International shipping went through profound change during 2020. This not only applies to the global pandemic—and what it has meant for supply chains and trade—but the International Maritime Organization’s 2020 sulfur cap, known as IMO 2020.
IMO 2020 was significant because of the scope of change for international shipping. While the regulation to reduce the allowable sulfur content in marine fuel from 3.5% to 0.5%S m/m came to fruition after more than a decade of planning, much of the fuel market transition occurred in about a quarter. Vessels quickly moved from high-sulfur fuel to low-sulfur alternatives or sulfur-removing technology (scrubbers).
A series of regulations targeting vessel efficiency and carbon intensity will likely enter into force by 2023, and therefore, is being aptly named IMO 2023. This next chapter of change for international shipping is quickly approaching and a new wave of uncertainty and questions comes with it.
The regulations will encourage the improvement of vessel efficiency, adoption of low-carbon alternative fuels, and lower emissions in international shipping. These coming changes create challenges and opportunities for the vessel owner/operators seeking compliance and the beneficial cargo owners seeking opportunities to lower the energy cost and emissions needed to get their goods to customers.
Watch the Breakthrough team break down the impending IMO 2023 regulations and answer frequently asked questions from shippers in this video:
What changes are coming through IMO 2023?
Since 2018, the IMO’s Marine Environment Protection Committee has conducted a series of meetings that have ultimately adopted “technical and operational measures to reduce caron intensity of international shipping, taking effect from 2023. The measures include the Energy Efficiency Existing Ship Index (EEXI), the enhanced Ship Energy Efficiency Management Plan (SEEMP), and the Carbon Intensity Indicator (CII) rating scheme. These short-term measures are aimed at meeting the target set in the IMO Initial GHG Strategy – to reduce carbon intensity of all ships by 40% by 2030, compared to 2008.
What is the objective for each of these measures?
1. The Attained Energy Efficiency Existing Ship Index (EEXI) is required to be calculated for most commercial vessels in accordance with different values set for vessel types and size categories. This indicates the energy efficiency of the vessel compared to a baseline. Vessels are required to meet a specific required Energy Efficiency Existing Ship Index (EEXI), which is based on a required reduction factor (expressed as a percentage relative to the EEXI baseline).
All vessels must have a calculated EEXI
Likely more impactful for older vessels
Likely more impactful for regional trades that feature smaller feeder vessels rather than deep-sea trades.
2. The Ship Energy Efficiency Management Plan (SEEMP) is a mandatory, ship-specific document that lays out the plan to improve the vessel’s energy efficiency in a cost-effective manner.
3. A vessel’s Carbon Intensity Indicator (CII) links the GHG emissions to a ratio of the amount of cargo carried and the distance travelled. The CII will determine the annual carbon reduction factor needed to ensure continuous improvement of the ship's operational carbon intensity within a specific rating level.
All vessels must have an established CII and will receive a rating (A, B, C, D, or E – where A is best).
A ship rated D or E for three consecutive years must submit a corrective action plan to show how the required index (C or above) may be achieved.
There are many things a ship can do to improve its rating through various measures taken on existing capital. Many efficiency improvements and emissions reduction pathways are being executed by carriers, such as: hull cleaning to reduce drag, steam speed adjustment, routing optimization, and fuel switching.
These regulatory requirements are expected to enter into force on November 1, 2022. If that happens, the requirements for EEXI and CII certification will come into effect from January 1, 2023. This means the first annual reporting will be completed in 2023, with the first rating given in 2024.
There is limited apparent guidance on potential penalties for non-compliant vessels. According to industry sources, the number of vessels affected, and the potential affect the IMO 2023 GHG measures will have on capacity are largely unknown. An IMO MEPC meeting will be held June 6-10, 2022, and will likely provide more detail.
The IMO is yet to set a net-zero emissions target, but many individual ocean shipping companies—including container lines—already have. This continues a trend more broadly experienced through transportation – companies are continuing to progress their sustainability strategies without being pushed (too hard) by policy. Such actions include the first orders for carbon-neutral container vessels running on “green” methanol.
Customer demand for green transport is pushing carriers and shipowners to action and investing in carbon-neutral vessels. This is creating an environment where access to green shipping lanes in the not-so-distant future will offer a competitive advantage to BCOs seeking to progressively reduce their global shipping emissions.
While the IMO 2023 regulations will have the biggest impact on vessel owners, beneficial cargo owners, or shippers, may see pass through expenses come their way as a result. Breakthrough can help shippers mitigate the effects of this oncost by managing their maritime fuel spend according to actual fuel cost and consumption. Additionally, we can offer guidance in the market with our deep knowledge of maritime vessels’ operations, including fuel consumption and lanes of service.
Learn more about our marine fuel management solution.