Shipping always was fertile ground for smart number crunchers and data model builders. But the introduction of the IMO’s CII and EEXI lifts the game to a whole new level. Analysts and programmers throughout the industry have been feverishly putting together software to help existing clients make sense of the changes to come and churning out commentaries. And hopefully also attract new customers. “About 1½ years ago, charterers were the first who asked us to look with greater detail into emissions,” says Michael Epitropakis, technical product director at Signal Ocean, a shipping data platform that went live with a CII calculation product in October. “We’ve been running time charter calculations based on [fuel] consumption scenarios for the last five years, From that point on, it wasn’t a super-complicated move to go from consumptions to emissions,” the Greek data scientist adds.

VesselsValue, another data provider, introduced its CII indicator in late September. Rival Market Strategies International is in the game as well. Banks’ lending to shipowners have been a driving force in the company’s efforts to calculate Annual Efficiency Ratios for 21,000 ships, says director William Fray. Individual shipping companies are also keen to buy such information, to benchmark it against their fleets. The hard part is getting accurate and sufficient data, especially for smaller vessels that do not always follow standard voyage patterns, says Epitropakis, whose company invited class society DNV to audit its process, model and metrics. Number crunchers so far broadly agree with projections by the IMO of how CII ratings will be distributed across the global fleet. The IMO expects about 30% of individual ships across any fleet segment to be assigned the middle-of-the road C rating at the beginning of the exercise. Around 35% should get the top marks A or B and about as many again a D or even the critical E, the ratings that trigger corrective action. Based on estimates of the global fleet’s performance in the first nine months of 2022, VesselsValue predicts about 40% of vessels will achieve A or B and 42% D and E, which leaves 18% with a C.

Eva Tzima, head of research at Athens-based Seaborne Shipbrokers, comes up with similar numbers. “We understand that about 25% of the vessels will be assigned a CII C rating, around 40% an A and a B, and 35% a D and E,” she says. The analysts, however, are quick to point out that such average figures are of limited practical significance. The problems are twofold. First, they hide wide variations within vessel types and size classes. According to VesselsValue, the bulker fleet contains the highest proportion of vessels estimated to achieve the top three ratings A, B or C. “The worst-performing sector is estimated to be the tanker fleet, of which only 31% of vessels achieve CII ratings of C or better,” it tells TW+. LPG carriers fare similarly. Size matters as well. The CII formula generally benefits bigger vessels. Signal Ocean has capesize bulkers achieving A or B 55% of the time, while 56% of handysizes and even 84% of Supras are expected to score D or E. A similar gap appears in tankers, with VLCCs expected to score much better than MRs. “Larger vessel classes mostly end up with higher ratings because of their efficiency,” Epitropakis explains.

The second problem is that such predictions are based on ship traffic data from the past, when few players were determining their voyages with CII ratings in mind. This will change radically from next year, when the new benchmarks enter into force. “The distribution of A, B, C, D and E is going to be much more a commercial decision than a technical one,” says Mark Williams, managing director at consultancy Shipping Strategy. “The borders between the ratings are porous and it’s possible to move between one and another.” VesselsValue expects engine power limitation to be the most obvious measure to comply with EEXI. For CII, it will be slow steaming and a shift in trade patterns to minimize congestion. According to Epitropakis, the CII will penalize vessel repositioning: “Smaller vessels in particular will be forced to try and triangulate a bit better and reduce positioning.” Fray says owners or charterers might seek CII-favorable voyages of long distances and short port times towards the end of the calendar year to improve the rating. Others might decide to do such voyages earlier in the year, to take advantage of potentially higher earnings on less CII-favorable routes later. The question is to what extent such practices will amount to gaming regulations or even produce perverse results.

Gibson Shipbrokers has been particularly outspoken in its criticism. Non-eco ships, which would typically trade shorter voyages, will be more likely to engage in longer-haul voyages to attain the required CII, the London brokerage said in a report in early September. “CII will distort trading patterns and could lead some vessels to emit more CO2 than they would have prior to the regulations in order to chase a rating,” Gibson concluded. Owners unsure of their vessels’ CII “could reduce the number of vessels willing to bid for certain cargoes and reduce the number of discharge options a vessel can offer”, Richard Matthews, the broker’s director for consultancy & research, tells TW+. Most analysts to whom TW+ spoke seem to agree that disputes between charterers and owners are likely over CII in the case of time charters. Tzima says there may be “a certain degree of record manipulation, especially if market fragmentation reaches a point that the improved rating (and higher freight) turns the vessel’s operation from being unprofitable to being profitable”. VesselsValue sees the possibility of gaming the regulation, operating in ways that would reduce CII but not emissions, by extending ballast legs, for example. In the end, however, most analysts expect markets and regulators to adjust. “If it’s found that regulations are engendering inefficiency, regulation will change,” Matthews says.

