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IUA Market Briefing In co-operation with the Association of Average Adjusters 26 March 2013
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IUA Market Briefing
In co-operation with the Association of Average Adjusters
26 March 2013
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The Rise in Claims Attributed to Cat Fines in Bunker Fuel What can be done about it?
Paul HillMarine Engineer
A Cat Fine
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Bunkers, are you getting more or less than you bargained for?
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What are Cat Fines?
Hard Ceramic Compounds of Aluminium and Silicon, Used as a catalyst in the crude oil refining process,To enable higher yield of distillate fuels to be extracted from the stockThe process is called catalytic cracking.The cat fines are expensive and are mostly recovered and used again, however small quantities may be carried over with the residual fuel
Catalytic Fines (from here on known a Cat Fines)
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How big are Cat Fines?
Cat Fines embedded in a fuel filter
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How small are Cat Fines?75 μm down to 1 μm
1 μm (micron) = 0.001 mm
25 μm
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What do Cat Fines do?They get embedded into engine components and cause abrasive wear
The main components affected are cylinder liners and piston rings
Can affect fuel pumps, injectors and valves
In extreme cases piston rods and stuffing boxes
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Are all engines at risk?Cat fine damage mainly occurs in large slow speed main engines: Why?
The larger fuel injection components allow sizeable cat fine particles into the cylinders
Cylinder lubricating oil is minimally applied to the liner surface, and doesn’t wash cat fines away
Less probable to find cat fine damage to medium and high speed engines: Why?
More copious splash lubrication of cylinder liners can wash away cat fine particles
Closer tolerance of components prevents ingress of larger particles
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Why are cylinder liners vulnerable to cat fines?
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10 micron
Embedded cat fine25 micron diameter
The effect of cat fines embedded in the liner are shown
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Are Cat Fines a New Problem? The answer to this is simply NO
Up until the 1950’s residual fuel oil was burnt in boilers, to create steam for turbines, the most common form of marine engine at the time.
Large slow speed diesel engines slowly became popular in the 1960’s and 70’s as the ability to burn residual fuels improved.
1973 Middle East War tripled the price of crude oil, refiners forced to squeeze more product from the crude stock.
Catalytic Cracking processes developed
1980’s engine problems attributed to these Cat Fines started to be reported.
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0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
No
of C
ases
Year
Cat Fine Engine Damage Cases surveyed by Braemar SA
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Sulphur Emission Control Areas (ECAs)
Why The Recent Rise in Cat Fine Claims ?
Environmental Legislation Demands:
Commercial Demands:
Cheaper fuels
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MARPOL Annex VI Marine Fuel Sulfur Limits
0.00.51.01.52.02.53.03.54.04.55.0
2000 2005 2010 2015 2020 2025
Sulfu
r, %
Global
SOx ECA
Marine Sulphur LimitsSu
lphu
r %IMO MARPOL Annex IV
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Emmission Control Areas
1 % Sulphur in fuel oil at presentIn 2015 this is to drop much further to 0.1% Sulphur
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MARPOL Annex VI Marine Fuel Sulfur Limits
0.00.51.01.52.02.53.03.54.04.55.0
2000 2005 2010 2015 2020 2025
Sulfu
r, %
Global
SOx ECA
A Worrying TrendSu
lphu
r %Braemar SA cases against the sulphur limits
121110987654321
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What do the analysts say ?
The 2012 Global Cap of 3.5% sulphurApprox 11% of global HSFO will need to be blended to meet the new limit – yet to be confirmed
August 2012 – North American ECA in forceAnalysts suggest demand for LSFO will double at the onset of US ECAFurther more complex blendingIncreasing levels of Cat Fines as sulphur levels reduce further
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22.1
23.5
25.625.9
26.8
20
21
22
23
24
25
26
27
28
29
30
2007 2008 2009 2010 2011
Cat
Fine
s p
pm
Year
Average Worldwide Cat Fines Trend
Statistics courtesy of DNVPS
What do the experts say ?
