Connect with us

Analysis

Campbell Johnston Clark: Legal and Contractual Considerations for EEXI and CII

The shipping industry will adapt to the important new regulations aimed at lowering carbon emissions as it always does and it is hoped that vessels can be run efficiently going forward.
Admin

Published

5 years ago

on

Law firm

International law shipping firm Campbell Johnston Clark in early November published an article discussing the issues on Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Index (CII); Singapore bunkering publication Manifold Times has received permission from the firm to publish the article in its entirety:

Although January 2023 may appear to be some time away, shipowners and operators are having to consider the likely consequences of the Energy Efficiency Existing Ship Index and the Carbon Intensity Index now.

CJC London Director Ian Short and London Trainee Solicitor Evgenia Kanellopoulou explore some of the legal and contractual issues arising from changes to MARPOL.

Background 

Ships and vessels have been used for the transportation of cargo for centuries, starting with self-propelled craft through to sailing ships where vessels would harness the power of the wind to propel the vessel. Such forms of transport had, of course, a low carbon footprint. Steam-powered ships took the place of the sailing vessels, before in turn giving way to the commercial fleets that we see today, with ships powered by fuel oil, diesel oil and, sometimes, LNG. As the important issues of climate change and ensuring a low carbon footprint rightly come ever more to the fore, the shipping industry is looking to go full circle at least in terms of limiting carbon emissions, whilst looking for innovative ways to maintain efficiency. 

Whilst it is easy to talk about climate change and ways to decarbonise shipping, in truth, the shipping business is a commercial world and directors owe duties to shareholders to maximise profits. Where owners and operators may have good intentions to become cleaner and greener, a “sea-change” in attitudes is only likely when a failure to adhere to standards would lead to an adverse commercial impact. 

Regulations restricting the use of high sulphur content in marine fuels to those vessels equipped with exhaust gas scrubbers were introduced in January 2020. Whilst the fuel switch brought some inevitable commercial disputes, ultimately the change to lower sulphur fuels was one that the maritime industry adapted to well.

The Energy Efficiency Existing Ship Index (EEXI) 

With greenhouse gases rather than sulphur in mind, the International Maritime Organization’s (IMO’s) Energy Efficiency Existing Ship Index (EEXI) is the latest tool to decarbonise shipping. Based on design parameters, the IMO proposes that a minimum efficiency standard for existing ships should be established and that only those designed for efficient, low carbon-emitting vessels should be allowed to continue trading. The EEXI is a variant of the Energy Efficiency Design Index (EEDI), which applies to new ships built after 2013. The EEXI is determined by CO2 emissions per tonne mile and the main factors in its calculation are the vessel’s installed power and cargo-carrying capacity. The EEXI is a one-off ‘pass or fail’ paper test which will be done at the first annual or special survey and will affect more than half of the world fleet when it enters into force in January 2023. 

The main method of compliance for ships that do not meet the required EEXI will be to adopt engine power limitation. This is a relatively simple and cost-effective solution and should cause minimal disruption to the vessel’s operation. Another option is to adopt technologies which have been calibrated for their effect on energy efficiency. These technologies have been rated A to C and include those that will immediately reduce a vessel’s power requirement, such as antifouling coatings; those that passively capture energy, such as solar panels; and equipment that improves efficiency but requires power, including Flettner rotors or air lubrication.

The Carbon Intensity Index (CII) 

Where the EEXI is a one-time certification targeting design parameters, the Carbon Intensity Index (CII) is an annual review of a ship’s actual carbon emission performance over the past year with such monitoring starting from January 2023. It addresses emissions in operation and has been devised to measure how efficiently a ship transports goods or passengers, in grams of CO2 emitted per cargo carrying capacity and nautical mile terms.

Ships will be rated between A and E based on their emissions performance. Ships rated D and E will be forced to take corrective actions which may involve significant cost to the shipowner. Rating thresholds will also become increasingly stringent towards 2030. 

CII compliance will involve considerable planning in coming up with technical and operational solutions to improve the emissions performance of vessels. There are unlikely to be significant impacts for noncompliance and/or low ratings until 2026 but it will be interesting to see longer term whether, in addition to remedial action, the market will generate its own practical penalties, for example D or E rated ships not being considered favourably by charterers when fixing the vessels or, indeed, attracting lower rates. 

