your interest in the Agreement
without our prior written approval. We may do as we
please.
DELIVERY
6.01 Allocation: If we believe that there may be a
shortage of Product we may allocate our stocks in any
manner we please. If you make a fuss you will get
nothing.
6.02 Barging: This can be tricky; therefore you are
responsible for everything even though you might know
nothing about the barge or its operators.
6.03 Connection: This is another tricky one so again
it is all down to you. You must guess the diameter of
the delivery hoses and the manifold connection details
(because we do not know what they are either). You are
responsible for ensuring that Product is delivered at a
safe rate and pressure even though pumping is controlled
by the barge, none of the barge’s crew speak your
language and the one left in the wheelhouse to supervise
operations will appear to be blind and deaf when you ask
him to reduce the pumping rate.
66
6.04 Risk: Because fuel oil is messy stuff, our

responsibility for Product shall cease and you shall
assume all risks and liabilities therefore, at the
earliest possible opportunity after Product leaves the
refinery (unless you are a very good customer in which
case we will amend this and any other provision any way
you like, sir).
6.05 Measurement: The quantity of Product delivered
hereunder shall be determined by a method totally
incomprehensible to you, and not really understood by us
either, other than it will always agree with our figures.
6.06 Specification: The Product to be delivered shall be
roughly as specified in the Confirmation Telex and shall
be of the lowest grade we think we can fob you off with.
Any reference to a published standard specification shall
be regarded as a long term objective only.
6.09 Delay: In the event that the Vessel’s arrival
at the Point of Delivery is delayed we shall use the
opportunity to increase the Price.
6.11 Environmental Protection: It’s all down to you,
friend. We are on very good terms with the local
authorities and their investigation of any incident will
quickly trace the source of any spillage to your vessel
and crew.
PAYMENT
8.01 In most cases, because you are probably a bit short
of the readies, special payment terms will already have
been agreed but in case they have been overlooked, the
following will apply:
1. Timely payment is of the essence of the Agreement.
This means it is really important for you to pay us on
time; important for you that is, not us. We are very
happy for you to pay late because then we will charge
you lots of interest.
2. Interest is calculated at an exorbitant rate on an
obscure basis that includes the curious provision that
there are only 360 days in a year. If we think we can
get away with it, we will compound interest at least
monthly.
3. Any money we receive from you will be applied in the
following order:
1. Paying off interest and other charges because
these are the most difficult to claim and prove if we
have to take legal action
2. A contribution to the Credit Department’s
holiday fund
3. Paying off outstanding principal sums
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4. A contribution to the Traders’ holiday fund

5. Paying off anything else we can come up with so as
to ensure that your account is never in credit
4. If at any time we think your finances are a bit more
wobbly than usual or we hear a rumour that you are
about to go belly-up, we can, without prior notice,
demand immediate payment of everything that you owe us
including the interest we would have expected to charge
you if you had paid 25 days late as usual.
CLAIMS, DISPUTES AND PRECAUTIONS
9.01 Time Limits: Because we are anxious to avoid
liability wherever possible, it is necessary to impose
rigid time limits on our receiving notice of claims from
Customers. You will speed up the claims process greatly
by ensuring that no notice of claim is given until the
relevant time limit has expired.
9.02 Sufficiency of Information: To enable us to look as
if we are investigating a claim, any notice you give
must contain sufficient information for us to identify
the relevant transactions, the nature of the complaint,
the loss or damage alleged and to assess whether you
are good for any future business. You must provide a
full response to all questions we put to you including
anything confidential or commercially sensitive.
WAIVER
10.01 The failure by any party to the Agreement to
enforce any right against any other party shall not
be construed as a waiver of that right or in any way
affect the validity of the Agreement unless it is to our
advantage, in which case it shall be binding.
INDEMNITY
11.01 You hereby indemnify us without limit in respect
of all damage or injury occurring to any person or
property regardless of who is really responsible.
LIABILITY
12.01 We shall not be liable to you for any loss
or damage whatsoever whether in contract, tort or
otherwise, including negligence, stupidity or crass
incompetence, on our part or on the part of our
servants, agents or subcontractors.
COMPENSATION
13.01 Notwithstanding the foregoing, in the event that
we are found to be liable to you, the total amount
payable by way of compensation shall not exceed the
cost of a Big Mac and Regular Fries, payable in local
currency.
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JURISDICTION
14.01 The Agreement is subject to the Law and
jurisdiction of the courts of England but we will get
you wherever you are.
Figure 14. B.A.S.T.A.R.D.S. terms and conditions
Courtesy of Trevor Harrison
Is it fair?
Some countries have laws that permit a claimant to pursue a seller if there is a
restrictive clause in the contract that is interpreted as unfair under consumer legislation
(UK Sale of Goods Act). The United Nations’ Convention of the Sale of Goods (CISG)
also permits buyers to avoid a contract if there is a fundamental breach by the seller.
Some sellers in countries that follow this convention often exclude these protections
explicitly in their terms.
Example: Nederlandse Organisatie Voor de Energiebranche
NOVE 15.1.
The laws of the Netherlands apply. Applicability of the
CISG is excluded
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70
Credit
Chapter 7 - Credit
Why?
The general custom and practice in bunker transactions for the last 50 years or
more has been that the seller has granted a buyer of good commercial standing
and reputation a period of credit allowing the invoice to be settled after the fuel has
been received. The ‘standard’ period was 30 days (usually after the delivery). There
were good logistical and commercial reasons for this. It took time to get the delivery
information and documents from the delivery location to the seller’s office; it took time
to raise the correct invoice; it took time for the buyer to check the invoice and for his
finance department to arrange for payment. And most significantly, the vessel needed
the bunkers to perform the voyage but the freight was only paid to the ship when the
cargo was discharged. The 30 day credit allowed the buyer time to schedule his cash
flow accordingly.
Until the 1970s, the bunker cost represented a modest proportion of the owner’s
overall costs but with the oil price shocks of the 1970s and 1980s the bunker bill
became the single most significant cost for the vessel and also put great strain on the
finances of the bunker sellers. As the oil majors cut back on their credit exposure, the
traders moved in to fill the gap, initially with conventional credit periods and then, in
the 1980s, providing extended terms of 45 or 60 days during the freight downturn of
that decade.
The most recent price escalation, when prices moved up towards $600 and $700 a
tonne, caused independent suppliers to reduce their standard terms to 21 days or
even 14 days to ease their own cash flow situation. Suppliers who have to buy their
product ex-terminal will have to pay within five days of lifting, so every day of credit
they grant to the buyer over that five days is a real cost to them.
days $/mt
Cost of credit 5 0.49
14 1.38
21 2.07
30 2.96
45 4.44
60 5.92
365 36.00
On basis of $450/ mt APR 8.00%
Figure 15. The cost of credit
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Cash flow
Cash flow is a significant issue for both buyers and sellers. In most sectors, buyers
need to buy the fuel for a voyage before they get the payment from their clients for
performing the voyage. For most ships that is a period of between 10 and 30 days. In
some dry bulk voyages it can be up to 60 days.
The buyer will have to manage his financial arrangements to cover the ‘gap’ between
the day he has to pay for the fuel and the day he receives his freight payment.
With a large and diverse fleet this should be quite manageable but for a very small
fleet – or one where each ship is in a ‘single ship company’ and the commercial
managers cannot move cash from one ship account to another ship account – this is
a considerable challenge.
The major cost for sellers is product acquisition – most of them have to buy their
product on a fully-secured basis with five-day terms. When bunker prices were $150 a
tonne, the value of a typical invoice was about $100,000 and the sellers were providing
credit on 30 days terms to most accounts. If a seller fixed two ships a day, that meant
a need for finance of about $5 million. With bunker price levels rising to about $450 a
tonne, a typical invoice rises to $300,000 and the same level of business now needs
finance of $15 million. The only way to reduce the finance requirement to the $5
million level is to reduce the customer credit terms to 14 days or to reduce the number
of deals done. If the seller’s competition is mostly maintaining 30-day terms it is very
difficult for him to offer on much reduced terms. If he reduces the number of deals
done that will impact on his costs as he loses the economies of scale.
Who is the real buyer?

Whilst at first sight the buying account seems unremarkable, all too often the seller can
find out that the buyer named in the transaction is not who he thought. The shipping
and chartering arm of Megalarge Oil Inc. is probably a separate commercial entity
to (let us say) Megalarge Charter Services S.A. Whilst Megalarge Oil Inc. is worth
billions of dollars, Megalarge Charter Services S.A. may have virtually no assets at
all. In addition, it is likely that Megalarge Oil Inc. will not give any parental guarantees
for their subsidiaries. It is only the fact that Megalarge Charter Services S.A. operates
150 ships and buys two million tonnes of fuel a year that keeps the sellers keen to
offer credit.
Many ships are owned by single ship companies and operated by an operating
company that acts as an ‘agent’ for the owners – often operating 50 or 100 ships in
this manner. For example, the market looks on the fleet as Panos Shipping, a huge
enterprise with plush offices. However, the accountants will point out that each vessel
is financially independent. So, if the ship Smiling Sun is owned by the Smiling Sun
Shipping Company and the bunkers are being bought by the owners even though
the buyer may be in the offices of Panos Shipping and answers the phone as Panos
Shipping, the debt will be to Smiling Sun Shipping Company.
Shipowners struggle with cash flow and finance all the time, especially when freight
markets are difficult. They will spend a lot of time talking to their bankers, reassuring
72
Credit
them with reports on fixtures and anticipated improvements in the market. The one
thing they don’t want to do is to tell their bankers that the next freight payment will be
four weeks late because of a delay at the discharge terminal AND they need a further
advance of $750,000 to pay a bunker bill. One way out of the dilemma on the bunker
bill is to get an extension from the bunker seller – 60 days credit instead of 30. It will
cost more money than the bank would charge but it is less ‘embarrassing’.
Credit security
Businessmen from outside the bunker industry are often amazed that suppliers are
willing to deliver to a ship upwards of $1,000,000 worth of product on an ‘unsecured’
basis to a counterparty who does not even have published accounts and whose
ownership can be ‘opaque’ to say the least. This is one of the reasons that so many
sellers retain title to the product until they have received payment in full. It is one
reason why sellers must be careful to get the full style of the buying account.
Letter of Credit
This is often abbreviated to L/C. This is a formal message from a financial institution
(usually a bank) which provides a guarantee that the funds are available to the seller
on the fulfilment of certain specific conditions. Once the conditions are met, the funds
will be released to the seller and the buyer has no power to stop the transfer (this is
a so-called irrevocable L/C). The specific conditions are set down in the International
Chamber of Commerce (ICC) Uniform Custom and Practice (UCP). This lays down
the procedures developed by the ICC since 1933 for the methods of handling an L/C
– the key documents involved being the clean bunker receipt confirming the delivery
of the product.
This procedure is also a feature of INCOTERMS, which are terms developed for
general international trade by the ICC. Buyers and sellers should be cautious when
using elements of INCOTERMS as they have very precise definitions that do not
always align with bunker transactions. The disadvantage of using an L/C is the cost
incurred, the additional administration and, for the buyer, the need to provide some
form of collateral or security for the bank issuing the Letter of Credit.
The cost to the buyer of an L/C varies from bank to bank and country to country but
will generally be between 0.2% and 1% of the total value of the invoice. There will
be some costs to the seller charged by the ‘reimbursing’ bank (the one who pays the
seller) and these will be in the order of $200. The seller will usually build this in to the
quoted price.
It is vital that both parties understand that errors in documentation (in the L/C itself, in
the invoice, in the delivery receipt) can delay or frustrate the payment.
Revolving Letter of Credit

This is an L/C that extends over more than one transaction (same buyer, same seller).
This allows trading to continue with a number of deals done over an agreed period
of time – say one year – without the need for a new letter for each deal. The cost
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structure is similar to that of a normal L/C. The remarks above on documentation for
an L/C apply just the same to this type of document.
Bank guarantee
A bank guarantee is a commitment by a bank to make funds available to one party
of a contract in case the counterparty fails to perform; it is a form of insurance. It is
similar in structure to an L/C in that there must be documentary evidence that there
was an agreed contract and that the party presenting the guarantee to the bank has
fulfilled its side of the contract. In the United States this is called a Standby Letter
of Credit as US banks, by law, cannot give a ‘guarantee’ on third party business.
Typically, bank guarantees cost between 1% and 1.5% of the total value, although
the cost of opening a standby L/C is normally 0.15% of the amount with an additional
charge of 0.1% per month.
Parent company guarantee

This is a document where the parent company undertakes to guarantee the
obligations of its subsidiaries. This is used where a subsidiary has limited assets, as
it allows the subsidiary to establish credit lines based on the financial strength of the
parent company. Some very large companies are not willing to give parent company
guarantees as this may expose their business and assets to risk in the courts or from
fiscal authorities. Such companies are usually willing to issue a Letter of Comfort.
The Letter of Comfort in no way guarantees the payment of monies owed for the
subsidiary company. It merely gives reassurance to the seller granting credit that the
parent company is aware of and approves of the situation.
Credit reporting
When assessing a buyer for credit purposes, sellers will often use reports issued by
credit reporting agencies, the shipping equivalents of Standard and Poor’s or Dun and
Bradstreet. The marine industry reporting agencies include Lloyds List Intelligence
(formerly Lloyd’s MIU), Infospectrum, Dynamar, and Ocean Intelligence, etc. Their
analysts compile company profiles from a number of sources and each maintains
a comprehensive library of credit reports that can be downloaded electronically (for
a fee). The report will assess the financial strength and performance of the subject
company, its record in payments and some form of indication of risk and suggested
limits for credit. Each provider has its own methods and systems. It must not be
forgotten that the key to being able to pay bunker bills (and other bills) on time is
steady business and a stable cash flow. When freight markets dive because of
reduced demand or too many ships chasing too few cargoes, that is the time when a
buyer’s cash control and cash reserves make the difference between riding out the
storm and going under. It is the job of the seller’s credit manager, using the reports
from credit agencies as one of his tools, to ensure that the seller is not left exposed
to bad debts.
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Credit
Credit insurance
There are specialist insurers who will insure a seller’s risk of non-payment by a client.
The amount of cover, the specific terms of cover and the cost vary from provider
to provider but in general the insurer will usually insist that the buyer has been
recommended for the credit by one of the reporting agencies and that the sale was in
accordance with the seller’s standard terms of sale. In addition, the insurer will only
insure the whole portfolio, not just the riskier buyers. The cost of the premium will be
about $0.6 to $1.00 per tonne and there will be an additional vetting charge of about
$150 per client per year.
Withdrawal of credit
Most sellers include a clause in their terms of sale that permits them to withdraw credit
if they have any reason to suspect that a buyer’s ability to pay may be becoming
impaired. When there are rumours of impending disaster it is common to find sellers
withdrawing credit and calling for early repayment of outstanding invoices but often
this too late and the business will already be sinking.
Example: Bominflot International Group of Companies
If Buyer is in default of the full payment, or if its

financial condition, or that of a subsidiary, parent,
associate or affiliate, in Seller’s sole opinion becomes
impaired, or if proceedings in bankruptcy or insolvency
are instituted by and/or against Buyer, its subsidiary,
parent, associate, related or affiliate company of the
Buyer, or in the case of liquidation or dissolution of
Buyer, or of a subsidiary, parent, associate, related
or affiliate company of the Buyer, or any other reason
at Seller’s sole discretion, any and all postponed or
deferred payments including interest thereon, shall
become immediately due and payable and Seller reserves
the right to offset the same against any debts due
to Buyer or its parent or its subsidiary companies,
affiliates, associated or related companies. Exercise of
any such rights shall be without prejudice to Seller’s
right to recover damages or losses sustained and
resulting from any default by Buyer, and Seller shall
have the right to suspend/and to cancel deliveries
hereunder.
Managing credit lines

This is an issue for both buyers and sellers. The credit line is the amount of credit
granted to a buyer by a seller. A prudent buyer will try to keep a record of how large a
credit line he has with all of his main sellers and how much of that line is available to
use at any one time. There will be times when it is necessary to fix a ship with a ‘second
choice’ seller in order to prevent the credit line for the ‘first choice’ being exhausted.
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This is especially important when dealing with a seller who is the monopoly supplier
in some ports. There will be times when it is necessary to make a payment early in
order to free up credit. This can happen when the credit line is newly established and
the seller is working on a ‘load over load’ basis, whereby credit is granted for a deal
and then blocked for further deals until the first one has been paid in full. It is also
done by traders who will pay an invoice early to free up credit with a supplier in a port
where the ability to offer gives the trader a competitive advantage and an opportunity
to make an above average margin on an enquiry.
For a seller, managing credit exposure is probably the most important back office
function after getting in the money. The credit manager’s role is assuming greater
significance as companies realise that this is their best protection against default. The
credit manager will constantly monitor the financial status of the clients, liaising with
the credit reporting companies, keeping his ear to the ground to catch any information
that might affect a client’s situation. The credit manager for a trader also judges the
difficult balance of the cost and risk of allowing extended credit versus the extra
margin that can be made on such deals. His ultimate skill is knowing when to ‘pull the
plug’, pursuing payment before a buyer reaches the stage when he can’t pay.
How to get credit

