We’ve detected that you are using an outdated browser. This will prevent you from accessing certain features. Update browser

Ship recycling yard.

Ship recycling – new regulatory requirements for owners.

By 31 December 2020, all ships entering a European Union port or anchorage will require a valid and certificated Inventory of Hazardous Materials (IHM) on board, according to the requirements of the 2013 EU Ship Recycling Regulation (EU SRR). Also, a requirement under the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships 2009, which is yet to enter into force, is a necessity for the IHM requirements to be fulfilled has been hastened by the EU SRR.

LR’s Jennifer Riley, Senior Ship Recycling Specialist, explains how this works. Under the EU SRR, all new ships delivered under an EU flag after December 31, 2018, must carry valid IHM certification on board. All existing vessels, regardless of flag, will need IHM certification from December 31, 2020, if calling at an EU port or anchorage. Furthermore, all EU-flagged ships sold for recycling after December 31, 2018, require a Ready for Recycling Certificate, ensuring that they can only be processed at a recycling yard that is included on the European List of Ship Recycling Facilities. Riley points out that the EU SRR has brought forward the IMO Hong Kong Convention IHM requirement by a number of years. Even after the Hong Kong Convention has been ratified the requirement for new ships to have valid IHM certification will not become mandatory for two years thereafter; and for existing ships, compulsory IHMs won’t be required for seven years from ratification.

Dr Nikos Mikelis, a leading ship recycling expert and a principal architect of the Hong Kong Convention, believes the IMO’s recycling regulations could still be at least four years from ratification. “With German’s accession [in July], seven countries have acceded to the Convention in the last six months, which is one more than those that acceded in the previous nine years. “The acceleration in the recognition of the need for the Convention to enter force the soonest possible probably reflects growing concerns over the enforcement of the regional EU SRR since the beginning of this year,” Dr Mikelis continued. “What remains now is for two of the major ship recycling nations to also accede to the Convention before the ship recycling industry can start operating under a uniform global regulatory platform.”

Dr Mikelis, who is also a non-executive director of GMS, the world’s largest cash buyer of ships sold for recycling, believes that India now “holds the key to the Convention’s entry into force”. Recycling yards there have invested in infrastructure, training, working procedures, and have been certificated by IACS classification societies working as independent third party consultants, he points out. One problem, however, is that although these many Indian recycling yards have undergone the appropriate independent third party audits – LR has completed a number of these – and shown that they satisfy the standards of the Hong Kong Convention and the EU SRR, the European Commission manages its own audit procedure and does not rely solely on the guidance of such independent third parties. Although a number of Indian facilities have gained independent certification against the requirements of the Hong Kong Convention and the EU SRR, they have not yet been approved for inclusion on the EU’s list of approved recycling facilities.

Recycling volumes down as markets surge

Even before earnings climbed sharply in the tanker and bulk carrier markets recently, 2019 recycling volumes were down sharply on recent levels and are forecast to reach a total of only about 22m dwt over the full year, the lowest volume since the financial crisis. Executives at GMS, the world’s largest cash buyer of end-of life ships, stress that the recycling market is driven fundamentally by the demand and price of steel. This, in turn, depends on the global economy which faces a very uncertain geopolitical outlook.

Meanwhile, those same geopolitics also have an impact on the shipping markets and, as mid-October came and went, tanker earnings had surged upwards in a way not seen so far this century. This, together with a less spectacular but still significant rise in the dry bulk market, may well generate more resistance to recycling amongst owners as they seek to make the most out of stronger markets. A reduction in the supply of potential ships for recycling could help to stop the recent decline in prices – from typical levels of well over $400 per light displacement ton in India to the mid $300s. GMS executives also point to imminent IMO fuel and ballast water regulations as important factors in owners’ recycling strategies. “Currently, despite IMO 2020 being just around the corner, we see no supply of tonnage as it would have been anticipated a year or so earlier. At the end of the day, market forces are the ones that are going to define the time when an asset will have to be disposed,” said Mr Evangelos Chatzigiannis, a Senior Trader at GMS.