Older, less efficient ships are most at risk when the Energy Efficiency Existing Ship Index (EEXI) enters into force. That could lead to a windfall for ship recyclers, which have been struggling to get their hands on tonnage in the recent boom market. But industry sources tell TW+ they are not expecting a deluge of ships to hit the breakers’ beaches en masse. There may be a trickle at first, but it all depends on the state of various shipping markets and whether demand for tonnage is strong enough to keep these ships competitive.

EEXI is a simple one-off “pass or fail” paper test taken at the first annual or special survey after January 2023, when the ship’s efficiency will be compared against the benchmark set by the IMO. If the vessel passes, the owner will receive an international Energy Efficiency Certificate and can trade on. If it fails, the ship should leave the market, unless modifications are made to upgrade its efficiency. Many older non-eco ships are expected to struggle to meet a pass grade. Their only alternative will be to slow down, which could lead to them becoming less competitive, or turn the screws on vessel supply.

Joshua Politis, deputy managing partner of Singapore-based Transport Capital, says it will all depend on market fundamentals. “If they can still work at slower speeds and earn a decent price, they won’t be scrapped. I think they will only be scrapped once scrapping makes more economic sense than continuing to sail. But will that happen immediately? I don’t know,” he said. Politis, like many others, believes retrofitting these older ships to improve their rating will be challenging. “The economics don’t really work,” he says. “Most shipowners are going down the route of slowing down and engine capacity limitations.” Politis believes these owners will quickly find themselves in an unfavorable commercial situation: “People who are investing in more eco ships and new technology ships will come in and they will earn their premiums. Owners of the non-eco ships will always be last pick for the jobs.”

Banchero Costa’s Singapore-based head of research, Ralph Leszczynski, notes that a mass slowing down by a large portion of the global commercial fleet will have a positive impact on the supply and demand balance. Banchero Costa data shows that there has been a steady trend for ships to slow down over the past decade, which has been relatively consistent except for a spike with bulkers in 2021. This, Leszczynski says, was due to rising fuel costs and environmental reasons. Provided that markets remain sufficiently high to justify operating a ship that is required to slow down to meet EEXI requirements, many are expected to trade on. The problem, according to Politis and Leszczynski, is that there are simply not enough eco or new-technology ships to make up a shortfall in capacity from ships that fall below or are on the borderline of EEXI. Less than 5% of ships currently in service can run on alternative fuel or are dual fuel-ready. Demand for these ships may rise, but shipyard capacity, already tight, is not increasing. “You’ll have difficulty over the next few years building enough lower-emission vessels. I think any ships that you build today will do very well,” says Politis. However, as the annual Carbon Intensity Indicator ratings make it harder for ships to be in compliance, more vessels will have to upgrade or leave the market.

When moves to scrap older non-compliant ships do happen, container ships are likely to be the first to be culled, as the sector’s newbuilding orderbook is very large — Leszczynski describes it as “crazy”. “The orderbook is huge because rates were so strong and owners invested in new ships,” he says. But he expects a surplus of vessel capacity the moment freight rates normalize. “The spike in container freight rates and tonnage requirements was not because of supply and demand. It was because of inefficiencies. We will see a lot of older, less efficient ships go for scrap when these inefficiencies are resolved,” Leszczynski says. He believes there is also a lot of potential for tanker scrapping due to an ageing fleet. “The last rush to build tankers was 20 years ago, when single-hull tankers were being replaced. Many of those tankers are now reaching the 20-year threshold.” However, Leszczynski expects the strong tanker market and the low number of oil carriers on order to keep the current fleet trading even if EEXI requirements force less efficient vessels to slow down. The bulker sector, he says, will probably ride through most easily because its fleet is quite young compared with other sectors.

