In response to the decarbonization of the industry, BIMCO issued the EEXI Transition Clause for Time Charter Parties in December 2021 and the ETS - Emission Trading Scheme Allowances Clause for Time Charter Parties in May 2022, followed by the much-anticipated CII Operations Clause for Time Charter Parties, which was released on 18 November this year. The clause draws the charterer into the responsibility of compliance, requiring scientific ship management on the owner’s side and effective ship operation on the charter’s side. This article provides a brief introduction and analysis of the clause.

I. Actions to cut GHG emissions

The Paris Agreement was adopted on COP21 on 12 December 2015 and entered into force on 4 November 2016. Joined by 197 countries, it is the second legally binding international treaty after the Kyoto Protocol. It has provided a durable framework guiding the global effort on addressing climate change. It has also set a long-term goal of limiting the global temperature increase in this century to 2 degrees Celsius while pursuing efforts to limit the increase even further to 1.5 degrees.

With a vision to reduce GHG emissions from international shipping, the IMO Initial Strategy on reduction of GHG emissions from ships was adopted in 2018. It sets key ambitions including cutting annual greenhouse gas emissions from international shipping by at least half by 2050, compared with their level in 2008, and working towards phasing out GHG emissions from shipping entirely as soon as possible in this century. The Initial GHG Strategy also envisages a reduction in carbon intensity of international shipping, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008.

Under the framework of the Initial IMO Strategy, amendments to the MARPOL Annex VI entered into force on 1 November 2022, setting forth technical and operational measures requiring ships to improve their energy efficiency. Ships will be required to calculate their attained Energy Efficiency Existing Ship Index (EEXI) and their annual operational Carbon Intensity Indicator (CII) and associated CII rating.

II. E&C technical requirements

EEXI, as an extension of target under the Energy Efficiency Design Index (EEDI), generally applies to each ship of 400 gross tonnage and above. Under the EEXI regime, vessels are required to take technical measures to improve the attained EEXI to a level equivalent to EEDI phase 2, which is applicable to currently newly built ships, to meet the required EEXI.

CII applies to ships of 5,000 gross tonnage and above. Vessels under the CII regime are required to have an enhanced Ship Energy Efficiency Management Plan (SEEMP) which includes an implementation plan describing how the Required Annual Operational CII target will be achieved. From 1 January 2023, it will be mandatory for all ships to initiate the collection of voyage and fuel consumption data for the reporting of their annual operational CII with initial CII ratings given in 2024. Based on a ship’s CII, its carbon intensity will be rated A, B, C, D or E (where A is the best). A ship rated D for three consecutive years, or E for one year, will have to submit a corrective action plan to show how the required index of C or above will be achieved. IMO is to review the effectiveness of the implementation of the CII and EEXI requirements by 1 January 2026 at the latest and develop and adopt further amendments as required.

III. Rights and obligations under the CII Operations Clause

The CII rating rates the energy efficiency of a vessel’s operations over the previous year. Under time charter parties, the charterer determines the operation of the vessel, and so this CII Operations Clause is designed to recognise the charterer’s key responsibility to comply. However, given the complexity of CII, the clause requires both parties to the contract to cooperate and collaborate to help attain compliance, by collecting, sharing, and reporting data on a daily basis that can help assess and improve CII, in addition to sharing findings and best practices that can improve the energy efficiency of the ship.

In terms of the allocation of rights and obligations, the charterers, with restricted rights to use the vessel, are placed under obligations including operating and employing the vessel in a manner which is consistent with the MARPOL Carbon Intensity Regulations, adjusting voyage or employment orders from time to time during the charter period to meet the requirements, and not permitting the C/P Attained CII to exceed the Agreed CII. It is important to note that this clause uses the term “not permit” rather than guarantee, as many factors affecting CII ratings are not always under the charterers’ control, such as weather and sea conditions and port congestion.

The shipowner’s obligation is to exercise due diligence to ensure that the vessel is operated in a manner which minimises fuel consumption. This includes: regulating the maintenance of the ship, adjusting the vessel’s trim, operating the vessel’s main engine(s) and auxiliary engine(s) appropriately, making optimal use of the vessel’s navigation equipment and any additional aids provided by the charterers, such as weather routing, voyage optimisation and performance monitoring systems, proceeding by the most fuel-efficient route, monitoring and calculating the actual consumption of the vessel on a daily basis and provide the charterers with details of the types and quantities of fuels consumed and distance travelled so that the C/P attained CII value could be accurately calculated, and complying with the SEEMP.

V. Conclusions

Decarbonization of shipping may be regarded as a technical reformation that is conducted by a socially responsible industry with multiple measures – technical, legal or commercial – constantly explored and taken at multiple levels. The BIMCO CII drafting committee has stated that it will try to balance the interests of all parties as far as possible to help shipowners comply with the CII while keeping time charterers happy. It is clear that shipping decarbonisation requires a concerted effort from all parties to tackle the unknowns and challenges.

The complete BIMCO CII Operations Clause for Time Charter Parties 2022 can be found at https://www.bimco.org/contracts-and-clauses/bimco-clauses/current/cii-operations-clause-202. For more information, please contact Managers of the Association.