Concern over the environmental impact of ship recycling is nothing new. As we mentioned in our previous Bulletin, the European Union in particular has emphasised its intention to curtail the perceived negative impact of certain ship recycling practices (see “The European Ship Recycling Regulation comes into force”, March 2014 - http://www.hfw.com/Green-Shipping-Bulletin-March-2014).

Few would be surprised to hear that recycling capacity is highest in developing countries such as Bangladesh, China and India, where regulation for the protection of the environment is not necessarily a priority. Nevertheless, in an era of ongoing oversupply of tonnage, and the introduction of supersized newbuild bulk and container vessels into the world’s fleet, this article explores whether sufficient attention is being paid to the potential environmental impact that could arise from a temporary surge in recycling volumes.

The international community has striven through the implementation of a legal framework to better control ship recycling via the management of hazardous wastes. All three of the key ship recycling nations referred to above are signatories to the Basel Convention1, and around two thirds of the parties to the Convention have enacted national legislation to give effect to its aims, namely the control of transboundary movements and management of hazardous wastes. Nevertheless, it is believed that in many signatory states the national institutions empowered to enforce local legislation are still lacking the necessary resources, training and expertise. Further, attempts to bring into force the Hong Kong Convention2 to bolster international regulation on ship recycling have not yet come to fruition. Consequently, the reality is that there is a huge volume of tonnage being recycled each year, with measures in place to protect the environment which are arguably open to criticism.

Why is this issue important?

According to statistics provided to us by Lloyd’s List Intelligence, 2013 saw the highest volume of ship recycling of any year in over a decade, taking the scrapped gross tonnage to over 30 million that year, compared to 25 million in 2011 and just 4 million in 2007. This cannot be simply attributed to one cause. Oversupply of tonnage in the market is an obvious factor underlying these figures, and presumably the addition of increasingly large newbuild vessels into the market can only accentuate the issue. Scrapping may be an obvious solution; theory dictates that the more ships that are scrapped, the quicker the oversupply can be addressed; the sooner freight rates should increase and the sooner the market should recover.

Beyond that, some owners will receive financial incentives to scrap tonnage and replace it with new tonnage. For example, in late 2013, China introduced a new policy whereby owners will receive 1,500 RMB (equivalent to around US$240) per gross ton for ships scrapped in China between 2013 and 2015. The catch? In order to qualify for the cash incentive, the owner has to place a new order with a shipyard in China for tonnage of at least the same volume as that scrapped. This may not address oversupply issues, but it looks certain to bolster both the recycling and newbuild industries in China at least.

What is the cost?

Ship recycling touches upon a host of potential social and environmental issues. Critics have highlighted that if proper care is not taken during the recycling process, workers and the environment may be exposed to potentially harmful substances. These can include:

  • Toxic paint coatings, such as lead.
  • Oily residues.
  • Asbestos.
  • Heavy metals and radioactive material.

What does the future hold?

It remains to be seen how ship recycling will respond to the uptake in demand from owners, especially at a time when the adequacy of international regulation of ship recycling has been called into question. When tonnage oversupply remains a real concern and recycling old tonnage is financially attractive for owners, the question increasingly raised is whether the environment is bound to pay the price.

Whilst regulation has its part to play in setting international minimum standards, some market participants have made the choice to proactively change their own practices. The European Union’s “Green and Safe” AA rating has been awarded to a number of yards across the world (including in China) which meet and exceed Hong Kong Convention standards.3 Furthermore, some owners have made the decision to pursue sustainable recycling policies. To this end, they are identifying suitable ship recycling facilities with a view to placing market pressure on those yards not conforming to international standards. Undoubtedly both regulation and market forces will have a key role to play in shaping future ship recycling practices.