Global Standards Implementation towards Ship Recycling Industry
- Vijay Arora, Chief Surveyor & Senior Vice President Indian Register of Shipping

Ship recycling operation, which is called ‘green’ recycling, due to increasing awareness towards the environmental impact of ship breaking activity, concerned agencies, regulators and administrators have been started to explore and develop common global measures to have a safe and environmentally friendly ship recycling industry. The article discusses on implementation of various global standards developed by international conventions on ship recycling.

Presently, the world is still reeling under an economic crisis. The ship recycling industry is closely related to shipping market cycles and during recessionary times, when freight rates are low and ship owners are short on cash, old and obsolete vessels are sold to scrap dealers in the demolition market which provides a source of cash to ship owners. Although in general the average life span of a ship, considering economic, technical and regulatory limitations, is about 25 to 30 years; the decision to sell a ship for recycling is often dictated by its physical condition which may demand uneconomic repairs at the time of the renewal of the ship’s certificates; an economic crisis can shorten this considerably. Less frequently, ships may be sent for recycling as a result of a regulatory phase out, as was the case with single hulled tankers, or because of regulatory requirements necessitating expensive modifications or refits. In the current market scenario much work can be expected to come for the ship recycling industry.

It is unusual for a ship owner to sell a ship directly to a recycling yard. Instead, around 90 per cent of ships sold for recycling, are sold to intermediaries, known as Cash Buyers, which are companies with expertise in the recycling markets and which buy ships from ship owners and sell them to recyclers. Cash Buyers are therefore influential players in the ship recycling market.

Ship Dismantle: Seller-Buyer Proportion
The ship owners do not sell the ship directly to recyclers/ recycling yards, as they are faced with a number of risks:

  • A ship has to ensure that the yard that will perform according to the contract. Most ship owners do not have experience of the recycling market in order to mitigate this risk;
  • A ship owner wants to be paid in cash and not with a Letter of Credit that most recyclers utilise; and
  • Taking a ship on its last voyage with limited bunkers to a recycling yard’s anchorage can pose significant commercial and logistical risks to the ship owner, especially in a falling market.
The Cash Buyer mitigates the above mentioned risks for the ship owner by paying the agreed deposit and the balance of the purchase price in cash. Thereafter, the Cash Buyer usually has pre-arranged a back-to- back sale of the ship to a recycling yard.

Ship Recycling towards Economic Development of Locals
Ship breaking, ship dismantling, ship recycling, ship scrapping, ship disposal, ship demolition etc are different terms which all point to the activity of breaking an end of life ship into bits and pieces to recycle and reuse the materials derived from the ships for various purposes. Ship recycling, as the name suggests, at least theoretically should be a green activity supporting sustainable development as it reduces the need to use natural resources for steel making by recycling and reusing tons of unused discarded steel at the end of life ship, and is believed to be the most eco-friendly way of disposing of ships at the end of their economic lives.

The benefits that arise from recycling ships are many. When recycling a ship every part of its hull, machinery, equipment, fittings and even furniture is re-used. The industry creates economic development for local and regional communities by large-scale direct employment, by the generation of associated industries, and also by the large scale of trading in used equipment and machineries that takes place.

There are additional benefits to the economies of the recycling countries from the recycling of steel, wood, machinery and equipment, which would otherwise have to be imported.

Green Ship Recycling & Basel Convention
However, while the principle of ship recycling is sound, the working practices and environmental standards in recycling yards in the ship recycling operation often leave much to be desired which cripples the underlying principle of sustainability.

Increasing awareness towards the environmental impact of ship breaking activity and mounting pressure from various sources including environmental non-governmental organisations (ENGOs) such as Greenpeace and Ship Platform became an eye-opener for concerned agencies, regulators and administrators. Thus they started to explore and develop common global measures to have a safe and environmentally friendly ship recycling industry. This led to increasing number of shipping companies to adopt policies for ‘green’ recycling of their ships.

Initial attempt to address the problem was to employ the Basel Convention adopted in 1989 which subsequently came into force in 1992. The main objective of the Basel Convention is to ‘control the trans-boundary movement of hazardous wastes and their disposal’. The objective of the Basel Convention is to protect human health and the environment against the adverse effects of hazardous wastes. Its scope of application covers a wide range of wastes defined as ‘hazardous wastes’, as well as ‘other wastes’, namely household waste and incinerator ash.

The Convention sets out a three step strategy to achieve its aims:
  • Minimise the generation of hazardous wastes;
  • Treat and dispose hazardous wastes as close as possible to where they were generated; and
  • Minimise international movements of hazardous wastes.
At this point that none of the three strategy steps appear appropriate or relevant to the recycling of ships.

