CII management requires smart commercial decision making

Published on
February 6, 2023
Friederike Hesse
Co-founder & MD
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In January 2023 the International Maritime Organisation’s Carbon Intensity Indicator (CII) regulation has entered into force. In essence, the CII is an efficiency rating per vessel that rates each vessel larger than 5,000 gross tons into rating categories from A to E. Ship owners are required to keep their vessels in a C rating or higher.

Consequently, in order to avoid negative impact on their business and the value of their vessels, ship owners around the globe now have to monitor closely how the CII ratings across their fleet are developing in the course of a calendar year.

In most cases, the first team ship owners turn to is technical ship management. Discussions go along topics like: How can we make our vessels technically more efficient? Should we limit speed across the whole fleet? Do we need to invest in new equipment, etc.

However, this article will argue that the technical manager’s power is limited when it comes to controlling the CII rating of a vessel.

Let’s look at a concrete example with 2022 data.

Take two container vessels, building year 2004 and 2005, feeder sized. Both ships were built by the same shipyard. They are very comparable in their technical set-up.

What were their overall performance and CO2 emissions in 2022?

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Now, at first sight you would think Vessel A must have had the worse CII rating: higher speed, more carbon emitted, end of story.

But then you look at the distance each vessel sailed in 2022:

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The comparison shows: the higher CO2 emissions do not only stem from differences in speed, they are mainly driven by much more distance covered by vessel A compared to vessel B.

Now how is this even possible with the speed difference being only 2.5 knots?

The answer lies in the trading pattern of the vessels. How much “productive” (i.e. distance making) time did each vessel have in 2022?

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We can easily see that vessel A was much more productive than vessel B: it spent 67% of its time in a state where it was covering a distance; for vessel B that same number was 46% only.

When vessels are not moving but are in a port or at anchor or drifting, they are still burning fuel and emitting CO2. The formula of the CII highly punishes such behavior. The simplified formula is

CII = CO2/distance*capacity.

Mathematics tells us that if in this formula your distance approaches zero, your CII will go through the roof.

Consequently, the CII performance of our two vessels is different from what we expected in the beginning. In 2022, vessel A has achieved a “C” rating while vessel B achieved a “D” rating. Vessel A is fully compliant. Vessel B is not.

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Commercial Management controls the trading pattern of a vessel

So how does the ship owner make sure that both vessel A and B will achieve a “C” rating in 2023? He needs to control the trading pattern of his vessels. For that he needs to turn to his chartering teams.

In a container and time charter case controlling the CII rating will mean that the owner and the charterer need to discuss the following questions at the beginning of the year: What kind of schedules are planned for vessel A and vessel B? Will they be in regions where we expect long port stays? Will they include short voyages with lots of port stops or longer voyages with fewer port stops? Will the schedules require high speeds or low speeds? Is the vessel that is being chartered out still the perfect fit for this schedule in light of the CII? If not, can we find alternatives?

In a bulk and voyage charter case each new charter has to be evaluated in light of the CII: If there are alternative charters available, which one is the best option? If we go for a very inefficient voyage charter once or twice (because the freight rates seem very attractive), how efficient do we have to be in the remainder of the year to keep our vessels in a C rating?

A new and complex task that needs software support

For chartering teams this is a new and complex task. Typically, these teams are under a lot of operational pressure. E-mails, phone calls and spreadsheets drive the daily business of a chartering manager. Lots of ad hoc decision making is required. Teams are small and individual team members need to handle many cases in parallel.

Understanding the impact of the trading pattern of a vessel on an annual CII rating is unthinkable without a solid data foundation. Each vessel in essence needs an individual forecast for each schedule that is being negotiated between owner and charterer. And at each day in a given year you need to factor the past year-to-date performance into that calculation. A spreadsheet won’t do it. The calculation tool needs to be updated with vessel performance data on a daily basis.

Commercial Management thus needs software support and training to be successful with the new responsibility. Ship owners need to address this and take care that the commercial teams have the support, skills and manpower needed to ensure CII compliance of the whole fleet.

Unfortunately there are no simple fixes to the CII challenge. Take a look back at our two vessels above. A simple speed limitation would not have brought vessel B into a “C” rating. Improving its technical efficiency might have helped - but by how much in each possible trading pattern we cannot tell - unless we had a CO2 calculation software to help us do the math.

The market for software solutions around CII management has grown substantially over the last months. Three groups of suppliers claim to be able to help:

Vessel Performance Management Systems, i.e. the tools that today support the technical manager in optimising the performance of the fleet - all of these tools are able to calculate the CII. Many of them offer voyage planning modules that also calculate fuel oil consumption, emissions and CII. However, commercial management does not use these tools and they are not suited to a chartering manager’s use case.

CO2 data estimation and measuring software, i.e. tools that intend to replace the crew as the main data source for emissions data. These providers install sensors or work with sensor data to derive forecasting and planning information, they also focus on improving data quality and providing CO2 and CII intelligence for parties that do not have direct access to the vessel performance data by building market data models. Users of these software products will again be technical managers (to improve data quality) or cargo owners or charterers that want to get access to CO2 and CII data before they close a contract.

Software that focuses exclusively on mastering the new carbon regulations where next to CII also the European Union’s Emission Trading System (EU ETS) comes to mind. The zero44 solution starts from the challenges that come with the regulation and supports the responsible teams to take the right decisions. Rather than replacing the above mentioned groups of software providers, zero44 will be an add-on tool that utilizes the vessel data to derive monitoring, planning and optimisation screens for chartering teams.