New clause under re

from OFI February 2023

OXIDATION/ANTIOXIDANTS

The CII assigns each ship a rating from 'A' (best) to 'E' (worst) based on its annual carbon intensity in relation to an IMOset target that will reduce over time. CII focuses on ship operations, not vessel hardware (which is the focus of a separate new regulation, EEXI).

Leading charterers are saying they will refuse to use a new contract clause within a new shipping regulation designed to combat global warming.

Devised by the United Nations (UN)’s International Maritime Organization (IMO) and in force since 1 January, the Carbon Intensity Indicator (CII) aims to lower carbon emissions by increasing the eﬃciency of container ships, tankers, bulkers, car carriers and other vessels.

For the CII regulation to be eﬀective, there must be agreement between shipowners and charterers – the companies that lease ships from owners – on how responsibility for emission reduction is divided, according to a 21 December Freight Waves report.

“Cooperation is key,” leading marine insurer Gard was quoted as saying.

The terms of that cooperation are included in the charter agreement or 'charterparty', with a charterparty clause covering CII ﬁnalised by shipping association BIMCO on 16 November.

However, a group of the world’s largest vessel charterers sent a letter to BIMCO on 20 December saying they would refuse to use the clause because “it places the obligation to comply with CII disproportionately on charterers”, Freight Waves wrote. The 23 signatories included shipping lines Maersk, MSC, CMA CGM and Hapag-Lloyd; agricultural shipping giants ADM, Bunge and Louis Dreyfus; and top trading houses Traﬁgura and Vitol.

With the ﬁrst CII rating due to be determined in 2024 – based on the carbon intensity of ship operations for the annual period starting on 1 January 2023 – voyage planning would need to start taking CII strategies into account, the report said.

A ship’s carbon intensity is calculated by multiplying its annual fuel consumption by a carbon-emission factor assigned to the fuel type used, then dividing that total by the annual distance travelled, multiplied by the ship capacity.

In practice, shipowners would want to avoid getting an 'E' rating in any one year, or a 'D' over three consecutive years, according to Freight Waves. If that happened, the shipowner would need to update the vessel’s Ship Energy Eﬃciency Management Plan (SEEMP) by developing a corrective action plan and following it.

A number of shipping sector participants have pointed to major problems with the regulation.

“CII cannot be used to achieve desired decarbonisation goals,” dry bulk shipping association Intercargo was quoted by Freight Waves as saying. “There are signiﬁcant ﬂaws.”

A central criticism is that the formula is based on ship capacity, not cargo carried, when the goal should be to reduce the carbon intensity per tonne of cargo transported, according to the report.

Ship owners and operators were already trying to increase ﬂeet productivity by reducing empty legs, so they could carry more cargoes each year, dry bulk shipping company Oldendorﬀ said.

For example, a bulker that carries soyabeans from the US Gulf to China, then picks up a cargo of coal in Indonesia and drops it oﬀ in Europe on its way back toward the Atlantic Basin for another load will emit less carbon per tonne of cargo than a bulker that goes from the USA to China, then sails back to the USA empty, according to the Freight Waves report. The same 'triangulation' concept applies to all shipping markets.

“Even though a ship consumes more fuel during laden voyages, improved utilisation [via triangulation] decreases the emissions per tonne carried, which is beneﬁcial for the environment and should be the objective,” Oldendorﬀ said.

However, this was not how the new regulation worked, and a ship could improve its CII rating by increasing its empty ballast time, which reduced fuel consumption – but increased emissions per tonne of cargo carried, Freight Waves said.

“The most ineﬃcient vessel can achieve a good CII rating by simply ballasting with no cargo,” Oldendorﬀ was quoted as saying.

According to a spokesperson for container shipping line MSC, it would be better to have an operational indicator that rewarded more productive ships, including being based on cargo carried rather than on a theoretical value that may not correlate to transport work performed.

A further criticism of CII was that the equation’s denominator included distance travelled, with the shorter the distance travelled in a year leading to a worse CII score, the report said.

With, for example, port waits generally outside the control of shipowners, the MSC spokesperson pointed out that the CII methodology “could lead to a situation in which a vessel’s rating would worsen simply because it spends more time in port”.

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Statistical News

Sunflowerseed and oil

The Mintec Benchmark Price (MBP) for EU sunflower oil fell by 4.6% month-on-month (m-o-m) and by 10% yearon-year (y-o-y) to €1,098/tonne on 20 January, with vegetable oil prices declining from the elevated levels reached in the first half of 2022. Good stock levels in the EU, combined with a lack of buying interest and good crushing activity, have contributed to the price decline.

Global sunflowerseed supply for the 2022/23 marketing year is expected to decline by 11% y-o-y to 51M tonnes on the back of a significant decline in Ukrainian sunflowerseed production (–43% y-o-y), amid the ongoing Russia-Ukraine war.

Soyabean and oil

The Chicago Board of Trade soyabean futures price rose by 1.9% m-o-m to US$554/tonne on 20 January.

The soyabean and oil markets have recently been driven by cuts to US and Argentinian crops. In its January World Agricultural Supply and Demand Estimates (WASDE) report, the US Department of Agriculture (USDA) revised this season’s US soyabean crop to 116M tonnes, down by 1.6% from the December report due to a reduction in harvest area.

Similarly, the Argentinian crop was revised down by 8% to 45M tonnes, on the back of ongoing drought in the country. However, Brazil, another major South American soyabean producer, is expected to have a record crop this season, up 20% from the five-year average. This record crop is expected to offset losses in Argentina, bringing total South American production higher by 16% y-o-y.

Meanwhile, the MBP for EU soyabean oil fell marginally by 0.8% m-o-m to €1,265/tonne on 20 January, with easing global vegetable oil prices putting pressure on soyabean oil prices. In the EU, many buyers have substituted with lower-priced sunflower and rapeseed oils, leading to lower demand and prices. Weather conditions in South America and China’s demand direction following the end of its zero-COVID policy remain watch-out factors for soyabean and oil prices.

Rapeseed and oil

The Euronext rapeseed oil price was down by 4% m-o-m and by 30% y-o-y to €533/tonne on 20 January. Rapeseed and rapeseed oil prices have declined from the elevated levels reached in the first half of 2022 on the back of improved global supply.

Global rapeseed and rapeseed oil production are projected to rise by 14% y-o-y and by 9% y-o-y to 85M tonnes and 32M tonnes, respectively, in the 2022/23 marketing year. This follows improvements in Canadian output this season (+38% y-o-y).