Impact 

The above proposed changes will affect all ships built before 2010 which consume large volumes of fuel compared to modern designs. They will also affect 60-70% of bulk carriers, mainly above Panamax, and a significant percentage of tankers, mainly larger than Aframax, as well as LNG carriers and 250 steam turbine ships worldwide. The various ways owners could reduce CO2 emissions include slow-steaming, weather routing, optimised port rotation, reduction of cargo intake and use of alternative fuels, such as biofuels and LNG.

Legal and Contractual Considerations

With the date of the EEXI and CII implementation approaching, owners and operators ought to have in mind the possible legal challenges that might arise. Any initial modifications to meet EEXI requirements are likely to fall on the shipowner as the owner is obliged to comply with MARPOL and will likely have contractual obligations to ensure compliance with the convention and its regulations under charterparties too.

With regards to time charters that run after 2023 and beyond, owners and charterers will have to consider their options carefully. For example, shipowners may need to ensure that they have included in their draft contracts clauses that will allow them to address all technical matters arising as a result of the new IMO decarbonisation obligations imposed by EEXI and CII. Owners may want to ensure that they have the liberty to effect works on the vessel to be retrofitted to incorporate new technologies so that the vessel complies with the new regulations before they come into effect beginning of 2023 or enable them to take remedial actions post-January 2023. For example, owners may want the ability to arrange dry-docking the vessel during the charter for modifications, or an additional dry-dock, thus taking the vessel temporarily out of charterers’ service but without being in breach of the charter.

Owners will also need to ensure that they can both comply with the EEXI regulations and ensure a sufficient CII rating thereafter whilst at the same time complying with their obligations to contractual counterparts, such as charterers and bill of lading holders. Otherwise, the owners may end up with a conflicting set of obligations. The clearest example of this might be a reduced speed as a result of the new regulations, such as by virtue of engine power limitation, versus inconsistent speed and performance warranties in the charter party. It is not unforeseeable that a situation may arise whereby the vessel has to proceed at a certain speed in order to comply with the new MARPOL regulations yet nevertheless faces potential underperformance claims from charterers, with the owners therefore facing potential deductions from hire. 

On a similar note, shipowners ordinarily have obligations for the vessel to proceed with all due dispatch or utmost dispatch, whether under a time charter, voyage charter or to bill of lading holders. It will not always follow that the most efficient operation for decarbonisation is the same as the fastest route to the loading or discharging port. Owners will therefore need to ensure that, going forward, they are not found in breach of contractual utmost dispatch obligations when merely attempting to comply with the new MARPOL requirements. Since the commercial shipping world has evolved over the years with multiple contracts in play at any one time, this is not necessarily as straightforward as incorporating a single clause dealing with performance and speed issues in the charter party unless the terms of that charter party are also incorporated into bills of lading – otherwise a shipowner may be permitted under a charter party to operate at reduced speeds whether by virtue of engine power limitation or otherwise to ensure EEXI compliance and achieve a desired CII efficiency rating yet still face claims under, say, the bill of lading from cargo interests for failing to carry the cargo with all due dispatch. From the owners’ point of view, the charter party clauses ought to therefore go further such that charterers warrant the inclusion of similar provisions in the bill of lading terms or otherwise be held accountable to indemnify the owners for any losses arising out of alleged utmost dispatch breaches to cargo interests.

From a charterers’ perspective, they will want to try to ensure that they are giving lawful and legitimate orders to the vessel when ordering the vessel to proceed at certain speeds. Otherwise, a charterer under a long-term charter runs the risk of having to pay the agreed rate of hire for a vessel which, post-January 2023, may become less commercially efficient in terms of its earnings (for example, freight is earned less frequently under sub-charters) whilst the owner concentrates on the vessel’s carbon efficiency. 

There are also further knock-on effects of slower speeds and engine power limitation under voyage charters. For example, a charterer in its role as disponent owner may want to start the laytime/demurrage clock ticking as soon as possible by steaming as fast as possible into the port and then earn demurrage whilst the vessel waits at anchorage as opposed to the vessel slow steaming into the port just in time for berthing thus depriving the charterer/disponent owner of potential further charter income but which would produce CO2 savings. A rethink of the traditional demurrage model under voyage charters may be necessary to truly encourage all contractual parties in the chain of shipping contracts to have decarbonisation in mind. 