For a new buyer:
Sellers will need to be persuaded that the buyer has a sufficiently robust business,
finance cover from a reputable source and will meet his obligations in full and on
time. The most useful information for the seller is a comprehensive series of audited
accounts showing the financial performance of the buyer for a period of at least two
years. The accounts will need to be in the name of the company seeking credit rather
than the consolidated accounts of its parent company. If it is a new buyer, then the
accounts will not cover activity in the sector of most interest to the sellers (i.e. the
shipping operation). With no financial history, this is almost impossible. The use of
cash in advance to establish a trading relationship and using letters of credit to cover
initial grants of credit to a buyer are ways for a seller to gain confidence in a buyer’s
ability to perform. One other mechanism, once there is sufficient trading history, is to
grant credit on a ‘load over load‘ basis, where only one invoice, irrespective of the
amount (up to the agreed limit) is allowed to remain open at any one time. This means
the seller is only at risk on one transaction.
For an established buyer unknown to the seller:
Here the buyer needs to give the seller access to referees from other sellers who
have done credit business with the buyer and can attest to the way the buyer pays
his bills. The same comments made above (for a new buyer) with regard to accounts
apply; proper audited accounts for the company seeking credit for a period of at least
two years should be provided. Access to credit reports, advice from a broker and
a buyer’s willingness to work on reduced terms (say seven days where the norm
is 30 days) will all help to give the seller confidence. If the buyer takes ships on
time charter from significant shipowners, then the seller should enquire how good
he is at paying his freight bills – that will be much more than a bunker invoice! It will
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Credit
also give another level of confidence in his performance. There is a problem when
unscrupulous competitors will decline to give a reference or even give an unjustified
bad reference to another seller in order to retain captive business. If a buyer tells you
he has been doing business with company B with no payment problems for three
years and said company B claims that the buyer is a poor risk, it is worth checking a
little further.
The above is as true for a trader buying as it is for a shipowner or time charterer.
The trader should have fewer problems in getting another seller to vouch for his
performance, and the nature of his business may make it easier for him to work on
reduced terms or with cash to establish a position with the seller.
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Payment
Chapter 8 - Payment
Methods
Payment methods range from handing over cash to the truck delivery driver to
automated electronic fund transfer triggered by automated receipt of an electronic
invoice and bunker delivery receipt (BDR). It is a fact of life that most of the people
involved in a bunker transaction do not know much about the mechanics of payment
and frequently disputes over payment are caused by minor errors in documentation
or data entry.
Cash in advance
This is the most certain method for the seller and the most risky method for the buyer.
It can cause problems if, after payment, the delivery is cancelled, frustrated or there
is a short delivery. There are certain logistical constraints in getting the money into
the seller’s account, the principal problem being time. The seller will need to issue a
pro forma invoice for the quantity nominated and send this to the buyer in sufficient
time for the buyer to arrange the transfer of funds. This may involve money moving
between two or three banks. Buyers need to take into account that the banks in
Islamic countries are closed on Thursday and Friday and banks in most of the rest
of the world are closed on Saturday and Sunday. In addition, the buyer will need
to lodge sufficient funds to cover the full cost and, if less than the full quantity is
delivered, there may be a delay in recovering the amount overpaid. In some countries
it is very difficult to recover US dollar funds; the money will just sit in that country until
the buyer has an opportunity to lift from that supplier in that country again. The seller
will want confirmation from his own bank that the money is in his account before he
delivers any fuel. However, some sellers will accept a SWIFT notification – but not a
buyer’s instruction to his bank – as evidence that the money transfer is in progress
and cannot be stopped.
The buyer will need full details of the seller’s bank and the name of any correspondent
bank in order to effect the transfer.
Cheque
This is seldom used today and frequently indicated as not acceptable either in a
seller’s terms of sale or on his invoice. The principal reason for this is that receipt of
the cheque is not the same as receipt of money. The cheque has to be ‘cleared’ or
processed by the banking system once the seller has received it. His account will not
be credited with the funds until the buyer’s bank has accepted the cheque through the
clearing system, made sure there are sufficient funds in the buyer’s account and then
transferred the value to the seller’s bank. A cheque can only be used to pay an invoice
79
in the same currency as the currency of the cheque account. The final objection is the
most famous ‘holding’ message in trade – ‘the cheque is in the post’.
Electronic transfer
This is the standard means of transferring funds in the bunker industry. The buyer
will issue an instruction to his bank, usually through a dedicated secure electronic
message that gives all the relevant details of the transfer. There can be problems when
a seller has unusual or non-standard banking instructions as the standard message
templates in some finance departments may not be able to cope with the detail. It is,
however, the responsibility of the buyer to follow the seller’s instructions, even if it
means a trip to the buyer’s bank to get things organised. This is all described in more
detail later in this chapter in the section dealing with SWIFT. The biggest advantages
of this method are speed and security. It can also be used for any currency.
Deduction from freight

In the bulk oil trade it is sometimes possible, when the voyage charterer of the vessel
and the supplier of the fuel are the same, for the payment to be made by the charterer
deducting the cost of the fuel from the freight payment. After all, the charterer will
be paying the buyer a much larger amount of money than the buyer will owe for the
bunkers. There are a couple of difficulties here. Firstly, the voyage charter has a
clause stating the freight must be paid in full to the vessel’s disponent owner. In order
to deduct from freight, the charterer will need an authorisation in writing, from the
disponent owner, that he may deduct the cost of the fuel from the freight. Secondly,
the part of the supplying company that is chartering the vessel will be to some degree
commercially separated from the part of the supplying company that sells bunker
fuel. They will have to arrange for the money to be transferred internally, which is a
complication that they do not always want, so there can be considerable resistance to
offer the facility to the buyer. It does have advantages for the seller in that the credit
risk of the sale is nil.
Late payment
Late payment is common and, although in breach of the contract, the terms of sale
will probably have explicit penalties for late payment.
Late payment can be caused by many simple things:
• Late arrival of invoice
• Late processing of invoice
• Failing to allow for weekends
• Failing to allow for bank holidays
• Errors in banking instructions
• Lack of cash to pay invoice
• Errors within the banking system
• Correspondent banks delaying transfer.
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Payment
Some of these may be accidental, but some will be deliberate. The only defences that
a buyer has for late payment are:
• Delay in receipt of invoice (providing the buyer has advised that it has not been
received well before due date)
• Defective payment information on the seller’s instructions to pay
• Payment held by the seller’s correspondent bank.
Interest
Almost all sellers make provision in their terms for the application of interest charges
for late payment. These can vary from as little as 8% to as much as 24% per annum
pro rata.
Some sellers claim that the purpose of the relatively high interest rate is not to make
money but to discourage late payment. There is no doubt that in the case of pre-
agreed extended terms, where the seller knows from past performance that on an
agreed 45 days the buyer will probable pay on 60 or 70 days, the additional income
will far outweigh the cost of finance and is a useful addition to the bottom line.
Bank transfers, SWIFT and IBAN

It is quite normal for the process to need a correspondent bank in the United States.
This is because many banks need to pass the money through the United States
before it can be transferred to the final destination bank. This is usually stated in the
payment instructions on the invoice. But beware! There are some occasions when
US treasury requirements impose an additional correspondent bank, usually because
of cross shareholding between the banks involved. Neither bank has any say in the
matter. It has been known for these interposed correspondent banks to delay the
transfer process.
Figure 16. Bank transfers

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The payment usually involves a system called SWIFT (Society for Worldwide Interbank
Financial Telecommunication). It is a non-profit organisation comprised of member
financial institutions. A SWIFT consists of a one-page document containing the name
and code of the originating bank, the date and time, the address and code of the
receiving bank, the name and internal code of the officer initiating the transmission,
the names and numbers of the accounts involved in the transfer, a description of the
asset being transferred, the message type (MT) category of the transmission, and
acceptable, standardised phrases as described above. In case of difficulty in tracing
funds, the SWIFT message will allow the banks to find the money.
Sellers will ask for a copy of the SWIFT message as evidence of payment and to
assist in tracing funds.
This is an example of a SWIFT message that will be read and interpreted by a
computer programme at the bank.
:15A: :20:MSC1_0001_MSC :21:MSC1_0001_BSW :22A:NEWT

:22C:DUMMY_A_22C :23A:FLOATFIXED :21N:MSC1_0001_MSC
:30T:20060307 :30V:20060309 :30P:20080309 :14A:MODIFIEDF
:32B:USD9000000000 :82A:MSCSUS33XXX :87A:BARCGB22XXX
:77H:ISDA/19970521//1992 :14C:1991 :15B: :37U:5,27
:18A:2 :30F:20070309 :30F:20080309 :17F:Y :14D:360/360
:14A:MODIFIEDF :18A:1 :22B:USNY :15D: :57A:BARCGB22XXX
:15F: :14F:USD-LIBOR-BBA :14J:FIRST :38E:3M :18A:8
:30F:20060609 :30F:20060909 :30F:20061209 :30F:20070309
:30F:20070609 :30F:20070909 :30F:20071209 :30F:20080309
:17F:Y :14D:ACT/360 :14A:MODIFIEDF :18A:1 :22B:USNY
:15G: :57A:MSCSUS33XXX
Figure 17. Example of a SWIFT message
Opposite is a more structured example. The user will fill in the data fields on a computer
screen form that will look quite similar but each bank has its own proprietary screens
for their customers to use.
SWIFT message example
The SWIFT BIC identifies the bank or organisation which is registered with SWIFT.
The message itself consists of just the contents of the column marked Format.
This is just one example.
The message changes according to the type of message, the complexity of the bank
details, etc.
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Payment
Explanation Code Format Note

Header
Sender FABBUS6S Identifies the organisation
sending message
Message Type 101 Identifies the type of
transaction
Receiver CHASUS33 Identifies the bank
initiating the payment
Message text
Sequence A -
General
Information
Sender’s 20 :20:84549FV
Reference
Message 28D :28D:1/1
Index/Total
Ordering 50G :50G:/654332101 Identifies the account from
Customer FABBUS6S which money to be paid
Requested 30 :30:090123 Value date for transaction
Execution
Date
Repetitive
Sequence B -
Transaction
Details 1
Transaction 21 :21:TR1-FABB6755
Reference
Currency/ 32B :32B:USD23333,00 Amount to be transferred
Transaction
amount
Intermediary 56A :56A:ICICINBB Intermediary bank
Account with 57D :57D:CHENNAISUN Local bank of beneficiary
institution BANK 12 SALEM
KAMIR ROAD
CHENNAI - 6090091
Beneficiary 59 :59:/6069889753 Beneficiary’s account
TIGER FASHIONS number
65A RAJAJI SALAI
CHENNAI - 600001
Remittance 70 :70:/INV/
Information TGF001935
Details of 71A :71A:SHA Who pays the charges (BEN,
charges SHA, OUR)
Figure 18. More detailed example of a SWIFT message
Reproduced from information on the SWIFT website (www.swift.com).
83
The bank can send a SWIFT message to the originating client to confirm that the
account has been debited in accordance with the instructions.
A recent development in rationalisation of banking details is the international bank
account number (IBAN). This is a unique identifier of an individual bank account; it is
a code consisting of 16 to 30 digits. It is standard across the EU and is being adopted
by others outside the EU because of its ability to contain all account details in one
simple code.
The United States does not yet use IBAN but will probably participate when its own
banking system is ready. Buyers, especially in the EU, will ask for the seller’s IBAN
to set up payment.
Correspondent banks
Most banks that operate internationally do so through the use of a network of
correspondent banks. Correspondent banks are foreign banks with which a bank
formally corresponds either by operating clearing and other accounts or simply by
exchanging signature lists and test key arrangements.
If the buyer has his bank in Rome, the seller has his bank in Durban and the transaction
is in US$, then there will be a correspondent bank involved. This will be based in the
United States and will be able to receive the US$ funds from the Italian bank and
credit them to the South African bank.
There are also instances, especially in the United States, where the authorities may
insist on an additional correspondent bank being interposed in some transactions
where there are cross shareholdings between two of the banks involved. This is
normally transparent to the counterparties unless the money goes missing for a
couple of days due to clerical errors in the transactions.
Whilst the interest gained on holding on to $500,000 for one day may not seem to
be a great amount of money, when it happens 50 times a day for one year then it
amounts to more than $2 million! Because neither the buyer nor the seller selected
the interposed correspondent bank there is little chance to recover the lost interest.
Banks in shipping
Banking for the shipping sector is specialised and banking for the bunker sector even
more so.
Many banks have no appetite for shipping companies. There is a strange mix of
corporate business, specialised loan structures and deals with ‘high net worth’
individuals. The loans required, especially for vessel purchase, are high value and
the value of the asset is very difficult to assess. Readers of the shipping press will
be used to seeing court cases where there are significant disagreements on the
assessment of the value of a ship. A bank might loan 75% of the value of a ship (say
$50 million) but one year later the asset value may have fallen by 50% and the loan
is now for more than the value of the asset. Over time, certain banks have acquired
considerable expertise in ship finance and they will take the lion’s share of business. It
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Payment
is easy to see why they are reluctant to extend a facility when the market is bad but, if
they try to call in a loan early, they may be left owning the ship and they will then have
to sell it or run it. As a consequence, banks will often prop up an owner in difficulty,
hoping that the cyclic nature of the business will restore the value of the asset.
The situation for bankers to bunker companies is different. There is no significant
problem in the value of their client’s assets but their client’s big issue is cash flow.
Bunker suppliers have to buy their product, pay for their infrastructure, advance 30
days credit per deal and manage on very small margins.
It is common for bunker suppliers to use clean bunker receipts as collateral for loans.
For this reason, suppliers will insist that no remarks are made on a receipt that might
jeopardise their ability to use the receipt as security.
Money laundering issues