Rohit Goyanka, managing director of Singapore brokerage Star Asia Shipbrokers, which is active in the recycling market, agrees there won’t be an immediate rush to scrap when EEXI kicks in. For one thing, shipowners in the European Union would struggle to find enough EU-certified recycling facilities, as there is not enough capacity within the bloc and there are not enough approved yards in Turkey to handle a deluge of ships rushing to scrap.

Bulkers are braced for a slowdown from next year, literally. Much of the trading fleet will need to sail at reduced speeds to maintain compliance with shipping’s incoming emission regulations. The IMO’s Efficiency Existing Ship Index (EEXI) will enter into force on 1 January, measuring and restricting CO2 emissions, taking just the ship’s design parameters into consideration. Bulkers will be required to reduce their carbon emissions by 15% to 20%, depending on their size, from their current Energy Efficiency Design Index (EEDI) notation. To comply with EEXI, it is thought that many bulkers will use engine power limitation, which will lower their maximum speed.

An analysis submitted to the IMO estimates that 40% of the bulker fleet would need to limit engine power to less than 80% of maximum power to be compliant. This estimate, however, is at the high end and is based on a simplified EEXI calculation that does not consider, for example, correction factors. Older vessels built before the introduction of EEDI in 2013 will need more power limitation, according to analysis by classification society DNV. About 62% of the global fleet of live and launched bulkers was built in 2013 or earlier, according to fleet databases. Reducing speed by 3% decreases a vessel’s fuel consumption by 10%, so slow steaming is considered an efficient way to save bunkers and therefore emissions. It has the benefit of longer voyage times, which means more tonnage is taken out of the market, making vessel supply tighter in relation to demand. But slow steaming carries safety risks, because slower vessels have less propulsive power and are therefore less maneuverable, especially in bad weather. That is particularly true for bulkers and tankers.

There remains a possibility that the new regulations could create “tiered” and more complex charter and S&P markets, pitting the vessels that are forced to slow down against those that are not. In a high spot market, being able to sail at your full service speed can be a distinct competitive advantage. In reality, the impacts of engine power limitation will probably be less dramatic than they appear on paper. A bulker may need to limit its maximum power to 80%, for instance, but its operations will not necessarily be affected, because vessels usually run at a lower speed than their maximum. In DNV’s analysis, the average engine load is estimated to go from about 60% to 55%. That is manageable. Some bulker operators to whom TW+ spoke say their modern or relatively modern fleets will not need to change much about the way their ships operate from 2023, if at all. However, applying engine power limitation on a vessel will affect operational planning and flexibility, because the sea margin is reduced, making it difficult to catch up on delays and weather-related detours, for example.

Clarksons Research thinks incoming regulations such as EEXI, CII and the EU Emissions Trading System will put pressure on older tonnage from 2023. Bulker scrapping is expected to pick up next year, following a “normalization” of markets from last year’s highs, according to Clarksons’ dry markets outlook report in September. “Around 25 MDWT of scrapping is currently projected for next year, though significant uncertainty remains and market trends will also be a key driver,” it said. Just 3.4 MDWT of bulker tonnage is expected to be scrapped this year, the lowest level in years, according to Clarksons. But demolition activity is expected to increase by 640% next year to 25.2 MDWT. Low ordering activity in recent years also means the global bulker fleet is getting older. It is currently around 11.5 years old on average, compared with 10.2 years at the end of 2019. This is meaningful in relation to the Carbon Intensity Indicator, which starts being monitored next year to address the actual emissions from shipping operations. CII rating thresholds will become increasingly stringent towards 2030, but levels have not yet been set beyond 2026. Clarksons estimated in July that under CII, 40% of today’s tanker, bulker and container fleets will be rated D or E, the lowest rankings, if they are still trading in 2026 and have not modified their speed or specification.