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4845
4341
34 33 33 3230
27
22 21 20
27
34
27
33
19
2426
32
2219
27
2118
0
10
20
30
40
50
60
Average Cat Fines by Region 2011
LSFO
HSFO
The regional trends?
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979.5
980
980.5
981
981.5
982
982.5
983
2007 2008 2009 2010 2011
Dens
ity
Year
HFO Density TrendWhat else?- Density
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Who cares about all this anyway?
I guess you already know? It’s you!
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What is being done?The International Organisation for Standardization
Since 1982 have published a specification for marine bunker fuels specifying the maximum limits of various characteristic, components and contaminants.
The standard is known as ISO 8217 and is currently in it’s fourth revision:
ISO 8217: 2010
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What does ISO 8217 do?It defines a specific quality standard for marine fuel oil
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HISTORYISO 8217 Cat Fine Limits
Date Version CAT FINE LIMITS
1982 BS MA 100 first published Not specified
1986 ISO 8217 published as BS MA 100:1986
Not specified
1996 ISO 8217 2nd edition Max 80 mg/kg
2005 ISO 8217 3rd edition Max 80 mg/kg
2010 ISO 8217 4th edition Max 60 mg/kg
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So why is the limit not set lower?
MAN B&W, Wartsila and the other main engine makers specify a maximum of 15 ppm Cat FinesThe answer to this question is purely commercial, with refiners saying “yes we can produce 15ppm fuel oil, but it will cost you the customer more”.
“any how, all ships are built with a fuel treatment system that is capable of removing the Cat Fines to a level below the 15 ppmstated by engine makers, so what’s the problem”?
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What is the problem?The problems are many, such as, but not limited to:
Poor efficiency of purifiers (essential part of the onboard fuel treatment plant and a topic on it’s own)
Lack of knowledge of the current bunker fuel quality by the ships engineers
Lack of good maintenance practices, such as regular cleaning of fuel tanks
Minimal and insufficient capacity of purifiers provided by the shipyard during the build
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What can be done?To reduce the risk of engine damage due to cat fines? and by who:
Owners and Managers
Charterers
Ships Crew
Engine Makers/ shipbuilders
Classification Societies
New Technology
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What can ship’s staff do?
The ships engineers do not know if the fuel that they are using contains high level of Cat Fines
Until test results, if any are received onboard
All fuel received onboard should be treated as if it contains Cat Fines
The fitting of onboard Cat Fine analysis equipment should be considered:
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Has already been installed by a large shipping company with immediate positive results
What is onboard analysis?
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What else is currently being done?
The Joint Hull Committee have recently formed a working group to address the concerns of the Market on the increasing amount of claims due to Cat Fines, which I am a member of, Class, Regulatory Bodies and Engine Manufacturers are now being consulted in order to achieve a satisfactory solution to the problem for everyone.
BunkersBunkers
Paul Griffiths, Senior PartnerPaul Griffiths, Senior PartnerBentleys, Stokes and LowlessBentleys, Stokes and Lowless2626thth March 2013March 2013
www.bentleys.co.uk
VESSEL OWNER
TIME CHARTERER
(FURTHER TIME CHARTERER(S)?)
VOYAGE CHARTERER
POSSIBLE TORT CLAIM?
BUNKER BUYERS
(BUNKER BROKER?)
CONTRACTUAL SUPPLIER
PHYSICAL SUPPLIER
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1946 NYPE “2 –The Charterers shall provide and pay for all fuel except as otherwise agreed”
BALTIME “4 –The Charterers to provide and pay for all fuel oil… ”
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1993 NYPE “9(b) The Charterers shall supply bunkers of a quality suitable for burning in the Vessel’s engines and auxiliaries and which conform to the specification(s) as set out in Appendix A.”
