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Stock photo of a tanker being escorted by a tug in New York harbor

Credit: Andres Virviescas /

CMA Shipping 2022: Disarray Around Decarbonization

Barry Parker
Total Views: 1383
April 6, 2022

The Connecticut Maritime Association conference wrapped up last week, bringing together hundreds of attendees to an “in person” setting. Just like many other “perennial” events that had been disrupted in 2020 and 2021 by the pandemic, this one went through a tortuous sea change including virtual iterations, shifting dates, and various event-specific hurdles that needed to be overcome.

As the CMA came out at the other side—I rate it as a “success”. This year’s hot topics harken back to the organization’s grounding in the nuts and bolts of the freight markets, with hefty doses of ship finance thrown in. Digitalization and decarbonization, important issues in their own right (with exhibit booths and slots on panels to prove the point), color the dialogue. 

When it comes to freight markets, comments from Christos Papanicolaou, a top executive at tanker broker C.R. Weber, reflect some of the disconnects going on as we approach 2023, when compliance with mid 2021 dictates regarding carbon intensity of vessel operation, from the International Maritime Organization (IMO) becomes mandatory.

“The problem is that IMO has not been very clear on what the directive is…they have another meeting in June,” Papanicolaou said, adding that the events in the Ukraine, with the chaos injected into oil and products markets, have been “adding to the confusion” in sorting out the nitty gritty of the new decarbonization metrics. He went on to describe a discussion conducted with a charterer concerning the economics of a dual fueled vessel fixed on a long term contract: “it was not driven by the normal economics of a ship on time-charter…it was driven by the carbon reduction.”

The game has been fundamentally changed by the carbon intensity measures set to take effect at the beginning of 2023, notably the Carbon Intensity Index (CII). The finer points of the confusion facing tanker owners (and their drybulk brethren) were elaborated in further explanation by the C.R. Weber executive who said that: “The CII Index Is the most confusing,” going on to point out that “it’s your trading patterns that matter…and how you trade your vessels that’s going to affect you.”

LOA, DWT, Now CII: Shipping’s New Carbon Rating and What It Means for The Global Fleet

Importantly, in describing the shipowner viewpoint, he said: “You can’t just look at the best earnings potential…you have to look at what’s going to affect my rating potential, which is not a normal exercise for a shipowner.”

The IMO is implementing a ratings scheme, in theory, “A” rated vessels could be earning more than those with higher emissions per dwt. ton-mile  (and, hence, lower ratings). It’s complicated.

The CII, using something called the Annual Efficiency Ratio (AER) is calculated as follows:

Mr. Papanicolaou’s remarks brought some reality around the Greek letters and abbreviations in the formulae. “If [an owner is] sitting idle on demurrage, that’s good earnings for him, but it’s a bad rating index. Short voyages that are back and forth are not good. Long voyages that obtain a higher laden passage than a ballast passage are no good. This doesn’t make sense on the economic side of what owners are there to do.”

In summing up, he said simply, “This doesn’t make sense” and expressed hope that the IMO’s early June “MEPC 78” meetings might help clarify the situation. 

Most of the time, in shipping, confusion is a positive thing; that is certainly the case now with both tanker and drybulk supply/ demand dynamics (not so with container ships, which have seen massive ordering of vessels for delivery over the next few years). As noted by Mr. Papanicolaou, discussing tankers, and also by panel member Hamish Norton, from Star Bulk, covering the drybulk side, the impact of fuel uncertainties can be loosely summed up as “People just don’t know what to order.”

The broader impact of the inability to point to  fuel solutions that are viable over the long term (meaning decades, out to 2050 and beyond) is that diminished vessel ordering leads to reduced supply. So for both tankers and drybulk, that’s some good news on the horizon.

For gCaptain readers who want to provide their inputs into the U.S. positions to be taken at the upcoming IMO MEPC 78 meeting- which will include discussions of decarbonization and carbon intensity indices, follow the instructions here.

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