The word “bunkers” has a unique meaning in international shipping. The term is universally understood to mean fuel for vessels. Without bunkers, ships cannot sail. Bunker costs can also be the largest operating expense incurred on an ocean voyage.
Bunkers are considered so necessary to maritime commerce that bunker suppliers usually are given maritime liens on vessels for unpaid fuel bills.
Many admiralty law decisions and maritime arbitrations concern disputes associated with the subject of bunkers. These disputes usually fall into three general categories: quality, quantity and price.
Quality relates to the physical characteristics of fuel. Steamships burn heavy oils in boilers to generate steam for propulsion turbines and auxiliary machinery. Disputes between vessel owners and fuel suppliers (or time charterers) may involve warranty claims on fuel specifications when there are problems with viscosity, sulfur content and heating value.
Difficulties also can arise when various grades of fuel are commingled in bunker tanks.
Motor vessel fuel quality disputes can be complex. Low-quality bunkers may contain abrasive catalytic compounds such as aluminum oxide and silicon dioxide, which can reduce engine efficiency, damage engines, and can increase downtime, maintenance and repair costs. Low-quality bunker also may cause speed/consumption problems.
Bunker quantity disputes cover a variety of situations. Quantities change constantly as fuel is consumed. Vessels may slow steam to conserve valuable bunkers. Tankers have been known to make miraculous voyages with little or no bunker consumption. Litigation frequently results when cargo owners discover some of their oil cargo missing when it arrives at the discharge port.
Other quantity disputes may arise if the master miscalculates the amount of bunkers necessary for the voyage. A vessel that runs out of fuel will be considered unseaworthy by cargo interests. If the vessel takes on excess bunkers, cargo may be shut out at loading because of vessel draft restrictions. If ships ground, double-bottom bunker tanks may rupture and spill oil. Bunkers also play a critical role in vessel stability calculations that can prevent capsizing.
The bunker price category is most interesting because fuel costs can change from port to port. Price disputes usually can be avoided if parties include bunker price clauses in charter contracts. In time charters, the clause will normally state that the charterer will pay for bunkers on delivery of the vessel and the shipowner will pay for bunkers on redelivery at the current prices at the respective ports. The clause also will state the maximum and minimum bunkers to be on board at delivery and redelivery.
World events can drastically affect oil prices. The 1973 Middle East War and the 1990 Persian Gulf conflict caused bunker values to vary greatly from day to day.
Parties to shipping ventures sometime use bunker escalation clauses in their transportation contracts to minimize the risks associated with fluctuating fuel prices.
Freights may be based upon an anticipated bunker price. Should the purchase price of fuel increase or decrease, charterers will pay owners or owners will pay charterers, as the case may be, the bunker price differential.
The recent New York arbitration of the M/S Elounda Day (S.M.A. 2834) describes the mechanics of how bunker escalation clauses operate.
Bunkers play an integral and important role in major aspects of international shipping. It is not surprising that the subject of bunkers is often at the core of many maritime disputes and controversies.