By Powell Slaughter, Contributing Editor
HIGH POINT — Furniture importers unfamiliar with the term “IMO 2023” should start paying attention to it now.
The impact of new International Maritime Organization regulations, which goes into effect near year, to increase vessel fuel efficiency and reduce ocean shipping’s carbon footprint remains unclear, but shippers might well brace for potential increases in transit times, maybe costs as well.
The so-called IMO 2023 initiatives are very complicated, but the short story is that it is a requirement that individual ships make and meet progressively stringent emission-reduction goals.
IMO has established three new measurements for ocean vessels to track that process. Each vessel must: calculate an “Energy Efficiency Existing Ship Index” for various vessel sizes and categories that compares fuel efficiency to a baseline; document a “Ship Energy Efficiency Management Plan” to improve fuel efficiency; and calculate a “Carbon Intensity Indicator,” to measure emissions relative to a ratio of the amount of cargo to the distance it’s carried.
The CII is of particularly interest in that every vessel will be rated from A (best) through E (worst). According to the IMO, “A ship rated D for three consecutive years, or E, is required to submit a corrective action plan, to show how the required index (C or above) would be achieved.”
That could include things such as slower sailing, hull refinishing, refitting for alternative fuels or propeller maintenance. While the first ratings won’t be issued until 2024, in 2023 shippers should not be surprised by slower transit times on some routes and/or less ocean time for some vessels due to renovations as carriers look to meet the new requirements.
Many questions, few answers
Gulfstream Shippers Assn. deals with about seven ocean carriers when obtaining vessel space for its member shippers. GSA President Garrett Bowman said the lines haven’t shared much in terms of how they’re implementing IMO 2023 or any potential impacts on service and cost to shippers.
Among carriers he asked about what happens next year, only one responded and even then with little insight into actual plans for implementation of and compliance with the standards.
Carriers “have not been as communicative across the board as they were with IMO 2020,” he told Furniture Today. “They have not been as forthcoming with information or strategy on this one,” adding that while the onset of IMO 2020’s more stringent sulphur-emissions standards led to higher bunker charges for more expensive fuel along with slower sailings, at least shippers had a better idea of what those impacts would be going in.
“In 2018/2019 there was a lot of conversation. I’m guessing (IMO 2023) hasn’t been anyone’s top priority; the shipping market’s been turned upside down the past couple of years.”
One reason for the lack of specific IMO 2023 information from carriers is that carriers still aren’t sure themselves.
“The lines haven’t communicated specifics about IMO23 yet,” said Rachel Shames, director of pricing and procurement at logistics services provider CV International in a phone interview. “I hope (lines) are talking behind the scenes about what will happen with their fleets, but I don’t think they know exactly what the effects will be in terms of costs and service to shippers.”
Furniture Today reached out to some ocean carriers regarding potential IMO 2023 shipper impacts and communication of implementation processes. One, Maersk, the largest line, responded, and its answer reflected that even the lines don’t have definitive information at this point.
“The regulation will have an impact on how we operate our vessels, and thus would also have an impact on the service we offer our customers,” said Maersk North America Head of Environment and Sustainability Dr. Lee Kindberg via e-mail. “However, the technical regulatory guidelines for the regulation, such as the CO2 efficiency calculations for vessels, are still not finalized.
“So the full effect of the regulation cannot be modelled correctly yet. This means that we do not know the exact impact yet, but we can see that the potential impact on operation might be significant.”
Kindberg added Maersk expects the effect and impact on operation will occur gradually around 2023 and onwards, “as we have a two- to three-year phase-in period after 2023 to ensure compliance. We are monitoring the developments closely in order to be prepared in the best way possible.”
Maersk will share more details going forward when it know knows more about IMO 2023’s impact on service.
A complex issue
IMO 2023’s complexity is indeed a reason for less communication relative to the years leading into IMO 2020’s sulphur-emissions standards, said Kristy Asseily, maritime sustainability lead at S&P Global Market Intelligence.
“IMO 2020 was relatively straightforward,” she told Furniture Today. “Ships either had scrubbers fitted or converted to low-sulphur fuel. Now you have a regulation that’s very dynamic with a series of targets regarding vessel efficiency and carbon intensity varying on a yearly basis.”
Asseily believes the carrier lines need to communicate transparently and accurately their carbon footprint to cargo owners. Vessel charterers on the other hand, she added, have signed onto the Sea Cargo Charter initiative for capturing and calculating fuel consumption and emissions on a port-to-port basis for leveraging real time operational data.
“Charterers are well-positioned to calculate carbon footprint, but that data is not being made available in the containership industry,” she said, with the latter relying on averages such as the GLEC framework that don’t reflect the impact of near-real-time factors such as lying at anchor off a congested port.
