Editorial

Experience and intuition has served the shipping sector well and will continue to do so. That said, the tanker industry understands the potential of data to inform even more confident and commercially astute decision-making.

There are numerous off-the-shelf solutions for a range of vessel types and brokers are supporting shipowners’ and charterers’ needs with investment in market research teams. However, more data doesn’t necessarily mean good data – it is at best useless and at worst misleading without correct interpretation. This is why data analysts are increasingly commanding a seat at the top table, as recognition of the power of these insights grows.

Maximising the institutional value of data can be a difficult task. The biggest challenge is often ensuring that decision makers are practically able to access, understand, and cross-check different types of data that they have access to at critical times. Data streams are often accessed through several different platforms and provide information in different formats.  Switching between data in raw number format while other information is found in fully developed dashboards only adds complexity.

The VLCC industry is no different to any other in that the volume and history of data combined with human insight creates maximum accuracy, trend interpretation, and impact. However, in a segment where the average shipping company only owns a few ships, how can all VLCC owners and operators carve out the resource to benefit from data and digitalisation? Moreover, data is not infallible; experience in spotting when it’s supporting the right decision or not counts. Being part of a Pool provides owners with access to an experienced team with access to large volumes of data that can be expertly distilled and – critically – correctly interpreted to deliver insights that provide genuine competitive advantage.

At Tankers International we have a commercial fixture database housing close to 25 years of data, amounting to more than 100,000 recorded voyages, with 40+ data points allocated to each voyage. These economies of scale allow us to access and interpret a large volume of accurate data and present meaningful insights to all our Pool partners; enabling them to make informed decisions. Having an in-house team of data analysts means that bespoke tools can be created for each department – or the segment as a whole – be it an operational optimisation tool, a post-fixture claims tracking tool, or a VLCC Fixture app.

We have invested in internal solutions that bring together data streams from various platforms to present integrated data visualisation tools for decision makers across the organisation. They all have the ability to pull data from multiple sources to draw instant parallels and conclusions, driving efficiency across all departments and ultimately improving the bottom line.

It’s knowledge and experience combined with software and technology that sets Tankers International apart when it comes to data intelligence. This information exchange is providing our Pool partners with the tools to improve operations today, and future proof their organisations for tomorrow.

By Mette Frederiksen, Head of Research & Insight, Tankers International

If you put your tankers in a pool, it can help you navigate CII, such as from making sure any vessels under risk of being downgraded are kept away from potentially CII damaging charterers, and managing the CII data. Charlie Grey of pool operator Tankers International explains.

CII will push VLCC owners into new territory as they tackle shipping’s first true decarbonisation regulation. Arguments between shipowners and their charterers are simmering with BIMCO caught in crossfire. Regardless, CII is here now, and tanker shipping needs to comply. But how? CII represents the first global carbon emissions regulations applied to the international shipping fleet – something the industry needs to implement if shipping stands a chance at hitting the IMO’s emissions targets.

Yet, CII is not perfect and has several well-documented flaws.

For instance, while installing low-carbon technologies will make a passing grade easier, a highly efficient vessel will not necessarily have a good rating. A highly efficient vessel that sits at anchor for several days will require bunker fuel to power its generators, emitting CO2 yet travelling no distance. This means that an idle, efficient ship may have a worse score than an older, less efficient, but highly utilised ship. VLCC owners have to tackle a difficult trade-off between CII ratings and commercial performance. CII-negative voyages may represent commercial benefits, while CII-specific contractual clauses may be considered negotiable by charterers.

CII concerns add a new dynamic to data analysis. Shipowners now need to consider their vessel’s potential voyage impact on CII ratings alongside, regional pricing, and supply and demand side market trends in actionable analysis. Whilst this entered into force from 1 January 2023, CII scores will not be published next to vessels until January 2024. At the same time, those scores will be out of date for 364 days every year and will only reflect an average up until the end of the last reporting period. This lack of data means that vessels with falling ratings will not see that reflected in their score for some time, while vessels with improving ratings will not have that reflected in their grade until the start of the next calendar year. These inconsistencies limit CII’s usefulness for charterers as an indication of the efficiency of a vessel.