Finance regulations in many countries are now concerned with ensuring that all
financial transfers of large amounts of money across national boundaries are part of
legitimate trade. Although the legislation varies from country to country, most regimes
now require the person sending the money to use due diligence in identifying their
counterparty. For example, the buyer should be aware of who he is sending the
money to and that person’s relationship to the beneficial owner of the business. For
most conventional shipping operators it should not be an issue but some – because
other parts of their business do fall into the supervisory view of the authorities (dealing
in derivatives, for example) – may have to apply the same rules to their bunker
transactions. In essence, it requires the person paying the money to keep clear and
concise records of who was paid, how much, when and what for.
The following bodies oversee the regulations to prevent money laundering.
• Financial Action Task Force (FATF): An international organisation that produces
recommendations to prevent money laundering and terrorist financing. It deals
with coordinating the response and regulations of its member states, liaising with
their authorities, such as the two examples below.
• Financial Services Authority (FSA): This is the UK body dealing with money
laundering (amongst many other responsibilities).
• The US Office of Foreign Assets Control (OFAC): This organisation also deals
with US rules on embargoed states, such as Iran.
• United Nations restricted states: There are a number of organisations and
states listed by the UN with sanctions restricting finance and trade. In some
countries the punishment for breaching these rules is severe, including very large
fines and imprisonment.
Buyers and traders are advised to consult the authorities in the state that regulates
their activities for up-to-date information. The US control is important for all US dollar
payments.
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86
Physical suppliers
Chapter 9 - Physical suppliers
Physical suppliers are the parties who own fuel at the port of delivery and provide that
fuel to the vessel either via their own facilities or through the facilities of a specialist
deliverer (barge company, road haulage or pipeline operator). They can be categorised
into sub-groups as shown below.
Importer
This supplier will import cargo from others specifically to sell to the market in the
port in question. He may be active in other ports or areas as a refiner but chooses to
import finished product to this port. He will have to own or lease storage to store his
product and will need to be assured of the product quality before importing. He will
import according to his assessment of the demand in the port and the level of activity
he feels comfortable with.
Refiner
This supplier will process crude oil and refine it. Some of the product he will store and
sell as marine fuel, adjusting the quality according to the grades he is refining, the
grades he intends to sell and the availability of cutter stock.
Blender
This supplier will buy residue and cutter stock to allow him to blend product to meet
the demand from his clients. He may obtain the residue by importing it himself or he
may buy from others on a delivered Cost, Insurance Freight (CIF) basis. The blending
may take place in a terminal where he has leased storage or it may take place on
board a barge.
Storage terminal
This supplier operates a large storage terminal for use by third parties but has some
storage dedicated to his own needs. He will supply to vessels either ex-pipe at his
terminal or by a barge under his control.
Deliverer
This supplier has his own delivery infrastructure (barges or road tankers). He will act
as a supplier for direct clients or will act as a delivery contractor for clients of other
suppliers who will pay him for use of his delivery equipment. In certain ports (for
example, Singapore) the barge operator is often the supplier and the seller of the
product.
Trader
Before the oil shock of 1973, the ‘oil trader’ was a curiosity; most product was sold and
supplied by the oil majors who maintained their own storage terminals, barge fleets
and supply infrastructure. With the operational and financial burdens that followed
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1973, a new type of seller appeared. The bunker trader, who bought his oil wholesale
from a variety of suppliers, used existing barges chartered on a spot basis and used
his advantages of small size, closeness to the client and his entrepreneurship to
provide normal or extended payment terms to the buyer. This has developed into two
differing roles for the bunker trader.
Trading oil
The task for the trader is to identify his market, buy product at the most attractive
level, cover his trading and delivery costs, and make a profit by selling at the best
level he can achieve from his client. The trader goes to the market on receipt of the
enquiry from the buyer, covering all of the suppliers with whom he has credit, and
then offering a price to his client. Once the deal is done there are two nominations,
one from the trader to the physical supplier and the other from the buyer to the trader.
The trader uses his market knowledge and contacts to get the best price he can, but
if he is intending to place an identical nomination (dates, quality and quantity) with
the supplier as that he has received as an enquiry from his client, he will not place
his nomination until he has a firm nomination from his client. If he judges the market
is falling and there is no issue of availability, he may delay his own nomination for a
day or more in order to get a more attractive price and therefore increase his margin
on the deal.
Trading credit
In this case, although the mechanism is the same, the trader may be offering the
buyer a longer period of credit than he (the trader) will be given by the supplier. It is
important that he includes the cost of financing that additional credit in his trading
‘costs’ when calculating his selling price.
Risk/exposure
In both cases above, the best solution for the trader is to have a back-to-back deal
where the delivery details, quality guarantees, credit terms and provisions of the sales
terms and conditions applicable are either identical on both sides of the contract
or his terms from the supplier are less onerous than those he imposes on his own
buyer. For this reason it is common to see a trader selling on the ‘supplier’s’ terms of
sale rather than his own, unless he is able to use terms for his sale that have more
onerous conditions for the buyer, in which case he will use his own ‘seller’s’ terms
and conditions.
The trader has a number of risks due to his position as a seller of product over which
he has little control.
Quality
He has given guarantees of quality to his buyer that he must honour. If they are not
fulfilled, he must honour the commitment even if the supplier does not honour the
commitment to him.
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Physical suppliers
Delivery
If the delivery has problems (delay, restricted availability, congestion) he must deal
with his buyer directly, notwithstanding any recompense he may later receive from
the supplier.
Quantity
He is bound by the supplier’s sales terms and must either appoint his own agent or
surveyor OR rely on the actions of the staff on the buyer’s vessel and the buyer’s ship
agent in the port to conduct the operation in a timely and effective manner.
Payment
A credit trader may only have the business because the buyer is not accepted for
credit by the suppliers in the port. He must pay in full and on time even if his buyer
does not perform. He may have fewer options open to him for enforcing payment
and his own credit position with the supplier may be critical to other deals he has in
place.
A trader will have credit lines with many suppliers and he must husband these
carefully. In some areas, with a monopoly supplier, the trader’s credit will be limited.
He will not want to expend his available credit on a nomination where there is little
chance of making a good margin if he knows he is likely to see other enquiries in the
same place where (for whatever reason – relationships, buying style, etc.) he can
make a much better margin.
The trader may also be in a situation where a large enquiry from a very good account
may give him a boost to cash flow even though the margin that can be obtained is
small.
Broker/trader/supplier
A number of ‘traders’ now operate on a business model where they act as a broker,
a trader or a supplier depending on the port and the client involved. This can create
confusion where the role in which they are acting is not clear to all parties involved.
Large trading houses now routinely take on significant physical positions in hub ports
and act as suppliers. They may have clients who do not want to deal with any seller
who is not the physical supplier (in which case the trader will act as a broker unless
he has a physical presence in the port in question). They may have other clients
who do not mind or do not understand the difference between a trader and a broker,
manipulating the enquiry in such a way as to give the best margin on the business.
If the buyer gets an invoice from the trader, then he was acting as a trader and not a
broker.
Deliverers
This sector is the sharp end of the bunker business. Deliverers deal with the day-to-
day logistics of getting upwards of 300 million tonnes a year on board ships worldwide.
They usually specialise in one particular delivery method – barge, pipe or road tank
wagon. Deliverers operating large barge fleets are, in effect, nautical, operational and
89
technical departments for large coastal shipping lines. Pipeline operators are usually
part of a terminal infrastructure team and bunker delivery is only a small percentage
of their job.
Barge
Barge operators are specialists. There are companies in major ports (Rotterdam,
Singapore, Fujairah, Houston and Gibraltar) who operate fleets of up to 20 barges.
The type and size of barge varies enormously from port to port but all of them will be
of a design to allow them to shift to a different trade if the bunkering volume falls away.
In the Rotterdam area, the barges can work in normal product trading on the inland
waterways of Europe. The dumb barges used in the United States can work on the
intercoastal waterways and rivers. The barges used in Singapore are effectively small
sea-going product tankers and can always find work in that trade.
The recent sustained growth in the markets and the renewal of bunker barge fleets
with double-hulled vessels to meet MARPOL rules have kept the sector well employed.
The barge operator is paid an agreed rate by the supplier (usually per delivery) and
will submit extra charges for demurrage and any pumpback of undelivered product. In
case of any nautical incident between the barge and the receiving vessel, that is dealt
with by the insurers and not the buyer or the supplier.
If barges incur additional costs reaching a vessel, these will be charged to the supplier
but, as this is normally known in advance, it may be included in the seller’s prices or
covered by an agreed lump sum. Barge charges are usually built into the seller’s
prices in Europe and Asia but charged separately in North America. In most cases,
the charge is in $ per metric tonne with a minimum charge (often per grade).
A European river port bunker barge of 5,000 DWT costs about $9 million to build and
would be expected to make about four full deliveries a week.
A Singapore coastal tanker-style bunker barge of 6,500 DWT costs about $10 million
to build and would be expected to make about four full deliveries or up to eight partial
deliveries per week. If time chartered, at the time of writing the daily hire would be
about $8,000.
A US non-propelled barge of 30,000 barrels (about 4,500 DWT) costs about $6 million
to build and will make about four deliveries a week. Remember that this vessel will
require the services of a tug (or ‘boat’) to move it between load terminal and the
receiving ship.
Road tank wagon (RTW)
Road tankers are usually operated by specialist road haulage fleets and their charges
are according to a schedule. As with barges, they will charge for detention and for
any special addition costs (extra hose strings, special permits, etc.). RTW charges
are usually quoted in $ per tonne but charged per full truck, so if there is a 27 tonne
capacity tanker supplying just 10 tonnes, the buyer will pay the delivery charge for 27
tonnes. The cost of a new, fully-equipped 27 tonne tanker with tractor unit is about
$200,000.
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Physical suppliers
Contract arrangements
The barges are employed either on term charters with suppliers, contract of
affreightment arrangements with suppliers or on spot fixtures. The oil majors have
specific time charter requirements and will only use barges that have been passed by
their vetting departments. Barge contracts can be quite complex, especially in large
ports like Rotterdam. A supplier may have a barge contracted for his exclusive use,
or he may have a contract with a barge operator for a certain number of deliveries
per week / month. He may have exclusive use of particular barges or just the use
of a barge nominated by the barge operator from one of his fleet. This complicates
the assessment of costs if a barge is delayed by a receiving ship or by a lack of
information from the agent. If there is no agreed demurrage rate, then the supplier
may have to demonstrate that the delay did cause actual loss.
Customs, duties and levies

In many countries, national and state taxes are payable on sales of ship’s fuel.
However, it is a general principle that fuel for vessels in international trade is free of
tax. There are exceptions, depending on the location of the next port, the nature of
the vessel’s trade and, occasionally, a blanket imposition of tax by the authorities in
the bunkering port.
Duty free
Duty, in this sense, is tax paid on a thing rather than levied on a person. The thing may
be a commodity, a transaction or a property. The key element of international trade
is that no nation should attempt to tax the transportation of goods from one country
to another. This applies to shipping and aviation and is not popular with government
revenue departments or the environmental lobby. There are a very few nation states
who ignore the rules but, by and large, fuel used for international trade is duty free.
Taxes
There is one exception to the above rule and that is locally-levied taxes. Where there
is tax levied at a local level and the taxing authority can show that it is a ‘levy’ for
services provided or a penalty for by-laws breached, then it is regarded as legitimate.
However, it remains a serious area for dispute between nations (payment of parking
fines by foreign diplomats falls into this category). In general, these local taxes are
invoiced by the seller and paid. In countries with a VAT regime, the seller will often ask
for the VAT number of the buyer as he will need this information for his own tax returns
to his government tax department, even when there is no VAT due.
Exemption certificates
In some jurisdictions the tax will only be waived on production of a ‘tax exemption
certificate’ which must be applied for by the owner or his agent. In locations where
this applies, the suppliers and the ship’s agents are very familiar with the process
although it does involve all concerned in additional work and administration.
91
Figure 19. Example of a tax exemption certificate
92
Physical suppliers
In the state of California, the state levies the tax on the amount of product consumed
to reach the first out-of-state port less the quantity on board when the vessel arrived.
In other words you only pay tax on the fuel you had to buy in order to leave the
state.
The ship’s agent is required to lodge the exemption certificate with the authorities
within 45 days of the bunkering.
Cabotage
This term refers to the practice of restricting domestic trade to domestic carriers. A
foreign flag vessel may well fall foul of these regulations when loading or discharging
at two or more ports in the same country. In such cases the authorities may levy duty
on the quantity of fuel consumed performing this local passage. It is often a source of
confusion when one supplier will levy the charge in full, expecting the buyer to reclaim
the exempt portion, while another supplier will only bill the charge after the level of
exemption has been established (after the vessel has departed the country). A third
supplier might not bother at all.
93
94
Pricing
Chapter 10 - Pricing
As in all commercial transactions, pricing is a function of supply and demand. Bunker

prices are not as transparent as normal commodity prices because they involve the
product and the delivery service. The delivery element is further complicated in that
the timing of the delivery can be very time critical due to the transient visit of the
receiving ship in the port. The price of the product has a fundamental link to the cost
of the crude oil from which it has been refined and the availability of the product in the
port of sale. The availability depends on the time frame of the delivery and the amount
of time between the offer and the delivery operation.
Spot prices
Most bunker purchases are ‘spot’ purchases, where the buyer is arranging just one
delivery of fuel on one date and in one port. The seller will have to cost his product
and work out the cost of delivering to the vessel within the time available. If there is
plenty of time between order and delivery then, as long as the seller is selling his own
oil from his own storage, almost all of the costs are quantifiable and the seller only
needs to make a judgement on the profit margin he wants to make, taking into account
the degree of competition from other sellers. If it is short notice, then the logistical
arrangements for delivery may significantly reduce the degree of competition.
Term prices
Buyers with a substantial and recurring requirement in a particular port may choose
to enter a contract with a supplier covering supply for a period of time – typically one
year. This is a ‘term contract’ and in addition to defining the quantity of each lifting,
the agreed notice period and other operational issues, the buyer and seller will agree
pricing. Because of the difficulty in predicting the future price of the physical product
(especially in unusual ports), it is rare for these contracts to have a fixed price.
The majority of contracts will have a price that refers to a published independent price
quote (for example, Platts Bunkerwire, published by McGraw Hill). The contract may
specify that the price will be related to a series of averages of the published price,
linked to the date of the lifting of the product. Prices may be linked to the published oil
cargo prices with a specific premium – for example ‘Price to be Platts 3.5% Fuel Oil
CIF Med plus $26’. This refers to the Platts’ cargo quotation listed with that description,
in this instance CIF (Cost, Insurance and Freight) of product at Genoa/Lavera in the
Mediterranean, plus $26 per tonne. Alternatively, it could be offered as ‘Price to be
Platts 3.5% Fuel Oil FOB Med plus $34’. This refers to the Platts’ cargo quotation
listed with that description, in this instance FOB (Free On Board) of product at an
Italian load port in the Mediterranean, plus $34 per tonne.
95
Posted prices
When large oil companies were the principal sellers of fuel to shipping, they routinely
issued ‘fixed’ or ‘posted’ prices for every port at which they supplied. These prices
would be revised at intervals of weeks or even months, depending on market
conditions, and customers would pay the prevailing ‘posted’ price. Buyers with supply
contracts would negotiate, at the time of signing the contract, for a rebate from the
posted prices prevailing during the contract period. This practice fell into disuse after
the ‘oil shock’ of 1973 although it is still used by some state-controlled oil sellers, for
example in Saudi Arabia, Ecuador and Taiwan. The price may be related to the day of
concluding the nomination (Taiwan) or the day of delivery (Saudi Arabia).
Price reporting
Specialist publishers have produced ‘price assessment reports’ for a wide variety
of ports for many years. These price assessments are made by industry journalists
and are claimed to reflect the actual prices paid for fuel at the ports on the date of
publication. The best known is Platts Bunkerwire, although there are other equally
respected independent reports published by others such as Argus, OPIS and RIM.
They are used as price references in contracts, charter party agreements and in
hedging tools called ‘over-the-counter’ derivatives, such as swaps and options.
Platts also publishes reports on fuel cargo prices which influence the spot prices of
the bunker suppliers offering the next day. The most active report is Platts European
Marketscan which reports the prices of fuel traded as export cargo, as barge cargo
in North Europe and as cargo in the Mediterranean. The assessment is made at the
close of the market (you will hear traders refer to the MOC, which means the ‘market
on close’). There is always an air of suspense awaiting the levels reported as the
oil traders may be lifting product from terminals which will be priced according to
the level published on the date of the lifting (or an average of a few days either side
of that date) and it will determine whether they have made or lost money on their
deals. In Singapore and Fujairah, many sellers are reluctant to offer before the MOC
assessment has been completed. If they do offer before, the price will usually only be
valid until the assessment is available.
Bunker brokers produce and publish price reports for their clients and other subscribers
based on their own market intelligence. These reports are distributed by email and
on brokers’ websites.
Brokers’ reports are also used by journals such as Lloyds List, Bunkerspot and others
to provide price guidance for their readers.
Volatility
Price volatility of fuel is a measure of the amount prices change from day to day.
The volatility has a significant impact on the pricing of term contracts and swaps and
options as it indicates how much the future price is likely to change. The direction of
change of price has no effect on the volatility; it is just the numerical daily change that
impacts the volatility calculation. A high volatility implies that there is a strong chance
96
Pricing
of a significant price change (up or down), whilst a low volatility implies a relatively
stable price.
Post fixture change

There are circumstances where changes in prices can be imposed after a nomination
has been made. The two most common are either that the date of delivery slips
outside the range specified in the terms of sale or that there is a major change in the
price of the underlying commodity and a clause in the terms of sale permits the seller
to adjust the price. In both cases, the buyer will usually have the right to terminate the
agreement if he is unwilling to accept the adjusted price. In reality, the buyer usually
needs the fuel and he will normally accept the price change.
Port arbitrage
A buyer needs to know the price levels in all the ports where he could bunker his ship
in order to choose the most economical solution. The sellers need to know what price
levels they will be competing with on any enquiry. Both of them need to understand
how much and how quickly prices can change.
Oil prices have a history of doing the unexpected.
It is useful to understand the historical price differences between ports under
consideration and to note the variations around the average.
Singapore ‐ Fujairah Price Differences

