New IMO Regulations 2023: What are the Regulations?

New IMO Regulations 2023: What are the Regulations?

We’re now well into 2023, and businesses that rely on the international shipment of goods to sell their products and services are faced with a new maritime regulation – the IMO Regulations 2023 (also known as IMO 2023). These regulations are set forth by the International Maritime Organisation (IMO), a specialised agency of the United Nations responsible for regulating international shipping.

IMO 2023 have far-reaching implications for the industry as they aim to combat the significant environmental impact of global maritime transportation. For businesses engaged in international trade, understanding these regulations is not just important, but essential. With sustainability and environmental concerns taking centre stage, companies cannot afford to ignore the impact of IMO 2023 and must stay informed to navigate the changing landscape of international shipping.

In this article, we will delve into what businesses need to know about the IMO Regulations 2023, including the introduction of the Energy Efficiency Existing Ship Index, the Carbon Intensity Indicator rating scheme, and – most importantly – the potential impact on freight costs.

IMO Regulations 2020: The Previous Scheme

IMO 2020 were the regulations adopted by the IMO that came into effect in January 2020. The main focus of these regulations was to significantly reduce the amount of sulphur emissions from ships, which was considered a major contributor to air and sea pollution. This, of course, had harmful effects on human health and the environment. IMO 2020 mandated a global cap on the sulphur content of fuel oil used by ships, reducing it from 3.5% to 0.5% in most areas, with some exceptions.

Over the past three years, IMO 2020 resulted in significant changes in the shipping industry, including the use of cleaner fuels, installation of exhaust gas cleaning systems (scrubbers), and other operational adjustments to comply with the new regulations.

Positive impacts on the environment were evident. Roel Hoenders of the IMO said in late 2020 that non-compliance with the regulations was low and that nearly 78% of fuels tested at that stage were below the 0.5% mark. In 2022, a study conducted by the National Aeronautics and Space Administration (NASA) found that IMO 2020 resulted in reduced air pollution.

What are the IMO Regulations 2023?

IMO 2023 are new regulations that have been introduced as part of the IMO’s Greenhouse Gas Strategy, which aims to cut down carbon emissions by 40% by the year 2030, and by 70% by the year 2050 (compared to levels in 2008).

Here are the most important changes that you need to know if you import and export goods.

Energy Efficiency Existing Ship Index (EEXI)

IMO has introduced a new framework for existing ships called the Energy Efficiency Existing Ship Index (EEXI), which assesses the energy performance of ships based on data such as energy consumption, speed, power, and engine size. Vessels of 400 gross tonnes or more will need to have a calculated EEXI.

Unlike the already existing Energy Efficiency Design Index (EEDI) (which applies to new build ships), the EEXI applies to existing ships. The index is based on a ship’s specifications rather than its actual operating performance.

Ships that do not comply with the EEXI and receive a rating below a certain threshold may face penalties and restrictions under IMO 2023 regulations and may need to make modifications to their engines or systems. It will be assessed at a ship’s first International Air Pollution Prevention Certification survey after 1 January 2023.

Carbon Intensity Indicator (CII)

The IMO has also unveiled a new initiative for 2023 called the Carbon Intensity Indicator (CII). This system will assess and rank the environmental efficiency of individual ships by linking their greenhouse gas (GHG) emissions to the amount of cargo they carry and the distance they travel.

The CII applies to ships of 5,000 gross tonnage and above.

The CII rating system will gradually tighten over time, setting stricter thresholds that ships must meet to ensure compliance. Each vessel will be graded on a scale from A (good) to E (poor). If a ship receives three consecutive years of D grades or one year of an E grade, it will be required to implement a corrective action plan to improve its environmental performance. New ratings will begin in 2024.

This new approach aims to drive sustainable practices in the shipping industry and encourage ships to reduce their carbon footprint, promoting responsible and eco-friendly shipping operations.

The IMO has advised that there are many things shipowners can do to achieve a higher rating, including:

• Run on low-carbon fuel
• Hull cleaning
• Optimising for speed and routing
• Low-energy light bulbs
• Solar and wind auxiliary power for shipping providing accommodation services

How will the IMO Regulations 2023 impact the carriage of sea freight?

IMO 2023 will bring considerable challenges and opportunities when it comes to importing and exporting goods by sea.

Reduced Environmental Impact On Sea Freight

Naturally, we expect that the EEXI and CII will have a significant positive impact on reducing the environmental impact of sea freight.

