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| 2 minutes read

EEXI and CII Regulations: Planning Ahead for Commodities Contracts

The IMO’s EEXI and CII regulations are scheduled to come into force on 1 January 2023 and will apply to all vessels over  5,000 GT, including  (but not limited to) bulk cargo carriers, oil and chemicals tankers and LNG tankers.

One concern within the transportation industry is that due to lack of preparedness some vessels may need to reduce their speeds and/or their cargo intakes in order to comply with the regulations.

For organizations involved in the international sale and purchase of commodities, the question is what are the legal and practical issues in relation to contracts which provide for loading and unloading cargoes during the early stages of EEXI and CII implementation? 

For  contracts which are already in place, the first question may be do any of the provisions require the performing vessel to be capable of complying with the regulations under normal operating conditions, even if non-compliance would not affect the performance of the parties’ delivery and receipt of the cargo? Also of interest will be whether any provision of the contract (for example in relation to ‘force majeure’) could potentially excuse late or partial performance which is caused by withdrawal of non-compliant freight, slow steaming or short-loading in relation to  the regulations (albeit this analysis will be subject to the precise facts of each case)? Provisions addressing new and changed regulations should also be checked to determine whether any material changes to the availability or the cost of freight during this period (for example, due to competition for a limited number of compliant vessels) could give rise to rights of renegotiation. More generally, both parties to an existing contract are likely to want to consider how any optionality available to them (for instance, in relation to final cargo size,  load or unload port nomination, the narrowing of arrival and delivery windows, and the substitution of vessels) might be leveraged to manage the potential for slow-steaming and other operational disruptions which may stem from the introduction of the new regulations.

For future contracts (including a party’s general terms and conditions and standard clauses which will be used during this period), the same sorts of considerations are likely to arise. It will also be interesting to see whether there is an increase in CIF/ CFR purchasers seeking enhanced oversight and control over the sea voyage during this period. For instance, by insisting on use of compliant vessels, by setting minimum steaming rates and/or by requesting hybrid ‘CIF/CFR delivered’ terms in an effort to re-allocate the risk of late arrival at the unloading port to their CIF/CFR supplier (in which case careful drafting will be required in order to displace the English law assumption that a CIF/ CFR supplier does not make any commitment regarding the time that the goods will arrive at their destination).

Different organizations will of course seek to address EEXI and CII implementation in their own way. However, it may be those who engage with the issues at an early stage who find themselves best equipped to overcome the relevant challenges.

At Reed Smith, we are seeing a growing number of enquiries about what the regulations mean for our clients' business, their charterparty arrangements and, crucially, whether vessels will need to reduce speeds and/or cargo intakes to comply with the regulations.

Tags

commodites, commoditiestrading, cargoshipping

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