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EU-led ship recycling regulation could reverse positive effect of Hong Kong Convention on South East Asian scrapyards says GMS

Scrapyards in South East Asia are in the midst of a significant change, as they are constantly improving their operations, adhering to the norms which have been set in motion by the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships. However, as Dr Nikos Mikelis, non-executive director, GMS, says on an exclusive interview with Hellenic Shipping News Worldwide (www.hellenicshippingnews.com), the European Union’s Ship Recycling Regulation will see European flagged vessels only be permitted to be recycled at yards reviewed, accepted and published in the European List of approved ship recycling facilities. “GMS is very concerned that this regulation appears to re-enforce the idea that, when implemented, it will be interpreted by the European Commission as a total ban on beach recycling for European flagged vessels. If imposed in this way, the legislation will set the global recycling industry on a knife-edge and threaten a reversal of the sustainable progress set in motion by the HKC. Dividing the market with an interpretation of the EU Regulation as a ban on beaching will create precisely the false dichotomy that they say they are working to solve; poor conditions on beaches and higher standards elsewhere”, said Dr. Mikelis.

Ship recycling in South Asia has long been the “elephant in the room” for the shipping industry, at least in the eyes of many non-profit organizations and independent observers. Why has this been the case and what has been done over the course of time, to reverse this negative view?

Ship recycling plays a vital role in the lifecycle of a ship, and is fundamental to the industry.
For the last twenty years the ship-recycling yards in Bangladesh, China, India, Pakistan and Turkey have been recycling 97% to 98% of all the tonnage that is recycled in the world. The economies of these five countries are characterised by a great appetite for scrap steel for their steel making needs.
Of these, the three South Asian countries are less developed and poorer, and this ensures that the local ship recyclers have the market to sell virtually every part of the ship: steel, machinery, fittings, equipment and even furniture. Consequently, the three South Asian countries are the most competitive in terms of the prices they pay for buying end-of-life ships and in the last ten years have dominated the international market by recycling more than two thirds of the world’s recycled tonnage.

On the other hand, underdevelopment and poverty are usually linked to lower safety, social welfare and environmental standards, giving rise over the years to pressures for the development of an international convention to regulate safety, health, environmental protection. This led to the adoption of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC) by IMO in 2009.

The HKC has not yet entered into force, and so, for the time being, the growth of sustainable ship recycling is reliant upon the market dynamics between ship owners and yards. However, the scrutiny that the industry came under during the development and introduction of the HKC is part of what has been driving change. As the shipping industry becomes aware of its responsibility to improve its sustainability, ship recycling has been developing accordingly.

The demand for responsible ship recycling now exceeds supply in South Asia. As yards that invested in achieving the standards of HKC now see growth for their services based on good health, safety and environmental practices, this has incentivised other yards to also improve standards and consider HKC Statements of Compliance, ISO and OHSAS certification.

With the fifth Hong Kong Convention-compliant yard having been approved in Alang and fifteen more currently going through the Statement of Compliance process, the progressive change in the ship recycling market is clear to see. High levels of safety and environmental standards are being introduced and achieved in Alang. To keep progressing towards improvement we need to make sustainable ship recycling the ‘norm’ and for shipowners across the world to be holding recycling yards to these standards. In this way we can continue the virtuous cycle.

Can one say that ship recyclers’ malpractices are the exception and not the rule, i.e. some noted companies hurting the reputation of those who are working in accordance with globally accepted rules and can this be deemed as unfair competition?

Not all yards have yet achieved desirable safety and environmental standards, and unfortunately there are many yards that still use poor practices during the ship recycling process. GMS has long been a supporter of the entry into force of the HKC so that compliance with its rigorous safety and environmental standards becomes mandatory. This would introduce a level playing field for all yards to work from. Until this is achieved, owners have the power to drive change by choosing yards that exercise good standards for safety and environmental protection (known as responsible recyclers, or “green yards”). This sends a strong market message that unsafe practices are no longer socially or environmentally acceptable, or economically prudent, and that the market will hold them accountable for such practices.

Sustainable recycling of ships is the primary goal of the international community. What do we mean in particular when we say sustainable recycling, in the terms of the practices and processes deployed when dismantling a vessel?

Sustainable ship recycling is the systematic prevention, and where practicable, elimination of safety and environmental risks through yard facilities, procedures and operations supported by preparatory work by shipowners, flag states and classification societies. The standards of the HKC and its guidelines are designed to be a best-practice approach to sustainable ship recycling and, although it is yet to enter into force, it defines the basis of what we mean when we talk about sustainable ship recycling.

HKC compliant recycling requires shipowners to carry and provide an Inventory of Hazardous Materials (IHM) detailing the location and approximate quantities of hazardous waste on board. The specific hazardous materials that must be covered by this IHM are specified in the two appendices in the Convention. This part of the process is also part of what is currently required from shipowners by voluntarily certified HKC-compliant yards.

A sustainable and HKC-compliant ship recycling yard will also have a Ship Recycling Facility Plan (SRFP), documenting the yard’s systems and processes for ensuring safety and environmental protection. They have safe removal procedures for hazardous wastes, and have installed advanced hazardous waste handling facilities at their yards (for example, negative pressure asbestos handling units) and specialist employees have been trained and equipped for handling hazardous wastes. Each recycling project is then planned out in advance and managed according to a ship-specific Ship Recycling Plan (SRP). The SRP is developed by the yard using the design particulars of the vessel and its Inventory of Hazardous Materials provided by the shipowner to plan a safe and environmentally friendly recycling sequence.

