IMO Net-Zero Framework

Business implications of the IMO Net-Zero Framework

The expected implementation of the IMO Net-Zero Framework (NZF) will significantly impact shipping costs in several ways:

• Compliance costs – Shipping companies will need to increase their expenditure to meet stricter GHG intensity targets, such as for expensive low-GHG-emission fuels and/or for purchasing Remedial Units (RUs).
• Operational adjustments – Companies may need to modify their operations to support increased compliance, such as by optimizing sailing operations or by investing capital in new technologies.
• Administrative expenses – Complying with the NZF will require continuous data verification, and transactions with the IMO GFI Registry and Net-Zero Fund will increase administrative overhead.
• Financial liabilities – The risk of accumulating financial liabilities due to non-compliance will necessitate the establishment of guarantees and securities, adding to overall costs.
• Fleet upgrading costs – Compliance costs will have an impact on the commercial attractiveness of different vessels, which may require shipowners to re-evaluate their ownership, fleet upgrade and newbuilding strategies.

Overall, while the NZF aims to reduce greenhouse gas (GHG) emissions, it will result in both higher short-term and long-term costs for the shipping industry. 

Commercial arrangements between the ISM company and the shipowner

The ISM company is responsible for compliance with the NZF requirements. This may be the shipowner managing their own vessels, or an external manager. 

The ISM company will manage all transactions with the IMO GFI Registry and Net-Zero Fund for the procurement of RUs and the formal compliance process.

The compliance balance will be the key reference for business management and financial settlements between the ISM company and the vessel owner.

Key areas to be addressed:

• Transfering responsibilities and financial liabilities to the owner in the ship management agreements
• Mitigating the risk of non-compensation from the owner through prepaid or pay-as-you-go models, financial guarantees, or other methods
• Agreeing on how to share and collaborate on emissions data

Commercial arrangements between the shipowner and the charterer

Terms will vary based on contract formats and the regulation guidelines, which will be made available by the IMO in due course. As of now, the FuelEU Maritime terms will suffice as a starting point.

Key areas to be addressed:

• Defining settlement logic in time charter terms for a surplus or deficit compliance balance
• Including compliance costs in the charter rate within voyage charter terms
• Including compliance costs in freight tariffs within COA terms, with potential surcharges for different regulations
• Handling settlements during the charter period for longer time charters, e.g. monthly
• Handling financial compensation terms for Tier 1 and Tier 2 compliance balance deficits
• Using third-party verified statements as reference for financial transactions
• Using high-quality data to clarify responsibilities and SLAs between the shipowner and charterer.

Reliable and verified data is key   

To address the data-centric challenges associated with the commercial aspects of the NZF, consider the following strategic approaches:

• Secure high-quality, third-party verified data to build trust between contractual parties.
• Perform continuous data verification, beyond annual checks, to meet business needs.
• Develop a robust and flexible data architecture for sharing and receiving data across the value chain.

Be prepared with DNV

To find out how DNV can support you in your strategic, operational and commercial preparations for NZF, simply contact our experts using the web form in the top right corner.