There has been hope in the market that rules such as EEXI will help support bulker demand relative to vessel supply as the trading fleet reduces its speed. But analysis by Maritime Strategies International (MSI) suggests that any supportive effects will be offset by the unwinding of port congestion, which will release ships back into the market. More worrying still is the potent cocktail of factors that are making bulker markets even more volatile and unpredictable. MSI thinks dry cargo markets will come under “intense pressure” in 2023. Data from VesselsValue shows the global fleet of dry cargo vessels averaged a laden speed of 11.11 knots and 11.71 knots in ballast during September. By October, it appeared to be speeding up again as the spot market came back to life. Last November, the fleet hit average speeds not seen in more than 10 years. Average laden trips were 11.65 knots and ballast voyages clocked in at 12.18 knots, according to VesselsValue. “One thing is clear from MSI’s analysis, though: the potential for a collapse in the freight market has been rising on the back of weakening economic activity across the world, lockdowns in China and an easing in port congestion,” the firm said in its dry bulk outlook report for September. “MSI’s near-term forecast assumes a near-term upward correction in earnings followed by weaker markets next year; [asset] values, on the other hand, are projected to soften more gradually from Q2’s peaks.”

There is also a risk that increased scrapping could stimulate newbuilding activity. The bulker orderbook is at historic lows, which will surely not detract from the temptation to order new vessels. Will there be any net benefits in terms of emissions savings, if owners are pushed into replacing those bulkers they have had to scrap? Building ships comes with a big environmental price tag, particularly when high-emitting steel production is taken into account alongside the transport of raw materials. There is a short runway to meet the IMO’s targets, just eight years to reduce carbon intensity by 20% from the 2008 baseline, and a lack of visibility remains as to how the impacts of the incoming regulations will shake out. For one thing, markets will be shaped to a degree by the attitude of regulators towards enforcement of these regulations and how this will be done in practice. Observers have voiced concerns that this could cause vessels to become untradable if shipping adopts a hardline attitude of vessels being either “compliant” or “non-compliant” with emissions requirements set by charterers and regulators. On the other hand, shipping has proved time and time again that it is good at finding ways to make things work. But as all this work goes on and the industry becomes more committed and ambitious in its quest to reduce emissions, oil prices (ironically) remain the soft power in driving the green transition. A high oil price will naturally incentivize owners to make their vessels more efficient and reduce consumption of expensive bunkers, including by slow steaming. Low bunker prices would delay progress.

What is EEXI and CII?

• The EEXI applies technical standards to cut carbon dioxide emissions by ships from 1 January 2023 based on the EEDI adopted by the IMO for newbuildings in 2020.
• The CII will regulate existing ships above 5,000 gt from an operational perspective. It is worked out by taking a ship’s annual emissions from fuel used and dividing that by its capacity (deadweight or gross tonnage), multiplied by annual distance travelled in nautical miles.
• The CII will be implemented via a new Part III of the Ship Energy Efficiency Management Plan (SEEMP) containing targets and an implementation plan that details measures to be applied.
• From 2024, CII ratings will be assigned for the previous year ranging from the highest A to lowest C pass grades, while D and E results may be considered non-compliant.
• Operators of ships rated D for three consecutive years or E for a single year will have to develop an approved plan of corrective actions to bring a vessel into compliance by the end of the next year.
• The CII is based on 5% reduction in carbon intensity in 2023 relative to a 2019 base level. Its requirements will get stricter by 2% per year until 2026. The IMO has yet to decide on further levels.

Sourcing coal from further afield is pushing up the tonne-mile picture for dry bulk. While global coal trade volumes have remained stable this year, ton-days have increased by 6.6% in the first nine months, according to AXS, a sure sign that buyers are being forced to procure from further distances on average. As a part of European Union sanctions against Russia, the bloc banned coal imports from Russia starting August 10. In the following couple of months Russia has struggled to redirect its coal exports, with export volumes down 7% year-on-year in this period and down 5% year to date, according to statistics from BIMCO. Despite the drop in volumes, tonne mile demand has seen an increase by almost 30% in the last two and a half months, BIMCO data shows. Since the coal sanctions were announced by the EU in April, average haul for Russian coal exports have risen by nearly 50%, or around 1,250 miles.

“So far, capesizes have seen the biggest increase in tonne miles following the ban, largely due to India’s increased interest in discounted Russian coal. India’s government mandated an increase in coal imports over the summer, due to a surge in energy demand and low coal inventories. This resulted in a boost to tonne miles as capesizes laden with Russian coal from European ports sailed around Africa,” commented Filipe Gouveia, shipping analyst at BIMCO.

So far in 2022, China remains the largest buyer of Russian coal which has accounted for 22.6% of total Chinese coal imports. Even though Chinese coal import volumes dropped 25.7% so far this year, imports from Russia grew 3.5%, likely due to discounted prices. “In the coming months, panamax and supramax ships should continue to see demand from China for Russian coal. However, the country’s ambitious coal mining target and increasing investments in renewable energy could cool the appetite for coal imports. In the first eight months, coal mining increased 13.8%, while electricity production from renewables rose 16.7%,” added Gouveia.

