The International Maritime Organization’s landmark decision to mandate measures to cut carbon emissions has put shipowners in a race against time to raise the fuel efficiency of existing vessels to meet newbuilding standards.

The regulatory process to add the new measures to the International Convention for the Prevention of Pollution from Ships (Marpol) Annex VI in time to enter into force by January 2023 will get underway shortly.

The measures — the first carbon reduction regulation to be applied to the trading fleet — were agreed at the IMO’s Marine Environment Protection Committee (MEPC) online meeting and seek to reduce shipping’s carbon intensity by 40% by 2030.

The deal has angered environmentalists for not going far enough to reduce greenhouse gas emissions. However, there are still potentially huge implications for the post-2023 trading markets, as the regulation could dramatically shorten the trading life of the existing fleet.

The newly agreed Energy Efficiency Existing Ship Index, or EEXI, will require all existing ships to meet newbuilding fuel-efficiency standards by their first statutory survey in 2023.

The current Energy Efficiency Design Index (EEDI) baseline for newbuildings will be adopted as the standard for existing ships under EEXI.

TradeWinds un­­derstands there are some small allowances to be made for VLCCs, VLOCs and ultra-large containerships.

But other bulkers and tankers will have to comply with current EEDI phase two standards, which will be raised to phase three in 2025.

Under EEXI, LNG carriers and containerships will be committed to phase three EEDI standards.

The main exception is ro-ros, which will only have to comply with EEDI phase one standards for technical reasons.

Ships ordered after 2014 will already comply with EEDI standards, so ships built before that date are most affected by the regulation.

Vessels that meet the EEXI standard will be certified as compliant under their International Energy Efficiency Certificate.

Those that are not fuel-efficient enough to comply will have to adopt power limitation, which will in effect restrict the vessel’s speed to a level at which it becomes compliant.

Shipowners also have the option to take on other energy-saving or emission-reducing technology, such as alternative fuels or retrofitting, to meet the EEXI standard.

Operational efficiency

The decisive IMO meeting on emissions was chaired by Japan's Hideaki Saito. Photo: IMO

The effects of other initiatives that have just been agreed, such as the Carbon Intensity Indicator (CII), will take longer to kick in and some of the technical requirements have yet to be finalised.

CII involves a rating of the operational efficiency of a vessel. It assesses the actual performance of ships in terms of fuel consumption and cargo carried. The rating will be calculated after a vessel completes one year trading under the new regulation.

Vessels will be rated A to E according to their operational performance, with those rated D and E falling outside the required standard.

Owners of D and E-rated vessels will have to take steps to improve their performance in year two. If a vessel fails again to make the grade, penalties could be imposed in the third year. The penalties and the technicalities of the system are still under discussion at the IMO.

However, market watchers said a vessel’s CII rating will have considerable impact on the trading prospects for vessels.

Leading charterers have already committed to employing only the most operationally efficient ships under the Sea Cargo Charter initiative. The operational efficiency of ships will be fully transparent under the CII scheme after 2023.

Analysts have yet to crunch the numbers on what the new regulations might mean for the trading markets.

As many ships are already slow steaming because of the poor market some suggest there will be little impact.

But the current record low in bulker and tanker orderbooks is priming the shipping markets for a boom that could come at a time when many inefficient existing ships will be asked to limit power and lower trading speeds.

The feeling is that owners of ships that become handicapped in the trading market by power limitation, or a poor CII rating, will have no choice but to scrap the­ ­vessels and opt for more efficient newbuildings.

The final measure will be for ships to adopt an enhanced Ship Energy Efficiency Management Plan, which will become a mandatory requirement after 2023.

Owners will have to outline measures to improve the operational efficiency of ships, and compliance will be checked after the first year.