Shipowners and operators are forced to find the right balance between some lucrative CII-negative fixtures and CII-positive voyages, and between cash flow and efficiency technologies. This can create a trade-off between CII scores and short-term profitability for any ship. Shipowners must understand how to operate and trade their ships to tackle this anomaly and achieve a good CII rating; ensuring that they incorporate these requirements into charter party agreements. They must adaptively manage their vessels speeds and idle days throughout the year, ensuring that vessels average a passing grade whilst maximising profits. This adds another layer of complexity for shipowners. CII represents another stream of data that must be analysed and converted into insights and actions.

Pool participation

The volume of ships in a pool allows shipowners and operators to benefit from greater economies of scale, financial robustness and flexibility through greater utilisation across their fleets, helping them to mitigate any impact on CII ratings.

Pool partners can take profitable CII-negative fixtures while maintaining ratings across the fleet by spreading those voyages across the pool based on CII scores to date. By doing so, the collective pool of ships can maximise earnings while the pain of CII-negative voyages is minimised for any individual vessel.

The pool simplifies a shipowner’s role, providing regular cash flow based on their vessel’s earning potential in the current market conditions and reducing the need for operational staff. Shipowners can allocate this resource elsewhere, including evaluating and implementing low or no-carbon technology across their fleet.

Another issue is that cash flow can effectively bar small or cash-poor shipowners outside of a pool from longer routes, which are often the most profitable. This is because the shipowner must pay for bunkers before they receive freight payment from a charterer. These routes are inherently CII-positive, as they maximise constant-speed travel and minimise time at anchor. This challenge is something that Tankers International is acutely aware of and can compensate for with the size and structure of its pool.

Tankers International has included indicative voyage CII scores in its Tankers International VLCC Fixture app, showing an estimated letter grade rating and comprehensive calculation for every VLCC voyage fixed.

Published in Tanker Operator in May 2023: LINK

VLCC owners are being forced to tackle a difficult trade-off between CII grades and commercial performance, but Matthew Smith of Tankers International explains how pooling can help overcome these challenges.

The recently introduced current Carbon Intensity Indicator (CII) regulations have several well-documented flaws. Industry experts have noted that the temptation to game the rules by increasing mileage on ballast legs to comply with CII regulations could be too much. In fact, many real-world scenarios exist in which abiding by the CII gradings will do more damage than good with increasing emissions to order to comply with the regulation.

CII scores remain somewhat shrouded in mystery, calculated using a complex system of measuring bunker fuel consumed as a function of distance travelled and hours underway, with this figure multiplied by a vessel-type specific factor. Some suggest that to secure the best CII rating, vessel owners could slow steam non-stop in ballast condition, which risks gaming the CII rating while emitting more emissions.

Although installing low-carbon technologies like air lubrication, engine efficiency technologies, voyage optimisation, and rotor sails will make a passing grade easier to attain, certain anomalies in the regulation mean that a highly efficient vessel will not necessarily have a good rating. For example, if that vessel sits at anchor for several days, it will require bunker fuel to power its generators, emitting CO2 yet travelling no distance. This inconsistency can result in a lower CII grade than an older, less efficient, but highly utilised ship.

Let us not forget the potential struggle as shipowners and charter counterparties play tit for tat. BIMCO’s CII operations clause is attempting to strike the right balance but it is certainly alienating segments of the industry. A group of 23 companies have formally written to BIMCO to voice their concerns. The signatories, which include Mediterranean Shipping Company and A.P. Moller – Maersk, are critical of the clause because it obliges charterers to be fully responsible for the CII performance of the ships they charter. In contrast to actually tackling emissions, shipowners must meet an agreed gCO₂/dwt per nautical mile, as charterers are reluctant to sign away precious freedoms.

The dilemma for shipowners

Regardless of industry concerns, the CII regulations as currently written came into force on the 1st of January, so shipowners must accept this. So, in the race to decarbonise, shipowners now face a tough trade off between CII grades and commercial rewards.

Shipowners must understand exactly how to operate their fleet to achieve a good CII rating; ensuring charterparty agreements incorporate these requirements.  They will need to find the right balance between financially lucrative but CII-negative fixtures and CII-positive voyages that may not achieve the same profits. At the same time, they may face a choice between cash flow and installing efficiency technologies. This challenge can create a trade-off between CII scores and short-term profitability.

Owners and operators with large cargo bases and long-term relationships with large-scale charterers have a distinct advantage. This relationship allows them to plan voyages ahead with more confidence – and ensure that they have a mix of different voyage types that meet appropriate standards.

