Use of tankers as floating storage – arising legal issues
In recent years, international oil markets have witnessed collapsing oil prices as a result of an excess in supply and a corresponding decrease in demand as consumer behaviour switches slowly away from a dependency on oil. Oil refineries and storage facilities are near or at capacity. The absence of terminal and tank farm capacity has generated renewed global interest in and a growing demand for oil tankers to be used as floating storage. This increase in demand for floating storage is being reflected in daily hire rates, with VLCC rates being pushed from averages closer to $100,000 to reportedly in excess of $300,000 a day, according to industry sources.
While no doubt compounded by the COVID-19 outbreak and the resultant uncertainties it has generated for international trade, the current macroeconomic climate means that there will be potentially very long periods during which tankers will be used as floating storage. Given that most charterparties do not contain storage clauses, or have clauses which are legally or practically deficient when considering long-term storage, owners and charterers alike are presented with an array of issues that need to be carefully considered and the risk allocated to avoid legally significant and potentially expensive consequences. Any failure to do so may result in legal implications which could be far-reaching.
The article below discuss a number of legal issues that may arise under a charterparty or bill of lading contract, where owners accept charterers’ requests to employ their tankers as floating storage. The discussion is intended to highlight the various issues. The terms of individual charterparties, together with the factual circumstances, will determine the scope of consideration required in each case.
With thanks to Sally-Ann Underhill and Peter Glover of Reed Smith for providing us with the article.
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