The new regulation seeks to lower carbon emissions by having container ships, tankers, bulkers, car carriers and other vessels operate more efficiently. It is a product of the United Nations’ International Maritime Organization (IMO) that has been in the works for years and debated ad nauseam within shipping circles.
Those outside of shipping who rely on the world’s vessels to transport their goods may scratch their heads when they learn of the strange brew the IMO has concocted. CII’s complexities, unintended consequences and weak enforcement call to mind the phrase “too many cooks in the kitchen.”
And implementation, set to begin Jan. 1, just got even more complicated.
For the CII regulation to work properly, there must be an agreement between shipowners and charterers — the companies that lease ships from owners — on how the emissions-curbing responsibility is split. “Cooperation is key,” emphasized shipping insurer Gard.
The terms of that cooperation are laid out in the charter agreement or “charter party.” A charter party clause covering CII was finalized by the shipping association BIMCO on Nov. 16.
On Tuesday, a group of the world’s largest vessel charterers sent a letter to BIMCO stating that they will refuse to use the clause because “it places the obligation to comply with CII disproportionately on charterers.” The 23 signatories included shipping lines Maersk, MSC, CMA CGM and Hapag-Lloyd; agricultural shipping giants ADM, Bunge and Louis Dreyfus; and top trading houses Trafigura and Vitol, among other big names.
How CII works on paper
The CII will assign each ship a letter rating from “A” (best) to “E” (worst) based on its annual carbon intensity in relation to an IMO-set target that will reduce over time. CII focuses on ship operations, not vessel hardware (which is the focus of a separate new regulation, EEXI).
The first CII rating will be determined in 2024, based on the carbon intensity of ship operations for the annual period starting in January. Thus, shipowner CII strategies will start affecting voyage planning very shortly.
A ship’s carbon intensity is calculated by multiplying its annual fuel consumption by a carbon-emission factor assigned to the fuel type used, then dividing that total by the annual distance traveled multiplied by the ship capacity. In other words, an estimate of the carbon emissions divided by ton-miles.
What shipowners theoretically want to avoid is getting an “E” in any one year, or a “D” three years in a row. If that happens, the shipowner must update the vessel’s Ship Energy Efficiency Management Plan (SEEMP) by developing a corrective action plan, then adhere to that corrective plan.
There has been speculation that a lower rating would also make the vessel less attractive to future charterers or buyers, incentivizing owners to lower ship speed starting in 2023 and thereby lower fuel consumption to support ratings.
Numerous shipping interests have pointed to major problems with the way this regulation has been written.
“CII cannot be used to achieve desired decarbonization goals,” dry bulk shipping association Intercargo flatly asserted. “There are significant flaws.”
A central criticism is that the formula is based on ship capacity, not cargo carried, when the goal should be to reduce the carbon intensity per ton of cargo carried.
Ship owners and operators are already trying to increase fleet productivity by reducing empty legs, so they can carry more cargo per year.
A bulker that carries soybeans from the U.S. Gulf to China, then picks up a cargo of coal in Indonesia and drops it off in Europe on its way back toward the Atlantic Basin for another load will emit less carbon per ton of cargo than a bulker that goes from the U.S. to China, then sails empty all the way back to the U.S. The same “triangulation” concept applies to all shipping markets.
Even though a ship consumes more fuel during laden voyages, the improved utilization [via triangulation] decreases the emissions per ton carried, which is beneficial for the environment and should be the objective.
That’s not how CII works. A ship can improve its CII rating by increasing its empty ballast time, which reduces fuel consumption — but increases emissions per ton of cargo carried. “The most inefficient vessel can achieve a good CII rating by simply ballasting with no cargo.
According to a spokesperson for MSC, the world’s largest container shipping line, “It would be far better to have an operational indicator that would reward more productive ships, including based on cargo carried rather than on a theoretical value that may not correlate to transport work performed.”