Continued…
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1993 NYPE “The Owners reserve their right to make a claim against the Charterers for any damage to the main engines or the auxiliaries caused by the use of unsuitable fuels or fuels not complying with the agreed specification(s). Additionally, if bunker fuels supplied do not conform with the mutually agreed specification(s) or otherwise prove unsuitable for burning in the Vessel’s engines or auxiliaries, the Owners shall not be held responsible for any reduction in the Vessel’s speed performance and/or increased bunker consumption, nor for any time lost and any other consequences”.
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SHELLTIME 4 “Charterers shall supply fuel oil with a maximum viscosity of ----centistokes at 50 degrees centigrade and/or marine diesel oil for main propulsion and fuel oil with a maximum viscosity of ----- centistokes at 50 degrees centigrade and/or diesel oil for the auxiliaries. If Owners require the vessel to be supplied with more expensive bunkers they shall be liable for the extra cost thereof.Charterers warrant that all bunkers provided by them in accordance herewith shall be of a quality complying with ISO Standard 8217 for Marine Residual Fuels and Marine Distillate Fuels as applicable.”
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• Time bars
• Their sample determines quality
• Jurisdiction
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•Avoid the problem
•Deal with the problem
•Consider defence / recovery position
Aon UK Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only
IUA Market Briefing: 26th March 2013, “Cat Fines –Engine Damage: Cause, Liability and Coverage”
Keith Jones
Bad bunkers / Wrong Specification
Issues
y Owners usually aware of problems pretty quickly
y Potential for recovery –who supplied bunkers and where? Solicitors? F D&D cover?
y Any damage to machinery/ tanks require cleaning? / Contamination of good fuel –due to
mixture with bad?
Cleaning tanks –can be expensive operation –“Orjula” 1995 leakage of hydrochloric acid on deck. ‘R. v. Henderson & Batley (1984) Damage can be various kinds in the Concise Oxford Dictionary “damage” is defined as “injury impairing value or usefulness”
y Claim on hull policies??
Aon Risk Solutions | Global Broking Centre | MarineProprietary & Confidential 44
Bad bunkers / Wrong Specification
Claim on policies
y Causation key issue
y ITC 1.10.83 –Named Perils
y 6.2.3 Negligence of crew? Could description of claim affect recovery position?
y 6.2.4. Negligence of Charterers in supplying wrong spec bunkers?
y Bunkers totally off-spec - deliberately fraudulent intent?
y ITC 1.10.83 –with additional perils clause much easier:
y Widens coverage considerably “… . loss of or damage to the vessel caused by any accident or by negligence, incompetence or error of judgment of any person whatsoever”
Aon Risk Solutions | Global Broking Centre | MarineProprietary & Confidential 45
‘Cat Fines’
Issues
y Causation key issue
y Damage may occur over period of time –possibly more than one occasion before cause identified
y Generally speaking ‘cat fines’ can be eliminated by purification processes.
y How do they get there? In fuel delivered or sediment in bunker tanks? Agitated during periods of heavy weather.
y Adjuster may need to instruct consultant engineer.
Aon Risk Solutions | Global Broking Centre | MarineProprietary & Confidential 46
‘Cat Fines’
Claim on policies
y ITC 1.10.83 –Named perils
y Crew negligence –failure to operate the fuel equipment effectively
y ITC 1.10.83 –with additional perils clause –“… loss of or damage to the vessel caused by any accident or by negligence, incompetence or error of judgment of any person whatsoever… ”
y Due diligence proviso?
Aon Risk Solutions | Global Broking Centre| MarineProprietary & Confidential 47
‘Cat Fines’
Claim on policies continued…
y More than one incident? Deductibles? Generally seen as a continuing act of the same negligence.
y If multiple occurrences –adjuster may need to reconsider –vessel should no doubt have been taken out of service to determine cause.
y Damages may span policy period whereby different underwriters concerned but only one deductible applicable if as a result of a “continuing act of the same negligence”
Aon Risk Solutions | Global Broking Centre| MarineProprietary & Confidential 48
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