For shipping to meet global decarbonisation objectives, new technology and alternative fuels will be critical. The recent boom in demand for newbuilding vessels has been driven partly by the need to move away from older vessels which will struggle to meet increasingly stringent decarbonisation targets.

These factors were discussed at our recent LISW panel session, alongside Quadrant Chambers – below are some key highlights discussed:

Developments

There are several developments driving decarbonisation at various levels, including regulatory measures, technological advances and industry initiatives. Such developments include IMO measures such as EEDI and EEXI, the Poseidon Principles and the development of green shipping corridors, alternative fuels, rotors and kites. Some of these will have more impact than others and there are varying degrees of take-up. Unfortunately, there is nothing currently on the horizon in relation to steel manufacture, which accounts for a considerable proportion of a ship’s lifetime carbon footprint. Other industries will likely see a much faster transformation than shipbuilding in that respect.

Risks

The main risks for parties to shipbuilding contracts seem to stem from vessel design and technical specifications, as well as the development of appropriate sea trial regimes.  It is becoming increasingly obvious that parties need to be alert to the need for adaptation of their contracts to ensure the fair apportionment of risk depending on the situation, and, where appropriate, to ensure that collateral contracts are in place with other parties who play a significant role in the shipbuilding process. Unclear risk allocation is the source of most disputes in this space, where the parties disagree as to who is ultimately to blame for a defective design, or whether it is the design or its implementation that has caused the issues.

Current Status

Whereas more robust Health and Safety Security and Environmental clauses find their way into shipbuilding contracts, there is limited development to the vast majority of shipbuilding contracts in terms of decarbonisation. The pioneer owners and operators are taking the majority of the risk of the incorporation of new technologies, with shipyards being less willing to undertake any risk over and above the implementation of any new designs, although there is increased focus on sea trial provisions and performance warranties. This is however insufficient to have a meaningful impact on the traditional risk profile in shipbuilding contracts.

As new technologies and designs become more common place, risk sharing may shift, with parties being prepared to take a greater proportion of the risk. Should that happen, the parties will be well advised to ensure that they have a solid way of passing off their risk to the parties ultimately responsible