2023 will see the introduction of the EEXI (Energy Efficiency Existing Ship Index) and CII (Carbon Intensity Indicator). The former requires ships to satisfy technical requirements to reduce emissions, the latter stipulates operational measures (speed, routeing etc.) to the same end. Francesco Tassello, Oil & Tanker Analyst at London shipbroker Affinity, calls on shipowners and charterers to clarify their responsibilities under the new regulation.[ds_preview]
Only a couple of months to go until EEXI/CII enter into force. How is it going to impact markets from next year?
Francesco Tassello: The new regulation is the biggest »leap into the dark« for shipping since the IMO’s implementation of the sulphur regulations of 2020. There is still a large scale of conflicting opinions and many uncertainties, which in the case of IMO 2020 proved largely unfounded, it turned out. Today, few believe that, in the case of EEXI and CII, any major shifts will occur after the regulation has come into force, considering the lack of penalties to deter non-compliance. All that is required for a ship with an insufficient rating of »D« for three consecutive years, or »E« in a single year, is to submit a corrective action plan to ensure compliance with the minimum »C« threshold going forward.
How are owners and operators prepared?
Tassello: Although many owners have adopted a wait-and-see approach, we believe that most tankers, bulkers, container ships and very large gas carriers are positioned in the »C« band or higher on the CII. Just about 30 % of tankers, 25 % of bulkers and container ships, and about 10 % of very large gas carriers might fall in the »D« or »E« bands in 2023. Rating thresholds will become increasingly stringent, though, as we approach the 2030 IMO deadline for a 40 % emissions reduction in shipping.
In the container ship sector, slow steaming could be the most obvious potential solution for ships in the lower rating bands to achieve CII compliance.
Is it going to change chartering practice in the short or in the long run?
Tassello: There are legal issues to be dealt with in present time charter contracts extending beyond 1 January 2023: which party will be responsible for compliance and the associated cost of compliance? Owner or charterer? For clarification there might be more new clauses both for time and trip charters in the near future.
As things stand, owners are primarily responsible for ensuring EEXI compliance with MARPOL, provided the flag state is part of MARPOL. Any necessary technical modifications will be part of owners’ seaworthiness obligations.
CII is more complicated. There could be conflicts of interest. What if charterers‘ lawful employment orders affect the CII rating in a negative way? Or vice versa, if owners resort to slow steaming, route deviation or reduction of cargo capacity to protect CII compliance against charterer’s order? This could put them in breach of charter and make them liable to penalties.
Interview: Michael Hollmann
