As we reported earlier in the year, MARPOL introduced the Efficiency Design Index for Existing Ships (“EEXI”) and Carbon Intensity Indicator (“CII”) schemes. These schemes are aimed at increasing the energy efficiency of existing vessels. BIMCO introduced an EEXI Transition Clause at the end of last year and now they have published their CII Operations Clause for Time Charter Parties.
The clause should be seen as a starting point/basis for negotiation and charterers will need to think carefully about the implications for their operations. It will take time for the industry to adapt to the new regulations given that CII regulations impose considerable limits on vessel operations. Here we provide an overview of key points on the clause for charterers and provide some commentary from charterers perspective.
- The clause makes time charterers responsible for a vessel’s emissions.
- The new regulations will require owners and charterers to work together in good faith to share any best practices they identify to improve the vessel’s performance.
- The parties will need to agree on a specific CII value to be achieved each year when either entering into a new charter or incorporating the clause into an existing one – the Agreed CII. (“Agreed CII” means the values in gCO2/(dwt.nmile)* set out in subclause (d)).
- Charterers will need to provide employment orders that ensure owners meet their obligations under the new regulations. The clause foresees that to comply with MARPOL regulations, charterers may be required to issue alternative or adjusted voyage or employment orders.
- Charterers are not to allow the vessel to exceed the Agreed CII value. Clause c sets out how the charterers need to operate the vessel. In particular, they cannot permit the C/P Attained CII to exceed the Agreed CII. ( “C/P Attained CII” means the CII value in gCO2/(dwt.nmile)* attained by the Vessel, applying any regulatory correction factors and voyage adjustments applicable to the Vessel and excluding fuel consumed and distance travelled during off-hire periods in excess of [___] accumulated days (if left blank, zero (0) days shall apply), measured in the relevant calendar year from the start of the calendar year to date or, if the Charter Party begins during a calendar year, from date of the Vessel’s delivery under the Charter Party to date).
- It is likely many vessels will need to reduce speed to meet the new requirements. As a result, charterparty warranties are likely to need amending. We anticipate that warranties of the future may specifically reference the vessel’s delivered CII rating. (“Delivery Attained CII” means the CII value in gCO2/(dwt.nmile)* attained by the Vessel for the calendar year to date as calculated at the time of delivery into the Charter Party).
- Charterers cannot rely on breach of performance warranties to avoid meeting their CII obligations.
- Clause d(iv) requires owners to supply charterers with details of the quantity of fuel used and distance travelled in the current calendar year upon delivery. We recommend that charterers request this data in advance of entering into the charter.
- Given the increase we have seen in hull fouling claims, and the impact of maintenance (or lack of!) on efficiency, charterers should consider tightening up their clauses on the condition of the hull/propeller when entering into new charters.
- For those parties in long term charters in particular, it may be worth considering whether appointing a shared weather routing service may assist with reducing carbon emissions by plotting a route that reduces the carbon intensity of a voyage. The parties will need to write clear, unambiguous instructions which include how costs are apportioned.
- Time charterers will need to ensure that sub-charters are on back-to-back terms where speed and performance warranties and the CII clause are concerned to avoid potentially costly disputes.
- Clause g sets out in detail what the parties need to do in the event that it appears that the vessel is going to deviate from the C/P Attained CII. Charterers are required to produce a written plan detailing their proposed commercial operation of the vessel for at least the next voyage. If, having assessed charterers plan, owners can show that following the plan will result in charterers failing to meet their obligations under clause c, then, ultimately, owners do not need to follow charterers’ orders.
- Sub-clause (i) imposes a duty on charterers to ensure that nothing in bills of lading or other documents evidencing a contract of carriage makes compliance by owners with the clause a breach of the contract and charterers must indemnify owners should owners incur liabilities due to charterers failure to do this.
- Finally, clause j provides that owners can claim against charterers for any losses etc caused by the charterers’ breach of their obligations.
The clause does not and almost certainly cannot guarantee that owners and charterers will be able to agree on a workable written plan. It is also silent as to what should be done if the vessel fails to meet its Agreed CII rating within a specified time period. Charterers need to consider the impact of the clause on their commercial operations and negotiate accordingly. Just as cutting emissions is not an easy task, nor is finding a workable contract solution to enable this process.