Ship Re-cycling

EU’s recycling strategy puts global ship safety at risk

By Paul Bartlett

The global recycling market is at risk because of a two-tier regulatory system, conflicting regulations, and political interference in Europe. The fundamentals of the ship recycling market are not difficult to understand. The process of dismantling end-of-life ships is labour-intensive, margins are thin, and if is not carried out with rigorous attention to safety and appropriate waste disposal arrangements, it can be dangerous. So, facilities need to meet certain standards, workers need training, safety awareness courses and good conditions, and medical facilities need to be available nearby.

An economic requirement is a ready market for the end products – scrap steel in large volumes and a myriad of other components with possible shoreside applications. So it stands to reason that countries with competitive labour rates, buoyant demand for scrap steel as a feedstock for steel mills, and a ready market in recycled products should be wellsuited to the ship recycling business. Indeed that is the established system, but it is now under threat, with serious implications for shipowners, particularly those based in Europe or whose ships fly European flags.

The European Union (EU) would like to see ships recycled within its own boundaries and appears to be forcing owners in this direction. However, even an entry-level economics student would recognise immediately that high labour costs, virtually no market for scrap steel or recycled materials, and very few suitable facilities constitute a sound basis for establishing a ship recycling business.

So far, the EU’s list of facilities within the trading bloc, approved as compliant with the EU Ship Recycling Regulation (EU SRR), include 34 small yards suitable for dismantling vessels such as fishing boats, coasters, small offshore craft and other service vessels such as tugs and dredgers. Larger facilities geared to the decommissioning of large offshore energy plant have also been approved by EU regulators.

However, there are no yards suitable for recycling large or even medium-sized commercial ships on the EU’s list. And so far, there are only nine facilities located outside the trading block that have been approved under the EU SRR – nine in Turkey and one in the US.

Turkish sources reveal that a total of 14 facilities have requested audits and validation under EU regulations but five have not been approved so far. There is scope to increase capacity quickly, the sources say, in the Aliaga region, north of Izmir on the Adriatic Sea where the country’s ship recycling industry is based.

However, the recycling sales of elderly cruise ships, now redundant as a result of the pandemic, have saturated Turkish capacity. Indeed, significant numbers of cruise vessels and other passenger ships already sold for recycling are to be seen at anchor in some of the sheltered bays of the Eastern Mediterranean, waiting for space in Turkey’s yards. This, say critics, is neither environmentally safe nor economically sensible. But the cruise ship owners have no choice.

No recycling yard on the Indian subcontinent – India, Bangladesh and Pakistan – has been approved under the EU SRR despite applications from about 40 yards. Experts who have watched the transformation of many facilities, notably in India, cannot understand why none has been validated by Europe’s auditors and regulators. They point out that more than 90% of the world’s end-of-life ships are dismantled on the Indian subcontinent where the sector provides gainful employment for many thousands of workers and, crucially, there is a ready market for scrap steel and other recycled products.

The EU’s failure to approve any of these recycling yards does not fit well with the findings of international classification societies which have audited and approved 110 recycling facilities as meeting the requirements set out in IMO’s Hong Kong Convention on Ship Recycling. These include 92 facilities in India, one in Bangladesh, 14 in Turkey, two in China and one in the US.

Observers say that this is partly because IMO’s Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ship was adopted in 2009 but has still not entered force. And it is certainly fair to say that a range of countries have dragged their feet in the ratification process. However, for many recycling facilities, the writing has been on the wall for years - new ship recycling standards were inevitable, they concluded, and made huge investments in facilities, labour, training, waste manage and other resources as a result.

Now, the issue is really urgent because there is a serious shortage of approved global recycling capacity that complies with EU SRR regulations. The problem is particularly serious for European owners whose ships fly the continent’s flags and who are bound to recycle their ships in facilities approved under the EU SRR. The rules also apply to ships whose final voyages to recycling facilities begin in a European port.

Under the terms of the EU’s Ship Waste Regulation, linked to the Basel Convention, it is forbidden to export “waste” from an OECD nation to a non-OECD country. Therefore, the world’s principal ship recycling region – the Indian subcontinent – is immediately off limits. So, owners of large European-flagged ships have very few ship disposal options. European yards are mostly physically unsuitable and Turkish yards are full.