Reducing cargo intake is another possible way that owners could seek to reduce their vessel’s CO2 emissions. Therefore, it could be the case that some owners may decide to reduce cargo intake in order to consume less fuel and, therefore, reduce the risk of a poorer CII rating. However, again, this option could put owners at risk of being found in breach of their obligations under the charterparty; for example, if owners are in breach of any cargo capacity warranty or if owners do not allow charterers the whole reach of the vessel’s holds and cargo spaces. Owners may also want to ensure that final cargo quantity ranges are contractually at owners’, as opposed to charterers’, option but that may not always be commercially viable in circumstances where the vessel has been chartered in to load a specific cargo and a specific quantity of that cargo. Whilst it is considered unlikely, care will have to be taken to ensure that engine power limitation and possible cargo limitation does not have the net effect of requiring the use of more vessels to perform shipments to ensure greater carbon efficiency on a vessel-by-vessel basis in circumstances where the overall carbon output of using more vessels could be greater than the use of less, albeit less carbon efficient, shipments.

Conclusion

The shipping industry will adapt to the important new regulations aimed at lowering carbon emissions as it always does and it is hoped that vessels can be run efficiently from both an environmental and commercial perspective going forward. 

However, as ever with the introduction of new regulations, owners and charterers will need to carefully consider the commercial, legal and contractual position between themselves in advance if they are to avoid potential disputes as the new regulations come into force.

 

Source: Campbell Johnston Clark
Photo credit: Kerensa Pickett from Unsplash
Published: 2 December, 2021

Related Topics:
Continue Reading

Bunker Fuel Quality

FOBAS report warns of growing operational risks from ISO-compliant bunker fuels

LR’s latest FOBAS Fuel Quality Report reveals that the biggest fuel quality risks are no longer confined to off-specification fuels, with some compliant fuels creating operational challenges.
Admin

Published

1 week ago

on

July 15, 2026

By

New FOBAS report warns growing operational risks from ISO-compliant bunker fuels

Classification society Lloyd’s Register (LR) on Tuesday (14 July) warned that ship operators are facing a growing risk from fuels that appear compliant under routine ISO 8217 testing but still present operational risks once onboard.

According to LR’s latest Fuel Oil Bunker Analysis and Advisory Service (FOBAS) Fuel Quality Report, covering the first half of 2026, off-specification fuels remain a persistent challenge. 

However, some of the most disruptive cases now involve fuels that pass routine compliance testing but show poor stability or compatibility, or contain non-conventional blend components that are only identified through more detailed investigative analysis.

Several incidents investigated highlighted this trend. In March and April, a number of vessels reported operational difficulties after bunkering fuel in a major bunkering hub. Further forensic analysis found that many of the fuels contained elevated concentrations of Estonian shale oil, in some cases estimated to be around 10-15%.

While shale oil is recognised within ISO 8217 as an acceptable blend component, FOBAS investigations found that higher concentrations can be associated with fuel instability and operational issues affecting filters, separators and fuel pumps.

The report also shows that fuel quality variability remains stubbornly high. Off-specification cases remained elevated throughout the first six months of 2026, suggesting that quality issues are no longer isolated events but a more persistent feature of today’s marine fuel supply chain.

The most common recurring issues included sulphur exceedances, excessive water content, sediment and stability problems, elevated catalytic fines, sodium contamination and low flash point distillate fuels.

At the same time, biofuels (especially FAME blends) are continuing to grow without being a primary source of quality issues. Where issues occurred in blended fuels, they were generally associated with the conventional VLSFO component rather than the FAME fraction.

The report concluded that operators will need to adopt a more proactive approach to fuel management as marine fuels become more diverse and fuel quality risks become harder to identify through routine compliance testing alone.

Greater emphasis on fuel stability, compatibility and understanding fuel composition will be critical to reducing operational disruption and maintaining vessel performance.

Murray Kirkwood, Fuel Specialist Consultant, Lloyd’s Register, said: “The findings from our latest report show that fuel quality risk is evolving. The challenge is no longer simply identifying fuels that fail specification. Increasingly, operators are encountering fuels that meet the required limits but still create operational difficulties once they are stored, handled and used onboard.

“As fuel blending becomes more complex, the distinction that matters is increasingly not between on-spec and off-spec fuel, but between fuels that are operationally resilient and fuels that are operationally fragile. Understanding that difference is becoming essential for shipowners and operators.”

The latest findings reinforced FOBAS’ long-standing view that effective fuel management increasingly depends on understanding fuel behaviour rather than relying solely on pass-or-fail specification testing.