China holds the “triple crown” when it comes to coal, a recent report from Shipfix noted. The country is the world’s largest consumer of the dirtiest of fossil fuels, and at the same time, it is the largest producer and importer of coal. China’s seaborne thermal coal imports have increased back near the levels seen last year as winter approaches. The country imported 22.3 MMT of thermal coal in September, coming in flat year-on-year but 44.5% above the average import volumes across the first eight months of the year, according to brokers Braemar.

Chinese steam coal imports have mostly been transported by panamaxes in recent months at the expense of capes. Panamaxes accounted for 64.1% of the volumes arriving to China in September, the highest level in the past five years. “With energy providers aiming to maintain the current 22 days’ worth of inventories, fewer volumes arriving from Covid-stricken domestic mining regions suggest the current levels of imports should be sustained as the disruptions continue, boding well for bulk carrier demand, particularly out of Indonesia,” Braemar stated in a coal shipping update this week.

Florida-based investment bank Noble Capital Markets is reining in lofty third-quarter earnings expectations for the dry bulk owners under its coverage while maintaining a bullish long-term outlook on the sector. Companies most affected in the slashing are Connecticut-based mid-sized specialist Eagle Bulk Shipping and Rhode Island niche-trade operator Pangaea Logistics Solutions, which is now projected to run a rare quarterly loss. Noble Capital analyst Michael Heim now sees Pangaea losing $0.08 per share when third-quarter earnings are announced, down from a previous projection of a $0.45 profit. Revenue is to dive to $158.6m from the earlier view of $182.3m.

Mark Filanowski-led Pangaea is the only shipping company Noble sees running in the red for the period. Eagle Bulk is however tipped to trend significantly lower while remaining solidly profitable. The Stamford-based owner of supramax and ultramax tonnage should see earnings drop to $4.24 per share from $5.49, while revenues dip to $93.2m from $117.6m. The other major owner under Noble’s coverage – New York-based Genco Shipping & Trading – sees smaller adjustments to its numbers. Heim reckons the John Wobensmith-led outfit will turn a profit of $1.21 per share instead of $1.25, with revenue also slightly lower.

Greece-based capesize entrant Seanergy Maritime Holdings is seeing adjustments to the Noble view on a number of counts. Heim noted that while the owner previously had guided to day rates of $23,650 as it reported second-quarter results, it now believes the rate will be below $20,000 per day. Noble is reducing its own figure for uncommitted ships to $19,500 per day from $23,650. Seanergy is also expected to feel the bite of rising interest rates. Interest costs are projected to rise to $5m for the third quarter from $3.5m as Libor has jumped from 0.1% to more than 4% in the last 12 months. Noble is also incorporating a $28m term loan announced last week. This all adds up to a reduction in third-quarter earnings estimate to $0.02 per share from a previous bet of $0.06. Revenue decreases to $31.8m from $38.1m.

Fellow Greek bulker owner EuroDry sees only slight revisions to Noble’s estimates owing to significant time charter coverage in the fleet. It is tipped to earn $3.27 per share in the quarter rather than $3.48, with revenue down to $25.4m from $26.1m. Despite the revisions, Noble is keeping “buy” ratings on all five bulker players, with price targets significantly above current trading levels. “Recent weakness in shipping pricing will adversely affect near-term results but does not change our long-term favorable outlook for the shipping industry,” Heim told clients.

As TradeWinds has reported, Noble underwent a transition of its shipping coverage during 2022. The surprise defections of shipping investment banker Mark Suarez and analyst Poe Fratt to New York-based Alliance Global Partners came just as Noble was hosting its annual investor conference in April. Heim stepped into the breach from the energy beat at Noble and has been handling research since, while Suarez and Fratt continue to handle shipping for Alliance Global.

