In just over two weeks, IMO 2023 will require containers ships to comply with new environmental efficiency and carbon intensity regulations, which older ships will have difficulty complying with and may prompt early scrapping, removing vast swathes of capacity from the market.

According to one of the world’s largest container shipping lines, 5 to 15% of additional capacity will be required as a result of IMO 2023 rules, while Hapag-Lloyd puts it at 5 to 10%. In effect a drop in current capacity, which could go a long way to shoring up rates with this added dilemma to the infrastructure of the worlds shipping fleet.

Beginning in January, the new IMO rules will require individual ship’s to measure and report its carbon impact, using a complex set of rules, which will effectively grade ships A through to E, with vessels that receive a grade of A, B, or C deemed to be compliant within that year. 

Vessels graded D have a three-year grace period to achieve compliance, while those graded E will have one year to do so and, critically, the grading criteria will get increasingly tougher every year. That is just based on the current global legislation which could be further fettled and change.

Which means that a vessel which obtains a B grade in 2023, could score a D or even E in subsequent years, if the vessel’s environmental efficiency was not enhanced.

If the owner cannot make vessel’s rated D or E compliant, or fails to maintain and enhance compliant vessels ongoing, those vessels will have to be removed from service and likely scrapped. Removing capacity.

With container freight rates falling in recent months, the container shipping lines appear to be in for a tough year ahead, but limited shipping capacity growth is a likely by-product of IMO 2023 regulations that lead to vessel scrapping or speed reduction, that effectively removes capacity from supply.

Heavy investment in new container ships would be expected to add supply side pressure, but what seems to be massive capacity growth coming in 2023 and 2024 is going to be severely tempered both by scrapping and the new environmental regulations. A new market dynamic that may not have been considered or factored in by many outside of the shipping industry.

IMO 2023’s stricter emission limits, will further reduce sailing speed from 2024 and the impact may become significant in scrap activities from 2025 onwards with favourable age profile. Fourteen vessels were available for scrap on Monday. From an industry which only scrapped eleven in the last two years. That’s a huge impact already being directly implemented within the industry.

An unintended consequence of IMO 2023 might incentivise higher demurrage costs to reduce vessel time at berth and release tied-up capacity. As an observation.

While a significant drop in freight rates and with high bunker (fuel) prices has already reduced sailing speed, it is likely that IMO 2023 will prevent potential speed recovery, keeping available capacity subdued against the general market expectation of growth.

We share the most important IMO 2023 detail and developments, so that you are informed and prepared to make critical decisions. 

Metro are huge advocates in achieving the reduction of further environmental damage caused by global logistics and supply chains. Please contact us to assist you with your own objectives and goals to ensure that you are both compliant and delivering a cleaner and clearer environmental strategy. Every action will contribute and we are able to proactively assist and deliver greener policies and ambitions.

Please contact Elliot Carlile, or Andy Smith to discuss your supply chain and the potential impact of IMO 2023. A greener environment and restriction on greenhouse gas emissions is always welcome – but it will come with an impact which may  be invisible to many outside of the industry, for the short term.

The supply chain challenges that have been driven by the pandemic and continue today with endemic congestion and disruption are significant and need attention, but preparation is needed for significant changes and challenges that are waiting just around the corner.

For close on two years everyone’s attention has been focused on operational, congestion and disruption challenges and when talk turns to the future, it is almost exclusively focused on when transit times will come back down, shipping schedules become accurate and freight rates return to sensible levels, rather than the International Maritime Organization (IMO) 2023 rules aimed at reducing emissions from vessels, which come into force in just 12 weeks.

On 1st January 2023 the IMO will adopt revisions and make additions to its initial strategy to cut greenhouse gas (GHG), by targeting vessel efficiency and carbon intensity to reduce total GHG emissions from shipping by at least 40% from 2008 levels by 2030.

Vessels will need to meet a specific Energy Efficiency Existing Ship Index (EEXI), have an enhanced Ship Energy Efficiency Management Plan (SEEMP) that lays out the vessel’s energy efficiency improvement steps, and determine Carbon Intensity Indicator (CII) rating scheme.

The CEO of a leading carrier explained that to improve the energy ratings of old ships you either use biofuel, or you have to slow the vessels down and calculated that his line would lose between 5 and 15% capacity to comply by lowering speed. This is a major impact on supply chain speed to market that is imminent in being implemented.

The IMO 2020 low-sulphur rules, were well-known for a decade before implementation, yet many only started to devote effort into the issue as we got into 2019 and many shippers only became aware in the second half of 2019 and were very surprised.

The soon to be introduced IMO 2023 rules were agreed upon in 2018, giving five years to prepare and while the new rules will involve carriers having to slow some of their vessels in order to meet the new requirements, the number of vessels affected and how much this will potentially reduce global capacity is presently unknown.

IMO 2023 rules will be more difficult for older vessels than for newer, more fuel-efficient vessels, and could have a more profound impact on smaller regional trades than major deep-sea trades, where most new tonnage operate. 

Shippers that source in alternative regions and smaller locations dependent on feeder services, may find that effective capacity is reduced, services cut and transit times extended.

The IMO 2020 rule change was comparatively simple to explain – “We need to buy more expensive fuel – and while the IMO 2023 rules are more difficult to communicate, their impact on the supply/demand balance in some trades will be very clear.

It helps a little that the entry into the new IMO 2023 is not a “big bang”, as was the case with the low-sulphur rules and will come into effect over time, as vessels get to their next certification, but presently it appears the market is on track for a repeat of the IMO 2020 debacle where many shippers felt it was a surprise sprung on them at the last minute.

Global supply chains are going to be under pressure for a while yet, and we will share the most important IMO 2023 developments so that you are informed and prepared to make critical decisions. 

Please contact Elliot Carlile, or Andy Smith to discuss your supply chain expectations and the potential impact of IMO 2023.