In the period before the HKC enters into force, a shipowner who choses to follow the standards set by the HKC will need to send his ship to a HKC-compliant yard and ensure contractually with the cash buyer that his ship will be recycled in accordance with the technical standards of HKC. The shipowner should also consider agreeing with the cash buyer the appropriate level of supervision and/or reporting to ensure that the recycling has taken place in the appropriate way.

Can this be achieved in South Asia, or at least in part of it?

Sustainable ship recycling can be and is being achieved in South Asia. It is all a matter of management. It is just as possible to have clean, safe and sustainable recycling on a beach as it is to create an unsafe and polluting environment by recycling alongside a pier. The five yards that have been awarded Statements of Compliance with HKC and the fifteen yards currently progressing through the process are testament to that fact.

How has the Hong Kong Convention helped towards this direction?

As I stated earlier the scrutiny that the industry came under during the development and introduction of the HKC is part of what has been driving change. In addition to this, GMS’s aim is for sustainable ship recycling to become the norm, rather than an exception. The only way to achieve this across the world, is to have a single practical and workable global standard, and that is HKC.

Do you see a possibility of negating the positive effects seen so far towards the direction of sustainable recycling?

A significant concern in this area comes from the European Union’s Ship Recycling Regulation. This will see European flagged vessels only be permitted to be recycled at yards reviewed, accepted and published in the European List of approved ship recycling facilities.

GMS is very concerned that this regulation appears to re-enforce the idea that, when implemented, it will be interpreted by the European Commission as a total ban on beach recycling for European flagged vessels. If imposed in this way, the legislation will set the global recycling industry on a knife-edge and threaten a reversal of the sustainable progress set in motion by the HKC. Dividing the market with an interpretation of the EU Regulation as a ban on beaching will create precisely the false dichotomy that they say they are working to solve; poor conditions on beaches and higher standards elsewhere.

Regulation that drives progressive change is a good thing. However, the EU regulation risks to do the reverse. If the regulation is interpreted as banning beaching, this will just create an unfair and damaging geographic gap between the beaching yards in South Asia and non-beach ship recycling yards elsewhere. It will create a two-tier and less sustainable market. In particular, it will be detrimental to the local areas surrounding the yards in South Asia, and it does not align with the HKC’s high goals of raising standards at all yards across the world. Furthermore, if the European Commission in exercising its powers to interpret the EU Regulation makes the mistake to exclude from its list of approved recycling facilities all yards in South Asia, then the most likely consequence will be that it will cause large scale flagging out of end of life ships away from European flags. This way the Commission will not only have failed to improve conditions in the countries that it matters most, but will also fail to enforce the EU Ship Recycling Regulation to EU ships.

A number of Indian yards with HKC Statements of Compliance have been verified by IRClass as meeting the requirements and standards of European Union Ship Recycling Regulation and have submitted applications for inclusion in the EU approved yards list. We sincerely hope that these yards will be accepted, putting to bed this potential and absurd “beaching ban” and committing the European Union to supporting the ideal of raising standards at yards, wherever in the world they happen to be.

With demolition activity reaching peak levels once again this year, how do you expect the market to behave in the coming months?

Ship recycling is a natural and inevitable part of a vessel’s lifecycle, and many people rely on this vital market, both directly and indirectly. The shipping industry as a whole is experiencing significant pressure to increase its sustainability, and it is important that the ship recycling sector also develops accordingly.

Commodity traders are in the midst of the worst market downturn on record and as a result the dry bulk sector is experiencing one of the worst times it has seen in recent years. The Baltic Dry Index is unpredictable, and as of June 2016 was hovering around the 600 mark, down nearly 95 per cent from its peak in 2008, with too many ships to transport the supply of cargoes currently being produced. As a result of this, the number of ships that are redundant and heading to the hands of recyclers is steadily growing, highlighting the need for this vital part of the industry.

How keen are ship owners to offload older vessels? As you find that ships headed for recycling are getting younger and younger, how does that affect your day-to-day operations?

Following a succession of newbuildings being delivered after the boom of 2012, charterers have their pick of newer, more economically viable and efficient vessels. This is a theme throughout the industry, not just in the dry bulk sector. However, in the dry bulk sector in particular there is now a trend for younger vessels to be scrapped, with vessels as young as 7-years-old being recycled in exceptional cases. This just highlights the current market complexities, and the pressure that is on shipowners and charterers to survive in this volatile and unpredictable market.

The heightened demand for scrapping, the increase in volume through recycling yards, and impending decisions by the European Commission on the EU’s Ship Recycling Regulation mean that the need for companies who specialise in recycling to adhere to the upmost highest standards of sustainability and safety is more scrutinised than ever before. GMS, as the world’s largest cash buyer of ships and offshore assets for recycling, is committed to leading corporate social responsibility and pioneering sustainability within the ship and maritime recycling field.

Nikos Roussanoglou, Hellenic Shipping News Worldwide

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