CII criticism mounts across all shipping sectors

With 18 days to go until the the phase-in of the International Maritime Organization’s Carbon Intensity Indicator (CII) regulation, the stinging criticism it is attracting from across the shipping sector has strong echoes of the weeks running up to IMO2020, the global sulphur cap. The CII, along with the Energy Efficiency Existing Ship Index (EEXI), are the two most significant pieces of green legislation introduced by the IMO since the controversial global sulphur cap. From January 1 it will be mandatory for all ships to calculate their attained EEXI to measure their energy efficiency and to initiate the collection of data for the reporting of their annual operational CII.The CII is a yearly measure of overall ship efficiency while in operation. In simple terms, every ship receives an energy rating based on their efficiency ratio, which measures distance travelled and speed as well as the intensity of the use of the vessel. Ratings are given on a scale of A to E, whereby D and E ships are considered non-compliant by the IMO. Reviews of both CII and EEXI are due to be completed by the start of 2026 with many shipping players voicing disquiet at how the regulations might not be so watertight in practice. CII was recently described by Dr Roar Adland, a professor at the Norwegian School of Economics, as a “camel is a horse designed by a committee piece of work”. Dry bulk Dry bulk critics are mounting as well as peers in the container and tanker segments. Both INTERCARGO, the sector’s main lobby group, and Oldendorff Carriers, one of the largest names in dry bulk, have come out with detailed criticism of the new measure this month. INTERCARGO stated that it believes that the current CII framework should not be used as a benchmark for IMO’s medium-term measures. “CII cannot be used to achieve the desired decarbonisation goals as under real life operating conditions it will not deliver equitable, transparent and non-distorting emissions’ reductions,” INTERCARGO stated in a release, something picked up apart in detail by a study from Germany’s Oldendorff. “Paradoxically when considering voyage distances and port waiting times, vessels with longer travel distances can produce more emissions but have a better CII rating when compared to vessels travelling shorter distances and producing less emissions,” INTERCARGO stated. Oldendorff, meanwhile, issued a detailed presentation making the argument that the shipping industry should not rely solely on the formulas in the CII regulation, rather shipping must take a holistic view and focus on reduction of absolute emissions. “The CII formulas in the regulation are not holistic, can be gamed and there are many real-world instances where strict adherence and focus on the CII rating letter grades will do more damage than good,” Oldendorff stated, going on to present a variety of voyage situations where the legislation would not work properly. For example, shipowners and operators are already trying to increase fleet productivity by reducing empty legs, so they can carry more cargoes per year. Even though a ship consumes more fuel during laden voyages, the improved utilisation decreases the emissions per ton carried, which is beneficial for the environment and should be the objective. However, such improved efficiency is being penalised with a bad CII rating, whereas if an identical sister ship engages in inefficient trading and lower productivity, this leads to higher emissions per ton carried, but this vessel is being rewarded and encouraged by a good rating. As the CII formula uses distance in the denominator, longer voyages are favoured and shorter round voyages are penalised, Oldendorff argued, going on to predict that the likely consequence will be that less efficient ships will trend toward long voyages, emitting more, while more efficient ships stay in the shorter trades. Meanwhile, there is no motivation to shorten trade lines in the name of reducing emissions. Furthermore, Oldendorff argued the CII rating will be negatively affected by long waiting times or slow port operations, even though this is mostly beyond the carrier’s control. Some owners may resort to “irresponsible” steaming around in circles instead of waiting at anchor, Oldendorff suggested. This will improve their CII rating but will also increase annual GHG emissions. Tankers Stolt Tankers has also explained this month why the CII is causing headaches for the chemical tanker segment and may prove counter-productive when it comes to reducing carbon emissions. "The sailing pattern of a chemical parcel tanker is far more complex compared to product or oil tankers, and this has not been accounted for in the current CII regulations,” said Maren Schroeder, managing director of Stolt Tankers. “It’s important to note that the CII rating is not about absolute emissions or efficiency; it relates to the nautical miles sailed and varies with the operating and trade pattern of each ship,” explained Gabriel Poritz, who heads up sustainability and decarbonisation at Stolt Tankers. Poritz argued that thinking in terms of more miles, less fuel will improve a ship’s CII rating. Performance is also measured according to deadweight – that is, ships of a certain size are compared with others in the same deadweight category in the same segment. There are two fundamental challenges with the CII regulations for chemical tanker operators. Firstly, due to their complex nature (on average, 10 to 12 different cargoes can be carried on more complex ships), chemical parcel tankers may spend up to 55% of their time in port, shifting from terminal to terminal to load and discharge the various products. Standard oil or product tankers usually fully discharge or load cargo in a single port visit, which amounts to just a few days. The second issue with the CII regulations highlighted by Stolt Tankers is that, in their current form, they do not include adjustments to data for events that are outside of an owners' control, such as inclement weather or a force majeure. “CII will distort trading patterns and could lead some vessels to emit more CO2 than they would have prior to the regulations in order to chase a rating,” tanker broker Gibson warned in a recent report looking at the potential unintended consequences of this incoming green legislation. A non-eco ship, which would typically trade shorter voyages, will now be more likely to engage in longer haul voyages to attain the required CII, which is largely a function of CO2 emitted, cargo capacity and importantly, distance sailed, Gibson pointed out. Likewise, eco ships with much better CO2 emissions could be deployed on shorter voyages where, despite smaller distances, could still attain an acceptable CII rating due to their fuel efficiency. “Overall, the net effect in these circumstances could be higher total CO2 emissions for the tanker sector and exactly the opposite of what the IMO is trying to achieve, at least in the short term,” Gibson suggested. Many in shipping, including trading giant Trafigura, have argued that the IMO should focus on using an existing measurement, the Energy Efficiency Operational Indicator rather than the Annual Efficiency Ratio in making CII rating calculations. Containerships The diminished prospects in the container sector of late have also shown a clear pitfall of the CII. As box fortunes have slid, analysts have detected a growing number of ships taking the long, non-Suez way from Europe to Asia via the Cape of Good Hope in order to soak up capacity. The diversion around the African continent adds about 3,500 nautical miles of steaming distance to the route. “Ironically, the massive detours are CII-neutral, since the extra CO2 emitted is offset by longer sailing distances,” Alphaliner pointed out in its most recent weekly report. A spokesperson for Mediterranean Shipping Co (MSC), the world’s largest containerline, has also recently come out with criticism of the new IMO regulation. "CII should not effectively penalise vessels trading on shorter distances and while waiting alongside,” the spokesperson said, adding: “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.” Finally there’s the issue of BIMCO’s recently introduced CII operations clause, with charterers expected to take responsibility of a ship’s emissions. Charterers may have little incentive to sign up to the clause as the wording restricts their right to make operational decisions as they see fit, according to legal analysis from Clyde & Co and Watson Farley & Williams.

CII criticism mounts across all shipping sectors

The final weeks of 2022 have similarities to the run up to the global sulphur cap three years ago with the IMO coming in for heavy censure.

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