The resurgence of shipbreaking activity at the start of this year comes amid a slowdown in these vessel segments as the earlier boom in the container market has subsided and an expected rebound in freight rates has failed to materialise.
It marks a welcome turnaround after a dramatic slump in recycling activity last year when shipowners kept older vessels trading to take advantage of high charter rates in buoyant shipping markets.
According to NGO Shipbreaking Platform, a total of 443 ocean-going commercial ships and offshore platforms were sold for scrapping last year, down from 763 units scrapped in 2021. Of these, 292 units were dismantled in India, Bangladesh and Pakistan in 2022, compared with 583 the previous year.
And it is a telling point that around 70% of the total capacity of India’s green yards was empty last year due to the lack of tonnage.
South Asian shipbreaking yards, which presently handle the lion’s share of tonnage recycled worldwide, are the probable destination for many of the latest scrap sales given they typically offer higher steel prices than competing yards in Turkey and elsewhere due to lower labour and other overhead costs.
Recent firmer prices for steel plate in the big recycling nations have driven up prices for vessel demolition candidates, resulting in several deals being concluded.
India is set to be the main beneficiary of these sales given the country is the largest green recycling destination in the world, with most of the yards holding statements of compliance with the Hong Kong Convention for safe and environmentally sound recycling of ships as issued by various classification bodies.
Rival yards in Bangladesh and Pakistan are also pursuing recycling deals but are hamstrung by difficulties in obtaining letters of credit to acquire tonnage due largely to these countries’ liquidity issues, amid ongoing negotiations with the International Monetary Fund over their respective loans.
The reputation of South Asian yards has historically been tarnished due to a poor track record of worker accidents and toxic pollution in coastal areas resulting from unregulated shipbreaking practices.
But it would be wrong to tar every yard with the same brush. Driven by increased pressure from various stakeholders, many regional yards are now pursuing responsible practices by upgrading their operations in line with HKC requirements, most notably in the Alang region of India. These initiatives are being supported by a few shipping giants, such as Maersk.
These upgrades have included investments in yard infrastructure such as heavy-lift cranes, establishing safe procedures for hazardous waste management, training the workforce in safe and sustainable recycling, and implementing health, safety and environmental management systems.
Such changes are necessary given that the capacity of South Asian yards will be required to handle an anticipated surge in scrap sales of large vessels over the coming years due to the need to renew the global fleet to meet environmental regulations.
Selection of HKC-compliant yards based on prior inspection and supervision of the entire recycling process by a third-party, independent monitoring agency is a key factor for shipowners to document compliance to meet growing ESG demands from their stakeholders.
But action is also needed at the governmental level to address a looming shipbreaking capacity crunch, especially in relation to EU-flagged vessels that are required to be recycled at yards on an approved list under the EU Ship Recycling Regulation (EUSRR).
There is a distinct possibility that Bangladesh could accede to the HKC by the end of this year, which would finally put the convention in force globally given it needs ratification by at least 15 countries representing 40% of gross tonnage, with combined maximum annual ship recycling volume not less than 3% of their combined tonnage. This would force more yards to raise their recycling game.
The recent removal of two Turkish yards - with possibly a few more to come - from the EU’s approved list hardly helps the capacity situation and the need for the EU to approve more yards outside of the bloc as recycling destinations is becoming increasingly important.
There is a need to harmonize conflicting regulations and, as such, proposed amendments to the EU’s Waste Shipment Regulation presently under discussion in Brussels and the ongoing review of the EUSRR could be important steps in this direction by incentivising non-EU yards to achieve EUSRR compliance.
Top-level talk needs to be turned into action to meet future demand for green recycling capacity.
Rakesh Bhargava, CEO
Tel: +60 12 215 0137