We are a step closer to having solved the problem of dangerous and polluting shipbreaking. The European Union will shortly publish a list of ship recycling facilities globally that comply with the environmental, health and safety standards that ensure decent working conditions and proper management of hazardous wastes. Facilities around the world have applied to be on the EU list as it is indicative of future potential; ship owners will simply need to pick one of the many facilities that will feature on the list.
But will they? Probably not if it is left to their own decision. The requirement to use a EU listed facility is easily avoided by simply swapping a EU flag with that of Panama, Liberia or any pacific island that offers a ‘last voyage registration’ discount. Cash buyers, companies specialised in selling scrap ships to breakers that use the cheap, but dangerous and polluting method of beaching, will assist ship owners in doing just that. Flags of convenience that are known for their poor implementation of international law are particularly popular with cash buyers. Three quarters of the world’s end-of-life fleet are currently traded with the help of cash buyers and most shipowners ‘prefer green dollars to green recycling’ as one of the largest cash buyers put it at an industry conference.
The EU is therefore looking at additional incentives to push ship owners towards the use of the EU list. Knowing that less than 10% of the world fleet is sailing under an EU flag at end-of-life and that swapping flags to circumvent taxes and rules is already a widespread practice, the requirement to use an EU listed facility will cut short without an additional incentive. The proposed idea is simple: contributions for a ‘ship recycling licence’ will be collected from all vessels trading in the EU. Monies accumulated during a ship’s operational life will be set aside and only paid back to the last owner if the ship is recycled in a facility on the EU list. The negative costs of social and environmental impacts will be internalised with the shipping industry.
While it is not new that measures at port state level play a crucial role with regards to curbing the substandard practices of shipping, today, the investors, banks and clients of shipping are increasingly also playing this role – which is a much welcomed development. Investors and banks we are talking to agree that ship recycling is part of the shipping industry’s value chain, and that a clear departure from the unnecessarily risky activity of managing reverse logistics of ship material management on a beach is needed. Proper ship recycling only represents a fraction of the operating costs of shipping and still a smaller fraction of their profit margins. Even in times of economic downturn, ship owners can afford proper ship recycling.
A financial incentive and demands from investors, banks and clients of shipping will help close the gap between green dollars and green recycling. The upcoming EU list will function as an important market differentiator for the recycling facilities that have already invested in proper infrastructure and occupational health and safety standards. The list is a reliable reference for sustainable ship recycling. It is also likely to prompt a real business case to innovate and invest in cost-effective and sustainable practices. Providing safe and green solutions will then become a clear competitive advantage.
Many more ships are expected to head for the scrapping yards in the coming years, due to the overcapacity especially in the container market and oil and gas sector. A large number of floating oil production and storage tankers, drill ships and semi-submersible platforms that have operated in the North Sea will be decommissioned. Ship recycling is an industrial activity that needs industrial methods, equipment and standards. A beach is never going to be an appropriate place for a high-risk heavy industry involving hazardous waste management.
While only vessels sailing under an EU flag will be legally obliged to use an EU approved facility, any company around the world with a responsible policy can use the EU list to prove their effort. German container ship giant Hapag Lloyd has already committed to only using EU listed facilities, and shipping companies from other sectors such as Hoegh, Wilhelmsen, Walenius, Grieg, Boskalis and Canada Steamship Lines, have also had a progressive ship recycling policy for many years. The Danish Maersk Group’s U-turn back to the beach in India is, on the other hand, a setback for responsible ship recycling and seriously undermines the company’s position as an industry leader. Responsible ship owners are not scotching development in South Asia by supporting a method, which is banned in Europe, the United States and China.
We expect European shipping lines that seek to call themselves socially and environmentally responsible to adhere to European standards. We expect European investors to back that call. The future of ship recycling is on the EU list and not on the beach.