Ships with the lowest CII rating suffer a significant drop in value

Brokers and owners are beginning to monitor the impact of energy efficiency regulations on the S&P market, particularly in light of the risks now associated with vessels operating in Band E of the Carbon Intensity Indicator (CII) introduced on January 1st. The effects are most noticeable in the tanker market, followed by dry bulk.

“CII is becoming more and more influential in the selling and buying market. At the moment, this is mainly manifesting in the liquidity of vessels,” explained online pricing portal VesselsValue in a new report, noting that vessels operating in Band E have significantly lower liquidity as they carry capital requirements or their earning potential decreases will in the near future.

The liquidity gap between Band-E vessels and other higher rated vessels has widened significantly.

The CII measures how efficiently a ship over 5,000 GT transports goods or passengers and is expressed in grams of CO2 emissions per cargo capacity per nautical mile, which owners can influence by changing the ship’s speed.

The first CII reporting based on 2023 data is due no later than March 31, 2024. Ships are rated from A to E. A ship rated D or E for three consecutive years is required to develop a corrective action plan.

According to an analysis by VesselsValue, the required 9% increase in speed for Band A ships operating in Band C would result in a 7% increase in ship value on average across all sectors. For operating Band E ships in Band C, the average speed reduction of 12% would result in a 12% rebate (see chart below).

The impact is most noticeable in the tanker market, with Class A vessels potentially able to achieve an average mark-up of 9%, according to VesselsValue, and Class E vessels suffering an average markdown of 15%.

The complexity of CII also keeps commercial pool managers on their toes.

“Managers need to consider the impact their commercial trading strategy as a whole will have on each ship’s CII. This will be challenging as the most financially profitable trading strategy may not automatically result in the best CII,” commented John Michael Radziwill, who is responsible for Monaco-based C Transport Maritime (CTM), a bulk cargo pool established in 2004.

Pankaj Khanna, who took over as head of Athens-based tanker pool Heidmar in 2020, told Splash: “In the future, trading ships will determine the CII rating of ships and access to the right trade people with the right tools, training, mindset and.” Knowledge will be critical to ensure a good CII assessment.”