20.00
15.00
10.00
5.00
0.00
$/mt
‐5.00
‐10.00
‐15.00
Singapore ‐ Fujairah Linear (Singapore ‐ Fujairah)
Figure 20. Weekly price comparison between Singapore and Fujairah
97
In this example, although the average over time (six months) has increased from $5
to $10 a tonne, the variation can be +/- $5 a tonne from the mean. This needs to be
part of the analysis when comparing the two ports, especially as there are eight days’
steaming between the two ports.
Additionally, whilst it is easy to find pricing data for some ports, for others it can be
very difficult. This is one area of expertise of bunker brokers.
98
Hedging
Chapter 11 - Hedging
In finance a hedge is a position established in one market in an attempt to offset

exposure to price fluctuations in some opposite position in another market with the
goal of minimising one’s exposure to unwanted risk.
It is a mechanism that developed in the 18th and 19th centuries to assist farmers to
manage cash flow and to help manufacturers manage price fluctuations in their raw
materials. For shipping companies with long-term freight commitments, whilst they
know what income they will get they do not know what their fuel price will be in three,
six or 12 months’ time. Fuel costs can represent up to 60% of the variable costs of
each voyage.
Locking in a price for future fuel can help a shipping company manage this risk. The
solution can be structured around actual supply of fuel or on a purely ‘paper’ deal to
compensate for changes in the physical market.
The key objective of a hedge is to reduce exposure to the risk of price fluctuations. The
effectiveness of a hedge is a measure of how close the eventual fuel cost (physical
and paper settlements) is to the budgetary estimate at the time the hedge deal was
commenced.
Assessing the prospects for the market and the drivers that move the market is
important when planning hedging activities. There are many ways to present this,
one example is shown in Figure 21 (overleaf).
The prices in 2009 were much more volatile, with the price distribution spread across
a range of $250, whilst the range for 2010 was only a range of $150 with a higher
mean price.
With high volatility there is a high exposure to price risk. Buyers and sellers need to
protect themselves and be sure that they have minimised their exposure. An owner on
a liner trade with predictable demand will probably use derivatives or term contracts
to do so. A buyer with a tramping portfolio will hope to be protected by freight market
movements unless he has a large fleet.
The choice of when and how to hedge is neither simple nor amenable to modelling.
The movement of prices is a mixture of supply, demand, world trade levels, commodity
prices, currency fluctuations and political actions. In the words of the late British Prime
Minister Harold Macmillan: ‘Events, dear boy, events’.
Term deals
Term deals are long-term contracts between a seller and a buyer of fuel. They will
agree on the quantities, grades, ports, and nomination procedures but there are two
different pricing solutions.
99
Premium Reports™
World Price Barometer
High and Low Bunker Basket IFO 380 cst
HS LS
Crude HS Bunker LS Bunker Bunkers Bunkers
Basket Basket Basket % of % of 16-Mar-11
$/bbl $/mt $/mt Crude Crude
2005 $ 56.69 $ 256.16 65%
2006 $ 66.22 $ 311.65 67%
2007 $ 70.73 $ 357.93 72%
2008 $ 100.20 $ 504.83 72%
2009 $ 62.17 $ 368.72 85%
2010 $ 79.52 $ 465.82 $ 495.13 84% 89%
2011 $ 97.51 $ 564.91 $ 603.72 83% 88%
The below shows the Last 6 mo $ 88.49 $ 507.89 $ 542.65 82% 88%
percentage of time that the Last 3 mo $ 93.74 $ 536.81 $ 570.39 82% 87%
spot prices during the time Last Week $ 109.67 $ 633.20 $ 685.80 82% 89%
16-Mar-11 $ 108.92 $ 633.39 $ 684.00 83% 90%
100%
90% High Sulphur
80%
2010
70% 2011
60% last 6 mo
last 3 mo
50%
Last 5 days
40%
30%
20%
10%
0%
400‐450 450‐500 500‐550 550‐600 600‐650 650‐700
100%
90%
80%
Low Sulphur
70%
60%
50%
2010
40% 2011
last 6 mo
30%
last 3 mo
20% Last 5 days
10%
0%
400‐450 450‐500 500‐550 550‐600 600‐650 650‐700
HS Bunker basket: Philadelphia, Houston, Antwerp, Hamburg, Piraeus, Gibraltar, Japan, S Korea and Ecuador 380 cst; All crude conversation at 7 bbl/mt
LS Bunker basket: Falmouth, Rotterdam, Gibraltar, St. Eustatius, Singapore, Brazil, New York, Houston 380 cst.
© 2011 LQM Petroleum Services, Inc. All rights reserved. (0074-3636)
Figure 21. Bunker hedging

Diagram courtesy of LQM Petroleum Services Inc. (www.lqm.com)
100
Hedging
Fixed price physical

In this case, the fuel price is agreed when the contract is signed and will be valid
throughout the period of the contract. This type of contract gives certainty of supply
and certainty of price. If the market price falls significantly during the period of
the contract, then the buyer will be paying significantly more for his fuel than his
competitors. If the price rises significantly the converse is true.
Floating price physical
In this case, the price will be related to a published market price, and will vary from
lifting to lifting. This type of contract gives certainty of supply but not certainty of
price.
Over-the-counter derivatives
This is a way to protect the buyer from the movements of fuel prices without the
need to lock into a physical supply contract. This is of considerable advantage if the
physical requirement changes; there is no logistical requirement to lift the fuel as the
contracts only involve a financial settlement. The contracting parties will be fuel buyers
and specialist risk management providers (banks, oil trading companies and financial
traders). The contracts used are called over-the-counter derivatives because they
are sold as a financial product. This is to distinguish them from commodity futures
contracts that are bought and sold on a financial exchange such as the International
Commodity Exchange (ICE), New York Mercantile Exchange (NYMEX), etc.). Dealing
directly with the exchanges is more complex, involving a much greater investment in
time and expertise to manage the deals.
Swap
This is the simplest mechanism. It can also be called a contract for differences (CFD).
It consists of two interlocking agreements. The hedge provider agrees to sell the
contract quantity to the ‘buyer’ at a fixed price and the ‘buyer’ agrees to sell the same
quantity to the hedge provider at an agreed reference or market price. The settlement
usually takes place monthly. The most usual reference price is either Platts Bunkerwire
or, if cargo prices are being used, Platts Marketscan. The most frequent cargo quotes
used for bunker hedging are Mean of Platts Singapore 380 cSt (called MOPS), Mean
of Platts Arab Gulf 180 cSt (called MOPAG), Mean of Platts Mediterranean CIF 3.5%
(called Platts Med CIF), Mean of Platts Rotterdam 3.5% Barges (called Platts 3.5%
barges).
If the contract was concluded with a fixed price of $300 per tonne and the market
price was the monthly average of Rotterdam Platts Bunkerwire 380 cSt:
• In January, the month average was $283 per tonne, so the buyer must pay the
hedge provider $17 per tonne for the contracted monthly quantity
• In February, the month average was $296 per tonne, so the buyer must pay the
hedge provider buyer $4 per tonne for the contracted monthly quantity
101
• In March, the month average was $331 per tonne, so the hedge provider must
pay the buyer $31 per tonne for the contracted monthly quantity
• In April, the month average was $337 per tonne, so the hedge provider must pay
the buyer $37 per tonne for the contracted monthly quantity
• And so on.
If the two prices are the same then there is no payment to be made by either party.
Figure 23 shows the $ per tonne settlement based on the above, green for the provider
paying the buyer and red for the buyer paying the provider.
The monthly settlement will represent the difference between the actual physical price
paid by the buyer for fuel in Rotterdam each month and the agreed fixed price in the
contract. The net effect is to give the buyer a fixed price for the year.
This only works if the fuel requirement is in a port that is a published quote and the
buyer lifts sufficient fuel at very regular intervals to make the month average of the
quote representative of the physical price actually paid.
If the buyer can establish a statistical correlation between the market quote in one
published port and the prices in other ports where he has a routine requirement, then
it may be possible to improve the flexibility of these arrangements. In such cases,
the differential between the port at which the swap is priced and the price in the port
where the physical fuel is required is called the basis risk. Assessing the basis risk
in ports that do not appear in published price reports is difficult and can reduce the
effectiveness of the hedge.
Call option
The call option, or cap, is an alternative method that is a cross between a swap and
insurance. The buyer purchases an insurance policy (a call option) for which he pays
a premium. This policy will act just like a swap if the market average price exceeds
the price in the policy – the ‘strike price’. If the price is below the strike price, the buyer
does nothing.
The effect is to lock in a fixed physical price when the price is high whilst getting the
benefit of low physical prices when the market is low. The size of the premium is
dependent on the level of the strike price. The lower the strike price, the higher the
premium.
The price of the premium is affected by the volatility of the forward/future prices. The
higher the volatility, the higher the premium.
102
Hedging
350.00
340.00
330.00
320.00
310.00
300.00
290.00
280.00
270.00
260.00
250.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Market price Swap price
Figure 22. A typical market movement over 12 months (swap)
Settlement
40.00
30.00
20.00
10.00
0.00
‐10.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
‐20.00
‐30.00
‐40.00
‐50.00
Settlement
Figure 23. An example of swap settlement levels
103
Using the same data as before:
350.00
340.00
330.00
320.00
310.00
300.00
290.00
280.00
270.00
260.00
250.00
Market price Strike price
Figure 24. A typical market movement over 12 months (option)
The settlement is always from provider to buyer BUT remember that there is a
premium to be paid per tonne contracted, usually in advance for the whole period of
the contract.
Settlement
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Settlement
Figure 25. An example of option settlement levels
104
Hedging
Collar
This is a mechanism that gives the buyer a degree of insurance protection against
adverse price movements without the need to pay a premium. This is achieved by
sacrificing some of the advantage of a price fall. The collar acts as a swap when the
price moves above the upper price limit and also acts as a swap when the price falls
below the lower price limit. In between the limits, the buyer has no obligations to the
hedge provider.
350.00
340.00
330.00
320.00
310.00
300.00
290.00
280.00
270.00
260.00
250.00
Market price Collar Cap
Figure 26. A typical market movement over 12 months (collar)
Settlement
40
30
20
10
0
‐10
‐20
‐30
Settlement
Figure 27. An example of collar settlement levels
105
This graph in Figure 27 shows the $ per tonne settlement based on the data above;
green for the provider paying the buyer and red for the buyer paying the provider.
The most important thing to remember about the collar is that there is no premium to
pay.
The use of over-the-counter products has increased considerably over the last 10
years although they remain tools aimed at the larger player with predictable and
frequent liftings at major ports.
Some physical suppliers are willing to offer fixed price contracts for forward
requirements. This links the over-the-counter hedge with the physical product all in
one. The paper side of the deal is only invoked if the buyer lifts less in a month than
he is contracted to do in which case the underperformance will be compensated
financially as if it were a swap contract.
In the same way, if a buyer has an existing paper position and the market moves in
his favour, he may choose to sell his position (either back to the seller or to another
buyer) and take his profit. In this latter case, the actions are entering the realm of
being a trader and there may be some regulatory complications.
In all hedging activities, the counterparties need to be fully aware of the implications
for their cash flow and their tax affairs. Different national fiscal authorities view these
‘paper’ transactions in different ways. If the quantity of ‘paper’ product is seen as
greater than the actual physical requirement of the buyer’s business then the activity
may be interpreted as speculative trading and any ‘profit’ derived will be subject to
taxation.
In some jurisdictions, any contracts for paper trading for future price movements can
be interpreted as gambling and may be deemed illegal. In others, any debt incurred
may not be legally not recoverable.
It is vital to take professional advice before entering into deals of this nature. One
should be aware of the fundamental difference between insurance and speculation
and to apply the same level of financial controls to these deals as applied to the more
traditional areas of business.
106
Claims
Chapter 12 - Claims
In all commercial activities there will be circumstances when there is a disagreement

between counterparties over some aspect of the way the contract has been fulfilled.
The contract itself will usually detail how any dispute should be addressed and the
mechanism for resolution. Real life, however, often gets in the way and many disputes
are resolved in ways not foreseen by those drawing up the original contract.
In all disputes both parties need to be aware that if they ignore the actions and the
time limits set down in the contract terms they may frustrate their ability to get the
claim properly resolved. Even if there is a well-mannered, co-operative discussion
between the parties to attempt to resolve a difficulty in an informal way, parties should
make sure that the formal notes of protest and notice of claim have been properly
served to avoid the dispute becoming time barred.
Quality
The quality required by the buyer and the quality being offered by the seller will have
been clarified and agreed at the time of nomination. Any variation should have been
advised and agreed prior to the delivery. If there is a difference between the quality
agreed and the quality supplied, then the buyer may lodge a claim for recompense
for any associated costs. These may be for additional work to permit the fuel to be
used, for additives to adjust the quality, for actions needed to bring the fuel back to the
specification agreed, for the cost of de-bunkering and resupply or the costs of rectifying
damage caused by the use of the fuel. Frequently, a claim from a buyer will be triggered
by an analysis result from the buyer’s own tests of his own sample. The use of a
quality testing programme is primarily a defence against damage to machinery and to
warn a vessel if bunkers received may be sub standard. It is an owner’s cost (usually
costing a few hundred dollars per sample on a fleet-wide contract). One-off testing will
cost much more – $1,500 for a full analysis is typical. The central commercial issue
will be what was agreed, what was supplied and the cost of any remedy. Generally,
the sales terms will specify the agreed method of quality control (usually independent
analysis of the seller’s representative sample). This is sometimes challenged if the
buyer can show that the sample was not representative.
Another area of dispute is where the representative sample is tested for all of the
parameters listed in the agreed specification and meets that standard but the buyer
believes that there is some other element of the fuel’s performance that has caused
(or may cause) damage to his engine. Claims of this nature will usually end up in the
hands of specialist engineers, analysts and, ultimately, lawyers.
Quantity
The quantity of fuel supplied should be measured in accordance with the provisions of
the terms of sale. In most cases this will be using measurements made by the supplier
107
either by meter or by tank measurement of the supplier’s tanks at the supplier’s

