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Editorial comment

Significant regulatory change is afoot in the maritime industry to address the pressing need to decarbonise shipping. With such change comes commercial and practical considerations, which will impact the relationship between those who own and operate ships and those that charter them. It is hard to think of any previous regulatory changes which have had such an impact on this age-old relationship.

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One such regulatory change is the MARPOL Annex VI regulations which implement, amongst other things, the Carbon Intensity Indicator (CII) regime.

The CII regime, which came into force on 1 January 2023, imposes a reporting and an A Ð E rating scheme based on a ship’s emissions, with the criteria for the rating bands becoming increasingly stringent over time to reflect the IMO’s emissions reduction targets. If a vessel receives a rating of D for three consecutive years or E for one year, then measures to improve this will need to be put in place in its Ship Energy Efficiency Management Plan (SEEMP). Currently, there is no sanction by either flag or port state, should a vessel achieve an E rating and then fail to put steps in place in the SEEMP to improve efficiency, or fail to implement such a plan. However, the market may regulate this issue itself, if, for example, such ships command lower hire rates than better rated ships.

In addition to the practical steps needed to comply with the new regulations and to improve emissions for vessels with lower ratings, owners of dry bulk carriers will need to consider the impact of the CII rating on the commercial operation of the vessel. For example, it is conceivable that vessels with higher CII ratings will be more popular with charterers, but whether this will translate into a difference in daily rate between vessels with different CII ratings remains to be seen. Another issue with CII is that the owner will only have a limited amount of control over the rating Ð what is most determinative of the efficiency of the ship is how it is operated by the charterer. This will require more co-operation between the parties if the vessel is to remain at the rating it had when the fixture commenced.

Charterparty terms will require careful negotiation: the CII regime requires a flow of data between the charterer and the owner, but what level of transparency, particularly around commercially-sensitive issues, are parties going to be comfortable with? Will the parties agree a minimum CII rating in the charter, and if they do, which party will agree to additional obligations to ensure this is met? Will charterers be willing to restrict how they can use a vessel towards the end of a charter to ensure the rating is preserved or improved? And when looking to fix a vessel, will charterers truly be interested in the CII rating, knowing how dependent the rating can be on the previous charterer’s operation? This may depend on how important this factor is to the charterer’s customers.

Many draft clauses have been developed (including a new BIMCO clause) to suit different trades and bargaining powers. However, all these clauses are novel and will require unprecedented degrees of transparency and co-operation, as well as heavy reliance on IT systems, taking the relationship between owner and charterer into uncharted waters. Owners and charterers must also quickly develop the skills to deal with these new issues in the most compliant and commercially beneficial way. It will be a challenge.