Nick Gross, LR’s Global Container Ships Segment Director, explains why clarification on the IMO’s Carbon Intensity Indicator is urgently required by container ship owners and operators to avoid last minute operational and financial pain.
Thole container ship fleet will be affected by the IMO’s new carbon intensity indicator (CII) regulation from next January, but its full impact remains unclear, notes Mr. Gross
”At present, owners are left “second-guessing” the implications of CII, with older tonnage and ships trading on short-sea feeder routes most at risk of getting caught-out. Ultimately, if CII proves too onerous, a significant number of these ships will be forced to the scrap yard, compounding supply chain woes and resulting in cargo moving via other, potentially less efficient, modes of transport.”, he said.
Recent figures from Clarkson Research indicate that some 12% of container vessels could fall into the lowest ‘E’ category when the CII regulation comes in next year, and up to a quarter of the container ship fleet could be rated ‘E’ by 2026. Meanwhile, close to a quarter of the fleet up to 6,000 TEU capacity is over 20 years old and many of these ships are likely to require carbon efficiency improvements, raising the question of ‘retrofit or renewal’.
At present it seems most owners are unable to define their strategy on navigating CII due to insufficient detail on the workings of the new measure. The hold-up comes at a particularly awkward time, with global supply chains under serious pressure owing to congestion and equipment shortages, not to mention rising political tension on the global stage.
So far, the lack of clarity has left charterers taking a relatively casual approach to the imminent measure. A new clause in charterparties, for example, typically reads: “Charterers acknowledge and accept that Owners in their discretion will be at liberty to reduce the main engine power/vessel’s speeds and to do whatever else they consider necessary … to ensure that the vessel will achieve a carbon intensity rating of A, B or C at all times in accordance with CII regulations.”
However, as carbon emissions and supply chain sustainability climb the cargo owner’s agendas, this loose arrangement is likely to tighten. Engine Power Limitation (EPL) may not prove sufficient, and charterers may wish to examine the phrase “whatever else they consider necessary” more closely.
As things stand, a vessel that scores a ‘D’ rating for three consecutive years or an ‘E’ rating in a single year would be prohibited from trading until such a time that the respective owner submits a corrective plan as part of the SEEMP, which would need to be ‘approved’ prior to re-commencing operations.
Putting aside the unknown differential between ‘A-C’, on face value the penalty measure related to ‘D-E’ appears relatively robust. However, on closer inspection there are many significant loopholes, and as such we need the IMO to clarify the penalty enforcement process governing ‘D-E’ so that owners can fully understand the implications and risk factor.
This is the reason why owners and operators urgently require a better-defined framework to trigger and inform their investment plan and fleet strategy, Mr Gross concludes.
Click here to view our if industry experts believe whether the shipping industry is prepared for the new EEXI and CII requirements or not. Earlier this year, RightShip said that IMO’s EEXI and CII measures slated for 2023 to reduce emissions may be too slow to enforce change by only factoring in operational considerations,.