choice. The buyer will usually have the right to witness these measurements or to
appoint an independent surveyor to witness them and report on his behalf. Many
buyers will protest if the quantity measured on board the receiving ship is less than
that stated by the supplier but although this will cause a dispute and a claim for the
invoice to be reduced, the seller will usually reject this on the grounds that it is the
supplier’s measurements that are the only ones they will accept.
Buyers will protest, especially if the difference between the supplier’s measurements
and his own is large (1% or 30 tonnes, whichever is the smaller is a typical trigger point
for protest). There are many possible reasons for the discrepancies and sometimes
a supplier may compromise in order to maintain a relationship with a good client but
the contractual position is usually very clear.
More suppliers are starting to use radar tank measurement systems that have
high accuracy in measuring the liquid level. Some are starting to use mass flow
measurement devices. In both cases, the measurement system has to comply with
the local weights and measurements regulations in the delivery port. In general, level
measurement is accurate although there is scope for error in converting from the tank
level to the delivered mass. The Coriolis mass flow metering systems now increasingly
in use, have a slightly lower overall accuracy than the accuracy of the radar gauges,
but this is compensated by the fact that they read out directly in mass and avoid the
errors caused by trapped air / vapour artificially inflating the level measurement and
the errors in converting from level to mass. In addition, the mass flow meters will show
if there is a high water content.
A good independent surveyor will be the best defence against errors and intentional
fraud but it is his observations on the barge measurements that will be significant in
meeting the terms. The cost of a surveyor will vary from $600 up to $1,500 depending
on the time taken on board and the port of the delivery.
Demurrage / delay
Demurrage is a specific transportation term. It represents compensation for detention
for longer than a contractually agreed period of a ship or truck by the person who
had hired the vehicle to transport their goods. It is more correctly called liquidated
damages, although the claimant does not need to demonstrate loss. The definition
is important because if a supplier’s delivery vehicle is delayed by the buyer’s action,
that is demurrage; whilst if the buyer’s vessel is delayed by the actions of the supplier,
that is delay. The delay to barge or truck is true demurrage and will be a charge on the
invoice rather than a claim. The delay to a receiving vessel though late arrival of the
supplier, slow pumping, equipment failure, etc. is a claim and should be remarked by
a note of protest. Sellers often try to avoid such claims in their terms of sale; for this
reason, buyers should be sure they understand the terms (see the example ‘delivery’
in the section on Terms and Conditions in Chapter 6).
If a buyer or seller is confronted with a claim of this nature it is prudent to obtain
independent verification of the level of charge being claimed.
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Claims
Notice of claim
It is a general requirement to advise your counterparty as soon as you are aware of
any potential claim. This is most easily accomplished by issuing a note of protest to
the other party, clearly stating the reason for the protest and requiring a copy, signed
to acknowledge receipt, to be returned to you. Without this, you may have difficulty in
proving that the seller and supplier received proper notice.
It is good practice to advise all interested parties of a potential claim, so if the receiving
vessel issues a note of protest to the supplier, this information should also be sent to
any intermediaries (agent, broker, etc.) and to the seller.
Time bar
In the terms of sale of most sellers there will be discreet reference to a period of time
allowed for lodging a claim, after which any claim is deemed to be barred (a time
bar). The period is different for different types of claim and may have two stages (for
example, initial notice within seven days, full written details within 30 days).
There is an example in the ‘quality’ clause in the section on Terms and Conditions of
sale in Chapter 6.
If the buyer fails to follow the notice procedures and the time limits of the terms of
sale, the seller has the ability to avoid the claim.
Use of surveyors
In the case of a dispute it is useful to have a report on the facts from an independent
surveyor. In the case of quantity problems, some buyers will appoint a surveyor after
the discrepancy has been noted. This is of limited value as the surveyor can only
report on the facts after the event, although he may well be able to correct errors in
the measurement calculations.
With a claim concerning fuel quality, especially where damage has been caused,
it is prudent to appoint an independent surveyor to report on the facts, observing
damaged equipment, reporting on the on board records and the situation on board
at the time of his visit. It can be of considerable benefit, where there is machinery
damage, if both parties can agree to make a joint appointment of a surveyor as his
report will establish matters of fact which should simplify the procedures if the claim
goes to arbitration or court.
Payment default
The most significant financial risk for a seller is where the buyer does not pay for the
fuel. He will have lost physical control of the product and has no money.
The reasons for payment default are various and may be a reflection of a short-term
problem (awaiting a freight payment), a dispute / claim (withholding payment), or
longer-term cash flow problems. A buyer will try to maintain payments for bunkers
and port dues even when in real difficulties as without these he can no longer trade
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his asset. Therefore, bunker payment default is one sign of serious problems in the
buyer’s company. Assessing payment performance is the most important job of the
credit manager in any seller’s company.
Bankruptcy
If a company has debts that it cannot meet, even if it sells all of its assets, then it is
said to be bankrupt (it comes from the Italian for ‘broken bench’, signifying that the
bench outside his house where a banker did business would be broken if the banker
did not have enough money to continue in business). When a company cannot meet
its debts then the assets will be liquidated. Each nation has its own rules for conduct
of such situations but the normal routine is that there is a financial administrator
appointed to ‘liquidate’ the assets and distribute the funds to the creditors. This official
is called the ‘official receiver’ in the UK and his duty is to maximise the returns, selling
the company as a going concern if he can, but winding the company up if he cannot
get a buyer for the business. In some countries, there is a measure of protection
from creditors whilst a business is being restructured. The key for a creditor is to take
action to recover a debt before a company moves into bankruptcy.
Bankruptcy of disponent owner
If a disponent owner goes into liquidation then there is sometimes little the seller
can do other than join the list of creditors. However, if the buyer is a time charterer,
then the seller may be able to take action against the ship. In the case of smaller
owners, the loss of a time charterer will place the owner under considerable cash flow
pressure. Often, by the time this stage is reached, the list of creditors will usually be
quite long and the seller may be in for a long wait and very little return.
Bankruptcy of trader
If a trader goes into liquidation then the physical supplier will chase the ship. This has
happened a number of times in the last 10-20 years. With some trading company
failures, there have been dozens of owners who found that they had to pay for their
bunkers twice!
Vessel arrest
A useful definition of vessel arrest is provided by UK law firm Shoosmiths:
As the name implies, the vessel in question can be legally
prevented from moving or indeed trading pending the
resolution of a court action (an action in rem) in which
more often than not the vessel to be arrested (the res) is
the subject of the claim, the arrest being undertaken in
conjunction with a claim rather than an arrest for its own
sake. In practical terms, HM Revenue & Customs actually
affixes the Claim Form (historically ‘nailing a writ to the
mast’) together with the Arrest Warrant to the ship under
instruction from the Court. In the UK this is under the
authority of an individual called the Admiralty Marshall
who resides in the Admiralty Court in London.
(www.worldservicesgroup.com/publications.asp?action=article&artid=1443)
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Claims
And now the bad news. Under English law, the ability to arrest a vessel for non-
payment of bunkers by anyone other than the owner of the vessel does not work. And
the same is true of China.
The form, mechanics and rules for ship arrest vary from country to country and it is a
subject of great complexity. However, it can be an effective tool to persuade the owner
to pay his bill. Once a ship has been arrested, it cannot move, it cannot trade and it
cannot earn any money. Some jurisdictions are much more arrest friendly than others.
For example, South Africa is a popular venue for ship arrest, as is Belgium.
Once the vessel has been arrested, the owner (or his insurers) will usually post a
bond with the admiralty marshal as security for the claim, which will allow the vessel
to be released. The claimant will get his money if the claim is proved, whilst the vessel
can return to earning money.
In many cases, the threat of arrest is enough to get the buyer to open his wallet.
It is possible for more than one claimant to arrest a ship at any one time, so there will
often be a list of companies all seeking their cut. The real problem comes when the
value of the claims is greater than the value of the ship.
Before considering arrest, the claimant needs to take legal advice and ensure he
takes action in a favourable jurisdiction.
Lien
A lien is a form of security over an item granted to ensure payment for that item. It
is frequently mentioned in seller’s sales Terms and Conditions but it is frequently
confused with a maritime lien. The right to exert a lien expires with the change of
ownership of the goods.
Maritime lien
This is a special form of lien where the lien does not expire with any change of
ownership. It cannot be applied to bunkers under English law. It gives the seller of
fuel under US law the right to arrest the vessel and gave rise to the practice of the
‘no lien’ stamp.
No lien stamp
In order to protect an owner against vessel arrest in the United States where a time
charterer had defaulted on a bunker payment, owners would stamp the bunker receipt
with a stamp asserting that the fuel was for the account of the time charterer and that
charterer had no authority to allow the imposition of a maritime lien with respect to
the bunkers. This has led to disputes in the United States where suppliers refused
to release ships that used such a stamp. Some authorities suggest that the first time
you, as a supplier, receive a no lien stamp on a receipt from a buyer’s vessel, it has
no effect (you were only advised after the delivery). However, it could frustrate your
rights in subsequent deliveries to that buyer.
Many sellers now include a ‘no lien stamp’ clause prohibiting the use of such a stamp
on the bunker receipt.
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Attachment
This is a legal measure to permit a court to transfer ownership of property to another
in order to settle a debt. It is used especially in South Africa as an alternative to ship
arrest. It specifically allows action to be taken against an ‘associated’ ship (one with
the same ownership as the ship in the claim).
Freezing order (Mareva injunction)
This is a mechanism to prevent a defendant from disposing of an asset to frustrate an
obligation to pay another. It is only used to prevent a defendant from frustrating court
procedures, as it does not confiscate his goods; it just prevents him from moving them
outside of the jurisdiction of the court.
Debunkering
There are occasions where the only resolution to a claim involves removing the
fuel from the vessel. There are other occasions where, for operational reasons, it is
necessary to remove fuel from a vessel even though the fuel quality is good (such as
a need to gain access to a fuel tank for mechanical repairs or to reduce the amount of
fuel on board prior to dry dock). Most of the important aspects to this are operational
and outside the scope of this book. But the commercial aspects of a debunkering are
significant.
Defects in quality
The product to come off the ship has a potential value, but the value is dependent on
the location and the analysis of the product. In ports where the facilities exist for either
sophisticated re-blending or even reprocessing, then even a fuel well outside normal
quality standards can have a value of up to 70% or 80% of the original value. In ports
without these facilities, the product will have to be treated as waste or ‘slops’ and will
have a value of between 0% and 20% of the original value.
This means that consideration should be given to retaining the product on board
for disposal at a port which will give more value. This will need the parties involved
to agree the costs involved. The trading range may be restricted because of the
bunker tank space used up by the off-spec fuel, or the cargo intake may be restricted
because the ship’s deadweight limit will be impacted by the mass of the off-spec fuel.
It all requires considerable planning.
Removal for operational reasons
This can involve either disposal of the surplus product or temporary storage and
resupply. In the latter case it will be important to be sure that the product is not
contaminated during storage. Sometimes it is cheaper to sell the product to a supplier
in the port and let him resupply a new batch once the ship is ready to be resupplied.
When the product is of good quality, this avoids the storage costs. The costs of
barging and analysis and a sensible fee for the ‘deliverer’ (the barge contractor) will
often save money and complication for all involved.
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Claims
Debunkering costs
The major cost issues for debunkering (independent of who eventually has to pay
them) are as follows:
• Quality survey costs
• Quantity survey costs
• Barging hire
• Storage costs (if incurred)
• Lost time cost for the vessel
• Equipment hire (pumps, hoses, extra fendering)
• Licenses, taxation and duties.
Quality survey costs
When debunkering, it is critical to ascertain the actual quality of product removed
(which may well be a blend of fuels co-mingled on board). This will be checked by
analysis of samples taken by a surveyor during the transfer and the cost will typically
be between $1,000 and $1,500.
Quantity survey costs
The quantity transferred will normally be taken from the receiving barge tanks and
there will usually be monitored by a surveyor with a cost of about $1,000.
Barging hire
The barge will have to be paid for from the time it leaves its terminal to the completion
of the pumping off of the debunkered product. This can be a period of days. Hire
rates vary according to the age, size and location of the barge but will be a matter of
between $2,000 and $8,000 per day.
Storage costs
If product has to be kept in storage ashore for a period (for example, whilst a ship is
being repaired) then there will be a charge for storage. This is impossible to quantify
here, as the charge is so variable. Large quantities can be stored for a charge of
about $1 per tonne per month, but smaller quantities can cost much more.
Cost of lost time of vessel
This depends on the market rates for the vessel at the time and the ownership /
charter arrangements. If the vessel has no immediate employment prospects then
the time of the vessel is ‘free’. If there is plenty of available work, then the vessel will
lose employment valued at the current daily charter hire rate. If the lost time causes
the vessel to miss a fixture for which she was already contracted, there may be other
cost consequences.
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Equipment hire
It may be necessary to hire additional hoses or additional fendering to expedite the
transfer from a ship to a barge. More significant would be the hire of special pumps
to expedite the transfer. Most oceangoing ships have a limited ability to pump fuel off
the ship. The average transfer pump capacity is less than 20 m³/hr. Even the largest
container ships will be limited to a rate of less than 80 m³/hr. It is possible to hire
portable pumps in a few ports that will increase the transfer rate significantly.
Licenses, taxation and duties
In many ports, debunkering is an activity that requires special permission; the port
authority may require a variety of procedures to be followed all of which will impose
costs. Fuel put onto ships is duty free, so there are Customs implications if it is ‘re-
imported’ or if it is ‘imported’ into a different country. Revenue authorities in major
ports are familiar with debunkering and can accommodate this without too much red
tape, but there are locations where the regulations make debunkering extremely
difficult and expensive.
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Bunker software and the Internet
Chapter 13 - Bunker software and the Internet
There are a number of proprietary software systems available for managing the
bunker supply and bunker procurement process. The degree of complexity and utility
varies from vendor to vendor but all are designed to improve efficiency and reduce
costs. A small selection of different approaches is described here.
Abacus Websoft in Singapore has produced a package called Bunker Management
System specifically for the bunker supplier with an emphasis on managing product
stocks, barge delivery schedules, invoicing and with an interface with the Maritime &
Port Authority of Singapore (MPA) to provide automated data exchange.
Aspect Enterprise in the UK produces the Aspect Decision Support Centre which,
in addition to interfacing with live data from sources such as Platts, also has tools
to handle blend calculations, calculating options pricing and decision support for
traders.
LQM Petroleum Services of the United States has two systems. One, the Bunker
Dashboard, is used for procurement management and analysis of bunker activities
through the integration of the entire procurement cycle by consolidating all the
procurement processes from port arbitrage to management reporting. The other is
a bunker optimisation tool called BOptimum which uses computer modelling to plan
the bunker port selection, bunker storage and bunker usage to minimise bunkering
costs.
Internet
The Internet is used for a number of bunker-related commercial activities and there
are websites available which provide a variety of information. The web is a wonderful
and dynamic source of information. However, it is important to realise that some
information is grossly inaccurate. Even worse, you can be misled by seeing the same
piece of information on four separate sites and be persuaded that it must be true,
even though three of the sites gathered the information from the first website and it
is still wrong!
The function of the various bunker-related sites can be divided into four specific
areas:
• Market information
• Ship information
• Contact information
• Price information.
The amount of information available varies from site to site and the most useful sites
function on a subscription or privileged access basis.
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The sites are operated by journalists (for example, Bunkerspot, Bunkerworld, Platts,
Reuters), by bunker brokers (for example, LQM Petroleum Services, Nautical Supply,
Socomet Bunkering), by bunker traders (for example, O.W. Bunker & Trading, Amoil)
and by companies that act as both brokers and traders (for example, KPI Bridge Oil,
OceanConnect).
Some ship agents have comprehensive websites with relevant bunkering information
(For example, Leth Suez). Information on specific ships is available from Equasis,
a site sponsored by the European Union (EU) that is free and has open access. It
is a very good way to identify the correct spelling of a ship’s name. Detailed ship
information can be gathered from the Lloyd’s List Intelligence site (subscription only)
with movements and Automatic Identification of Ships (AIS) sightings available.
Limited AIS information is available from some free AIS sites such as MarineTraffic.
At the time of the dot.com boom of the late 1990s, a number of sites were set up
to try to emulate the success of retail sites such as Amazon.com to allow buyers
to arrange their requirements online. Most of these have fallen by the wayside,
although a couple remain active, albeit with a greater degree of human intervention
than originally envisaged. The most notable of these is probably OceanConnect. The
difficulty for this approach was that buying and selling bunker fuel involves a complex
chain of logistics and does not lend itself to a simple commodity auction.
Market information
Market information sites are a useful reference and it is surprising what can be found
just using a normal search engine. However, the reader should be aware that just
because he has found information on the web does not make that information correct,
accurate or current. Information from sites that entail a subscription or where access
is on a privileged basis will generally be more reliable (if they were not, then they
would soon lose their subscribers).
Information on product availability, delivery methods, port restrictions and even current
local weather is often available.
Ship information
It is possible, using Internet tools, to find detailed information on individual ships, their
ownership, their location, their size and their current voyages.
Subscription services, such as Lloyd’s Seasearcher, will give a huge amount of data
on the ship and owner, including its voyage history and current position.
Another specialist provider, PortVision, provides real time visualisation and historical
reporting through a data warehouse that processes and analyses over 40 million
vessel movements each day. PortVision’s interactive maps display the real time
position of a ship, the ships in a particular port and the position of ships at sea. Its
data warehouse contains arrival, departure and vessel movement records for a five-
year period.
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Figure 28. Seasearcher
Screenshot courtesy of Lloyd’s List Intelligence (www.lloydslistintelligence.com)
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Figure 29. PortVision

Screenshot courtesy of PortVision (www.portvision.com)
This type of information helps sellers and brokers market their services to buyers,
track the progress of deliveries and even track the location of their competitors’
delivery vessels. It is even possible to find this level of information in an application
for smart mobile telephones.
Contact information
Contact information sites give information about all of the suppliers active in a port or
region together with some contact details. The amount of detail will vary according to
the level of access you have to the site. The Bunkerworld site has a detailed contact
directory that is available to subscribers. Many sellers and suppliers have their own
sites that will usually have up-to-date contact information. One of the weaknesses
of relying on web-based information is that it is frequently out of date. Many sellers
have a good website containing contact details of someone who left their employ six
months ago!
Pricing information
Some price reporting sites will give comprehensive price information at a number of
ports spread worldwide. For example, the LQM site reports on 72 ports with live price
updates throughout the day. The most recent development here is the provision of
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access via ‘smart phones’, allowing a significant proportion of the data to be viewed
from a mobile phone display.
The difficulty for price reporting is the need to report a realistic price spread which
matches the buyer’s needs – the price difference related to the quantity of fuel
required and the amount of notice will vary considerably.
The LQM site is available as an application for a smart mobile telephone.
Figure 30. LQM iPhone app

