IMO 2023 poses yet another shipping challenge

From the 1st January 2023 container ships will need to meet a round of new ECO regulations, in a development that will reduce the supply of vessels in the container shipping market and may contribute to increasing costs and lower service availability on many routes.

Two years ago IMO2020 introduced regulations on the use of low-sulphur fuel and high-sulphur scrubbers, that directly increased the operation costs of container ships, in moves to cut the carbon intensity of all ships by 40% by 2030.

On the 1st January, IMO 2023 will require containers ships to comply with a new round of vessel efficiency and carbon intensity regulations, with three specific requirements for every vessel.

The Energy Efficiency Existing Ship Index (EEXI), is calculated for the vessel in accordance with type and size and indicates the energy efficiency of the vessel compared to a baseline.

The enhanced Ship Energy Efficiency Management Plan (SEEMP) is a mandatory, ship-specific document that lays out the vessel’s energy efficiency improvement steps.

The vessel Carbon Intensity Indicator (CII) rating scheme links greenhouse gas emissions to a ratio of the amount of cargo carried and the distance travelled in a year, to determine an annual efficiency ratio (AER).

The AER is used to grade the ship A, B, C, D, or E. Container ships that receive a grade of A, B, or C will be deemed compliant that year, while vessels graded D have a three-year grace period to get back to compliance, and those graded E will have one year to do so.

The grading criteria will become tougher every year.

The impact on container shipping will be significant, with older, usually smaller ships of less than 8,000 TEU, will not be compliant and one shipping line CEO has stated that older vessels will need to either use biofuel, or slow down and calculated that his line would lose between 5 and 15% capacity to comply by lowering speed.

Slow-sailing is the most likely option given the shortage and cost of biofuel, with a potentially major impact on supply chain speed to market and any significant reduction in capacity will put upward pressure on rates.

The new container ship order book has never been fuller, with vessels, that are being fitted to run dual-fuel, LNG, and ‘carbon neutral’ methanol, likely to be deployed on high-volume trade lanes where these expensive assets will achieve more revenue paying traffic.

In the short to medium term the new IMO regulations are likely to result in larger ships, making fewer port calls on the busiest trade lanes, with less-frequent services, designed to maximise the capacity utilisation of every vessel.

Global supply chains continue to be challenging and are going to be under pressure for a while yet, which is why we share important news and developments, like IMO 2023.

Please EMAIL Colin Redman if you would like to discuss your supply chain situation and the potential impact of IMO 2023.