Fairplay – Shipping protests grow as EU moves on recycling

(Written by Girija Shettar)

Download the original article – part 1 and part 2

11 April 2013 - Shipping has reacted strongly to new regulation, but supporters see it as setting standards fit for the EU, reports Girija Shettar

European Union members of parliament recently voted in favour of two aspects of its nascent recycling regulation: a fund to support the recycling of EU-flagged ships at EU-approved yards, and a ban on ‘beaching’. Industry opposition has so far managed to stall the regulation (Fairplay, 21 February 2013).

Reacting to the votes, the International Chamber of Shipping (ICS) commented that while the fund might in theory promote EU flags (with the associated benefits), realistically the opposite would result.

“You have to weigh up whether the benefits of the fund counterbalance the obligations and increased liabilities of subjecting yourself to the strictures of the draft regulation. In short, they won’t, particularly when you could
sell your ship in a more competitive market than the restricted EU list,” John Stawpert, senior advisor on trade and environment for ICS, told Fairplay.

Commenting on the “power” the proposed regulation would give recyclers to “renegotiate contracts after delivery”, he concluded: “Even if you are under an EU flag there’s still no guarantee you’ll get money back out of it comparable to your investment and increased liabilities, so why would you bother?”

In short, the regulation may backfire as shipowners flag out of the EU. Currently, 9% of the world fleet is EU flagged but about 40% is under European ownership that has opted for non-EU flags, which, according to Sea2Cradle MD Tom Peter Blankestijn, raises the question: “Should there be a class differential between the flags while the decision makers are the same?”

ICS director of external relations Simon Bennett said national shipping associations would be “working closely with
port interests” and “lobbying their governments very hard on this issue in the weeks ahead”.

The move to ban ‘beaching’ would mean excluding yards in Bangladesh, India, and Pakistan, which recycle about 70% of the world’s tonnage. Until the text is finalised, it is unknown whether the term ‘beaching’ will be used –NGO Shipbreaking Platform told Fairplay the less “sensitive” phrase “impermeable flooring” may be used instead – but the
question of capacity would remain; and it is as yet unknown if yards in China and Turkey (the two other largest recycling countries, which, together with the south Asian yards, recycled 97% of the world’s tonnage in the past decade, according to IHS Fairplay data) will make Europe’s approved list.

Shipbreaking Platform, which supports the proposed EU regulation, shrugs off concerns about EU-flagged tonnage with
no place to go, citing the findings of a November 2012 Basel Action Network (BAN) report on the capabilities of
‘green’ facilities in North America, Canada, and Mexico. Industrial Capabilities of North America states that while European and Turkish yards can accommodate 1.007M light displacement tonnes (ldt) of a total 1.64M ldt/year, facilities in the Americas could accommodate the balance 633,000 ldt of EU tonnage. Industry is not confident.

Blankestijn commented that many ships would be too big for the European yards and that the number of ships to approved green capacity in Europe and North America would not match. Furthermore, he ruled out the effectiveness of a “market mechanism” to match up European ships with approved facilities: the mechanism “would be in favour of the recyclers and disadvantage shipowners, with the immediate result of reflagging, changing ownership and structures,” he said.

The NGO believes that the real issue at stake is loss of profits to the shipping industry. “It is easy to make a profit by sending your ship to India or Bangladesh,” said research and communications executive Delphine Reuter,
adding that those markets needed protecting against hazardous waste such as asbestos, which threatens workers’ lives and, if unchecked, enters the wider market.

Her opinion is that the EU regulation is “trying to speed up the proper recycling of EU flagged ships”, which, she said, is not being met by the still unratified Hong Kong Convention. She said a high-quality ship recycling industry in Europe is possible but hindered by a lack of data on the expected annual demand for recycling capacity, which would allow recycling enterprises to formulate business plans. The EU regulation is a “policy solution” to this problem, she said.

In a paper last year, Nikos Mikelis, former IMO recycling division head and now a non-executive director for
cash-buyer company GMS, responded to the BAN report. He said the IMO had a methodology to estimate ship recycling capacity, which is essential for regulators “to assess whether sufficient capacity will continue to exist after the
introduction of higher standards”. The method: for each state that has contracted into the Hong Kong Convention, the
“maximum annual ship recycling volume” will be the highest volume year during a 10-year period. Then, adding the
capacities of all recycling yards in a given country, the recycling capacity of that country is obtained. But Mikelis implied that the data thus produced (see Chart 1) makes the BAN report arguments unfeasible, as it shows the recycling business is “very cyclical, providing no guarantees of employment [or of] a smooth depreciation of investment; [the] small volume of tonnage recycled in countries other than the five large recycling countries; [and
the] fluctuation of the volumes recycled in China, which, for relatively long periods, recycles
25-30% of the world’s tonnage and then for other periods almost withdraws from the market.”

Mikelis also argued that the capacities quoted in the report in ldt are “inaccurate or out of date” and thus “irresponsible”. He cited capacities from the United States, Canada, and Mexico recorded in gross tonnes (gt) in 2011 that are a fraction of those cited in the BAN report (see Chart 2).

Shipping is also concerned that the EU proposed regulation will undermine the Hong Kong Convention and lead to yards
stepping away from it, discouraged by the sudden loss of EU-flagged tonnage. Unconvinced that losing 9% of the world fleet would have that effect, Reuter insisted: “The EU is not the problem.”