Lars Robert Pedersen, Deputy Secretary General at BIMCO published an article in the March Bulletin magazine discussing the various complexities involved when ships attempt to improve operational efficiency each year:

The International Maritime Organization (IMO) recently approved regulatory changes that will require ships to improve their CO2 emissions per transport work annually. In the best-case scenario, the new amendments may not be damaging to the industry’s efforts to reduce its carbon footprint. In the worst-case scenario, the ships’ CO2 emissions will rise, as more ships will be needed to obtain the required improvements.

If a car owner was asked to improve the mileage of their car each year through operations – and, thereby, reduce how much CO2 it emits – certain behaviors could be changed and improved at first. The car owner could avoid having the engine running while stopping for a red light, and aim to drive carefully, with a “feather” on the accelerator. After such operations and behaviors had been improved, however, the car owner would quickly run out of any other option but to drive downhill continuously.

What would you do when you have run out of options? Sell your car and buy a new one, once you have used all the operational tools available? How quickly will you run out of ways to improve the operational efficiency of a new car?

Similarly, with a ship, certain improvements can be made in the beginning to increase its operational efficiency, but – as with a car – you will quickly run out of options.

This is, nonetheless, what ships will probably be required to do – improve their CO2 emissions per transport work year after year – if and when the new IMO regulatory changes to MARPOL Annex VI are adopted and enter into force, with the requirement to improve their Carbon Intensity Indicators (CIIs). This will probably happen in 2023.

The amendments have been approved by the IMO, and will be up for adoption at the Marine Environment Protection Committee’s (MEPC’s) 76th session, to be held later this year.

What is efficiency?

Before we even begin to look at how a ship’s operational efficiency can be improved continuously, year after year, we need to discuss what efficiency is, as the amendments will be regulating how much CO2 it emits in relation to its transport work. Like the mileage of a car, how many litres of petrol it consumes per kilometre driven.

So, what is efficiency in the context of CII? The new regulation does not directly define it in terms of a chosen metric, but it seems certain that the metric given by the guidelines is the annual efficiency ratio (AER) – the grams of CO2 emitted per deadweight tonne, per nautical mile travelled. The deadweight of a ship is constant, as it is the ship’s maximum carrying capacity.

The emissions of a ship are, to a large extent, determined by two factors: its speed and submersion in water. The more you load onto a ship, the harder it becomes to push it through the water. But when you always measure against the full capacity of a ship, as is the case with the AER, it means the submersion is not a variable in your efficiency metric. In fact, the lighter the ship, such as an empty one, the better the efficiency, because it is light in the water and emits less CO2 per full deadweight of the ship travelling. So, however many miles you travel, an empty – or not very loaded – ship will be more efficient than if it is fully loaded and submerged deep in the water.

In conclusion, a ship not carrying anything is more efficient than a fully loaded ship – everything else being equal – according to the AER metric. Similarly, a slow-steaming ship is more efficient than a ship going at full speed, everything else being equal.

What, then, is the intention of the new regulation? It may be that some will end up loading less to improve efficiency – which would, ultimately, require more ships for the same amount of cargo transported and, for the total fleet, result in more CO2 emissions than without the regulation.

Efficient operation of a tanker or a bulker is normally thought to be when a ship goes fully loaded from port A to port B, and then loads in the same port to go fully loaded to the next port, and so on. Inefficiency, on the other hand, is going from port A to port B, then sailing empty to the next port. With the AER metric, however, the more you travel in ballast (empty), the more efficient your average annual rating will be, because an empty ship emits less CO2 compared with a laden one.

The charterer holds the key?

This discussion leads us to another issue. The shipowner may hire out the services of a ship for months, or even years, to a “time charterer”, who then decides which ports the ship will call at and what cargoes will be carried. The charterer may also have the right to adjust the speed of the ship. All of these factors have an impact on a shipowner’s ability to improve the operational behaviour of their ship.

A time charterer has the freedom to operate the ship without being responsible for the continuous operational efficiency improvements that will be required year after year. They may decide that a cargo needs to be transported from port A to port B at best possible speed, perhaps choosing actions and operations that are inefficient according to the AER metric. When the annual assessment of the ship’s rating is due, the shipowner could end up in a situation where the operational efficiency of the ship has not improved, or even worsened, and will be required to develop a plan to improve the efficiency next year. This is a difficult situation for the shipowner, because the plan may conflict with the contractual rights that the time charterer has to trade the ship freely.

To further complicate the matter, a group of large charterers has recently announced the Sea Cargo Charter, under which they commit to improve the operational efficiency of the ships they employ by monitoring – and seeking improvements to – the Energy Efficiency Operational Indicator (EEOI).

The EEOI is different from the soon-to-be-mandated AER metric in that it rates the CO2 emissions against the cargo tonne miles. Where the AER implicitly rewards ballast voyages, the EEOI rewards loaded voyages. Only if the speed changes do the AER and EEOI respond comparably. 

In the future, as a shipowner, you can make a plan, but you should cross your fingers that your ship’s charterer will follow it, even if the plan is not in his or her best – or most efficient – interest.

It is complicated to see how this will work in practice, because the new regulation will apply to the ship, and it is often the charterer who holds the key to improving a ship’s operational efficiency – even though not everyone agrees how efficiency should be measured.

Photo credit and source: BIMCO
Published: 4 March, 2021