IMO greenhouse gas regulations will restrict dry bulk cargo shipments

TThe implementation of EEXI and CII regulations by IMO from 1 January 2023 is a significant step towards reducing greenhouse gas emissions from the maritime industry. As the regulations become more stringent, with the main impact expected after 2024, shipowners need to proactively monitor and improve the emission profiles of their fleets to ensure the commercial viability of their vessels. The gradual transition to alternative fuel bulk carriers is gaining ground, with an 11% share of the current order book and deliveries expected to peak in 2026-2027.

The provisions on the Energy Efficiency Index of Existing Ships (EEXI) and the Carbon Emission Intensity Index (CII) were implemented as part of the IMO’s initial greenhouse gas policy from 1 January 2023. These measures will be reviewed by 1 January 2026 and any further changes will be implemented.

EEXI is a design parameter that assesses the potential carbon intensity of a ship. It relates to the ship’s design and must be assessed in 2023. According to Drewry’s analysis, most ships will have to undergo an Engine Power Limitation (EPL) to meet the design requirements. The EPL will limit the maximum speed at which the ship can operate. Since the ship’s operating speeds in 2022 were lower than the maximum speed after the EPL, it is unlikely that the EEXI regulation will have a significant impact on the ship’s operation.

On the other hand, the CII regulation assesses the carbon intensity of a ship. The CII will be calculated based on data submitted to the IMO data collection system. Based on CO2 emissions (in g/nm-tonne), the ship will be given a rating from “A” to “E”. If a ship receives a “D” rating for three consecutive years or an “E” rating in any year, the ship owner must develop a remedial plan to improve the rating within one month of its announcement. Since the CII ratings for 2023 will be announced after 31 March 2024, which is the final deadline for submitting emission data, a delay in the operation of the CII rating is expected and major changes in operations are not expected until the CII ratings for 2023 are announced. Most ship owners should proactively calculate and monitor the CII ratings and strive to remain in the “C” category or above.

The CII rules are becoming increasingly stringent year on year, with the reduction factor increasing from 5% in 2023 to 11% in 2026. Further reduction factors are to be set as part of the ongoing review process, which is due to be completed by 1 January 2026.

Maintaining a low-carbon portfolio for existing ships will help shipowners obtain financing for new or used ships. Many ship-financing banks are part of the Poseidon Principles, which require shipowners to maintain a climate-adapted profile and declare their emissions to the bank.

In the long term, ships capable of operating on alternative fuels will have an advantage over ships using conventional fossil fuels due to their reduced emissions. According to Drewry Maritime Research, currently around 11% of orders for dry bulk carriers are for alternative fuels, and this is expected to increase in the future. More than half of new orders for alternative fuels are being placed by Japanese and Chinese shipowners. With deliveries of these types of ships starting this year, they are expected to peak in 2026-27, with around 10 million cubic tons of dry bulk carriers for alternative fuels being delivered by then.

The impact of CII will be more visible after 2024. Shipowners will assess the costs of adapting a vessel and consider its commercial viability in the coming years. Some older vessels will be scrapped earlier than expected. Newer vessels with modern electronic engines, which are more economical, are expected to comply without any additional upgrades depending on their operation, while older vessels operating on conventional engines may need to consider retrofitting to meet the requirements.
Source: Drewry