Waiting times for vessels in Ukrainian grain trades have increased considerably in Istanbul, the hub for mandatory inspections under an ongoing UN safe passage scheme. More than 120 incoming and outbound vessels have been clogged around the Sea of Marmara, the UN said in a statement earlier this month. Waiting times for outbound, laden vessels “unfortunately” increased to an average of nine days after arrival in Istanbul, the organization said. Shipping agents in Istanbul speaking to TradeWinds on Wednesday said the situation has deteriorated since. One vessel even had to wait for 22 days due to a lack of surveyors to carry out inspections. “Several clients are complaining,” said Nikos Marmatsouris of agents GAC Shipping.

Under the terms of the scheme, both inbound and outbound ships must be vetted by UN, Turkish, Russian, and Ukrainian officials who check documentation and make sure there are no weapons or unauthorized cargo and personnel on board. What adds to the delays is that even ships carrying grains within the Black Sea must call at Istanbul before reaching their final destinations — even if they don’t have to cross the Bosphorus at all.

The Istanbul-based Joint Coordination Centre (JCC), the UN body in charge of operating the inspection scheme, largely attributed the delays to the very success of the scheme. Following “the high and growing demand” displayed by the shipping community, the JCC said it carried out more than 500 ship inspections from 1 August, when the safe corridor got up and running. Analysts agree. “The backlog that has been created is a testament to the success of the trade deal, as more than 6.5 MMT of agricultural commodities has been added to the trade supply and the seaborne trade in the Black Sea ports has been kept alive,” Xclusiv Shipbrokers said in a note on 10 October.

A reason for that high demand is the above-average freight rates that vessels can expect to achieve in the Black Sea. According to market sources, a handysize involved in the Ukrainian grain trade earns about $22,000 per day — net, after insurance payments. That is about $3,000 to $4,000 more than average for such ships. This is seen as a considerable premium — especially for the kind of smaller and older cargo ships usually involved in the trade.

To cope with the increased workload, the JCC increased the average number of daily inspections between August and October from four to 11. The UN, however, has found it difficult to hire more surveyors to increase inspections even more. Shipowners themselves are also partly to blame, the JCC said. “On more than 50 occasions, inspections could not be completed at the first attempt due to the lack of readiness of the vessel — this has been an additional contributing factor to the congestion at the Sea of Marmara,” it said in its statement. The UN body urged masters and agents to follow procedures. “Ships must be fully prepared and familiar with the requirements for inspection before they declare their readiness for inspection. This includes compliance with fumigation and ventilation procedures, availability of proper and adequate testing equipment, and up-to-date and accurate documentation,” the JCC said.

Singapore’s DBS Bank has set decarbonization targets for seven carbon-intensive sectors it finances including shipping and the oil and gas sector. Southeast Asia’s largest lender said the move was in line with its commitment to being net zero in its financed emissions by 2050. DBS Bank became a signatory of the Net-Zero Banking Alliance in late 2021, the first Singapore bank to do so. As a signatory, it is required to align its lending and investment portfolios with net zero emissions by 2050.

Amongst the seven decarbonization targets set, six of them, including shipping, are set as intensity metrics with the objective to achieve lower emissions per unit of output or activity. Acknowledging that the path to net zero requires a lower usage of fossil fuels, an absolute emissions reduction target has been set for the O&G sector. By 2030, the bank has targeted to reduce the absolute emissions in the O&G sector which are attributable to DBS by 28%, fully aligned with the International Energy Agency’s Net Zero Emissions by 2050 scenario. The bank’s O&G target will cover Scope 1, 2 and 3 emissions.

In addition, the decarbonization targets go beyond the bank’s institutional banking lending book and will cover capital markets activities as well. DBS Bank described its commitment as “ambitious” as there is widespread recognition that many emerging markets in which it operates will move to net zero at slower rates than their developed market counterparts. Despite this, the bank said it is committed to moving to net zero by 2050, setting the bank on a path that is “proactive and anticipatory of its customers’ and society’s needs. Our firm conviction is that our net zero commitment, made last October, must be supported by a clear and detailed roadmap and plan,” said DBS Bank chief executive Piyush Gupta. “However, charting a viable course of action that is constructive and impactful is not easy, given challenges in mapping out suitable industry pathways and realistic medium-term milestones in markets with differing starting points. “That is why I am pleased that we are able to announce today a set of ambitious, broad and measurable actions that we can execute against,” he added.

