BIMCO: Why a CII workable clause is essential

From 1 January 2023, the way in which shipowners and charterers co-operate will need to change fundamentally to allow the shipowner to comply with the CII regulation that enters into force.

Providing an analysis on the matter, BIMCO Deputy Secretary General, Lars Robert Pedersen, and Director, Contracts & Support, Stinne Taiger Ivø, explain the nature and pitfalls of the regulation and why the CII clause needs careful drafting to work in practice.

Legal requirements

A ship must calculate its “required annual operational CII” which is defined as the target value of attained CII for the ship. An implementation plan must be developed as part of the approved Ship Energy Efficiency Management Plan (SEEMP), to document for each ship how the required annual operational CII will be achieved over the next three years.

Within three months of the end of a calendar year, a ship shall report its attained operational CII to its flag state administration. This will determine a ship’s CII rating, from A-E, for the following year. If a ship is rated D for three consecutive years, or rated E, a corrective action plan, also forming part of the SEEMP, must be developed and approved.

Operational considerations

The attained annual operational CII is calculated using emissions from fuel burnt. These emissions will vary depending on a ship’s trade. The distance travelled between ports, the length of port stays, the speed and performance of the ship, the weather, and other factors influence the amount of fuel burnt over distance travelled by the ship in that year.

In addition, Mr. Pedersen and Mr. Ivø added that “a CII rating only says something about a ship’s performance in the previous calendar year and not how it has performed so far this year, nor how it will perform tomorrow or for the rest of the year. A ship can be an “E” rated ship one year and a “B” the next.”

Commercial considerations

According to BIMCO, significant factors affecting the CII rating are the length of sea voyages and the waiting time at anchor. The IMO has decided against applying adjustment or correction factors related to port operations and waiting time prior to the implementation of the CII regulation and will only review these factors by January 2026.

The challenge in developing a suitable contractual clause lies in the fact that the required annual operational CII can only be achieved if the time charterers agree to plan their operations and cooperate with the owners in a CII optimal fashion. Such fashion is not necessarily good business for a charterer.

When the CII regulation comes into effect on 1 January 2023, an owner chartering out a ship on a long-term time charter party will need the charterer to accept some limitation in the freedom to trade the ship. If not, the owner could likely be breaching the regulation.

Drafting considerations

Now, the BIMCO CII drafting committee is working hard to produce a draft, balancing the interests between owners and time charterers.

Critical issues that will be solved in the process include:

• Should owners have a right to claim damages if they suffer a loss, for example due to redelivery of their ship with a lower CII rating than the agreed?
• If it is clear that the charterers’ trade will deliver a lower than required CII rating, does the owner have the right to interfere during the charter party to take mitigating action?
• Do charterers understand, and are they willing to accept, that their trade is directly impacting the next CII rating of the ship?
• Will charterers plan their commercial trade of the ship from an emissions’ perspective – distance travelled, fuel consumed, and the length of port stays etc – to meet the targeted CII rating?
• Can charterers be assured that owners are effectively managing those areas under their control, such as maintenance?