Basel Convention (BC) does allow trans-boundary movement of wastes:
  • If this represents an environmentally sound solution;
  • If the principles of environmentally sound management and non discrimination are observed; and
  • If it is carried out in accordance with BC’s regulatory system.
The regulatory system is based on the concept of Prior Informed Consent (PIC) requiring the authorities of the State of export to notify and to provide detailed information on the intended movement to the authorities of the State of import and any transit States. The movement may proceed if and when all these States have given their written consent.

In a further effort to strengthen the protection to developing countries, in 1994, Parties to the Basel Convention adopted the ‘Ban Amendment’, banning export of hazardous wastes from Organisation for Economic Co-operation and Development (OECD) to non-OECD countries. The Ban Amendment has not yet entered into force. It is nevertheless enforced unilaterally in the European Union, through the European Waste Shipment Regulation. (Regulation (EC) No1013/2006 of 14 June 2006- applicable since July 2007).

At the end of the 1990s Parties to the Basel Convention considered that the convention should regulate the dismantling of end-of-life ships. As the Basel Convention contains no practical provisions for regulating this activity, its Parties developed and approved in December 2002 voluntary guidelines entitled: Technical Guidelines for the Environmentally Sound Management of the Full and Partial Dismantling of Ships.

Note areas where the structures of Basel Convention are unworkable for regulating end-of-life ships:

The Basel Convention defines ‘State of Export’ as ‘a Party from which a trans-boundary movement of hazardous wastes or other wastes is planned to be initiated or is initiated’. This means that the State of export is the State from which the trans-boundary movement physically has begun, or is planned to begin. The State where the decision about the movement is taken, or the nationality of the waste, or the nationality of its owner is of no relevance.

Also, ‘wastes’ are defined in the Basel Convention as ‘substances or objects which are disposed of or are intended to be disposed of or are required to be disposed of by the provisions of national law’. In relation to end-of-life ships such intention may be established by a decision of the owner or by a contract on scrapping. The ship owner, however, has various ways for not making his intention known and has ample opportunity to ensure that the ship’s last voyage is not considered to be a trans boundary movement in accordance with the Basel Convention, for example by not declaring the intention to recycle the ship until she is in the high seas, or in the waters of the recycling State.

Because of the enforcement difficulties, the 7th Conference of the Parties to the Basel Convention, in October 2004, decided to invite IMO to consider establishing mandatory requirements that would ensure an equivalent level of control as that established under the Basel Convention (Decision VII/26).

Thereafter IMO’s Assembly 24 (December 2005) adopted resolution A.981(24), instructing the Marine Environment Protection Committee to develop a ‘new legally binding instrument on ship recycling”, which will regulate the:
  • Design, construction, operation and preparation of ships so as to facilitate safe and environmentally sound recycling, without compromising their safety and operational efficiency;
  • Operation of ship recycling facilities in a safe and environmentally sound manner; and
  • Establishment of an appropriate enforcement mechanism for ship recycling (certification / reporting requirements).
Ship Recycling Industry & Scrap Steel
One of the characteristics of the ship recycling industry, certainly for the last 15 years, is that it is concentrated in five countries which have been recycling around 97 to 98 per cent of the world’s recycled tonnage. Three of these countries, China, India and Bangladesh, have large recycling capacities, Pakistan has medium capacity, and Turkey has a small capacity. The rest of the world put together recycles less tonnage than that of Turkey.

The fact that there is very little ship recycling activity in Europe has often been explained in terms of the inability of Europe to compete with the low labour costs and low compliance costs of South Asia. However, the real reason why ships are not recycled in Europe lies elsewhere: whereas the Asian countries utilise scrap steel in their domestic economies, Europe is a major net exporter of scrap steel. Therefore, the idea of setting up a ship recycling industry in Europe to break ships (with considerably higher labour and compliance costs) in order to export the scrap to Bangladesh or India is simply not credible.

On the other hand, the five key recycling countries in Asia share a large appetite for scrap steel, and are also helped by lower labour and compliance costs.

Turkey’s steel making uses mostly scrap steel and much less iron ore (around 74 per cent vs 26 per cent), and is said to be the largest importer of scrap steel in the world (around half of it coming from EU). Turkey satisfies around 3 per cent of its steel production needs with scrap steel from ship recycling.

China produces around 45 per cent of the world’s steel, its production being six times larger than the second largest producer, Japan. China uses mostly iron ore and only 10 per cent steel scrap in steel making. Up to 2.5 per cent of the country’s needs for scrap steel comes from its ship recycling industry (representing less than 0.4 per cent of China’s steel production).

