Fast-paced regulatory, technological and contractual change continues to drive maritime decarbonisation, with numerous fresh challenges emerging day-to-day.
To assist you in navigating these changing times, by focusing on the practical issues likely to impact your business directly, we continue 2025 by illuminating five key maritime decarbonisation questions.
This week we ask: a ship you finance is managed by a technical manager who is responsible for ISM Code compliance, do the FuelEU Maritime provisions of the ship management contract matter to you and what more can you do to protect your position?
In contrast to the EU Emission Trading Scheme, where the default compliance entity is the shipowner (with the option of transferring the compliance obligation to the entity responsible for ISM Code compliance), the entity statutorily responsible for compliance with FuelEU Maritime is the ISM Code company, i.e. typically, the ship manager.
While ship managers of time-chartered vessels will have little involvement in decisions relating to the fuelling of the ship, and thereby little influence on the greenhouse gas intensity 'compliance balance' the ship generates, ship managers have a very important role to play in the procedural aspects of FuelEU compliance. This includes ensuring that a FuelEU Monitoring Plan is submitted to the verifier, key data is reported, each ship's individual FuelEU Report is submitted and, crucially, that any FuelEU Penalties due are paid.
Pursuant to Article 24(1) of FuelEU ships sailing to, from or between EU Member State ports must from 30 June 2026 onwards hold a valid FuelEU document of compliance corresponding to the reporting periods in which the ship traded to, from or within the EU (with 2025 being the first reporting period). Where a ship does not hold a valid FuelEU document of compliance the provisions of Article 25 impose heavy sanctions, including "effective, proportionate and dissuasive" sanctions to be imposed by EU Member States, and, where the ship is non-compliant for two consecutive reporting periods or more:
Notably, the most draconian of the sanctions, expulsion and detention, impact the ship and thus the ship owner rather than the ship manager directly, would severely hinder the trading of the ship, would have a negative impact on the ship owners' cash flow and thereby the ship owner's ability to meet its commitments under any finance agreements.
Chronic non-compliance therefore poses a serious concern for financiers. The terms of the ship management agreement, the extent to which they oblige and enable the ship manager to comply with FuelEU and the remedies afforded to ship owners where there are failures of compliance, should therefore be of interest to financiers. This is true in relation to management agreements entered into in the future and those agreements in force today, which may have been entered into prior to FuelEU being a consideration for the parties and which may therefore stand to be updated.
Robust terms in the ship management agreement should not, however, be the only protection sought by financiers. It is recommended that the ship manager's undertaking is also updated to take account of the manager's contractual and statutory FuelEU obligations, create obligations owed to the financier directly and provide for remedies that can be exercised by the financier directly against the ship manager.