The trade-offs will be more extreme for shipowners who do not have the commercial scale needed to negotiate favourable terms and maximise vessel utilisation. Limited cash flow effectively bars small or cash-poor shipowners outside of a pool from longer routes, which are often the most profitable, as the shipowner must pay for bunkers before they receive freight payment from a charterer. These routes are inherently CII-positive, as they maximise constant-speed travel and minimise time at anchor.

Charterer demand represents an enticing reward for decarbonisation. Yet, they cannot justify owners’ decisions without properly understanding their vessels and operational profile. Most tanker owners do not have sufficient flexible operational resources to complete these complex assessments and may have to build out new teams at an additional cost. Added to that, inconsistent earnings in the spot market can make it difficult for owners to plan technical retrofits profitably, as drydocks can coincide with particular cash flow droughts. Clearly, tanker owners and operators are facing a headache in meeting CII targets at a time when all focus should be on ensuring the safe delivery of their cargo.

Strength in numbers

So how can tanker owners and operators navigate CII disruption while maximising profits? Pooling offers shipowners significant advantages, protecting shipowners against the challenges and setting them up for a seamless approach to any revised or future regulations.

The pooling model provides strength in scale. A pool’s strong commercial position enables greater flexibility in charter negotiations, and the collective pool of ships can maximise earnings. At the same time, the challenge of CII-negative voyages is minimised for any individual vessel as the volume of ships in the pool allows pool members to benefit from greater economies of scale, financial robustness and flexibility through greater utilisation across the combined fleet – helping them to mitigate any impact on CII grades.

Pools can take financially profitable CII-negative fixtures while maintaining grades across the fleet by spreading those voyages across the pool based on CII scores to date. By doing so, the pain of CII-negative voyages for any individual vessel does not mean a poorer pay day as the collective pool of ships can maximise earnings.

However, not all pools are created equal and the Tankers International pool goes one step further. It simplifies a shipowner’s role, providing regular cash flow based on their vessel’s earning potential in the current market conditions. By outsourcing commercial operations to the pool, shipowners can allocate this resource elsewhere, including evaluating and implementing low or no-carbon technology across their fleet.

The Tankers International pool also benefits from high-level technical information sharing provided by in-house forums that discuss insight on important innovations and new technologies – and the challenges that they have represented.

Decisions underpinned by data

Shipowners need to consider their vessel’s potential voyage impact on CII grades alongside, regional pricing, and supply and demand side market trends in actionable analysis. This challenge adds a layer of complexity, because while the CII regulations took effect this year, shipoweners will have to wait until January 2024 to understand their score. At the same time, those scores will be out of date for 364 days every year and will only reflect an average up until the end of the last reporting period. This lack of data means that vessels with falling grades will not see that reflected in their score for some time, while vessels with improving grades will not have that reflected in their grade until the start of the next calendar year.

These inconsistencies limit CII’s usefulness, so indicative voyage CII scores are included in the Tankers International VLCC Fixture app, showing an estimated letter grade and comprehensive calculation for every VLCC voyage fixed in the spot market. The new CII reporting mechanism draws on extensive knowledge of the global VLCC fleet to benchmark any vessel’s bunker consumption against the closest similar vessel out of the 250 vessels that have traded in the Tankers International pool since 2000. This is set against a benchmark speed, which adapts based on our own data on averages across the sector and market conditions.

Strength going forward

There are legitimate questions about whether CII rules are fit for purpose. As global shipping has the potential to be involved in contradicted legal affairs, there are challenges ahead with the dramatic regulatory change stemming from CII, demanding a difference in how the sector needs to work together. The status quo is not viable, and tanker owners and operators need to explore new solutions to ensure that they meet CII targets, and pools are a clear example of how tanker owners can strike a balance between compliance and profitability.

Published in Bunkerspot in April 2023: https://t.co/pQPnVD0PJj 

Editorial published in Riviera Maritime on 19 December 2022

Tankers International senior vice president commercial and operations Matthew Smith explains that if charterers pick by CII rating, owners need access to resources to reach the required level, which ultimately is good for the environment, too.

IMO’s Carbon Intensity Indicator (CII) provides an easily comparable, benchmarked environmental indicator for charterers as they focus on shipping’s role in their scope 3 emissions.

