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How Do You Turn An Asset Into A Liability?

Despite significant and unparalleled progress over the recent years in the ship recycling facilities of Alang, India, it has been announced this week that the few EUSRR applicants in Alang will NOT be approved or make it on to any EU list of approved yards for the recycling of EU flagged vessels for the foreseeable future. The European Commission (EC) has stated that no vessel can come to India from OECD and EU countries, which effectively upholds and puts into force the Basel Ban Amendment, which entered into force in December, 2019. There had been hope that the EUSSR would allow EU flagged ships to go to non OECD countries, hence hopes had been raised amongst 4 or 5 of the pre-eminent facilities in Alang (all Class NK HKC compliant already) that they may soon become EU compliant.

However, this is now all immaterial and owners of EU flagged vessels are today facing the grim reality of scrapping their vessels in only six Turkish facilities and several much smaller ship recycling facilities (34) within the EU who have neither the ability nor capacity to scrap significantly sized vessels. To put things into perspective, depending on where the vessel is located, owners of EU flagged vessels may therefore forfeit 100 percent or even more of their asset value (if located in the Far East for example and having to make the voyage all the way over to EU facilities). Prices on offer in the six EU approved Turkish yards are only around 25% or lower from prices currently on offer in HKC approved sub continent facilities. We know of examples where OWNERS HAD TO PAY to recycle ships in EU.

Are we therefore about to turn our end of life ships, a factor concerning every shipowner across the world from newbuilding to her final resting place, from an asset into a liability? Is this what EU Regulators have in mind when they pushed through EU Ship Recycling Regulation (EUSRR)? For EU owners, Is scuttling a ship going to become an option instead of recycling? What does this say about the European Commission and their refusal to accept Indian yards despite four major classification societies (NK, Rina, LR and IR classes) now approving over 77 yards in Alang (with many more to follow) and many of the world’s major blue chip / listed shipowners likewise sailing their vessels to these largely improved facilities?

This new decision should serve as a major wake up call to owners of EU flagged vessels (many of whom are based in Europe already and should have taken more interest in the discussions and arguments over the years with the EC) to challenge and/or write to the EC on this recent ruling, as it is the depreciation of their assets in the long run that is going to hurt the most. Indeed, many owners may be forced to find loopholes and not follow the laws in order to avoid devaluing their vessels to such an extent, thereby making a mockery of the policy itself. For now though, the shipping world and in particular the EU Shipowner’s Associations must face up to this most intransigent, draconian and ineffective EC ruling that will limit the scrapping of EU flagged / based ships to restricted and insufficient ship recycling facilities in only OECD and EU countries, thereby nullifying the worth of their previously valuable end of life assets.

As a matter of fact, we expect that as long as progressive yards in India and more generally in the subcontinent are not approved for the recycling of European flag ships, this will lead to an exodus from the European registries of ships before they reach their end of life and will therefore hurt Europe and will also diminish the relevance of the European Ship Recycling Regulation. After all, the industry has voluntarily accepted the Hong Kong Convention as its safety and environmental standard. Having more than one standard is not what the shipping industry needs, nor is it going to help the ship recycling industry achieve a common global minimum standard.
Source: GMS

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