DOSSIER

 

How ship recycling is evolving


The ship recycling sector has seen big improvements in safety, much of it driven by the Hong Kong Convention. But conflicting EU requirements can cause more harm than good, and COVID is causing difficulties, we learned at an ICS webinar

 

There has been a big increase in the number of ship recycling yards which are compliant with IMO’s Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, we learned at an International Chamber of Shipping webinar on ship recycling held on May 12.

92 recycling yards were compliant by May 2021, with all yards in India expected to be compliant by 2022.

“The Hong Kong Convention and certification of the 92 yards by major class societies is a very good and positive thing,” said Espen Poulssen, chair of the International Chamber of Shipping and moderator of the webinar.

“I suspect that due acknowledgement has not been given of these improvements. You have to read statistics, which nobody bothers to do.”

 

Global Marketing Systems

Anil Sharma, CEO of ship recycling intermediary Global Marketing Systems, noted that there had been big swings in the prices of scrap metal in India for ships over the Covid period.

At one point the price commanded by ships being sold for recycling collapsed by 25 per cent, but then rebounded after 30 days, going from $300 a tonne to $550 a tonne.

These high prices are expected to last through 2021, he said. One driver for the rising price of scrap metal in India was a drop in steel production in China, which led to reduced exports of steel from China to India.

The recycling work during 2020 was 50 per cent bulk carriers, with the biggest sector within that VLOCs (very large ore carriers) with almost 30 vessels delivered for scrap, “a record year”. The next biggest segment was tankers, followed by container vessels.

So far in 2021, high freight markets have meant that there haven’t been so many dry bulk and container ships being scrapped, but more offshore vessels and cruise ships, he said.

Shipowners typically recycle vessels when they can get a higher price for recycling than for selling. The VLCC recycling price at the time of the webinar is “in excess of $20m,” he said. “A couple of months ago, this was the second hand price of a VLCC.”

 

Kalthia Ship Breaking

Chintan Kalthia, CEO, Kalthia Ship Breaking, described as one of the leading ship recycling companies in Alang, said that one problem during the COVID period was that all oxygen gas was required for hospitals, and so was not available for metal cutting.

This prevented Alang from continuing in operation. Oxygen is also needed in the re-rolling mills, which process the scrap steel, he said.

“A lot of yards stopped their work, without oxygen they don’t have anything to do. A lot of workers are leaving Alang, they cannot sit in the pandemic without work.”

The crew change regulations under COVID also cause complexity, with difficulties with the vessel’s final crew coming ashore in India.

“The whole shipping world needs to recognise the improvement and development which [yards], especially Alang, has made in the last 5 years,” he said. “I’m not saying that we are done with the improvements, but the change in the last 5 years is remarkable.”

 

Unhelpful EU rules?

The EU’s Ship Recycling Regulations, in force from December 2018, can add cost and complexity to recycling, without necessarily providing any benefit, it was explained in the webinar.

Mr Sharma told a story of a car carrier which his company, GMS, acquired from a Japanese owner in June 2020 for scrap. It offloaded cars in Belgium, then Spain, then Turkey, and then was sold for recycling.

While the ship was discharging cars in Turkey, the Japanese owners received a message from Belgian authorities saying that they were violating waste shipment regulations, because the proposed recycling yard did not meet EU standards.
The owner’s lawyers were discussing with Belgian authorities for six months. Then they decided to take the ship back to Spain and start the paperwork again for a waste shipment.

Today is one year after the ship was due to be recycled. The asset is now valued at minus $1.5m, due to the costs incurred over the past year. And none of this expenditure has achieved anything in terms of driving better standards in ship recycling, he said.

The problem is that while the Hong Kong Convention sets high standards, it has some small differences with European Union regulations.

For example the Hong Kong Convention specifies that the waste should be handled by the appropriate state operated waste organisation. The EU rules go further in their requirements, Mr Sharma said.

The EU rules also have specific requirements for medical facilities available at the yard.

“There are a lot of things not mentioned in the Hong Kong Convention which is there in EU’s Ship Recycling Regulation. It is creating a mess,” Mr Sharma said.

Mr Kalthia added that EU’s Ship Recycling Regulations were originally created as a “stop gap measure” to be used until the Hong Kong Convention was ratified. “Now it has taken a life of its own.”

“From a personal standpoint, EU Ship Recycling Regulation is doing more harm than good, if I have to be blunt about it. We need one level regulation, guideline, policy for ship recycling, give a proper standard so they can stick to the standard and do their job.”

Andrew Stephens from Ship Recycling Transparency Initiative added that downstream waste management and the proximity of hospitals “is arguably outside the control of the shipyards and ship recycling facilities. That’s government, national, regional, local responsibilities.”

“Those facilities are also under the responsibility of national and local authorities in European countries.”

“It is a good example of where well-meaning and well thought out regulation, with perfectly good motives, imposed in different jurisdictions, can lead to the wrong result,” said Espen Poulsson of ICS.

 

SRTI

Andrew Stephens, executive director of the Sustainable Shipping Initiative, presented one of his organisation’s projects, the Ship Recycling Transparency Initiative (SRTI).

The aim is to improve transparency about how ships are recycled, and thereby help shipping companies choose better yards. It should help avoid a situation where all the benefits go to companies which recycle most cheaply.

There are 28 signatories, including 12 shipowners, 5 cargo owners, 7 financial stakeholders (investors / banks / insurers), and various other industry stakeholders. Tanker operator members include Teekay, Maersk, NORDEN, Stolt Tankers, and Altera (formerly Teekay Offshore).

Charterers can use SRTI’s processes as a basis to set minimum requirements for the ships they charter, and financial institutions can use it as a basis for making loans.

“Something like this works much better, if all the parties buy into it, rather than where bureaucracy interferes and causes unnecessary problems,” said Espen Poulsson, chair of the International Chamber of Shipping, and moderator of the webinar.

“Most shipowners are very responsible and want to do this the right way, but prefer to do this in a way which is sensible and logical.

“It is interesting to know that financial institutions and cargo interests are buying into this.”


A video download of the meeting is available at:
https://attendee.gotowebinar.com/ recording/5266369741393041164

 

 

 

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