At the same time, emissions have become an increasingly important factor for charterers and cargo owners and could create a real premium for green tankers – which can, on top-line performance at least, now be easily signposted by CII scores.

Yet there is no clear path to ongoing performance improvement for shipowners.

There is a bewildering array of operational, digital and hardware offerings on the market, with little solid evidence of their benefits. Often, shipowners have little time and few resources to investigate them anyway.

Most new fuels and efficiency technology are relatively new to the market. Often these options come with technical and commercial risks that a shipowner has to understand before choosing which direction to take. At the same time, some will face operational issues masked by the fact they are still new to the market. Given the costs associated with installing new systems on board a vessel – and the costs associated with an issue – can be astronomical, charterers and regulators are often asking shipowners to take huge commercial risks.

Charterer demand represents an enticing reward for decarbonisation but cannot justify owners’ decisions that have not been properly evaluated against their vessels and operational profile. The vast majority of tanker owners do not have enough flexible operational resources to do these complex assessments and may have to build out new teams.

Pooling can free up a shipowner’s operational resources, allowing them to redeploy staff to tackle these assessments and to organise any retrofits they result in. This can allow a shipowner the flexibility to tackle challenges like decarbonisation without waiting for new staff or bringing in external consultants.

A pool participant can also benefit from enhanced technical support and information sharing that can help them to understand and mitigate operational issues with decarbonisation technologies. At Tankers International, we organise technical forums among our pool participants to facilitate this open information sharing.

Cash flow is another pivotal challenge for tanker owners seeking to decarbonise their fleets. Inconsistent earnings in the spot market can make it difficult for owners to plan technical retrofits profitably, with drydocks often coinciding with particular cash flow droughts. Pooling combats this challenge by providing shipowners with a regular income that is paid at scheduled intervals through revenue sharing between a pool of vessels.

Yet even the most ambitious tanker owners will take time to decarbonise. Some charterers and cargo owners do not have that time and face added scrutiny from the public, investors, and regulators to cut their supply chain emissions now. These charterers and cargo owners need innovative options available today.

The Tankers International’s Climate Compensation Voyage Programme was recently launched in partnership with specialists Vertree to provide these options. The scheme uses scientifically recognised methodologies and proprietary data to calculate a specific VLCC’s emissions on a voyage on a monthly or annual basis. Charterers can compensate for their carbon emissions via a range of nature-based and community-led solutions.

Shipping is changing, and tankers will decarbonise. This transition will take time, and will not happen overnight, but it requires careful planning and evaluation work from every shipowner to start today. Shipowners must use all the tools available to help them through the monumental challenges ahead – including pooling.

By Matthew Smith, VP Commercial & Operations, Tankers International

Our Senior Vice President, Matthew Smith, recently discussed how VLCC pooling could play a pivotal role in shipping’s decarbonisation in the latest issue of Clean Shipping International.

With increasing pressure on shipowners to reduce their carbon footprint, there is much-needed urgency to comply with or exceed carbon reduction targets. Yet this will require shipowners to build technical knowledge and divert significant amounts of resource to emissions reduction technologies and practices.

Pooling can move many operational obligations away from the shipowner and simplify their decarbonisation journey. The Tankers International VLCC Pool also facilitates high level technical information sharing amongst participants, which will help them to prepare for new technologies required to comply with regulations.

To learn more about how we can help shipowners, read our article on page 36 here: https://lnkd.in/eUKXmBVA

Editorial published in Transport & Logistics Middle East on 7 October 2022

It was widely predicted that we would finally see the VLCC market recover this year. After two years marred by challenging oil demand and Covid restrictions, this year seemed to promise a return to ‘normal’ as restrictions were lifted, and OPEC committed to continuous supply increases.

Happily, as we enter the latter stages of 2022, we can say that VLCC demand is well on the way to recovery. Rates have risen exponentially in recent months, in contrast to the historic lows at the start of the year. Interestingly, these headline figures have masked another story; VLCC trade routes are changing.

A geographic shift

Oil demand and production increased dramatically during the first half of 2022. This was primarily driven by the easing of Covid-19 restrictions that had artificially depressed global demand since late 2019, alongside the impact of the Ukraine invasion, which has affected energy security.

