With 111 days until its introduction, critics of the International Maritime Organization’s (IMO) Carbon Intensity Indicator (CII) are growing.
The CII, which debuts on January 1 alongside the IMO’s Energy Efficiency Existing ship Index (EEXI), are the most significant pieces of green legislation from the United Nations body since the 2020 introduction of the global sulphur cap.
For the first time, the decisions made by charterers will fall within the scrutiny of an IMO instrument. CII’s real impact on the freight market is expected in 2024, as throughout next year, shipowners will aggregate a track for each of their ships that will set the basis for the first A to E CII rating, similar to the energy rankings seen on household appliances, the difference being in the complexity with how these rankings are derived.
CII could lead some vessels to emit more CO2
CII is commercially complex as it concerns how the vessel is traded. Under a spot voyage, it is the owner’s obligation to manage the vessel’s performance to attain the CII rating the owner desires.
However, under a time charter, the situation could be much more complex, as a new report from tanker brokers Gibson. Given that CII ratings are retrospective, a vessel on time charter could be traded inefficiently and returned to the owner with an inferior rating, putting the owner at a commercial disadvantage following the charter. From a charterer’s perspective, whilst CII is an operational measure and can be managed through trading patterns, the CII performance of a ship is linked to other factors, such as design, maintenance and warranted fuel consumption. If any of these factors is not as described in the charter party, then a dispute is likely to arise.
BIMCO is expected to publish a CII time charter clause wording in the next couple of months.
The biggest issue with CII, however, according to a new report from tanker brokers Gibson, is that vessels will have to adjust their trading patterns to attain the required rating.
“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,” Gibson warned in its latest weekly 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.
The merits and pitfalls of the CII have been discussed in great depth in recent months.
Risto-Juhani Kariranta, shipping performance manager for Finnish charterer Neste, argued in a recent LinkedIn post that providers of weather-based voyage optimisation tools could be one of the big winners from the regulation’s introduction as they reduce total fuel consumption – and by extension CO2 emissions – for a voyage, but also add miles.
Replying to Kariranta, Roar Adland, a shipping professor at the Norwegian School of Economics, stated: “I have been, and still am, very critical of the CII as it is a missed regulatory opportunity compared to how it should have been done.” Adland argued a measure that accounts for transportation work would have been better than the CII framework. Adland said CII risked becoming a serious area of charter party disputes like demurrage or speed and consumption. “Lots of maritime lawyer fodder there,” he wrote.
Up until now, operators have not had to consider where their ships sail. With the introduction of the CII rating and compliance, that is no longer the case, Adland pointed out.
Operators, he argued, will gradually adapt sailing patterns such that the low-rated vessels will end up on the benign-weather routes such as the Arabian Gulf or Southeast Asia which will gradually improve their CII rating. Conversely, higher supply on these routes will force the high-performers – the A and B ranked ships – onto the challenging routes from an emission point of view such as the North Atlantic, potentially eroding their CII rating over time.