Equivalent figures for the contribution of steel from ship recycling to the steel production of the country, according to the World Bank (The Ship Breaking and Recycling Industry in Bangladesh and Pakistan, World Bank report, December 2010) is 50 per cent for Bangladesh, between 5 per cent and 6 per cent for India, and 15 per cent for Pakistan.

China generally, but not always, pays prices around USD 50 to 70 per LDT (light displacement tonnes) less than those paid in South Asia. Turkey in recent times paid around USD 100 per LDT less than the prices paid in South Asia. Turkey specialises in recycling mainly Mediterranean trading ships and European government-owned ships. Turkey tends to recycle smaller ships, primarily for economic reasons.

The price a ship is sold for recycling represents a significant residual value. Last year it represented between 17 per cent and 23 per cent of the replacement new building price. The scrap price is therefore important in the ship owner’s long term calculations. Although a ship owner’s decision on where to recycle his ship is sometimes based on a preference for ‘green recycling’, more often than not it is based on where the ship owner can obtain the best price. The geographic location of the ship after its last cargo and prior to re-cycling is a key parameter in determining the best net price.

Prices and recycled volumes fluctuate depending on the state of the shipping markets (actual and anticipated balance of supply and demand) and on the price movements in the international steel markets. Consequently, ship recycling is a very volatile industry with, both recycled volumes and prices varying widely over time.

The methods employed for ship recycling are:
  • Tidal beaching as practiced in Bangladesh, India, and Pakistan, who provide about 66 per cent of the world’s recycling capacity in GT terms
  • Non-tidal beaching as practiced in Turkey, who provides about 4 per cent of the world’s capacity
  • Alongside or floating as practiced in China, who provides around 28 per cent of the world’s capacity
  • Graving dock or dry-dock used in very limited cases
International Conventions on Ship Recycling
Following the adoption of IMO’s Assembly resolution A.981(24), MEPC 54 in 2006 convened a working group on ship recycling which commenced the development of the text, on the basis of a first draft submitted by Norway.

Thereafter, much concentrated work was devoted to the further development of the draft text of the convention:
  • Four further sessions of MEPC (including three working groups and one drafting group);
  • Four correspondence groups; and
  • Three intersessional working groups
Three years and two months after the submission of the first draft, a diplomatic conference was held to adopt the convention on ship recycling, probably in record time.

The 2009 International Conference on the Safe and Environmentally Sound Recycling of Ships took place at the Hong Kong Convention and Exhibition Centre, from 11 to 15 May 2009. The Conference was attended by representatives of 63 Member States, two Associate Members, representatives from the Secretariats of the Basel Convention and of ILO and observers from one IGO and eight NGOs. Having finalised the text of the convention, the representatives of the 63 Governments unanimously adopted the ‘Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009’, also known as ‘the Hong Kong Convention’, and six Conference resolutions.

Application of the Hong Kong Convention
The Convention will apply to:
  • Ships flying the flag of a Party; and
  • Recycling facilities residing in a Party
The Convention will not apply to:
  • Warships; government owned non- commercial ships; exclusively domestically operated ships; and ships of less than 500GT
The Convention also makes provision for ‘no more-favourable treatment’ for ships flying the flag of non-Parties.

Main Requirements for Ships in Service:
Parties will ensure that hazardous materials listed in Appendix 1 to the Convention will not be used in their shipyards, or installed on their ships.

Ships will be provided with an Inventory of Hazardous Materials (IHM) identifying and quantifying in Part I materials listed in HKC’s Appendix 1 (existing ships) and Appendix 2 (new ships).

Existing ships will have an IHM no later than 5 years after entry into force, or when the ship goes for recycling if that is earlier.

The IHM will be updated after installations of materials listed in Appendix 2 of the HKC.

Ships will undergo renewal surveys verifying the IHM and will be issued with the International Certificate on Inventory of Hazardous Materials (ICIHM) with 5 years’ maximum validity.

Main Requirements for Ships Preparing for Recycling:

The ship owner (note, the HKC in its definition of the ship owner includes the Cash Buyer) of a ship flying the flag of a Party has to:

  • Recycle the ship in recycling facilities of a Party State;
  • Select an authorized recycling facility that is capable to deal with the types and quantities of hazardous materials in the ship (as per IHM);
  • Provide the facility with copies of the IHM, the ICIHM, and with any other relevant information (with which the facility will develop the Ship Recycling Plan);
  • Notify the flag State of the intention to recycle the ship;
  • (Once the approved Ship Recycling Plan is received from the facility) arrange for a final survey to verify the IHM and that the SRP reflects correctly the IHM and that it contains other required information;
  • Following the final survey, obtain the