Tankers International proprietary data shows that this has created a definite global increase in VLCC fixtures on the spot market. We saw an additional 27 monthly VLCC spot market liftings during the first half of this year globally, when compared to the 2021 average. This leaves the sector very close to matching pre-Covid average fixing volumes.

Yet, this recovery has not been uniform. The Arabian Gulf has seen the fastest recovery in volumes to date. This is unsurprising, given that many OPEC members in the region initially cut oil supply levels in response to Covid-related decreases in demand and are now increasing production at a steady pace.

The number of VLCC fixtures in the Middle East has increased steadily over the last two to three years and has now surpassed pre-Covid levels (2019 averaged 156 liftings per month). In the Arabian Gulf alone, we counted an additional 26 liftings per month in the first half of this year compared to last. We note further expansions going into the third quarter and count 189 VLCC liftings in the Arabian Gulf in September this year.

While Europe has not historically been a major receiver of crude oil in VLCC parcel sizes, this year we have seen a marked shift. As the continent has reduced the amount of Russian oil taken in the wake of the country’s conflict with Ukraine, we have seen a dramatic increase in demand from alternative suppliers, such as the Middle East but also the US and South America. Much of this volume has moved on VLCCs as freight levels in the segment have been competitive compared to the smaller tanker types, that have traditionally carried crude oil to Europe.

Traditional VLCC receivers east of Suez have also seen increased volumes, including India and Singapore. During the first half of the year we noted a reduction in VLCC cargoes heading to China, this trend has however reversed and September saw a surge in activity into the country. This latest demand surge is driven by a declining oil price and move away from sanctioned Russian oil.

Staying ahead of a moving market

Where this rate of change is unusual, it is not completely unsurprising. Tanker markets have always moved quickly and will continue to do so well after the global economy has moved forward from the consequences of Covid-19 and recent geopolitical issues.

The past few years have proven that not all paradigm-shifting events are reasonably foreseeable. Yet, detailed analysis is still critical in navigating the VLCC market – ultimately, profits are driven by understanding how fundamentals are evolving and likely to evolve in the medium to long term and understanding the exact market conditions as you negotiate a fixture.

It can be easy to miss out on potentially lucrative market movements if you do not have the data to create strategy and informed decisions. Negotiating positions may leave the other side in a particularly advantageous position, or longer-term decisions – such as on time charters or dry docks – could leave you missing out on headline rates.

Harnessing this data is one of our core values at Tankers International. By leveraging the strength and unique scale of our VLCC pool, we can secure data and information that would otherwise not be available to any of our pool participants – which we turn into actionable insights, that help maximise earnings.

This approach was the motivator behind the development of our VLCC Fixture app, which we believe is creating a healthier market by opening information on fixtures up to the wider shipowning, chartering, broking, cargo owning, and investing community. Subscribers benefit from segmented and searchable information on fixtures updated every 5 minutes that was previously the preserve of a select few. This includes TCE breakdowns and cargo forecasts – which can allow users to reliably take advantage of an evolving market.

Oil logistics is now facing unchartered territory, especially in the Middle East. Capitalising on today’s market requires tools to succeed – such as the weight of a tanker pool, ideally combined with a robust set of data to enable informed decisions.

By Charlie Grey, Chief Operating Officer (COO), Tankers International

Editorial published in Marine Log 22 July 2022

Shipping’s role in the global supply chain is increasingly under the spotlight when it comes to ESG. Today, most large energy companies have formal environmental targets. Many of these targets are notable for their ambition, or the way that they underpin new branding and strategy. Most of these companies are already reporting their emissions to the public, to shareholders, and to regulators—and these targets and reports are now focusing on every aspect of the supply chain.

This is highly symbolic of the industry’s new decarbonization dynamic. Environmental issues are increasingly driving commercial decisions for cargo owners and their customers, which in turn means that the efficiency and emissions credentials of shipping represents tangible value for charterers and their stakeholders. Increasing demand-side pressure is neatly coinciding with a growing focus from regulators. The shipping industry faces a series of landmark regulations over the next few years, with every indication suggesting that there is more regulation to come.

Sadly, this dynamic is creating significant challenges for shipowners. At a fundamental level, zero-carbon ship technology and investments are still in their infancy and the sector is not going to be able to go green overnight—even if many of our stakeholders need green options today. This is where Tankers International’s VLCC pooling model is uniquely placed to help shipowners, charterers, and the wider industry today.

