Article - April 6, 2023

Smooth Sailing Ahead? Calculating CII for Charterers with Weather Forecasts and Vessel Models

Petter Andersen

Petter Andersen

SVP Shipping

Ship with beautiful sky

Chartering in a vessel on a voyage or a time charter is not what it used to be. Most of the legal contents in the contract between a ship owner and a vessel charterer go back to the 1940s. Commercially speaking, little has changed. It is key for the charterer to order the vessel to sail at the agreed speed as warranted in the Charter Party (CP) in order to claim any excess consumption or loss of time from the owner after the end of the voyage. Similarly, the owner must provide a vessel that is sailing at the warrantied speeds and consuming according to what is stated in the CP to avoid claims.

Now, this is about to get more complicated. From the 1st of January 2023, the International Maritime Organization (IMO) introduced the requirement for calculating the Carbon Intensity Indicator (CII) for all ships above 5000 GT. For the ship owner, this means the vessel needs to meet a certain CII level in grams CO2 per sailed nm (gCO2/dwt*nm). Failure to meet this requirement over time may penalize the ship owner. For the charterer of the vessel, this means that also the CII for the voyage needs to be taken into account, in addition to the speed and consumption as in the past.

A New Reality for ‘Time Charterer Owners’

IMO introduced the CII as one of the measures to encourage shipping to become more effective and to reach IMO’s target of reduction in the carbon intensity of ships by at least 40% by 2030, compared to the 2008 figures. Industry groups are debating whether the CII is effective for reaching the global CO2 reductions target for shipping. Leaving that debate on the side for the time being, it is a fact that the regulations are set and will impact commercial shipping going forward.

BIMCO, a leading shipping interest group, has issued a set of clauses for how to handle CII as part of a CP contract. Following these in practice means that a vessel must comply with a contracted CII as given in the CP contract, and it is the charterer’s responsibility to make sure the CII is not exceeded. Easier said than done, given how commercial shipping is set up and running.

Being a fly on the wall inside a chartering office these days, you could hear concerns like: ‘How do we calculate the CII for this vessel when only having limited information about it?’ ‘What will be the CII after the end of the voyage for this vessel if trading cross-Atlantic in the upcoming storm season?’ ‘How should I operate the vessel to keep the CII below the CP CII for this voyage (CII requirement as given in the CP contract)?’ and many more.

The 4 Key Components of Accurate CII Calculations

With all these new considerations, a charterer today needs better tools for both CII simulation and also for monitoring the CII during a charter period. Key things that must be in place to be able to accurately manage CII for a TC vessel going forward are:

  1. Access to vessel data: Many charterers lack access to needed voyage data for calculating the CII in practice. Also, since the CII is now a commercially important value, it is essential that the charterer knows the background of the data and can judge its quality and completeness of it. For many charterers, this means they need access to an upgraded data stream from the vessel, which is of higher quality and more comprehensive than what they traditionally had in the past.
  2. Access to weather data: Understanding the impact of forecast weather for a specific vessel on a planned route from A to B is key for an accurate CII calculation. Part of this is typically provided by a weather routing company, but the same insights are also needed for an accurate CII estimation. Many systems today use generic factors for weather impact on a specific vessel design together with standard sailing routes, not considering the forecast weather. In sum, this may give a very inaccurate CII value, especially since the sailed distance is part of the equation and since the shortest route, as given in a routing table, often is not followed in practice due to weather conditions and sailing routes.
  3. CII decision support. By definition, CII is a result of CO2 emitted divided by DWT times distance sailed. Given that charterers have to meet a certain CII at the end of the voyage, you not only need to take the speed into account but now also consider the sailed distance. Sailing the shortest route with high speed is favorable in a good market but can penalize your CII. Having easy-to-use support tools for estimating a CII and monitoring the actual CII throughout the voyage will save the shore team a lot of time and enable better decisions to be taken. Routing a vessel around a storm can be necessary from a safety point of view and, in many cases, also give a more favorable CII due to the long distance sailed and lower consumption from avoiding the higher wind and waves. Again, there is no easy fix for how to balance all these factors for an ongoing voyage; hence support from an experienced weather routing provider like StormGeo is highly recommended also to manage the CII.
  4. Vessel baselines. As the total CO2 emissions from a vessel are given by the fuel type used combined with the amount consumed, it is key for the charterer to account for the correct CO2 emission factors. Especially today with the increased use of LNG, methanol, biofuel, and other alternative fuels. Secondly, when considering a vessel for charter, you only sometimes have access to the vessel’s detailed description, which makes it difficult to estimate the CII for the next voyage or time charter period. Having good baselines for expected fuel consumption at different speeds and drafts for the potential chartered in the vessel is vital for ensuring you can comply with the CP CII terms according to BIMCO clauses.

Early movers will have an advantage. When the EU includes shipping into its Emission Trading Scheme (ETS) from the 1st of January 2024, all preparations done for CII will benefit a chartered fleet by having accurate figures for CO2 emission available.

Being CII-prepared Can Be a Good Investment

History shows us that those able to adapt to changing environmental conditions also have the greatest chances for success. In a way, you can project the same to the topic of CII for shipping. CII is not a perfect measure of a vessel’s fuel efficiency, and there are effects of CII which are contradicting a GHG emissions reduction target. Still, it is a measure that will have to be adhered to in commercial shipping going forward. Early movers will have an advantage. When the EU includes shipping into its Emission Trading Scheme (ETS) from the 1st of January 2024, all preparations done for CII will benefit a chartered fleet by having accurate figures for CO2 emission available. With a cost for one tonne of emitted CO2 in the EU soaring at nearly EUR 100 end of 2022* (which equals ~EUR 300 per ton of fuel consumed), being prepared for CII can also be a good investment.

* The benchmark EU Allowance (EUA) December 2023 contract closed at 98.30 euros a tonne. Source: Reuters.com 

Published on 30.03.2023

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