“The vessel is still burning fuel, and it is actually worse not only for carbon dioxide, but (also) for other emissions like nitrogen oxide and sulfur dioxide than when the vessel is sailing.”
She said the CII ratings are an important factor, especially as ships that might have a D or E rating repeatedly face being detained or face fines. Even with slow steaming, a 25-year-old ship might not pass muster.
“That’s a key issue, because there’s only so much you can do (with older vessels) from an operational standpoint to meet the standards,” Asseily said, noting that maintenance measures such as propeller cleaning, conversion to alternative fuels or hull refinishing might not be enough for some vessels.
“The critical profile of ships are the ones 12- to 15-year-old,” Asseily added. “They’re not old enough to be scrapped but not new enough to meet eco-design parameters, which is progressively stricter. What might be a B rating in 2023 might be a D by 2030.”
Slow speed ahead?
What are the new IMO 2023 standards’ potential impacts on shipping schedules and transit times?
Shames at CVI pointed out the new standards most directly effect smaller, older vessels. And that’s bad news for already burdened feeder routes relying on those sorts of ships.
“No matter how slow they sail, some of those vessels will have to be taken out of service,” she said. “We’ve seen shippers shifting sourcing to places in Southeast Asia the past few years due to tariffs. Thailand already has been extremely challenged as well as The Philippines, even Indonesia at times. Those origins will most likely continue to be extremely problematic.”
GSA’s Bowman pointed out carriers have two main ways to meet IMO 2023 compliance: slower sailings burning less fuel or implementation of more fuel efficiency through newer vessels and existing-fleet upgrades.
“I would say we’ll see a mix, but I think we’ll see a lot of ships slow down,” he said.
What about capacity?
It’s no news that the container transport system has been stressed and will continue to be so for a while. Asseily at S&P Global doesn’t expect IMO 2023 to have immediate impact on space availability next year, but as time goes on ships might be decommissioned or detained in ports for emissions violations.
“I don’t think capacity will (be impacted) at first because there isn’t clarity around how CII will be monitored and enforced,” she said. “While ship owners will have to disclose the CII rating part of the annual IMO disclosure requirement, the body in charge of enforcing compliance is unclear.
“How the data will be communicated by ship owners to the various stakeholders (from port state authorities to charters to cargo owners to financiers) will be key to ensure enforcement and accountability,” Asseily continued.
The potential negative impact of IMO 2023-related slower sailings could tighten the global carrier fleet’s effective capacity, according to GSA’s Bowman.
“If ships are sailing slower and returning slower, we’ll see an overall decrease in market capacity since the ships aren’t operating as efficiently as they once were,” he said. “Hopefully having newer and larger ships coming on line will have a positive effect.”
A lot of 2023’s new vessel capacity comprises ships whose sheer size is hard currently for many U.S. ports outside the West Coast to handle. Larger ships on Asia-U.S. routes would likely concentrate on ports such as LA/Long Beach.
While at first glance their ability to handle newer, larger ships might seem to give the LA/Long Beach’s of the world an advantage, there’s a flip side, according to CVI’s Shames.
“Shippers from the biggest gateways will have a service advantage, but the ports of call can’t handle what they have now efficiently, at least not without significant congestion,” she noted.
Bowman at GSA believes there’s no clear answer yet to IMO 2023’s effect on stateside port operations.
“If you have more larger ships coming to Los Angeles, it might take three days instead of one or two, depending on the size of the ship and number of ports of call,” Bowman said.
On the other hand, he added, slower sailings mean less pressure on the ports.
“If you have slower ships, you might not have the type of backups we’ve seen this year,” Bowman said. “We already saw transit times slow down to alleviate congestion this year.”
How about price?
Can shippers expect pricing impacts arising from the implementation of IMO 2023 carbon standards?
“The only thing I can think of is if the ship isn’t actually owned by the carriers,” Bowman said, pointing out that the lines charter or lease many vessels.
“If the vessel is chartered, the carrier pays a per/day rate on that ship,” he said. “If it’s sailing slower, you’ll see an increase in cost,” adding, “It could be accounted for in the new rates since there’ve been increases like that this year for ships that were chartered or leased.”
Indeed, newly negotiated contract rates for containers are trending in the mid-teens of thousands per can.
CVI’s Shames also believes IMO 2023’s effect on potential container price increases remains to be seen.
“On the surface, I could say ‘yes,’” she said. “But looking back at IMO 2020, its actual impact on contract rates at least was not really felt.”
The unknowns surrounding IMO 2023 should gain some clarity next year as the effects of compliance and how carriers handle implementation emerge in advance of the first vessel ratings due in 2024.
How the new measures play out in the near and medium term could vary considerably depending upon shippers’ routing and service selections, and potentially raise even more considerations in terms of supply chain management — already no small task.
