By Wasana Nadeeshani Sellahewa
(Commonwealth) _ In little over two weeks, IMO 2023 will compel container ships to comply with new green economy and carbon intensity requirements, which older ships would struggle to meet and may result in early scrapping, eliminating significant swaths of capacity from the market.
According to one of the world’s leading container shipping lines, IMO 2023 requirements would necessitate 5 to 15% more capacity, while Hapag-Lloyd estimates 5 to 10%. In effect, a reduction in present capacity, which might go a long way toward shoring up prices with this extra complication to the world’s shipping fleet infrastructure.
Beginning in January, the new IMO standards will force individual ships to measure and report their carbon footprint, employing a complicated set of rules that will essentially grade ships A through E, with boats receiving an A, B, or C deemed compliant within that year. Vessels ranked D will have a three-year time frame to gives result, while those assessed E will only have one year, and the grading standards will become increasingly stringent each year. That is based only on present worldwide regulation, which may be further fettered and changed. With container freight rates falling in recent months, container shipping lines appear to be in for a difficult year ahead, but limited shipping capacity growth is a likely byproduct of IMO 2023 regulations, which result in vessel scrapping or speed reduction, effectively removing capacity from supply.
Heavy investment in new container ships is projected to increase supply side pressure, but what appears to be tremendous capacity expansion in 2023 and 2024 will be severely mitigated by scrapping as well as new environmental rules. A new market dynamic that many people outside of the transportation business may not have anticipated or factored in.
Stricter emission regulations imposed by the IMO in 2023 will further lower sailing speed beginning in 2024, and the impact may become considerable in scrap activities beginning in 2025 if the age profile is favorable. On Monday, fourteen boats were available for scrap. In an industry that has only discarded eleven vehicles in the previous two years. That is a significant influence that is already being directly applied throughout the industry.
As an unexpected effect of IMO 2023, greater demurrage fees may be incentivized to minimize vessel time at dock and liberate tied-up capacity. As a side note. While a considerable decline in freight rates and high bunker (fuel) prices have already restricted sailing speed, it is probable that IMO 2023 will limit possible speed recovery, keeping available capacity depressed against the overall market expectation of expansion.
The IMO will revise and add to its original strategy to decrease greenhouse gas (GHG) emissions by targeting vessel efficiency and carbon intensity to reduce overall GHG emissions from shipping by at least 40% from 2008 levels by 2030 on January 1, 2023.
Vessels must fulfill a certain Fuel Efficiency Existing Ship Index (EEXI), have an upgraded Ship Fuel Efficiency Management Plan (SEEMP) outlining the vessel’s energy efficiency improvement measures, and choose a Carbon Intensity Indicator (CII) grading scheme.
The CEO of a major carrier indicated that in order to enhance the energy ratings of ancient ships, either biofuel or vessel slowing is required, and predicted that his line could lose from 5 and 15% capacity in order to comply.
The IMO 2020 minimal requirements had been known for a century before their implementation, but many just began to commit effort to the matter as we approached 2019, and also many carriers has only become aware in the second part of 2019 and were extremely startled.
The upcoming IMO 2023 rules have been agreed upon in 2018, giving carriers five years to prepare. While the new rules will require carriers to slow some of their vessels to fulfill the objectives, the amount of ships affected and how much this could possibly lower global competitiveness is currently unknown. The IMO 2023 regulations will be more onerous for older vessels than for modern, more fuel-efficient vehicles, and they may have a greater impact on smaller vessels.
