Bunker Blending Liability: Cut to the Chase

What, if any, liability is there for suppliers of blend stock or cutter stock – or for those who deliver faulty blends – to those damaged by non-compliant blends?

The Houston-sourced, blended fuel quality problems were powerful trouble for the many suppliers, traders, charterers and owners they affected. The Houston problem seems to have been with those selling the cutter stock and those buying it to make the blends.

The problem Houston blends utilized cutter stock which was sourced from the waste streams of Houston’s many petrochemical plants. The brew also included nitrogenous compounds from polymer production, benzoic acid, cyclohexane diol isomers and dehydroabietic acid and other oxygenated compounds, it was likely low cost, it was non-compliant and was not ‘homogeneous’ under ISO. The owners and charterers sailed out of the Houston emission control area without burning the blended fuels until weeks later.

The Houston-brewed fuel did cause problems and damaged many vessels included blocking and excessive wear of fuel separators, fuel filters, injection pumps and fuel injectors, engine piston rings and pistons and cylinder liners.

Most owners and charterers discovered the damage once they were far from the place of supply.

Present expectation is that residual blends will meet much of the world’s 2020 0.50% sulphur limit bunker demand. Pure distillates will continue to be relatively expensive compared to blends. That gap will widen as there becomes less demand for high sulphur residual fuel, which after 2020 only exhaust gas cleaning system (scrubber’)-equipped vessels may consume.

Achieving a blend to meet the 0.50% limit requires the blending of high sulphur residual fuel with blend stocks and cutter stocks.

Applying some U.S. states’ law (notably, Texas and California), cutter stock and blend stock suppliers and blenders may be held liable to vessel owners, charterers, traders and upstream suppliers (who have no contract with the stock suppliers or blenders) for the damages that their off-spec or otherwise non-compliant stock or blends cause.

This liability extends to those blending even with otherwise acceptable blend- and cutter stock, whose ‘recipes’ make non-compliant or off-spec blends.

The liability can be in tort (products liability) or warranty, independent of direct contract, and provides for damages for pure economic loss at least where there has been vessel machinery damage, where United States maritime law would not.

The critical fact here, from a U.S. legal standpoint, is that the supply of the cutter stock and its blending had most likely, in the Houston situation, taken place ashore. That is, although blending can be done on barges, and rarely (and not advisably) on vessels, the Houston blending was probably done in tanks ashore in Houston.

U.S. maritime law does not apply to this blending ashore. There accordingly was no maritime contract or maritime tort causing the damage involved.

To be considered maritime, there must be a direct and substantial link between the contract and the operation of the ship, its navigation, or its management afloat, taking into account the needs of the shipping industry, for the very basis of the constitutional grant of admiralty jurisdiction was to ensure a national uniformity of approach to world shipping.

The Supreme Court of the United States’ reasoning is that when there is no maritime tort or contract involved, U.S. maritime law does not apply, rather states’ laws may apply.

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