Meeting the regulatory challenge

The Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) regulations will be shipping’s first global decarbonization rules when they enter into force on January 1 next year. Targeting a vessel’s design and measuring and benchmarking its carbon efficiency in operation, these rules will have a radical impact.

Ships that are not able to demonstrate EEXI or CII credentials may be restricted in their trading options. At the same time, they provide easily comparable benchmarked indicators for charterers—and thus make it easier to make decisions based on climate impact.

The dramatic potential impact of these regulations is making carbon efficiency a priority for even the most resistant shipowners. Yet, even the most progressive may find compliance a challenge.

Continual measurement and benchmarking will invariably occupy a shipowner’s operational resources, while planning for vessel efficiency improvements can in itself take up resource. For many, EEXI and CII rules will also require costly specialist software and new analysis techniques that cannot be learned overnight.

Shipping’s regulatory journey toward decarbonization is just beginning, and future rules will add more complex challenges. For example, the EU is now expected to add shipping to the EU Emissions Trading Scheme with the proposed legislation recently passing several hurdles. By explicitly tying carbon to costs, and by requiring the purchase of credits based on solid data, these rules will create even wider-reaching obligations.

Maximizing resource and sharing knowledge

The Tankers International Pooling model frees up operational resource for a shipowner. As a pool we will take over a significant amount of day-to-day commercial and operational responsibilities surrounding a vessel, which would otherwise need to be handled by an in-house team. With pooling, these staff can be redeployed as appropriate to focus on strategic priorities.

As new environmental regulations are creating more complex obligations for shipowners, the operational benefit of pooling will only increase. For example, the Tankers International VLCC Pool will assist participating shipowners in calculating and monitoring efficiency to help optimize ships for CII rules and will support in meeting future EU Emissions Trading Scheme requirements.

Cash-flow is another pivotal advantage, especially in the context of meeting ambitious environmental goals. High environmental standards represent clear value for charterers and will represent a growing premium for the highest rated VLCCs, yet landmark technology investments are naturally capital expenditure intensive.

Our model combats this challenge by providing shipowners with a regular and scheduled income, through revenue sharing between vessels. We provide transparent and equitable insights into how the revenue-sharing works with all our pool participants. This is based on zero-commission, no hidden fees or unexpected costs, leaving them with a clear understanding of their financial position.

Improving cash flow also boosts total earnings, allowing a vessel to take advantage of longer voyages that often represent better freight rates. As an example, bunkers must be purchased by the shipowner before the vessel embarks on a voyage, and freight is only paid after the voyage is completed. This leaves the owner with poor cash flow and can limit a tanker’s income potential. Our pool will leverage its scale and financial strength to take care of these expenses and maximize total earnings.

Participants can also benefit from enhanced technical support and information sharing that can help owners to identify and optimize any investments required to adhere to environmental regulation. For example, Tankers International offers regular technical forums to give insights on new technologies, which helps shape purchasing decisions and best practice.

Although charterers are seeking green solutions zero-carbon shipping will take time. In the meantime climate compensation can offer an immediate solution.

Tankers International’s Climate Compensation Voyage Programme was recently launched in partnership with specialists Vertree. The scheme uses scientifically recognized methodologies and proprietary data to calculate a specific VLCC’s emissions on a voyage, monthly, or per year basis. Charterers are then provided with the option to compensate their carbon emissions via a range of nature-based and community led solutions.

Climate compensation alone will not solve shipping’s decarbonization problems, however it can play an immediate and meaningful role in giving charterers the green tools they need to succeed today.

Decarbonization is set to be an era-defining issue for the entire shipping industry. Shipowners will need to dedicate huge operational, technical, and financial resources to meet the challenge—and many will see their bandwidth and cash-flow stretched to breaking point. It is critical that tanker owners maximize the support that is available to them as the pressure to deliver results intensifies. Pools are crucial tools that can help drive shipping’s sustainability revolution.

By Matthew Smith, Senior Vice President Commercial and Operations at Tankers International

Editorial published in Splash 247 on 19 April 2022

Matthew Smith from Tankers International makes the green case for clubbing together.

As consumers and financiers have better understood the pervasive nature of emissions, measuring, monitoring and ultimately reducing the carbon footprint of every step in the supply chain has become “table stakes” for end-users of oil and public stakeholders who drive regulators.