Screenshot courtesy of LQM Petroleum Services Inc. (www.lqm.com)
Web-based systems
There are some buyers who operate their procurement system using web-based
bidding sites. These are used for a wide variety of necessaries (paint, lubricating oil,
stores) as well as bunkers. The advantage is supposed to be a reduction in manpower
required in the buyer’s procurement operation and an improved audit trail. However,
this is not widespread, probably because of the complexity of the bunker supply
logistics and the difficulty of forward planning for vessels on tramp trading routes.
There is an increasing use of the Internet for access to specialist bunker management
software. The best known method of access over the Internet is an application called
Citrix. Whilst the user is using software structured for his fleet, and using his own
data for each bunker stem, the application can be on a server located anywhere in
the world and he can access it from any computer connected to the Internet. Similar
techniques can be used for bunker planning software.
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Commercial responsibility for operational issues
Chapter 14 - Commercial responsibility for

operational issues
Regulatory issues
Many of the regulations and operational restrictions on vessels have a significant
impact on commercial activity, but what is not so obvious is the impact of commercial
activity on the ship’s efforts to comply with all of the rules in place. As a general
rule, the onus on compliance with maritime legislation rests solely on the vessel, the
master and the crew. The vessel has some specific obligations with regard to bunkers
and bunkering and these are detailed below.
MARPOL 73/78
MARPOL is the international convention on the prevention of pollution by ships. The
most important sections of this related to bunkering are Annex 1 (pollution by oil) and
Annex VI (pollution of the atmosphere).
The commercial impact is in Annex VI, as the vessel is prohibited from emitting more
than a certain level of sulphur oxides (SOx) and nitrogen oxides (NOx) in its exhaust.
At this time, the method of control for SOx is by limiting the sulphur content in the fuel
used on board.
Sulphur
All heavy fuels and distillates contain some sulphur (from 0.01% up to 4.5%). When
burned and released into the atmosphere it causes acid rain so, over the last decade
or so, great efforts have been made to control sulphur content in fuels.
The limits in the international standard still being used by many suppliers, ISO
8217:2005, vary from 4.5% for heavy fuels and 1.5% for gasoil. These were changed
in ISO 8217:2010 (the edition was published at the end of June 2010). The new
standard requires the buyer to stipulate the maximum sulphur level required in order
to meet the legislation where the fuel will be used.
International rules
MARPOL 73/78 Annex VI is valid for international and territorial waters. Annex VI
stipulates a maximum worldwide sulphur content of 4.5 % mass/mass (m/m) in fuels
and a maximum permitted SOx emission level in the Baltic Sea, the North Sea and
the English Channel. Fuel sulphur content for these areas must not exceed 1.00 %
m/m, except if the vessel is equipped with an approved ‘exhaust gas cleaning system
or any other technological method’ to meet the maximum SOx emission level.
As part of this Annex there is a requirement to use a maximum 1.00% sulphur content
in all valid Emission Control Areas (ECAs).
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There was an amendment to Annex VI adopted by the IMO’s Marine Environment

Protection Committee (MEPC) in 2008, which made the following changes:
• Global limit 4.5%, falling to 3.5% from 1 January 2012
• Global limit reduced to 0.50% from 1 January 2020
• ECA limit 1.00%, falling to 0.100% from 1 January 2015.
This is for all liquid fuel used.
Equipment can be used to clean the exhaust gas to meet strict SOx limits that will
then permit the use of high sulphur fuel. This is called abatement technology. The
most promising technology is sulphur scrubbing that washes the exhaust gas with
seawater.
If the ship is registered in a state that has signed Annex VI, the ship must comply.
If the ship is registered in a state that has not signed Annex VI, it must still comply
when in the waters of a state that has signed Annex VI. In addition, the amendment
to Annex VI includes a clause on fuel availability and a clause on verification of the
sulphur level in use by the vessel within the ECA.
The first ECAs were established in the Baltic Sea, North Sea and English Channel,
to be joined in August 2012 by the coast of the United States and Canada (excluding
the Arctic), in 2013 by Puerto Rico and the US Virgin Islands, and possibly in 2014
by Japan. There is the provision within Annex VI to allow the designation of an ECA
anywhere in the world.
Any vessel sailing in an ECA must comply with the limits from such time as it enters
the area until it leaves. The system is policed by the Flag State of the ship and the
Port State of any port it visits. A ship found to be in breach of the regulations could be
fined and detained until the non-compliance is resolved.
EU rules: Directive 1999/32/EC and Directive 2005/33/EC

Note that you need to read both directives as the latest directive only contains the
amended clauses.
There is an ‘at berth’ requirement where all vessels must burn fuel with a maximum
sulphur level of 0.100% whilst ‘at berth’ within any EU port. This applies to all fuel used
in all fuel burning equipment, with the exceptions of fuel used whilst manoeuvring
entering, leaving or shifting in the port.
For use at sea, the EU Directive is in line with IMO MARPOL Annex VI with respect to
the 1.00 % m/m sulphur content limit in SOx emission control areas.
If the ship is registered in an EU state that has passed enabling legislation for the EU
1999 and 2005 directives, then the ship MUST comply whenever in EU waters or in
the ECA.
If the ship is not registered in an EU state that has passed the EU 1999 and 2005
directives, then the ship MUST comply in the territorial waters of any EU state that
has passed the legislation.
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Passenger vessels trading between EU ports outside the ECA are restricted to a
maximum of 1.50% sulphur at sea.
ISO 8217
In 2010, ISO prepared a new standard, ISO 8217:2010. There are many changes
from the previous edition, ISO 8217:2005, but most significant is that the maximum
sulphur is to be separately specified for each grade when the standard is used in an
order. In other words, the new standard does not state the maximum sulphur content,
but it does define how it is to be measured and what tests are to be used. The sulphur
limits for distillate fuels are still in the standard, so if a lower level is needed for
regulatory purposes (i.e. max 0.10% sulphur), this must be separately stated.
Implications for owners

Samples
The rules apply to the ship (i.e. the buyer) to ensure that it complies with the rules.
MARPOL states that there must be one sample (which can come from the same
sample volume before division as the ‘retained’ sample, ‘barge’ sample and ‘ship’
sample). This special sample must be retained ‘under the control of the ship’ for a
period of one year. This applies to EVERY bunkering, wherever it is. This sample
cannot be used for anything else and any port state inspector has the right to have
it tested.
If you bunker from a supplier in a non-MARPOL signatory state, then it is 100% up to
the owner to ensure that a sample and bunker delivery note (BDN) that do comply are
completed and kept on board.
Bunker delivery note
The BDN will need to contain actual figures for sulphur and density, which have
been obtained by the appropriate test methods. It must also contain a supplier’s
declaration that the delivery complies with Annex VI and have the address and phone
numbers of the supplier. It is important to note that these rules apply worldwide. This
is international legislation and whilst a country may not be a signatory to MARPOL, a
vessel taking bunkers is almost certainly going to be travelling to one. The ship must
also retain all BDNs for three years on board the vessel. Suppliers are required to
retain copies of the BDN for three years.
Alternative control
MARPOL allows for ‘technical abatement’ as an alternative to limiting sulphur.
However, while there are now two type-approved systems in existence, they do not
yet have wide approvals from MARPOL states. Clearly, the ability to avoid the 1.00%
sulphur limit by technical means will be of interest to owners sailing in the Baltic and
North Sea and English Channel areas. The rules have been agreed in the Amendment
to Annex VI and the first designs are awaiting national approval.
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Applicable areas
The biggest misconception about this legislation is that it only applies to Europe. This
is simply not true. Comments have been received where it is clear that people do not
realise that this will affect everyone involved in the supply of fuel oil and the use of
fuel oil with very few exceptions.
When in an ECA, the crew is required to keep records of when the fuel system was
changed over to the lower sulphur fuel in order to prove that the vessel was consuming
compliant fuel when it entered the ECA.
Suppliers and samples
There is one very important rule that has been set by the IMO. The sample to prove
compliance with Annex VI should be taken at the receiving vessel’s bunker manifold.
This rule is open to interpretation by the various flag states and is a topic for review of
Annex VI. The responsibility for supplying the sample remains with the supplier.
All suppliers need to be registered with the appropriate authorities. Suppliers are
required to provide a mandatory sample. This is to be taken by one of the following
methods:
• Continuous drip sampler
• Time proportional automatic sampler
• Flow proportional automatic sampler.
The guidelines state it should be taken at the receiving vessel’s manifold. This latter
requirement has been relaxed on a unilateral basis by a number of jurisdictions
following lobbying by suppliers and some port authorities. The most common
alternative is at the barge manifold. It must be a minimum of 400 ml and is not to be
used under any circumstances for commercial purposes. Furthermore, the vessel
must retain this sample for a minimum of one year. The sample must remain in the
ship’s control for that period but does not have to be retained on board.
The sample will be accompanied by a BDN, which must be retained on board for three
years. The supplier is also required to retain a copy of all BDNs for three years.
The IMO could not agree on following the normal ISO 4259 protocol for verification of
sulphur content in the event of a dispute so there is a new complicated procedure as
part of the recent amendment to Annex VI.
The EU stipulates that the ISO 4259 procedure must be used so there is a legal
problem here awaiting resolution.
In an ECA
This requirement states that when entering the Baltic Sea, North Sea and English
Channel all ships must be burning fuel oil with a sulphur content of less than 1.00%
m/m sulphur content. This will mean that very accurate records must be kept on board
regarding the origin of the fuel being burned and when the fuel system was switched
over.
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The Baltic ECA is all enclosed water to south and east of latitude 57.44.08° north.
The North Sea ECA is bound by waters east of 5° West at the entrance to the English
Channel, east of 4° west to the north of Scotland and south of 62° north between the
line 4° west and the coast of Norway.
Figure 31. The Baltic, North Sea and English Channel Emission Control Areas
The Puerto Rico / US Virgin Islands ECA extends about 40 miles out from the coast
of these islands. It is expected to enter into force in 2013.
The United States / Canada ECA will extend out from the coast of the United States
and Canada a distance of 200 nautical miles and includes the state of Hawaii but
excludes some Arctic territory.
125
Figure 32. The Puerto Rico / US Virgin Islands Emission Control Area
Figure 33. The United States / Canada Emission Control Area
126
California Air Resources Board (CARB)

California introduced a regulation that all vessels within 24 miles of the coast must
burn fuel in their diesel engines that is an approved grade. The approved fuels are (a)
gasoil DMA, (b) diesel with a maximum sulphur content of 0.5%. The CARB limits fall
to 0.1% sulphur on 1 January 2012
Figure 34. California’s exclusion zone
Penalties
Penalties can only be applied once the national legislation has been passed. The
penalties for California are clear and in force now. For MARPOL, there are penalties
in Flag State and Port State legislation for breach of MARPOL, but these can only
apply to Annex VI once the legislation is in place. To date, not all EU states have fully
enacted the legislation. The worst-case penalties would involve detention and the
imposition of full MARPOL breach punishment. In some states these penalties can
be very severe. The penalties for breach of the EU 1999 Directive on gasoil levied to
date have been rather light ($1,000 up to $20,000). The UK maximum fine is £50,000
(around $78,000). Once the US authorities become involved, you can expect a big
rise in enforcement effort and penalties. California has a published scale of fines for
non-compliance with its regulations on marine diesel oil.
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Supply implications of sulphur regulations

At present, the market is able to meet the demand for 1.00% sulphur fuel by selective
blending and the use of relatively low sulphur crude oil. As the quantity of 1.00%
sulphur fuel increases, this will become more difficult.
The ECA limit of 0.100% in 2015 will force most owners to switch to distillate within
the ECA as, whilst the abatement technology will almost certainly be available, very
few owners will have it on board their ships by that date and the manufacturing and
installation capacity of the industry will not be able to deal with the likely demand.
Prudent owners will be looking to work in partnership with engine builders and
equipment developers on scrubber technology now.
The boost in distillate demand will markedly increase the premium of distillate over
residual fuel (reinforcing the financial argument in favour of abatement). There will be
enough distillate to meet the ECA demand, unless the number of new ECAs increases
markedly from now.
The imposition of the global 0.50% cap in 2020 will put considerable pressure on the
refining industry and the only long-term solutions are using low sulphur distillate or the
adoption of abatement technology.
I expect the refiners to lobby very hard to get the 0.50% cap date moved back to
2025 (it is written in to the legislation that there will be a technical review in 2018 to
ensure the 2020 date can be met) and, if the environmental pressure has lessened,
they might succeed.
The big unknown is the impact on global carbon dioxide (CO2) if we have to manufacture
an additional 250 million tonnes of distillate in order to meet the global sulphur limit.
There is an argument that says the additional distillate can be produced simply by
upgrading existing refineries, but in my opinion this is unrealistic and will require
massive capital investment.
Abatement technology
At the moment, the only abatement technology on offer is exhaust scrubbing. There
are three types on offer: wet scrubbing, open loop with salt water; wet scrubbing,
closed loop with fresh water; and dry scrubbing though limestone. Of these, seawater
scrubbing is the simplest (Hamworthy/Krystallon) and closed-loop fresh water
(Wärtsilä) is the most promising, because it is the least problematic for waste disposal.
Both of these now have type approval.
The installed cost is unlikely to be less than $500,000, although I anticipate that the
market will concentrate on large tankers and bulk carriers where the space required
will be easy to find for retrofit.
Annex VI also imposes limits on NOx emissions; this is an engine design issue. From
2016, new engines must comply with a much lower NOx limit (Tier III) when sailing in
an ECA. The solution is to use selective catalytic reactors to clean out the NOx. These
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devices are sensitive to contamination by SOx and also have operating temperature
requirements. At the time of writing, this is still seen as a problem if a vessel is to use
high sulphur fuel oil, scrubbers for SOx compliance and selective catalytic reduction
(SCR) for NOx compliance in an ECA. Wärtsilä believes that it has a solution for this
and expects to have commercial systems available from 2014. This Tier III rule only
applies to engines built from 2016.
Safety of Life at Sea (SOLAS)

The international convention on the Safety of Life at Sea impacts on almost every
aspect of vessel operation and operates in the same way as MARPOL. The system
is policed by the Flag State of the ship and the Port State of any port it visits. A ship
found to be in breach of the regulations could be fined and detained until the non-
compliance is resolved.
The impact on bunkering is with three specifics; the consequences are explained
here.
Flash point
SOLAS Chapter 11-2 Regulation 4, 2.1 limits fuel to a minimum flash point of 60°C. If
a vessel is supplied with a non-compliant fuel, then the vessel does not comply with
SOLAS and is therefore deemed to be out of class. If the vessel is out of class, it may
lose its owner’s ability to limit liability on cargo loss and invalidate insurance policies.
This is a significant commercial issue. The first course of action should be for the
owner to contact his Class society, which will assess the actual risk and advise.
Material Safety Data Sheet (MSDS)
SOLAS Chapter VI Regulation 5,1 requires mandatory provision of an MSDS to
the vessel at the time of bunkering. The purpose of the MSDS is to ensure that the
vessel crew is fully aware of the risks and hazards associated with the product being
supplied.
International Ship and Port Facility Security (ISPS) Code
SOLAS Chapter XI-2 lays down the structure of security routines for ship and port
facilities related to security risk levels. When the vessel / port interface has to operate
at any level above Level 1 there may be consequences in terms of port cost and
potential time delay.
The details of the code are largely operational but buyers and suppliers need to be
aware of the potential costs they may encounter.
Greenhouse gases
The United Nations Framework Convention on Climate Change (UNFCC) is tackling
the impact of greenhouse gases (GHG). The most significant of these for shipping is
CO2. It is hoped that the task of regulating GHG from ships will be undertaken by the
IMO (which is actively working on this), although this is still not certain.
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The two routes to reducing CO2 from ships are improved efficiency (burning less fuel)
and using a different fuel, such as liquefied natural gas (LNG), wind power, solar
energy and, eventually, hydrogen.
The improved efficiency route will be ‘regulated’ by financial incentives although it is
not yet sure if it will be carrot, stick or a bit of both. However, it is probable that there
will be some sort of payment from the shipowner to the IMO and this could end up
as a levy on bunker fuel which would be collected by the suppliers. This will impose
considerable extra work on the sellers and complicate the way that payments are
made between owner and charterer.
Slow steaming
A factor in the efficiency is ship speed. The relationship is not a straight line: the
power required increases rapidly to achieve quite small increases in speed as the
speed reaches the upper limit of the design.
1000
800
Effective Horsepower, EHP (HP)
600
400
200
0
0 2 4 6 8 10 12 14 16
Ship Speed, Vs (Knots)
Figure 35. The effect of slow steaming
This means that reducing the speed from say 16 knots to 8 knots reduces the power
(in this case) from 750 horsepower (hp) to 100 hp with a similar reduction in fuel
consumption. Even a modest speed reduction down to 14 knots will reduce the power
to 500 hp. This would translate to a saving of 250 mt of fuel on a voyage of 4,000
nautical miles (nm), taking eight days instead of 6.5 days. That is a big reduction in
CO2. There is a commercial consequence in that the additional vessel time has to be
funded and there will need to be an increase in the number of ships to carry the same
annual quantity of cargo if all the ships were full all the time – which they are not!
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Bunker clauses in charter parties

