While the global IMO Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships is probably years away from becoming effective, the EU Ship Recycling Regulation (SRR) has so far* only approved recycling yards within the EU. The absence of one regulation, and the limitations of the other, could leave the shipping industry with a lack of adequate options.

Regulators must make sure that ships carrying a flag from an EU member state have access to adequate and geographically balanced safe and environmentally sound recycling capacity as of 31 December 2018, when the EU regulation takes effect.

“Many smaller shipowners cannot afford to recycle in Europe because the price they get for the steel is significantly lower than in other parts of the world, such as Asia. With less than two months before the application of the EU regulation, ships carrying a flag from an EU member state still only have the option to recycle in the EU*, despite the fact that several facilities elsewhere have invested substantially and worked hard to improve performance,” says BIMCO’s Head of Maritime Technology & Regulation, Aron Sørensen.

Yards in countries such as India have improved conditions greatly in recent years and have been certified by classification societies, showing that they live up to the Hong Kong Convention. They will not, however, be available to ships carrying a flag from an EU member state from 31 December.

According to a recent demolition report from the world’s largest certified cash buyer of ships for recycling, GMS, a shipowner will make about $3.46 million when recycling a 1,730 twenty-foot equivalent unit (TEU) container ship, built in 1997, in India, compared with $2.02 million if recycling the same ship in a European country like Turkey (not part of the EU). That results in a price difference of more than $1.44 million.

Capacity at EU yards could prove problematic

From 31 December 2018, when the EU regulation comes into force, ships carrying a flag from an EU member state can only be recycled at yards that appear on a ‘white list’ approved by the EU Commission. So far, the Commission has only approved about 20 yards, all of which are located within the EU. Three of these are based in the UK and are likely to be removed from the list when Brexit comes into effect.

Ships carrying flags from states that are not EU members can still be recycled at yards outside the EU, as they are not restricted to the those on the EU list.

“The EU yards are often limited in terms of length and draft of the ship. There is also a lack of capacity bearing in mind that they are currently being used for the recycling of inland navigation ships and fishing vessels. So we will probably face a capacity problem for ships carrying a flag from an EU member state at the end of their operational lives,” says Sørensen.

“We are in a transition phase and we encourage all member states to ratify the Hong Kong Convention as soon as possible. We also strongly encourage the EU Commission to approve recycling yards outside the EU, as applications from other parts of the world are waiting and will offer more choices.”

BIMCO, the International Chamber of Shipping and other industry organisations are currently updating the Shipping Industry Guidelines on Transitional Measures for Shipowners Selling Ships for Recycling, to advise how shipowners should react until the Hong Kong Convention comes into force.

In addition, BIMCO and industry partners have forwarded a letter to the European Commission, urging it to take action to ensure adequate recycling capacity for the European fleet as December approaches.

Facts about the Hong Kong Convention and the EU Ship Recycling Regulation:

What is the Hong Kong Convention?
Adopted at a diplomatic conference in Hong Kong in 2009, the Convention is aimed at ensuring that ships do not pose unnecessary risks to human health, safety and the environment when recycled. Parties to the Convention are required to take effective measures to ensure that ship recycling facilities under their jurisdiction comply with the Convention.

Why has the Hong Kong Convention not come into force?
Because not enough states have signed up yet. To enter into force, certain criteria must be met. One of them is that 15 states, representing 40% of world merchant shipping by gross tonnage, must have either signed the Convention or deposited instruments of ratification, acceptance, approval or accession. So far, only six states have signed up, representing about 21% of the world fleet. The ratifying states also have to represent 3% of the combined maximum annual ship recycling volume, but that is far from the being achieved. On the positive side, India, Turkey and Japan are in the process of signing up.

What is the EU Ship Recycling Regulation?
The objective of the SRR is to reduce the negative impacts of recycling ships flying the flag of member states of the European Union. It brings forward the requirements of the Hong Kong Convention, so contributing to its global entry into force. One major difference between the regulation and from the Hong Kong Convention is that the EU Commission must approve the yards – including those outside the EU – and put them on a so-called white list. Under the Hong Kong Convention, individual countries are responsible for approving the yards in their state.

Why does the shipping industry believe there is a problem with the SSR?
Because the EU Commission has only approved EU shipyards so far*, despite applications from countries outside the union. This greatly limits the choice of yards for EU-flagged ships, which could be recycled at quality yards outside the EU.

What is the shipping industry calling for?
For the Hong Kong Convention to be ratified and for the EU to approve yards outside of Europe.