As of the end of 2021, DBS Bank had a ship finance portfolio worth $1.75bn, according to Greece’s Petrofin Research. The bank ranked 41st among the world’s top shipping banks. However, it is not a signatory to Poseidon Principles the framework for measuring and reporting the alignment of financial institutions’ shipping portfolios with climate goals. DBS said it has been “proactively adopting measures to tackle climate change for several years”. In April 2019, the bank ceased financing new thermal coal assets. Since then, it said it has “continued to progressively phase down its thermal coal exposure”. At the same time, the bank said it continues to ramp up support towards the renewables sector as evidenced by its increased exposure to renewable energy projects of SGD5.9bn ($4.2bn) in 2021, from SGD4.2bn in 2020.

Shareholders should hold out for bid closer to $31 price target from Taylor Maritime Investments or others, analyst counsels. That essentially is the advice of a US investment bank for shareholders of Singapore-based Grindrod Shipping after a $26-per-share all-cash offer from Taylor Maritime Investments (TMI). Noble Capital researcher Michael Heim on Tuesday weighed in with analysis indicating that Nasdaq-listed Grindrod is worth more than Taylor’s original offer. “We believe there is a reasonable chance that a transaction will be completed at a higher price, closer to our price target,” Heim told clients, citing a $31 figure. “We do not expect Grindrod’s board of directors to accept the offer as proposed. We believe other suitors could offer a higher takeout price or TMI may raise its offer to get the board’s support of the deal. We would advise investors to use our $31 price target as a guide to investment decisions regarding the shares of [Grindrod].”

Grindrod tipped the news on Monday that London-listed TMI, which already holds a 26% stake in the company, would use a non-binding cash offer of $26 per share to create an enlarged owner of handysize up to ultramax bulkers. The UK handysize specialist said the $26 offer would consist of a cash purchase price of $21 paid by TMI for each share tendered plus a $5 per share special dividend. The offer values Grindrod at $494m.

As TradeWinds has reported, the Taylor offer is not a sudden or one-off development. Grindrod has been in play since at least April when it decided against a permanent replacement for retired CEO Martyn Wade. Taylor emerged from a pack that included other public owners, with New York-listed Genco Shipping & Trading and Eagle Bulk Shipping tipped to be among the interested parties. Competing offers from such parties might be expected to include full or partial payment in shares, whose value could somewhat depend on what one thinks of long-term prospects for the dry bulk market.

However, one finance source speaking after Monday’s disclosures said Taylor’s willingness to pay all cash should be viewed as a strength of the bid, even below Grindrod’s estimated net asset value (NAV) of around $30. “All-cash tender offers are exceedingly rare in shipping,” he said. “When such offers have been made, there is typically a much bigger gap to NAV than here.”

The offer price presents a 30% premium to Grindrod’s closing price of $20.05 on Friday. The shares have not closed above $26 since 7 June. However, Heim noted that Grindrod had traded as high as $28.98 per share on 20 May, before dry bulk rates took a tumble that also deflated stock prices.

Vessels are spending more time at berths in China’s Ningbo port as draconian Covid-control measures disrupt trucking and storage services. The number of containerships with a berthing time of two days or more has increased considerably since October 14 when a heavy-handed lockdown started in the city’s Beilun district, Lloyd’s List Intelligence data shows. As one of the world’s largest and most efficient box ports, Ningbo boasts an average berthing time of about one day.

A total of 95 containerships have called at terminals in Beilun over the past week, according to the data. Of those, 12 ships, or 13%, have stayed at berth for two days or longer. The figures include ships that have yet to be untied. In comparison, that proportion between August and September stood at just 7.5%. At the other two major terminals in Daxie Island and Meishan Island near Beilun, the ratio has increased to 25% and 30%, respectively, from less than 1% and 12.4% over the same period of time. A shortage of container truckers and the shutdown of warehouses and storage yards, which have led to a snarl-up in landside transport, are believed to be the main culprit for the increased time at berth.

In a customer advisory, Hapag-Lloyd said it was offering free booking cancellation for export shipments of all products loading or discharging at Ningbo port, with an estimated time of departure or arrival from October 17. The Hamburg-based carrier is also providing free detention on cancelled shipments, empty equipment return and free booking amendment for changing loading port. It has also suspended the detention calculation. Even so, the disruption remains “controllable”, said a senior manager in charge of China-related routes from a leading European carrier.

