Leading charterers say they will refuse to use a new regulatory contract clause within a new shipping regulation to combat global warming, Freight Waves writes.
Devised by the United Nations (UN)’s International Maritime Organization (IMO) and introduced from 1 January, the Carbon Intensity Indicator (CII) aims to lower carbon emissions by increasing the efficiency of container ships, tankers, bulkers, car carriers and other vessels.
For the CII regulation to be effective, there must be agreement between shipowners and charterers — the companies that lease ships from owners — on how responsibility for emission reduction is divided, according to the 21 December report.
“Cooperation is key,” shipping insurer Gard was quoted as saying.
The terms of that cooperation are included in the charter agreement or “charterparty”, with a charterparty clause covering CII finalised by shipping association BIMCO on 16 November, according to the report.
However, a group of the world’s largest vessel charterers sent a letter to BIMCO on 20 December stating that they would refuse to use the clause because “it places the obligation to comply with CII disproportionately on charterers”, Freight Waves wrote. 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, along with other leading companies.
The CII assigns 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).
With the first CII rating due to be determined in 2024 – based on the carbon intensity of ship operations for the annual period from this month – voyage planning would need to start taking CII strategies into account, the report said.
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 travelled, multiplied by the ship capacity.
In practice, shipowners would want to avoid getting an “E” rating in any one year, or a “D” over three consecutive years, the report said. If that happened, the shipowner would need to update the vessel’s Ship Energy Efficiency Management Plan (SEEMP) by developing a corrective action plan and following it.
A number of shipping sector participants have pointed to major problems with the regulation, Freight Waves wrote.
“CII cannot be used to achieve desired decarbonisation goals,” dry bulk shipping association Intercargo was quoted as saying. “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 tonne of cargo transported, according to the report.
Ship owners and operators were already trying to increase fleet productivity by reducing empty legs, so they could carry more cargoes each year, dry bulk shipping company Oldendorff said.
For example, a bulker that carries soyabeans from the US 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 tonne of cargo than a bulker that goes from the USA to China, then sails back to the USA empty, according to the report. The same “triangulation” concept applies to all shipping markets.
“Even though a ship consumes more fuel during laden voyages, improved utilisation [via triangulation] decreases the emissions per tonne carried, which is beneficial for the environment and should be the objective,” Oldendorff was quoted as saying.
However, this was not how the new regulation worked, and a ship could improve its CII rating by increasing its empty ballast time, which reduced fuel consumption — but increased emissions per tonne of cargo carried, Freight Waves wrote.
“The most inefficient vessel can achieve a good CII rating by simply ballasting with no cargo,” Oldendorff said.
According to a spokesperson for container shipping line MSC, it would be better to have an operational indicator that rewarded more productive ships, including being based on cargo carried rather than on a theoretical value that may not correlate to transport work performed.
A further criticism of CII was that the equation’s denominator included distance travelled, with the shorter the distance travelled in a year leading to a worse CII score, the report said.
With, for example, port waits generally outside the control of shipowners, the MSC spokesperson pointed out that the CII methodology “could lead to a situation in which a vessel’s rating would worsen simply because it spends more time in port.”
