Article: Sea cargo charter
22 March 2021
To counter global warming, the UN Paris Agreement was adopted by 196 nations in December 2015, and came into force from November 2016. The two key targets identified in this agreement, were control of greenhouse gas (GHG) and carbon dioxide (CO2) emissions.
In line with these objectives, in April 2018 the IMO adopted an initial strategy on the reduction of GHG emissions and CO2 emissions generated by the shipping industry. The IMO strategy is to reduce:
- the total annual GHG emissions by at least 50% by year 2050 as compared to 2008 levels (known as the 'IMO absolute target')
- CO2 emissions per transport activity by at least 40% by year 2030, further pursuing toward 70% reduction by year 2050, as compared to 2008 levels (known as the 'IMO intensity target').
This represented a significant shift in climate ambitions for a sector that accounts for almost 90% of world trade and contributes to 2-3% of global CO2 emissions.
The Sea Cargo Charter
In October 2020, a group of charterers, including some of the worlds largest bulk cargo owners such as Bunge, Cargill, Gunvor, Shell and Louis Dreyfus, launched the Sea Cargo Charter, a framework for measuring the climate alignment of chartering activities against the policies and ambitions set out by the IMO’s initial strategy. The intention is to demonstrate their role in promoting a responsible environmental behaviour and to incentivise the decarbonisation of international shipping.
The Sea Cargo Charter is applicable to charterers in their many forms, whether as disponent owners, cargo owners or 'simply' those chartering a vessel in. It is applied by its signatories to:
- all their bulk chartering activities, irrespective of the vessels being on time or voyage charters, covering both backhaul and ballast voyages;
- voyages carried out by dry bulk carriers, all types of tankers (oil, chemical and gas), and all other vessels of at least 5,000 gross tonnage and engaged on international trade; and,
- parties involved in contracts for the purchase and sale of commodities, including chains or strings of such contracts, even if the parties do not assume the position of a charterer, but expect their contractual counterparties to become charterers.
Notably, of the two targets set out by IMO, alignment with its ‘absolute target’ with respect to GHG emissions is currently the sole environmental factor being considered by the Sea Cargo Charter. However, this is subject to review and the scope can be further expanded by its signatories.
The Sea Cargo Charter has four prescribed underlying principles, as follows:
Assessment of climate alignment: Signatories are to calculate the 'GHG emission intensity' and 'total GHG emissions' of their chartering activities on an annual basis. They are to then assess the results and their 'climate alignment' against the IMO ambitions.
Accountability: To ensure impartiality in the data assessment, the Sea Cargo Charter prescribes that the preferred method of performing the requisite calculations is by third parties acting on behalf of the signatories. Furthermore, adherence with the disclosure criterion as laid out in the Sea Cargo Charter serves as a quality control mechanism.
Enforcement: Signatories will agree to work with owners, disponent owners and business partners to collect and process the information necessary to calculate carbon intensity and total GHG emissions, and assess climate alignment.
To achieve this via contractual means, the signatories will need to include the recommended ‘Sea Cargo Charter Clause’ in their charterparties. The clause mandates the head owner or disponent owner to provide a duly completed fuel emission report in the prescribed format. The clause ensures the flow of necessary data, including fuel type and consumption by engines, generators and boilers over ballast and laden voyages, along with further data on distance sailed and amount of cargo transported in each laden leg.
The clause is generic and broad in nature. The Sea Cargo Charter further acknowledges that considering the different arrangements under time and voyage charters, especially regarding bunkers, there might be a need to develop two different charterparty clauses in due course.
Transparency: To ensure this, each signatory will:
- publicly acknowledge that it is a signatory of the Sea Cargo Charter
- report its climate alignment results annually and send all supporting information to the Charter Secretariat.
The Sea Cargo Charter aims to achieve its goals through the precise terms and requirements that each signatory signs up to, including how the data is to be derived, calculated, categorised, protected and reported. One of the most significant features of the Charter is that the mechanism of carbon offsetting is precluded when reporting emissions, thereby giving reports a more transparent picture of operational emissions.
The Sea Cargo Charter has continued to grow since its inception and some of the world’s largest energy, agriculture, mining, and commodity trading companies are signatories such as Dow, Equinor, Norden and Total. It is evident that the Sea Cargo Charter is gaining further acceptance in the shipping and commodity industries. Along with advances in technology and more eco-friendly fuel alternatives, and while it is still at an early stage, the Sea Cargo Charter could play an important role by bringing together key players in the maritime industry, and make them assess, as well as report their progress towards achieving the ambitious targets that have been set by the IMO.
The club will be monitoring the adoption of the Sea Cargo Charter and will keep members up to date with any further significant developments. If any questions or issues arise, please liaise with your usual club contact and we will be able to assist.