When an owner passes operational control of his vessel to another (by a bareboat
charter or by a time charter) he will protect his asset and his own liabilities with regard
to regulations by the use of appropriate clauses in his contract – the charter party.
These clauses have been used for more than a century but in the last 20 years their
detail and scope have increased considerably.
They are a double-edged sword. If the specification is not clearly set out and
appropriate to the vessel, the time charterer will buy the cheapest fuel available that
complies with the clause. If the specification is much stricter than the vessel actually
needs, it will mean that the fuel cost to the charterer will be much higher, and he may
not charter this ship but seek another with fewer restrictions. The advice to an owner
is that you should not impose a restriction which you would not use yourself if trading
the ship for your own account. The advice to the charterer is to not take on a ship on
time charter unless you have assessed the cost of fuel which will meet the bunker
clause and its availability in areas where you wish to trade the ship.
Charterer to provide
The most basic bunker clause, ‘charterer to provide’, details the type and quality of
fuel that the charterer must provide for the ship. In standard forms (such as Shelltime
4, ASBA II, NYPE, etc.) this may be as brief as:
Charterer to provide fuel for the main engine of 380 cSt
and for the auxiliary engines of MDO.
It is more likely these days to read something like this:
Charterer to provide all fuel and diesel required in
accordance with ISO 8217:2005 (E) grade RMG380 and grade
DMA as amended from time to time.
Some owners may have additional parameters, or stricter limits on a particular
parameter than the standard mentioned above and this would either be incorporated
in the above or added as an extra bunker quality clause to the charter party. There
may be a reference to segregation and its effect on reducing the quantity of fuel that
can be lifted:
Bunkering volume will be limited to ensure that all fuel
lifted can be segregated from previous lifting and new
fuel will not be used until owner has confirmation of the
quality from a sample analysis.
There will also be a clause protecting the owner’s position with regard to MARPOL:
Charterer to ensure that when vessel is to receive bunkers
in a port in a state which is a signatory to MARPOL Annex
VI, the supplier must be a registered supplier with that
state and comply fully with the requirements of Annex VI.
In every case, charterer is to ensure that all bunker
suppliers provide appropriate documentation and sample in
accordance with the provisions of MARPOL 73/78 Annex VI 18
(3), 18(5) and 18 (8) in order to allow vessel to comply
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with that Annex and the regulations of the vessel’s flag

state with respect to MARPOL 73/78 Annex VI.
Owners will also often add specific clauses with regard to the time taken to change
over from high sulphur to low sulphur fuel, and the requirement to supply fuel that
complies with EU and CARB legislation.
A prudent buyer would include reference to the MARPOL requirement on his
enquiry:
Buyer requests that all offers should be on the basis of
a delivery in full compliance with MARPOL 73/78 Annex VI.
In the event that a supplier is not able to offer full
compliance, the supplier should indicate which part of the
requirements he cannot meet.
There may be similar clauses in the charter party with regard to the SOLAS requirement
on the MSDS and a buyer should always ensure that his supplier provides the
document in accordance with the convention.
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Appendix 1 - Where to go for help
For verification of ship names and a cross check with the IMO number, Equasis:
www.equasis.org
For general assistance with questions about the bunker industry, the International
Bunker Industry Association (IBIA):
www.ibia.net
For details on International Maritime Organization (IMO) conventions such as
MARPOL and SOLAS:
www.imo.org
For details on European Union regulations on control of atmospheric pollution:
www.europa.eu/legislation_summaries/environment/air_pollution/21050_en.htm
For information on the SWIFT system of telegraphic transfer:
www.swift.com
For information on payments blocked by compliance with the US Office of Foreign
Asset Control:
www.ustreas.gov/offices/enforcement/ofac/faq/answer.shtml#3
McGraw Hill for information on Platts price reporting:
www.platts.com/Products/bunkerwire/Oil/Trader/PriceAssessmentIndices
Many bunker suppliers have their sales terms and conditions available on their
websites. Be aware that they may have different versions depending upon the law
to apply to the contract (for example, Shell has one set for the United States and
another for the rest of the world).
A good source of energy market information (not specific to bunkers) is:
www.bloomberg.com/news/energy/
Live market pricing on the oil exchange quotes is available without charge (delayed
information only) at:
www.futuresource.com
Limited live Automatic Identification of Ships (AIS) data can be viewed free on:
www.marinetraffic.com/ais/
Non-governmental organisations
There are a number of non-governmental organisations (NGOs) that get involved with
bunkering. Amongst these are:
• BIMCO – Baltic and International Maritime Council:
www.bimco.dk
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• CONCAWE – Conservation of Clean Air and Water in Europe:

www.concawe.be
• INTERTANKO – The Independent Tanker Owners industry association:
www.intertanko.com
• OCIMF – The Oil Companies International Maritime Forum:
www.ocimf.com
• ITOPF – The International Tanker Owners Pollution Federation:
www.itopf.com
• Shell Marine Products
www.shell.com/home/content/marine-en
• Chevron
www.fammllc.com/famm/fuel_home.asp
• BP
www.bp.com/homepage.do?categoryId=6400&contentID=59059
• Total
www.marinefuels.total.com
There are a number of others:
• The Institute of Marine Engineering Science and Technology (I.Mar.E.S.T.)
is a source of all technical information:
www.imarest.org/theimarest/default.asp
• The American Bureau of Shipping has a good site on regulatory matters:
www.eagle.org
• Det Norske Veritas has a good download on MARPOL Annex VI and the
SECAs:
www.dnv.com/binaries/Marpol_Annex_VI_tcm4-125462.pdf
• North of England P & I Club has a good page for industry news on
regulations:
www.nepia.com/news/industrynews_links.php
Technical and legal information

For detailed technical and legal information, I can recommend:
• Bunkers: An Analysis of the Practical, Technical and Legal Issues
Third edition. ISBN 0-9548097-0-X. Chris Fisher and Jonathan Lux. Published
in 2004 by Petrospot Limited, Oxfordshire, England.
www.petrospot.com/books
• Legal Issues in Bunkering – An introduction to the law relating to the sale
and use of marine fuels
First edition. ISBN 978-0-9548097-6-8. Trevor Harrison. Published in 2011 by
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Petrospot Limited, Oxfordshire, England.

General bunkering
For general information on bunkering, I can recommend:
• An Introduction to Bunkering
First edition. English version ISBN 978-0-9548097-1-3. (Spanish version ISBN
978-0-9548097-2-0. Nigel Draffin.) Published in 2008 by Petrospot Limited,
Oxfordshire, England.
• An Introduction to Fuel Analysis
First edition. ISBN 978-0-9548097-3-7. Nigel Draffin. Published in 2009 by
• An Introduction to Bunker Operations
First edition. ISBN 978-0-9548097-4-4. Nigel Draffin. Published in 2010 by
Credit issues
For information on credit issues, I can recommend:
• An Introduction to Bunker Credit Risk
First edition. ISBN 978-0-9548097-5-1. Adam Dupré. Published in 2010 by
• Global Credit Management: An Executive Summary
First edition. ISBN 978-0470851111. Ron Wells. Published in 2004 by John
Wiley & Sons Ltd, West Sussex, England.
www.wiley.com
Ship arrest
For information on ship arrest, I can recommend:
• Ship Arrest Handbook
First edition. ISBN 978-1859781395. Paul Smith. Published in 1997 by LLP
Professional Publishing, London, England.
www.informaprofessional.com
• Berlingieri on the Arrest of Ships
Fourth edition. ISBN 978-1-84311-550-2. Professor Francesco Berlingieri.
Published in 2006 by Informa Maritime & Professional, London, England.
www.informaprofessional.com
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Useful websites
Information sources
• IHS Fairplay’s Sea-Web: www.sea-web.com
• Lloyd’s List Intelligence’s Seasearcher: www.seasearcher.com
• Petrospot’s Bunkerspot: www.bunkerspot.com
• Petromedia’s Bunkerworld: www.bunkerworld.com
• McGraw-Hill’s Platts: www.platts.com
• Tradewinds: www.tradewinds.no
• Ship Management International: www.shipmanagementinternational.com
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Appendix 2 - Abbreviations
Abbreviation What it stands for What it means

AIS Automatic Identification of Ships
Middle Eastern gulf between Saudi
AG Arab Gulf
Arabia and Iran
ARA Amsterdam, Rotterdam and Antwerp
BDN Bunker delivery note Same as BDR
BDR Bunker delivery receipt Same as BDN
Baltic and International Maritime
BIMCO
Council
Regulates atmospheric pollution in
CARB California Air Resources Board
California
CFD Contract for differences Same as a swap
CIA Cash in advance
Conseil International des Machines à Engine builders’ association that has
CIMAC
Combustion developed fuel standards
CO2 Carbon Dioxide
cu. m Cubic metres Also m³
del. Delivered
Measure of ‘cargo’ mass that can be
DWT Deadweight tonnage
carried
EC European Commission
Previously Sulphur Emission Control
ECA Emission Control Area
Area (SECA)
ETA Estimated time of arrival
ETB Estimated time of berthing
ETC Estimated time of completion
Estimated time of delivery (or
ETD This can be ambiguous
departure)
ETS Estimated time of sailing
EU European Union
Price excluding the cost of delivery
ex wh. ex wharf
onto the ship
International coordination on money
FATF Financial Action Task Force
laundering
FSA Financial Services Authority UK government finance regulator
GP General purpose A tanker of approximately 25,000 DWT
Measure of vessel size for calculating
GRT Gross registered tonnage
charges (volume based)
Europe-wide standard for bank
IBAN International bank account number
accounts
International Bunker Industry
IBIA
Association
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ICC International Chamber of Commerce Body that publishes INCOTERMS

Marine policy section of the United
IMO International Maritime Organization
Nations
Contractual definitions for international
INCOTERMS International Commerce Terms
trade
ISM International Safety Management code Part of SOLAS regulations for ships
International Organization for Produces standards such as ISO 8217
ISO
Standardization and ISO 9000
International Ship and Port Facility Regulates ship / port interface against
ISPS
Security code terror risks
LNG Liquefied natural gas Liquid methane as a cargo or fuel
LOA Length overall
LOC Letter of credit Documentary security for payment
Individual code for port (and airport)
LOCODE UN location code
names
LPG Liquefied petroleum gas Liquid propane or butane as a cargo
Normally a tanker of approximately
LR Long range
85,000 DWT
LUST Leaking underground storage tax
IMO regulation of maritime pollution
MARPOL Maritime Pollution Convention
(sea and atmosphere)
MOPAG Mean of Platts Arab Gulf Price quote from Platts Marketscan
MOPS Mean of Platts Singapore Price quote from Platts Marketscan
MR Medium range A tanker of approximately 40,000 DWT
MS Motor ship
MSDS Material safety data sheet
mt Metric tonne
MT Motor tanker
MV Motor vessel
NATO North Atlantic Treaty Organization Sets fuel standards for NATO warships
NOC No objection certificate
NOx Nitrogen oxide
Measure of vessel size for calculating
NRT Net registered tonnage
charges (volume based)
US administration department
OFAC Office of Foreign Asset Control
concerned with embargoes
OPL Outside port limits
PM Particulate matter
ROB Remaining on board
Ro-Ro Roll on-roll off Type of vessel, usually ferries
RTW Road (or rail) tank wagon
Used to reduce nitrous oxide in
SCR Selective catalytic reactor
exhaust gas
SECA Sulphur Emission Control Area Old name for ECA
SOLAS Safety of Life at Sea UN convention on ship safety
SOx Sulphur oxide Regulated under MARPOL
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SS Steam ship
Society for Worldwide Interbank
SWIFT Telegraphic financial transfers
Financial Telecommunication
T/C Time charter
T&Cs Terms and conditions
Size units for containers, used to
TEU Twenty-foot equivalent unit
decribe the size of container ships
Uniform Custom and Practice for
UCP Standardised by ICC
documentary credits
UN United Nations
United Nations Framework Convention
UNFCC Deals with greenhouse gas and CO2
on Climate Change
V/C Voyage charter
VAT Value added tax
VLCC Very large crude carrier
VLGC Very large gas carrier
VLOC Very large ore carrier
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140
Appendix 3 - Glossary of terms
Abatement Reducing or making smaller (with regard to pollution).

Aft In the direction of, at, or near the stern.
Aft peak A watertight compartment between the aftermost watertight
bulkhead and the stern.
Agent Refers to one who acts for, or in the place of, another, by authority
from him; one entrusted with the business of another. Generally
the ship’s agent or owner’s port agent.
Air draught Distance from the waterline to the highest fixed point on the
vessel.
Amidships The point midway between the forward and after perpendiculars.
Ballast A weight of liquid positioned in a ship to change the trim, increase
the draught or improve the seaworthiness.
Beam See ‘Breadth extreme’.
Berth Berth is the term used in ports and harbours to define a specific
location where a vessel may be berthed, usually for the purposes
of loading and unloading.
Beneficial Owner The Beneficial Owner is deemed to be the ultimate owning entity
or representative thereof (either individual, company, group
or organisation). The Beneficial Owner may be the vessel’s
management company or the trading name of a group, both of
which are generally perceived to represent the ultimate owners of
the vessel.
Bow or stem The forward end of a ship.
Breadth extreme The maximum breadth over the extreme points port and starboard
of the ship.
Bulkhead A transverse or longitudinal dividing plate (or wall) between
spaces.
Bulwark The part of a ship’s side that extends above the main deck to
protect it against heavy weather. It takes the form of a wall around
the main deck.
Cabotage The regulation of the rights to carry cargo along the coast
between two or more ports in the same country in a vessel not
registered in that country. It is intended to restrict coastal trading
to vessels of that state.
Charter The hiring of a vessel to carry cargo or cargoes. Charters can be
time, voyage or bareboat in nature. Time charters are of a fixed
time whilst voyage charters are normally for one voyage only.
Whereas the crew, etc. are included in a time or voyage charter,
in a bareboat charter no crew or provisions are included as part of
the agreement, the charterer paying for the same.
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Class Classification societies, or Class as they are commonly known,

are commercial organisations which are in competition with
each other, e.g. Det Norske Veritas (DnV). They were originally
established on behalf of hull and machinery insurers to ensure
that vessels met certain standards of construction. Over the
years, Class have developed the standards to which vessels and
their equipment are designed, constructed and maintained. It
should be borne in mind that a Classification society’s client is the
vessel’s owner and not the insurer.
Cofferdam A void or empty space between two bulkheads or floors. It is
located between an oil tank and a water tank to prevent leakage
from one to the other.
Commercial operator This is the in-house entity responsible for the commercial
decisions concerning the employment of a ship, and how and
where the ship is employed. The commercial operator is the direct
beneficiary of the revenues from operating the ship, and may also
be the entity that is responsible for purchasing bunkers and port
services.
Counter offer Offer made to a seller by a buyer in response to the seller’s offer.
Dangerous cargo Cargo classified by the IMO under the International Maritime
Dangerous Goods Code (IMDG). For example, goods that pose a
risk of fire, explosion or damage to health.
Deadweight This is the difference between the light weight and the loaded
displacement, i.e. it is the weight of cargo plus the weights of
fuel, stores, water ballast, fresh water, crew and passengers, and
baggage. It is the weight that the ship carries.
Demurrage Money paid as ‘liquidated’ damages for delay or detention.
Depth extreme The depth of the ship from the upper deck to the underside of the
keel.
Disponent owner The entity which directs the ship from port to port (can be owner,
bareboat charterer or time charterer).
Draught or draft The distance from the waterline to the underside of the keel.
Flag state The flag state has the authority and responsibility to enforce
regulations over vessels registered under its flag, including those
relating to inspection, certification, and issuance of safety and
pollution prevention documents. As a ship operates under the
laws of its flag state, these laws are used if the ship is involved in
an admiralty case.
Forecastle The part of a vessel at the bow where stores, machines, etc. may
be stowed.
Forepeak This is the forwardmost tank in a ship, bounded by the port and
starboard bow shell plating and the collision bulkhead. It is a
watertight compartment between the foremost watertight bulkhead
and the stem.
Forward In the direction of, at, or near the bow.
Freeboard The vertical distance from the summer load waterline to the
top of the freeboard deck plating, measured at the ship’s side
amidships. The uppermost complete deck exposed to the weather
and the sea is normally the freeboard deck. The freeboard deck
must have permanent means of closure of all openings in it and
below it.
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Full style Full name and address of a business.