By combining routine fuel quality monitoring with forensic investigation of operational incidents, FOBAS provides shipowners with a clearer understanding of emerging fuel quality risks as the industry continues its transition to a more diverse and complex fuel landscape.

Note: The FOBAS Fuel Insight: Fuel Quality Report H1 2026 is available at FOBAS Fuel Insight: Fuel quality reports | LR

 

Photo credit: Lloyd’s Register
Published: 15 July, 2026

Continue Reading

Interview

Interview: Alkagesta navigates risk from bunkering ops during turbulent times

As the industry navigates this period of uncertainty, the key question is no longer ‘what will fuel cost?’ but rather ‘will fuel be available?’, highlights Mithat Çiftçioğlu.
Admin

Published

3 months ago

on

May 7, 2026

By

Mithat MT

Mithat Çiftçioğlu, Marine Fuels Director at Alkagesta, shared his opinion on risk management for bunkering operations under current geopolitical tensions through the April edition of shipping magazine Deniz Ticaret.

The maritime publication, part of the Turkish Chamber of Shipping (İMEAK Deniz Ticaret Odası), has given Manifold Times permission to republish the article:

Fueling Ships in Turbulent Times

From Oil Shock to Fuel Access Crisis: A New Risk Map for Maritime 2026

The final weeks of the first quarter of 2026 mark one of the most complex periods in recent years for global energy and maritime markets. The sharp rise in oil and refined product prices since February 28 may look like a classic energy shock at first glance, but developments in the maritime sector point to a far deeper structural rupture.

What is being debated in the market today is no longer just oil prices. For traders and shipowners operating in the maritime sector and bunker market, the real issue is not the price of fuel — it is access to fuel. The fundamental question in the market has shifted: not what will the price of fuel be, but will fuel even be available?

In light of the Force Majeure cancellations at Asian ports over the past two weeks, another question must also be considered: Will pre-agreed bunker supply contracts actually be delivered?

From Oil Prices to Logistical Reality

Tensions in the Middle East have created a strong geopolitical risk premium in the oil market. Brent crude briefly surpassed the $100 per barrel mark, triggering a search for a new equilibrium across markets. This will inevitably bring inflation and recession back onto the global agenda in the months ahead.

But the rise in oil prices does not only reflect the risk of supply disruption — it also signals the return of one of the most fragile chokepoints in global energy trade:

The Strait of Hormuz

Approximately one-third of the world’s oil trade passes through this narrow waterway. Around 20 million barrels of oil and petroleum products transit Hormuz daily. Any disruption here would therefore affect not only oil prices, but also global refined product flows and the bunker market directly.

Why Strategic Oil Reserves Are Not the Solution

A commonly proposed solution in energy crises is the release of strategic petroleum reserves. However, releasing these reserves does not directly resolve a bunker crisis. Strategic reserves consist of crude oil. To produce bunker fuel, the following chain must be completed:

Crude oil → Refinery → Product logistics → Bunker port

This process takes time. Strategic reserves can temporarily stabilize oil prices, but they cannot solve the access problem in the bunker market in the short term.

Furthermore, the announced reserve release of 400 million barrels, to be drawn down at a rate of 2.5–3 million barrels per day, can only cover a small fraction of the estimated daily loss from the Middle East — optimistically 8–10 million barrels, pessimistically 18–20 million barrels per day.

A Historic Surge in Bunker Fuel Prices

The per-ton price of VLSFO (0.5% sulfur) bunker fuel has surpassed $1,000, reaching approximately double pre-war levels. This also represents some of the highest prices seen since July 2022.

While prices at bunker hubs such as Singapore and Fujairah are approaching $1,100 per ton, European markets have remained comparatively lower.

The Real Problem Is Not Price — It Is Fuel Access

Obtaining bunker quotes for April has become increasingly difficult, particularly at Asian ports. Even where shipowners and traders can secure quotes, the absence of supply guarantees makes pricing extremely challenging.

A senior executive at Oldendorff Carriers summarized the situation in these words:

“We cannot price cargo because we cannot calculate fuel costs; we cannot calculate fuel costs because there is no supply guarantee.”

The CEO of Maersk has compared the current situation to the pandemic era, stating that companies are attempting to source fuel through methods they have never tried before in order to keep global shipping networks supplied.

While supply is tight and prices are near their peak in Singapore and Fujairah, Rotterdam appears relatively more balanced. However, as the conflict drags on, risk perception in European markets is also rising.