Virtually every large company connected to the energy industry today has an environmental policy that covers emissions throughout their logistics chain. The supermajors and national oil companies especially have implemented ambitious policies, and emissions are now a real factor in their chartering decisions.

This has radically changed shipping’s decarbonisation dynamic. The most visible sign of this shift is increased regulation, as the industry faces a series of incoming new landmark rules. However, this is coupled with a dramatic change in customer demand – whereby demand-side pressure for lower carbon solution is creating a real commercial advantage for those who go beyond minimum standards.

Yet fundamentally, zero-carbon ship technology and investments are still in their infancy and cannot be implemented overnight. This creates uncertainty for shipowners, and a difficult challenge in planning for installing new technology, as well as a challenge for charterers in search of climate conscious options today. It is critically important that the industry gets the support it needs; Tankers International’s pooling model is uniquely placed to play this role.

The decarbonisation dynamic

Shipping’s first major global decarbonisation regulations are set to enter into force on the first of January next year. The Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) regulations will target a vessel’s design and measure its operational efficiency next to set standards.

If a vessel is not able to demonstrate its EEXI or CII credentials, it may be restricted in trading options. This is making carbon efficiency a priority for even the most resistant shipowners and will make it easier for charterers to benchmark the carbon intensity of any voyage.

Complying with decarbonisation rules will inevitably take up operational resources from shipowners. EEXI and CII rules will require constant tracking and, for many, specialist software.

The EU is expected to implement even more robust rules soon, with plans to add shipping to the EU Emissions Trading Scheme currently progressing. Those plans would explicitly tie carbon to costs and impact operational resources. These rules will aid shipping’s transition to net-zero, and could arguably create even wider-reaching obligations.

Pooling as an enabler

The pooling model supports shipowners by moving most of these operational obligations away from the shipowner to the pool operator. For example, the Tankers International VLCC Pool will assist participating shipowners in calculating and monitoring efficiency to help optimise ships for CII rules and will support in meeting EU Emissions Trading Scheme requirements.

Clearly, meeting environmental goals will pose cash flow challenges – especially when targeting above the minimum ambition. Pooling with Tankers International provides shipowners with the ability to better optimise voyage selection as they are less constrained by cash flow. Vessels operating in a pool can more easily take advantage of longer voyages that often represent better freight rates.

An owner outside of a pool will receive income only when a vessel has discharged, leaving them to cover expenses for bunkers and port calls in advance. A pool will take care of these expenses, while ensuring consistent cash flow to the shipowner through revenue sharing between all the pool vessels.

This regular income can make it easier to plan for investment-heavy emissions reduction technologies, while increasing earnings. At Tankers International we provide technical support and encourage inter-owner knowledge sharing by offering regular technical forums to give insights on new technologies – and help shape purchasing decisions and best practice.

Yet, pooling can benefit the industry beyond shipowners. Charterers are looking for green solutions today, while work on zero-carbon shipping will take time. Climate compensation can offer an immediate solution.

Tankers International’s Climate Compensation Voyage Scheme was recently launched in partnership with Vertree – a subsidiary of longstanding pool partner Hartree. The scheme allows us to offer tailored, voyage specific climate compensation packages alongside normal quotes.

The scheme uses scientifically recognised methodologies and proprietary data to calculate an emissions baseline on a per voyage, monthly or annual basis. This allows charterers to choose from a range of nature-based options to offset the carbon, tailored to price, geographies and impact targets. Where climate compensation is not a total solution to climate change on its own, it can play an immediate and meaningful contribution.

The scale of the decarbonisation challenge is set to stretch many shipowners’ bandwidth and cash flow close to breaking point, while many parts of the industry are already facing pressure to deliver. It is critical that tanker owners maximise the support that is available to them – from technical, to practical, to cash flow – and that charterers are provided with more options. Pools are crucial tools that can help drive solutions today.

Environmental regulations and demand-side pressures from end-users of oil have created new challenges for VLCC owners and charterers. Owners are faced with new administrative and technical requirements, while charterers need new carbon mitigating options today.

Matthew Smith, our senior vice president commercial and operations, recently wrote an editorial for Tanker Operator about how pooling can help the sector to manage this transition towards zero carbon for Tanker Operator.

Read the full article on page 19 of the May 2022 edition:

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