According to statistics from 2018, ships are responsible for approximately 2.2% of GHG emissions, and this number has been steadily increasing since 2020, despite efforts to mitigate climate change. A 2022 study in Harvard Business Review said that shipping accounts for 3% of GHG emissions.

Over the long term, IMO 2023 will hopefully promote greater levels of environmental sustainability in the ocean freight transport industry, helping reach the goal of tackling global warming.

Potential reduced Shipping Capacity

As the EEXI applies to existing ships (rather than just new ships), many vessels will likely be taken out of service temporarily to undergo modifications to comply with the new standards, resulting in reduced shipping capacity.

Similarly, the CII will force shipowners to ensure their ships reduce fuel consumption and slow steam to meet the emissions reduction requirements. The result will likely be reduced shipping speed and capacity – and thereby causing a potential ‘squeeze’ in many supply chains around the world.

“You can expect these regulations to come into force, early 2024 is when the reductions are required to commence”, says Sal Milici, General Manager – Trade Policy and Operations at Freight & Trade Alliance.

“At this stage, some shipping lines are ordering alternative fuel vessels – mainly LNG (which while still carbon emitting does so in a manner less polluting than traditional bunker), as well as menthol and some others.

However, for the most part, the savings come from “slow steaming”. This will likely result in increasing challenges for shipping lines to maintain schedule integrity.  The current tool used by lines to (attempt) to maintain schedules is to increase speed.  IMO 2023 will remove this tool.

As it is expected that only half the current global fleet, some 6,000 container vessels, will meet the IMO’s (CII) energy rating levels, which will mean they will need to slow down to comply.

Some older ships are being retrofitted in order to improve their efficiency and these costs will likely be passed down the supply chain.  How the shipping lines manage this will likely be an environment of crumbling freight rates”. 

A Drive For New Sustainability Programs

While it remains unclear whether there will be mandatory additional charges related to IMO 2023 in the short term, shipping companies are looking for new ways to reduce carbon emissions while managing their sustainability costs. This comes as lines introducing new sustainability programs that shippers can opt-in (and pay to offset their emissions), for example.

“What we have in place is shippers can contribute to our sustainability program (like when you book a flight and you have cargo emission scheme which you can opt to buy or your electricity bill with additional solar energy charge you can pay). When you place a booking online, you are able to add sustainability and buy it. A certificate is then issued under your name”, says Melanie Canta, Sales Executive Queensland from CMA CGM & ANL.

Bottom Line

Will you have to pay more for freight?

It is difficult to predict at this stage. What we can expect is a lowering of global shipping CO2 emissions, and reduced vessel speeds in some sectors. In the meantime, the attention now moves to the IMO MEPC 80 meeting in June 2023, where it is expected that further regulatory clarity will be provided on the application of “market based measures” (e.g. carbon levies).

How to prepare for IMO Regulations

With the expected changes in shipping practices and potential challenges that we’ve outlined above, it is crucial for businesses to proactively prepare to mitigate rising freight costs. Here are some essential steps that businesses can take to be well-prepared.

Give yourself a flexible budget

Unexpected costs may always arise in shipping, whether that be demurrage charges, duties and taxes, costs associated with customs or quarantine inspections and storage charges.

With IMO 2023 adding further pressure, a flexible budget allows businesses to be prepared for unforeseen expenses. It ensures that they can adapt to changing shipping dynamics without compromising their operations.

Nail your shipping documentation

Accurate shipping documentation is crucial to avoid delays and additional costs. Errors or inconsistencies in documents such as bills of lading, packing lists, or customs declarations, can result in costly delays, fines, or even cargo being rejected or returned.

It is vital for businesses to ensure that all shipping documentation is accurate, complete, and complies with the requirements of the destination country’s customs regulations and the shipping line’s requirements.

By paying meticulous attention to shipping documentation, businesses can avoid these costly mistakes and potential disruptions across their supply chain.

Hire an experienced freight forwarder

A freight forwarder, such as the team at International Cargo Express (ICE) can help businesses:

• navigate the changing shipping landscape,
• provide guidance on shipping routes, carrier selection, and documentation requirements, and
• offer solutions to optimise shipping operations while minimising costs as much as possible.

It is crucial to partner with a reputable and experienced freight forwarder who has expertise in dealing with the intricacies of international shipping and can provide customised solutions to meet your business needs.

If you need assistance with navigating these regulatory changes and optimising your shipping operations, contact us here at ICE to speak with our expert team.

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