Recently, I shared the stage at OrbitMI Flow with Ali Riaz, the CEO of OrbitMI. He and I had a wide-ranging conversation about several issues but, as you might expect at a maritime event, we talked a lot about CII and decarbonization. While maritime anticipates further clarification on the IMO's GHG Strategy coming out of the IMO’s MEPC 80 conclave happening in London this week, OrbitMI has asked me to share some of my thoughts based on that conversation.
Today, let me address CII and what I am seeing.
It's well-known that the CII has its imperfections, yet initial frustration surrounding it seems to have subsided.
The problem with CII is that its annual rating. Let’s say at the end of this year, a VLCC earns a rating of “C”. In June 2024, what is that vessel’s rating? Is it still a “C” or has it changed based on how the ship was traded during the first six months? Looking back in time is relatively easy; but, what about looking ahead? How can you forecast the next six months?
What if the time horizon is even longer? Let’s say you’re a ship owner with vessels on long-term time charters. You hope that at the end of the charter, the vessel's CII rating upon redelivery matches or exceeds the score initially assigned. Yet you don’t control that vessel. Its rating is out of your hands.
There’s an essential unfairness revealed here: On one hand, long-term time charters let ship owners lock in favorable rates; on the other hand, it means entrusting their ships to operators for extended periods when they lose control over day-to-day decision making that can impact CII.
I think of this handing over the responsibility of raising one's children to a babysitter. Maybe they do a great job, and your kids thrive under their care. Maybe, however, they do a poor job and your kids come back a little screwed up. In either case, the ship owner pays.
At the end of the day, we must live with the changes in the sector. I think most people now are trying to find ways to adopt and manage CII's requirements.
For instance, BIMCO and others are trying to address some of these issues related to CII through charter party clauses. That will take time to figure out. Oil majors have already made their intentions clear as most are hesitant to fix vessels with a CII rating below category D.
Leveraging data is another potential solution. Technologies such as those provided by Maritime Carbon Solutions (MCS), which offers pre-fixture estimates of vessel ratings, and Orbit, which offers visibility into ongoing changes to CII during a voyage, are becoming must-haves for the industry. Those same technologies will be key to managing the industry’s response to its inclusion in the European Unions Emissions Trading System (EU ETS).