Shipowners must tackle sustainable recycling at South Asian yards due to ‘EU capacity constraints’, says Sea Sentinels

Sea Sentinels is calling on shipowners to raise their recycling game by promoting sustainable practices at South Asian shipbreaking yards that still handle over two-thirds of vessels dismantled globally due to capacity constraints for larger ships elsewhere.

Beaching yards in India, Pakistan and Bangladesh last year dismantled 583, or 76%, of 763 ocean-going ships and offshore units sold for recycling worldwide, up from 446 vessels scrapped at these yards in 2020, according to the latest figures from NGO Shipbreaking Platform.

While some of these yards have made major improvements to upgrade their recycling standards, many continue to have an ignominious track record of serious accidents and toxic pollution amid growing pressure for safe and green recycling.

“The fact is, while these yards are still largely unregulated, there are few alternatives for shipowners due to a lack of available capacity at EU-compliant facilities for this volume of large vessels. So the onus is on owners to take responsibility for sustainable recycling at South Asian yards,” says Rakesh Bhargava, chief executive of Singapore-based recycling consultancy Sea Sentinels. “Contractual safeguards in the sale process, yard auditing and independent, unbiased on-site supervision are required to ensure vessels are recycled sustainably at these yards,” he says.

“Shipowners must also actively look for and promote development of alternatives to comply with regulations for shipment of hazardous waste.”

Premium steel prices

Danish Shipping’s executive director for climate, environment and security, Maria Skipper Schwenn, explains that South Asian yards offer premium steel prices due to lower labour and other overhead costs, and can also gain higher prices for steel when it is sold. In addition, they have capacity for larger vessels such as oil tankers and bulkers.

“This is how the global recycling market presently functions given the lack of enforced global regulation, which results in an uneven playing field with a huge difference in standards as ships are sent to sub-standard facilities in South Asia,” she says.

The IMO’s Hong Kong Convention (HKC) on the Safe and Environmentally Sound Recycling of Ships sets a global standard for recycling facilities, including safe handling of hazardous materials, but has not yet entered into force as it needs to be ratified by a minimum of 15 countries representing 40% of gross tonnage.

In the absence of a global regulation, the EU Ship Recycling Regulation (EUSRR) adopted in 2019 requires all EU-flagged vessels to be dismantled at a yard on a list of 41 approved facilities, as well as all ships calling at EU ports to carry an inventory of hazardous materials.

Capacity issue

But Schwenn says a survey by Bimco revealed many of the EU-compliant yards were already working at near capacity and were not interested in recycling larger vessels due to the heavy workload, costs of transporting steel and relatively low profitability.

A lot of these yards either have repairs or conversions as their core business or offshore/military vessel recycling as their priority due to higher margins, leaving yards mainly in South Asia, China and Turkey as the remaining viable options for bigger ships.

“Under the current regime, higher standards can only be achieved at South Asian yards if the individual companies – both shipowners and cash buyers – exercise responsibility for sustainable recycling,” Schwenn says.

She highlights the fact that Danish shipping giant Maersk has shown the way in this regard by implementing on the ground its own Responsible Ship Recycling Standard that exceeds HKC requirements. The company has also worked together with yards in Alang, India to upgrade facilities and thereby achieve verified compliance on a series of shipbreaking projects.

Infact, she discloses that two Alang yards have now provisionally qualified for the EU’s ‘white list’ based on an official audit of their facilities, subject to improvement of external medical and waste management services that has been pledged by Gujarat state where the yards are located.

“The whole capacity issue is really difficult. We are looking at where there is actual capacity at the beaching yards and believe that by focusing on upgrading these facilities and ensuring safe and sustainable practices, this can really make a big difference,” Schwenn says.

Greenwashing

This is echoed by Bhargava, who says Sea Sentinels is geared to supervising enforcement of safe, responsible and sustainable recycling practice at any yard regardless of location, in line with shipowner policies and HKC regulations.

While a number of shipowners have adopted sustainable ship recycling plans, Bhargava says in some cases this has led to “greenwashing” with a gap between policy intentions and implementation on the ground given that safety incidents persist at South Asian yards.

There also remain wide variations in shipbreaking standards at regional yards, even though many claim to have gained HKC compliance and India has ratified the convention.

Schwenn states that “responsible recycling is embedded in the mindset of Danish shipowners” that on average recycle only 12 ships per year, mainly because they have a business model to sell ships for continued trading early in the vessel’s lifecycle.

Danish Shipping promotes for its members strict recycling policy guidelines based on the HKC as well as additional measures such as vetting of yards and the cash buyer.

Contractual safeguards

The shipowners’ association also proposes having a proper sales contract in place to guarantee the ship is recycled in a compliant manner, citing Bimco’s Recyclecon standard contract.

This is intended to counter the practice whereby cash buyers, often linked to beaching yards, rename and re-flag vessels under flags of convenience shortly after they are acquired in order to circumvent safety and environmental regulations so they can be sold on to non-compliant yards.

This has enabled shipowners to obtain the highest price for scrap tonnage while avoiding legal, financial and other risks when selling ships for breaking.

But Sea Sentinels’ Bhargava says both shipowners and cash buyers can be held liable for incidents caused by irresponsible shipbreaking practices, as shown by recent court cases in Europe.

“It is therefore important that both parties carry out due diligence and have an agreement in place to ensure responsible recycling of the ship, which is also in the interests of the cash buyer,” he says.

Schwenn says more responsible cash buyers are buying into the safe recycling agenda but there remains “a need for greater due diligence” in shipbreaking transactions, as well as on-site supervision to enforce sustainable recycling policies given some owners can “fly under the radar”.

“It is too easy just to select a compliant yard. The shipowner also needs to verify and document that proper recycling and hazardous waste management procedures have been followed through close monitoring of the process at the yard,” she says.

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