“Good chartering earnings are encouraging shipowners to evaluate options in order to have their vessels operating as long as possible,” he continued, “or even encouraging [them] to consider investing in assets that a few years back would have been recycled. The moment that these dynamics are affected in a negative way, the supply of tonnage for recycling is definitely going to increase and I would not be surprised to see units over 15 years evaluating recycling options the moment that operating expenses or the cost of investment on such assets is not justified any longer.”

The verification process

LR has a deep involvement in the ship recycling sector and is therefore well-placed to provide first-rate advisory services to shipowners, operators and ship recycling facilities. The classification society has overseen the upgrade and certification of recycling facilities in India and Turkey, assuring that they meet the requirements of both the Hong Kong Convention and the EU SPR at the point of certification. LR has assisted a number of recycling facilities in Turkey, including the certification of one of the largest yards – LEYAL Gemi Söküm – in Izmir. As a result, the facility became the first non- EU recycling yard to join the EU’s list of approved facilities. Dismantling ships on a slipway, the yard has no limit on ship length or tonnage, has a maximum breadth of 100 metres, a maximum depth of 15 metres and an annual capacity of up to 80,000 light displacement tons.

However, there are many challenges ahead, not least because the number of certified recycling facilities, complying with the EU Ship Recycling Regulation, falls far short of the capacity required to dismantle and recycle end-of-life vessels safely in the future. Capacity is particularly constrained for large ships including VLCCs and capesize bulk carriers. Seven countries have ratified the Hong Kong Convention this year and meeting the three entry-into-force criteria will come sooner than appeared likely at the beginning of 2019. However, the Convention will only enter force 24 months after fulfilling the criteria. These are:

  • when 15 states become signatories;
  • when these 15 states represent 40% of world gross tonnage;
  • when the combined annual recycling volume of those states is not less than 3% of their combined merchant shipping tonnage.

So far, of the world’s principal recycling nations, Turkey and India are signatories. Bangladesh and Pakistan have not ratified the Convention although there is growing pressure for these countries to do so. China is not a signatory either, although is no longer accepting non- Chinese flagged vessels for recycling. Apart from India, yards in these regions have been relatively slow to invest in the necessary upgrades and verification procedures required for Hong Kong and EU regulatory compliance. Those that have done so, however, comment on the beneficial outcomes for business. One example is Y.S. Investments, LR’s first recycling facility in India which underwent the necessary yard and procedural upgrades to meeting Hong Kong Convention and EU SRR requirements earlier this year. Mr Naeem Massani, Managing Director, said the upgrade has transformed activity at the yard and is hoping that the facility will soon receive confirmation of EU SRR compliance and be accepted onto the EU List of recycling facilities. This, he believes, will lead to more enquiries and new clients.

Modifications at the facility involved investment in new equipment, the introduction of QHSE systems and a complete social and cultural change in the mindset of employees, he explained. The physical changes involved:

  • the installation of a completely impermeable surface to the dismantling areas with appropriate drainage systems;
  • a completely traceable downstream waste disposal system;
  • heavy duty cranes to lift entire blocks directly from the ship to the impermeable floor;
  • metal slag collectors to catch material falling within the inter-tidal zone when dismantling side shells;
  • PPE equipment meeting international standards.

Meanwhile, workers at the yard have benefited from external training courses, a modern well-equipped accommodation block and professional guidance on health and safety. The results have been clear to see, Mr Naeem said. For example, there is far more awareness amongst all workers in the yard regarding basic health and safety. And there is now far more employee engagement, a sharp contrast to the traditional culture which focused exclusively on individual actions.

‘We have observed a significant improvement in our key performance indicators,’ Mr Naeem revealed. ‘It has not only benefited our organisation, but the change has spread like wild-fire in the whole of Alang, bringing a cultural change throughout the industry. Workers have become more aware, not only on an industrial level, but also on social levels – passing it on to the next generation through more emphasis towards education of their kids and their personal lives.’

Horizons IMO 2020

Read more articles like this in our Horizons magazine.

Horizons brings together insight into current trends and hot topics in maritime, alongside expert views from our people on regulation, technology and innovation.

Read the new issue

INSIGHTS

What we think

LR's experts regularly share their research and insights.

Can't find what you are looking for?

Hit enter or the arrow to search Hit enter to search

Search icon

Are you looking for?