Vessel handling and terminal operations were not directly affected by the rise for positive test cases for coronavirus in Ningbo, he said, as no infection within the port has been reported thanks to the so-called closed-loop management system that keeps port workers isolated from the other parts of the city. Meanwhile, reduced cargo volume, specially to Europe and the US, in the current market conditions has also helped cushion the blow.

Local authorities are striving to solve the logistics bottleneck caused by the lockdown. More than 17,000 of some 20,000 registered container truck drivers have been added to a whitelist used to grant them access to the port via designated routes and travel within the Jiangsu province, where Ningbo is based. Ningbo has also reopened 12 storage yards and seven warehouses outside of the port area for those whitelisted truckers, in addition to increased barge and rail services to connect the hinterland.

Mao Jianhong, chairman of Zhejiang Seaport Group that operates Ningbo and several other smaller ports in the province, claimed the company “is facing tremendous challenges” to control the virus while unclogging the logistic traffic. Any turning point in the current outbreak in Ningbo is yet to arrive as the number of positive test cases continued to increase, he said. The latest government update shows the city reported 17 new positive test cases on October 20, following 23 cases for the day earlier. All those, however, were tested positive from the quarantine sites, suggesting a lower risk of further community transmission.

Will a regulation that essentially has no enforcement mechanism have the carbon-cutting impact the way it was intended? In the case of the IMO’s Carbon Intensity Indicator (CII), one of two sets of global greenhouse gas regulations that enter into force at the start of the year, the answer depends on how much the shipping, insurance and finance markets actually value the ratings that ships will earn based on their technical and operational performance. The CII will rate vessels with passing grades from A to C, or failing grades D and E, depending heavily on how the ships operate. But, at least in its initial iteration, the regulation lacks any enforcement teeth. TW+ editor Paul Berrill writes that it will remain toothless and inadequately policed unless flag states and port states are co-opted into making CII ratings meaningful.

As it stands now, while port states will be checking whether ships have the energy management plan and ratings, there is no factor in CII that could lead to detention or withdrawal of certification. And while the IMO legislation requires D or E-rated vessels to come up with corrective measures to bring these back up to a C or above, low-rated ships will for now face no penalties. So it will be up to shipping industry stakeholders to ensure the carbon intensity ratings have an impact.

Consultant Edwin Pang, whose Arcsilea advises clients on greenhouse gas issues, told TW+ that the regulation’s lack of an enforcement mechanism puts the onus on charterers to ensure that there are commercial consequences for ships receiving a failing CII grade. There are some forces pushing charterers to do that. The pressure is on for major corporates to tackle their Scope 3 emissions — that is, the indirect pollution in their supply chain. Shipping is a significant factor in those emissions, and charterers have teamed up to sign the Sea Cargo Charter, setting up a framework for reporting emissions from the vessels they utilize. But there is enormous uncertainty right now over whether charterers will be committed to ensuring CII ratings have value in shipping markets. In fact, charterers are pushing back on signing on to contractual terms that would ensure that a ship’s owner can keep their vessel within a passing rating during a time charter. Time charters have long given major freedoms to charterers over how to operate tonnage, but staying within the good graces of CII ratings will require limitations to that.

Lawyer Alessio Sbraga, a partner at HFW, told TW+ that CII’s rating system “cuts through the heart” of the traditional time-charter contract. And Cargill Ocean Transportation president Jan Dieleman recently told TradeWinds that charterers are pushing back because the CII system “doesn’t make sense”, particularly in provisions that neither a shipowner nor its customer has control over, such as port delays. If charterers are not going to put a value on CII, financiers, classification societies and insurers may still give the ratings some weight. Like the Sea Cargo Charter, the Poseidon Principles framework for bringing decarbonization targets into ship finance decisions is about the transparency of information, rather than an agreement to take action on climate. But Paul Taylor, the Societe Generale banker who is the initiative’s vice chairman, told TW+ that CII ratings will definitely have an impact for individual banks. “It has to because financiers don’t particularly want to finance E-rated vessels, for obvious reasons,” he said. He does not expect that banks will jettison ships from existing business because they fall below a C, but financiers may avoid taking on new ships that do not make the grade. It is not a positive sign that industry stakeholders and environmentalists alike are looking forward to the upcoming review of CII at the IMO that is scheduled to be completed by 1 January 2026. If CII in its present form proves to have little impact on shipping’s decarbonization trajectory over the next two years, there will be pressure to give it sharper teeth in its next iteration.