Lawyers disagree on whether ships sold for recycling should class as ‘waste’. In legal terms, this is an extremely complex issue and, experts

Inconvenience of reality

No Turkish option

The modernised Leela ship breaking yard in India

Dire shortage of capacity

suggest, is a matter of interpretation. Most vessels arrive at recycling facilities under their own power and now, since January 1st, with valid Inventory of Hazardous Material certificates. They contain materials that are subsequently useful in a recycled context and form the basis of gainful employment for thousands of workers.

The issue is further complicated by the fact that depending on prevailing freight markets, some ships initially sold for recycling are then resold for further trading. As the container ship market has spiked in recent weeks, a number of boxships arriving at recycling yards have been resold and are now trading again. Logically, therefore, how can these vessels be classed as ‘waste’, some experts question.

Experts struggle to explain the EU’s strategy, although they do concede that frustration over slow progress on IMO’s regulation was a principal catalyst. However, one source, speaking to SORJ on condition of anonymity, believes that he has an explanation.

In an approximate parallel with the EU’s intention to include shipping in the bloc’s Emissions Trading Scheme, he suggested that EU regulators would like to see EU ships recycled in facilities located across the Continent. This would get round the EU Ship Waste Regulation, described by some as absurd, and the Basel Convention because no ‘waste’ would be exported.

The fact that there are virtually no suitable facilities, no appropriate labour force and no market for the end-products doesn’t seem to matter to the politicians in Brussels, he said. They could levy a “ship recycling charge” on every vessel calling at an EU port as a move to build up a fund to subsidise development of a European ship recycling sector. “But don’t hold your breath,” he advised. - European owners are in a real bind.

Cloud cuckoo land

Timing could hardly be worse

European regulators have blamed inadequate waste disposal infrastructure and poor access to emergency medical facilities as reasons for not approving any recycling facilities sited on the Indian subcontinent. However, IMO’s Hong Kong Convention also addresses these issues and international classification society have audited and approved a total of 93 yards across the world’s principal ship recycling region.

More likely, sources suggest, is unwillingness on the part of politicians to make exceptions around the Basel Convention, and specifically the EU’s Waste Shipment Regulation. Whatever the European regulators are hoping to achieve, however, they could not have picked a worse time.

As IMO’s decarbonisation drive gathers pace and new regulations on the carbon efficiency of existing ships enter force, large numbers of older vessels – particularly bulk carriers and tankers – are unlikely to warrant the necessary investment and their owners will examine their recycling options. Analysts point out that many older ships were built before the days of fuelefficient engines and energy efficiency generally, or with hull and propeller optimisation.

To enable these vessels to meet new IMO requirements could well be an expensive exercise, with no certain return on investment. Combined with possible ballast water installations and increasing fuel costs, the operating economics of such vessels may no longer stack up. Clarkson Research statistics indicate that there are more than 4,000 tankers in the world fleet older than 20 years. Many are relatively small, but more than 450 units are more than 10,000 dwt. A further 1,000 tankers of more than 10,000 dwt lie in the 15-19 year category. In bulk carriers, about 1,200 ships of more than 10,000 dwt fall into the 20 years-plus category, and a further 1,220 vessels fall into the 15-19 year range. European owners account for close to a quarter of the world fleet, so the potential problems they face are clear.

Many shipowners use cash buyer intermediaries to manage the disposal of assets which is often a time-consuming and fraught business. This process usually involves a change of ownership, a new registration of the ship under a suitable flag, and possible a renaming. But even this option now looks distinctly dodgy. The owners of EU-flagged vessels sold for recycling in this way now risk close scrutiny by European regulators and could potentially face criminal prosecution under the EU Waste Shipment Regulation, sources warn.

Having left the EU, the UK is in an interesting position. It is understood that its three EU-validated recycling facilities will have to reapply for EU approval as a third country facilities. However, the position of a non-EU flagged ship embarking on a final voyage from a UK rather than an EU port is not yet clear.

Experts struggle to explain the EU’s ship recycling strategy

SORJ

Ship recycling at Dales Marine, Leith