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What Does IMO 2023 Regulation Mean for Ocean Freight?

December 8, 2023

With IMO 2023 now in effect, ocean carriers, shippers, and other logistics professionals are searching for innovative solutions to age-old efficiency problems. For shippers nervous about what the IMO 2023 regulation means for their supply chain, we’ve dug into the basics of IMO 2023, the controversy surrounding it, and what it means for shippers in the new year. 

What is IMO 2023?

To curb greenhouse gas output (GHG), the International Maritime Organization (IMO), the branch of the United Nations responsible for regulating ocean shipping, has put forth new regulations with the ambition of forcing shippers to develop a more accurate understanding of the emissions output of each vessel in their fleet, as well as extensive reporting structures to deliver sustainability data to the IMO. 

While curbing emissions in the transportation industry is an undeniably worthwhile cause–after all, the industry is responsible for a staggering 37% of CO2 emissions, according to the International Energy Association (IEA)--recent months have seen a fierce debate between shippers, environmentalists, and regulatory organizations regarding the efficacy of IMO 2023 regulation. 

After the Baltic and International Maritime Council (BIMCO) released a draft of guidance regarding the new IMO 2023 regulation, a group of 23 of the largest ocean carriers–including the Mediterranean Shipping Company (MSC), A.P. Moller-Maersk, CMA-CGM, and Hapag-Lloyd–penned a letter to the trade organization, refusing the new regulations and BIMCO guidance as “imbalanced and unusable,” according to reporting from The Maritime Executive.

Facing blowback from carriers and under increased pressure from environmental groups, the future of IMO 2023 remains unclear. One thing, however, is certain: the IMO 2023 saga is far from over.

A Two-Pronged Approach: IMO 2023, CII, and EEXI

The IMO 2023 regulation focuses primarily on a pair of new metrics: the carbon intensity indication (CII) and the Energy Efficiency Existing Ship Index (EEXI). According to Kitack Lim, Secretary General of the IMO, as quoted in a Nov. 1, 2022, press release, "These latest amendments build on IMO energy-efficiency measures which were first adopted in 2011 and strengthened since - the CII and EEXI measures represent the next stage in our work to meet the targets set in the Initial IMO GHG Strategy."  

By examining both the CII and EEXI, logistics professionals can develop an in-depth understanding of IMO 2023 and what these new regulations mean for ocean shipping operations. 

The Energy Efficient Existing Ship Index (EEXI) and IMO 2023 Regulation

The EEXI is a rating system used to gauge the energy efficiency of existing ships based on consumption metrics and other key data points, including engine size, speed, and power. Although a version of the EEXI designed to judge the efficiency of new ships has existed for some time, the IMO 2023 regulation introduces an index specifically for vessels already in use. 

The EEXI introduced in IMO 2023 is based entirely on a ship's design specifications. Other metrics, such as the Energy Efficiency Operational Indication (EEOI), focus primarily on a ship's operational performance. Though the emphasis on sustainable design from IMO 2023 is meant to encourage efficiency from the very beginning of the transportation supply chain, the EEXI may leave many carriers suddenly in violation of the strict IMO 2023 regulation. Shippers who violate the new IMO 2023 regulation may be subject to costly restrictions and penalties until they modify or replace vessels in violation.  

Carbon Intensity Indicator in IMO 2023

In addition to the EEXI, IMO 2023 introduces a new metric used to grade the efficiency of ships based on greenhouse gas (GHG) emissions. Unlike the EEXI, which is based on design specifications, the CII rates vessels based on the cargo amount and the distance they travel. Through this metric, IMO 2023 dictates that ships be given a letter rating from "A" to "E." As time passes, the efficiency objectives set by the IMO 2023 regulation will grow stricter, making it increasingly difficult for vessels to receive an "A" rating.

The first CII rating will be released in 2024 and will be based on the efficiency of vessels operating throughout 2023. If a ship receives either three years of consecutive "D" ratings or a single "E" rating, the vessel owners will be tasked with designing and implementing a plan of corrective action, or SEEMP (Ship Energy Efficiency Management Plan).

A Tall Order: IMO 2023 Compliance

While both the carbon intensity indicator and the energy-efficient existing ship index aim to lower the levels of greenhouse gas emissions from the ocean transportation industry, many carriers feel that the IMO 2023 regulation is asking carriers for too much, too soon. But with IMO 2023 now in effect, shippers are left with no choice but to consider innovative strategies to achieve compliance with the IMO 2023 regulation.

EEXI Compliance in IMO 2023

The IMO 2023 regulation mandates that existing ships undergo a preliminary assessment and approval of technical files to receive a statement of compliance. While this process may sound relatively unobtrusive, it's important to note that many vessels currently in operation will likely be unable to meet even the basic requirements set forth by the EEXI. 