The surge in bunker prices will not only increase costs — it will also affect global maritime transport capacity. Ships are expected to reduce their speeds to conserve fuel. This could lead to a reduction in effective carrying capacity, creating new logistical bottlenecks in global trade.

The importance of working with reliable, long-term partners has never been more apparent than during a crisis such as this.

The Widening Price Spread Between Fuel Types

A notable development in the bunker market in recent weeks is the rapid widening of price differentials between different fuel types. Two spreads in particular have expanded significantly:

  • Marine Gas Oil (MGO) – VLSFO
  • VLSFO – HSFO

Rising demand for distillate products, refinery production balances, and regional supply tightness are all contributing to this widening. As a result, bunker purchases have become not merely a matter of price level, but a strategic decision tied to product type and port selection.

An Unexpected Development: Biofuels Becoming Competitive

Another noteworthy development in the bunker market is that biofuels have remained at relatively competitive price levels. This creates two important opportunities for shipowners.

On one hand, biofuels remain competitively priced in certain markets. On the other, they offer a means of compliance with new regulations entering into force in Europe — particularly the FuelEU Maritime and EU ETS frameworks, which require reductions in carbon intensity. In this context, biofuels have become a strategic option for many shipowners.

Conclusion: Active Bunker Management Is The New Normal

The 2026 bunker market presents one of the most complex energy trading environments in recent years. The rise in oil prices, geopolitical risk at the Strait of Hormuz, tightness in physical fuel supply, and widening price spreads between fuel types have made bunker fuel management more critical than ever.

The prevailing view in energy markets is that as long as the risk at the Strait of Hormuz persists, turbulence in the bunker market will persist with it. As time passes, the depletion of commercial stocks may deepen the existing supply tightness further.

For this reason, the current situation is viewed not merely as an energy crisis, but as a new stress scenario testing the logistical infrastructure of global trade.

The view increasingly heard across energy markets is this:

“As long as Hormuz remains closed, it will not be oil prices but fuel access that constitutes the defining risk for global shipping.”

Finally, for shipowners and operators, bunker strategies are shifting away from a passive purchasing approach toward a model grounded in active risk management.

 

Photo and article credit: Deniz Ticaret
Published: 7 May 2026

Continue Reading

Analysis

T&E: Overreliance on traditional bunker fuels costs shipping USD 395 million a day due to Iran conflict

Development has made alternative fuels increasingly more competitive, states Eloi Nordé, shipping policy officer at T&E.
Admin

Published

4 months ago

on

April 2, 2026

By

The Hormuz crisis adds over 300 million a day to shippings fossil fuels bills

The European Federation for Transport and Environment (T&E) on 27 March highlighted the adoption of green marine fuels would reduce the shipping industry’s exposure to fuel price shocks in future.

It noted shipping companies are spending an extra €340 million (USD 394.74 million) a day in additional fuel costs as a result of the latest conflict in the Gulf.

As 99% of the global fleet runs on fossil fuels, the industry is directly exposed to fuel price volatility and supply disruptions. Efficiency measures, electrification and e-fuels would reduce the industry’s exposure to price fluctuations.

According to T&E, marine fuel prices have escalated rapidly, with VLSFO reaching €941 per tonne in Singapore, up 223% since the start of 2026. At the same time, LNG prices have risen by 72% since early March. Since February 28, shipping companies have incurred more than €4.6 billion in additional fuel costs.

The development has made alternative fuels increasingly more competitive. As fossil fuel prices reach record highs again, the cost gap with e-fuels is narrowing.

T&E’s research shows that the cost gap between marine gas oil – one of the more expensive fossil fuels – and e-fuels has shrunk to near parity (+5%) in some ports.

Hormuz oil crisis boosts potential e fuel competitiveness

While the trend may be temporary, it shows that the volatility of fossil fuel markets offsets much of the structural cost disadvantage of clean fuels.

“Chaos in the Strait of Hormuz is putting global maritime trade under the spotlight. But it’s on the oil markets where its impact will be felt the most. The war is costing the industry millions every day,” said Eloi Nordé, shipping policy officer at T&E.

“Some governments and parts of the industry have spent the last year bashing green maritime measures as being too expensive, yet those costs pale in comparison to this super-disruption.

“If anything, this crisis should be the catalyst for more investment in European e-fuels and greater uptake of energy efficiency measures to avoid fossil fuel shocks in the future.”

 

Photo credit: European Federation for Transport and Environment
Published: 2 April 2026

Continue Reading

Trending