Gunwale Strengthening bar or strip at the outer edge of the maindeck which
will trap spilled oil (if the scupper plugs are in place).
Holds The lowest cargo stowage compartments in a ship.
Inboard In a direction towards the centreline of the ship.
Innocent passage The right to pass though the territorial waters of a state. Passage
is innocent so long as it is not prejudicial to the peace, good
order or security of the coastal state. Such passage shall take
place in conformity with this convention and with other rules of
international law.
Layberth A berth where vessels are permitted to moor for purposes such as
running repairs, bunkering, taking stores, etc.
Laycan Abbreviation of ‘Laydays/cancelling’.
Laydays The arrival window for a ship commencing a charter – more
frequently referred to as ‘Laydays/cancelling’.
Laytime Time allowed for completion of cargo operations.
Length overall Extreme length of the vessel.
Longitudinal A direction parallel to the centreline of the ship or an item of
structure in this position.
Mitigation Minimising the cost or the impact of damages.
Outboard In a direction away from the centreline of the ship. The centreline
runs from forward to aft.
P&I Club P&I Clubs were formed by several owners coming together to
mutually insure each other’s vessels for those risks not covered
by hull and machinery (H&M) insurance, e.g. cargo damage, crew
injury and pollution. Each owner contributes an annual monetary
amount relating to the gross tonnage he owns, known as the call.
The fund is supervised by a management company. Some P&I
Clubs also offer H&M cover to their members.
Particulars The principal dimensions and information relating to a vessel.
Poop An enclosed superstructure at the stern of the vessel. It usually
houses the steering gear compartment. The deck above (such as
the after deck) is sometimes known as the poop deck.
Port The left-hand side of a ship when facing forward.
Port State Control The inspection of foreign ships in other national ports by Port
State Control (PSC) officers (inspectors) for the purpose of
verifying that the competency of the master and officers on
board, the condition of a ship and its equipment comply with the
requirements of international conventions and that the vessel is
manned and operated in compliance with applicable law.
Posted price Price for fuel published by a seller or a regulating authority at
regular intervals; a list price.
Quay A structure on the shore of a harbour where ships may dock to
load and unload cargo or passengers.
Registered The port at which the vessel is registered. This is usually marked
on the stern. The nation state of that port will be the flag state of
the vessel.
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Registered owner This is the company or individual to whom the ship’s legal title of
ownership has been registered.
This is where ‘open registry’, ‘paper’ or ‘name-plate’ companies
are often involved, with ships being registered in a country
whose tax on the profits of trading ships is low / absent or whose
requirements concerning manning or maintenance might be more
relaxed.
Scupper Drain hole connecting the main deck surface (close to the ship
side) with the vertical side of the hull, allowing water to drain off
the deck back to the sea.
Scupper plug Seal for the scupper, used during cargo operations and whilst
bunkering.
Shipper The person or party loading a cargo on board a ship for delivery
to a consignee at the destination port.
Slops Oil slops (a mixture of oil and water) to be offloaded for treatment
and reprocessing.
Starboard The right-hand side of a ship when facing forward.
Stern The after end of a ship.
Superstructure This refers to the structure comprising the accommodation, with
the navigation bridge and wheelhouse on top. The engine room is
usually located below the superstructure.
Tanktop This is the top face of the double bottom tanks (also known as the
inner hull).
Territorial waters Area of sea over which a nation state claims as sovereign
territory (12 miles from the coast, according to the United Nations
Convention on the Law of the Sea (UNCLOS)). A state may claim
jurisdiction over a larger area including the Contiguous Zone (24
miles) and the Exclusive Economic Zone (200 miles).
Transverse A direction at right-angles to the centreline of the ship or an item
of structure in this position.
144
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material is permitted. British Standards can be obtained in PDF or hard copy formats from the
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Appendix 5 - ISO 8217: 2005-2010 - Differences
150
Index
Large shipping organisation.....................36
Index Liner trades...............................................35

Owner.......................................................33
Profile.......................................................35
Registered owner.....................................33
A
Responsibilities.........................................38
Acceptance Shipping pool............................................37
Method......................................................27 Small fleet operations...............................36
Subjects....................................................27 Tankers and bulkers.................................35
Time charter..............................................34
B Tramp shipping.........................................35
Bankruptcy................................................. 110
C
Banks in shipping.........................................84
Broker...........................................................39 California Air Resources Board..................127
Broker/trader.............................................40 Charges
Co-broker..................................................40 Agent’s pro forma disbursement...............15
Commission..............................................39 Anchorage charge....................................21
Fittage.......................................................39 Barge charges..........................................12
Lump sum commission.............................39 Barge demurrage......................................13
Split commission.......................................40 Bunker-only port cost table.......................20
Bunker clause Cabotage, local taxation...........................93
Charter party...........................................131 Calling costs.............................................14
MARPOL.................................................131 Customs, duties, levies.............................91
Quality....................................................131 Downgrading............................................13
Segregation............................................131 Duty free...................................................91
Bunkering software..................................... 115 Environmental fees...................................21
Internet applications............................... 115 Fire watch charge.....................................23
Buyer............................................................33 Fuel surcharge..........................................21
Address commission................................37 Harbour fee...............................................22
Bareboat charter.......................................34 Ice surcharge............................................22
Beneficial owner.......................................33 Laytime.....................................................13
Buying account.........................................33 MARPOL compliance...............................23
Buying style..............................................37 Oil boom charge.......................................21
Demise charter.........................................34 Overtime...................................................20
Disponent owner.......................................34 Pipeline fee...............................................20
In-house broker........................................37 Pumpback.................................................13
Instructions to ship....................................35 Tax............................................................91
151
Tax exemption certificates........................91 Revolving Letter of Credit.........................73

Watch boat charge....................................23 Standby Letter of Credit............................74
Wharfage..................................................23 Withdrawal of credit..................................75
Claims.........................................................107
Attachment............................................. 112 D
Bankruptcy of disponent owner.............. 110
Debunkering............................................... 112
Bankruptcy of trader............................... 110
Debunkering costs.................................. 113
Debunkering........................................... 112
Deliverer.......................................................89
Demurrage / delay..................................108
Barge........................................................90
Freezing order........................................ 112
Contract arrangements.............................91
Lien......................................................... 111
Road tanker..............................................90
Liquidation.............................................. 110
Document / process control..........................31
Maritime lien........................................... 111
No lien stamp.......................................... 111 E
Notice of claim........................................109
Enquiry
Payment default......................................109
Bunker-only call..........................................2
Quality....................................................107
Bunker-only port.........................................6
Quantity..................................................107
Buyer’s name..............................................4
Time bar..................................................109
Deviation costs...........................................3
Use of surveyors.....................................109
Vessel arrest........................................... 110 ETA.............................................................7
Confirmation messages................................27 Freeboard...................................................9
Credit............................................................71 Hull number................................................4
Bank guarantee........................................74 Liberty to deviate........................................2
Credit insurance.......................................75 Offshore bunkering.....................................7
Credit line.................................................75 OPL.............................................................7
Credit manager.........................................76 Port.............................................................6
Credit reporting.........................................74 Price validity...............................................9
Credit security...........................................73 Pumping restrictions...................................9

Established buyer unknown to seller........76 Quantity......................................................8
INCOTERMS............................................73 Specification...............................................8
Letter of Comfort.......................................74 Timing of delivery........................................7
Letter of Credit..........................................73 Vessel name...............................................4
Load over load..........................................76 Vessel type.................................................5
New buyer unknown to seller...................76 Enquiry details................................................1
Opening credit..........................................76 Equasis...........................................................4
Parent company guarantee......................74 ETA
152
Index
Enquiry.......................................................7 M
Notices......................................................30
MARPOL....................................................121
EU rules......................................................122
Abatement..............................................123
At berth...................................................122
Baltic ECA...............................................125
Passenger vessels.................................123
BDN........................................................123
G ISPS Code..............................................129
North Sea ECA.......................................125
Greenhouse gas.........................................129
Puerto Rico / US Virgin Islands ECA......125
H Samples..................................................123
Sulphur...................................................121
Hedging........................................................99
United States / Canada ECA..................125
Basis risk................................................102
Call option...............................................102 N
Collar......................................................105
Negotiation...................................................25
Fixed price physical................................101
Deadlines..................................................26
Floating price physical............................101
Feedback..................................................25
MOPAG...................................................101
MOPS.....................................................101
O
Over-the-counter....................................101
Platts 3.5% barges.................................101 Offers............................................................ 11
Platts Bunkerwire....................................101 Commissions............................................24

Platts Marketscan...................................101 Concurrent bunkering...............................12
Platts Med CIF........................................101 Delivery costs...........................................12
Swap.......................................................101 Delivery method........................................12
Term deals................................................99 Different grade..........................................26
Energy content.........................................26
I INCOTERMS............................................24
Internet Overnight validity......................................25
Contact information................................ 118 Payment terms.........................................24
Market information.................................. 116 Price......................................................... 11
Price information..................................... 118 Quality......................................................12

Ship information...................................... 116 Sales terms...............................................24
ISO 8217 Validity......................................................25
2010........................................................145 Offshore bunkering.........................................7
Differences 2005/2010............................149 Weather restrictions....................................7
Quality standard.........................................8 Offshore companies.....................................33
153
P Q
Payment.......................................................79 Quality
Cash.........................................................79 ISO 8217....................................................8
Cheque.....................................................79
Correspondent banks...............................84
R
Deduction from freight..............................80 Regulatory issues.......................................121
Electronic transfer.....................................80
European Union banking..........................84 S
FATF.........................................................85
Seller
IBAN.........................................................84 Intermediary..............................................44
Interest on late payment...........................81 Responsibilities.........................................44
Late payment............................................80 Shipping pools..............................................37
Methods....................................................79 Ship’s agent..................................................38
Money laundering.....................................85 Slow steaming............................................130
SWIFT.......................................................81 SOLAS.......................................................129
UN sanctions............................................85 Flash point..............................................129
Port MSDS.....................................................129
Lay berth.....................................................6 Specification
LOCODE....................................................6 Enquiry.......................................................8
Outside port limits.......................................6 Supplier........................................................43
Terminal names..........................................6 Blender................................................43 87
Weather restrictions....................................6 Deliverer...................................................87
Post fixture...................................................30 Importer....................................................43
Invoice processing....................................30 Refiner.................................................43 87
Payment processing.................................30 Terminal operator......................................87
Price.............................................................95 Suppliers......................................................87
Bunkerwire................................................96 Importer....................................................87
Market on close assessment....................96
Platts.........................................................96
T
Port arbitrage............................................97 Tax
Posted prices............................................96 California sales tax...................................93
Post fixture change...................................97 Hedging..................................................106
Price reporting..........................................96 Local taxes...............................................91
Spot..........................................................95 LUST.........................................................22
Term..........................................................95 Superfund.................................................22
Volatility....................................................96 VAT number..............................................91
154
Index
Terms and Conditions...................................45 Coaster.......................................................5

BIMCO......................................................61 Container
Cancellation..............................................58 Feeder......................................................5
Claims.......................................................55 Panamax..................................................5
Delivery.....................................................51 Post Panamax..........................................5
Environmental protection..........................59 Gas tanker
Force majeure..........................................57 LNG..........................................................5
Law and jurisdiction..................................60 LPG..........................................................5
Liability......................................................56 VLGC.......................................................5
Limitation of claim.....................................56 Oil tanker
Measurements..........................................49 Aframax....................................................5
Payment...................................................54 General purpose (GP)..............................5
Price.........................................................46 Long range (LR).......................................5
Quality......................................................48 Medium range (MR).................................5
Sampling...................................................50 Suezmax..................................................5
Specification.............................................48 VLCC........................................................5
Title and Risk............................................53 Passenger
Unfair terms..............................................69 Cruise.......................................................5
Trader......................................................44 87 Ferry.........................................................5
Broker / trader...........................................89 Reefer.........................................................5
Credit trader..............................................44 Ro-Ro.........................................................5
Margin.......................................................44 Utility
Physical trader..........................................44 Offshore support......................................5
Risks.........................................................88 Research..................................................5
Trading credit............................................88 Salvage....................................................5
Trading oil.................................................88 Survey......................................................5
Tug ...........................................................5
V Warship.......................................................5
Vessel name
IMO number................................................4
Vessel type
Bulk
Capesize..................................................5
Handy size...............................................5
Panamax..................................................5
VLOC.......................................................5
Car carrier...................................................5
155
Here is a
valuable source of
information and guidance
on the buying and selling of
bunker fuels. It assumes a little
knowledge of ships, commerce and
marine fuel and is intended as a ready
reference for those who need to understand
how the commercial side of the business
really works.
Any commercial deal between a seller and buyer can be
frustrated at any stage of the process, and bunkering can
be particularly prone to contractual problems. In Commercial
Practice in Bunkering, Nigel Draffin deftly guides the reader
around the pitfalls.
The book examines every aspect of the commercial deal,
from the buyer’s enquiry to the supplier’s offer, terms and
conditions, the contract and each party’s obligations. It takes
the reader through the delivery, documentation and settlement
of the invoice, along the way covering negotiation, hidden
costs, credit, payment terms, default and even debunkering.
The book is full of examples of clauses drawn from real
contracts and practical advice on how to navigate around
them. There is also a chapter on the costs of increasingly
stringent international environmental regulations.
This is Nigel Draffin’s fourth title on bunker fuels, following
An Introduction to Bunkering (2008), An Introduction to Fuel
Analysis (2009) and An Introduction to Bunker Operations
(2010).
Nigel has been involved in shipping for over 45 years and
with the commercial bunker market for over 25 years. He
is a founder member of the International Bunker Industry
Association (IBIA).
In April 2011, Nigel was elected
Vice Chairman (Chairman Elect)
of IBIA. He is a member of IBIA’s
Education Working Group and the
author of IBIA’s Basic Bunkering
Course. He is the Technical Director
of the Oxford Bunker Course and
Director of the Oxford Bunker Course
(Advanced), a member of the Institute
of Marine Engineering Science and
Technology and Past Master
of the Worshipful Company
ISBN 978-1-908663-06-1
of Fuellers.

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Nigel Draffin

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This book is dedicated to Philip Basil Owen

When I moved into the commercial shipping section,

Co-owner of independent Dutch bunker supplier Frisol b.v. (1989-2003)

Published in the United Kingdom by

© Nigel Draffin 2011

First published 2011

British Library Cataloguing in Publication Data

All rights reserved. No part of this publication may be reproduced, stored

Petrospot books are available at special quantity discounts

Petrospot Limited (www.petrospot.com)

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About the author

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About the author ix

Introduction – The commercial deal xxi

Chapter 1 - The enquiry 1

Chapter 2 - The offers 11

MARPOL compliance fees........................................................................................................23

Chapter 3 - Acceptance and post fixture 27

Chapter 4 - The buyer 33

Chapter 5 - The seller 43

Chapter 6 - Terms and Conditions 45

Chapter 9 - Physical suppliers 87

Chapter 12 - Claims 107

Chapter 13 - Bunker software and the Internet 115

Chapter 14 - Commercial responsibility for operational issues 121

Appendix 1 - Where to go for help 133

Appendix 2 - Abbreviations 137

Appendix 3 - Glossary of terms 141

Appendix 4 – ISO: 8217:2010 145

Appendix 5 - ISO 8217: 2005-2010 - Differences 149

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List of Tables and Figures

Figure 30. LQM iPhone app ....................................................................................................119

Introduction – The commercial deal

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Chapter 1 - The enquiry

Where, when, how much

Figure 1. A sample quantity estimation spread sheet for a tanker

Deviating for bunkers

Bunker deviations Fill in red numbers only

T/C rate $15,000.00 day Time charter hire

Port calling cost $1,000.00 Port dues, agency, pilot, etc.

Port time 0.5 days Time in deviation port

Bunker price $470.00 /mt del At deviation port

Total cost of time $10,491.07

Total cost of fuel $3,378.13

Total port + additional $1,000.00

Grand total $18,247.32

Original bunker price $505.00 /mt del At first port

Price saving $35,000.00 Net saving $16,752.68

per tonne $16.75

Figure 2. A deviation for bunkers estimation spread sheet

Figure 3. An example of a ship’s identification

Figure 4. Vessel types and capacities