Due to the expense of building a large cargo vessel, vessels are designed with longevity in mind. In 2022, the average age of a merchant ship was 20 years, with the average age of a general cargo ship topping 27 years. Despite the best efforts of carriers and fleet owners to reach EEXI compliance as dictated by IMO 2023, a significant portion of the vessels currently in operation will have to be either modified or, if expensive modifications aren't an option for carriers facing falling transportation rates, exit service. According to shipbroker Simpson Spence Young, less than a quarter of the bulkers and tankers currently in service comply with the strict guidelines set forth by the IMO 2023 regulation.

Meeting CII Standards Under IMO 2023 Regulation

Under the new IMO 2023 regulation, shippers must determine vessel carbon intensity and were to have prepared a Ship Energy Efficiency Management Plan (SEEMP) by the end of 2022. Mandatory under IMO 2023, the SEEMP dictates actionable steps to achieving CII compliance in keeping with IMO 2023 regulation.

With the first CII ratings set to be released in January 2024, shippers are searching for innovative efficiency-improving strategies. As the CII takes into account efficiency metrics such as allocation density and distance, many shippers are turning to technology to optimize outdated allocation and routing strategies. Others are investing in modernizing vessels with an eye toward sustainability, such as improved vessel software and mechanics. Many carriers are considering low-carbon fuels, such as methanol, to enhance sustainability in their supply chains. Combining these efforts with operational decisions like "slow steaming," in which a carrier deliberately reduces speed to lower emissions, provides carriers with valuable opportunities to move toward compliance with the IMO 2023 regulation.

While carriers have various energy efficiency opportunities at their disposal, many industry experts have noted that the CII portion of IMO 2023 comes with no fundamental enforcement strategies. As the metric is integrated into the ocean transportation industry, however, some experts predict that nations, governing bodies, and industry groups may pick up some of the burdens of enforcement strategies on behalf of IMO 2023. "...we do anticipate that [failing to follow the SEEMP action plan] may have a focus with stakeholders such as flag [states], PSC [port state control], vetting and commercial parties, which may impose actions or restrictions," said a representative from DNV, a maritime classification society, as quoted in a Dec. 22, 2022, article from  FreightWaves.

What does IMO 2023 Regulation Have in Store for Ocean Shipping?

While many carriers and environmental groups agree that improving efficiency in transportation is a vital step forward for the ocean transportation industry, few seem to believe that the IMO 2023 regulation takes the correct steps in pushing carriers toward sustainability. 

The vast majority of carrier criticism is directed toward the new CII, which many believe to be a poor indicator of vessel efficiency. A primary focus of much criticism facing the CII portion of IMO 2023 is that the formula used to determine compliance concerns ship capacity rather than cargo carried. Carriers such as Oldendorff, a carrier based in Lubeck, Germany, feel that these misguided metrics could encourage shippers toward poor operational decisions, such as under-loading vessels, in an attempt to 'game' the CII rating system in IMO 2023. Beyond integrity concerns, carriers worry that the CII portion of the IMO 2023 regulation will have vast negative impacts on ports, which have already seen historic levels of port congestion in recent years. "[...] the CII rating will be negatively affected by long waiting times or slow port operations, even though this is mostly beyond the carrier's control," said Oldendorff in a Dec. 7 press release, "Some owners may resort to irresponsible steaming around in circles instead of waiting at anchor. This will improve their CII rating but will also increase annual GHG emissions."

Whether Carriers Like it Or Not, IMO 2023 is Here to Stay. Ocean Container Tracking Can Help. 

As shippers search for new strategies to improve ocean freight efficiency following IMO 2023, many are turning to enhanced ocean freight visibility through ocean container tracking. Ocean container tracking, delivered through a cloud-based ocean container tracking platform, provides shippers with unprecedented insight into the routing, efficiency, and real-time location of vessels, simplifying the data collection and streamlining time-consuming regulatory processes mandated under IMO 2023. With real-time ocean container tracking from OpenTrack, shippers gain access to vital logistics visibility tools. 

  • Intermodal Visibility helps to maintain ocean container tracking, even after a container has left a vessel. 
  • Customizable Exception Alerts notify shippers as soon as an exception occurs, enabling them to act quickly to maintain operational efficiency. 
  • API & TMS Integration means that shippers can integrate OpenTrack’s ocean container tracking software into an existing tech stack, allowing shippers to keep what works and change what doesn’t. 

With coverage of 97% of global shipments, OpenTrack is the ocean transportation industry’s choice for ocean freight visibility. Book a demo with OpenTrack today, and see how ocean container tracking can help your transportation improve efficiency and achieve compliance with IMO 2023. 

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