Tradewinds – Why vessel recycling is different to wreck removal

(Written by Jim Mulrenan)

20 February 2013 - Financing a move away from running vessels ashore and tearing them apart on an Indian-subcontinent beach is a key challenge in making ship demolition greener and safer.

The protection and indemnity (P&I) clubs pick up the bill for most of the wreck-removal operations that are carried out around the world but this is crucially different to paying for ship demolition, although there may be some similarities in what physically happens.

Providing casualty cover — including wreck removal — amounts to insuring a fortuity, whereas ship demolition is not the result of ships running aground or bumping in the night but rather a usual and inevitable outcome of ships becoming too decrepit to be profitably traded.

So recycling insurance has more in common with life assurance or funeral-expense cover for vessels and the P&I clubs do not see themselves as being in this business.

The mutuals also lack any appetite to take on the role of “pension” managers running funds that would be built up over the life of a ship to cover the higher cost of mechanised yard-based demolition.

Options for funding improved ship scrapping apart from insurance include establishing a ship-recycling fund financed by a levy of maybe $200 a time on European port calls or creating accounts that would amount to funeral-expense insurance for ships funded by an annual premium collected over maybe 20 years.

There is uncertainty about how much green recycling would cost but one figure that has been mooted is a total of $160m a year for European Union (EU)-flag ships alone.

Other estimates suggest that the difference between scrapping a ship on a beach in the Indian subcontinent amounts to an extra $25 per light displacement ton (ldt) in the case of China or as much as $150 per ldt in Europe.

Acceptable

The problem of environmentally acceptable recycling is not confined to ships. In some countries, sellers of refrigerators or other electrical appliances have to accept back the product being replaced.

But perhaps the closest comparison is with decommissioned, offshore oil-and-gas installations, where removal costs are estimated at more than $30bn for the North Sea alone. The Willis insurance-broking group launched a new decommissioning insurance policy at the end of last year to cover dismantling and removal costs as well as various liability risks, including pollution, seepage and contamination risks.

There is also a long-running debate on the need for insurance or other funding mechanisms to cover decommissioning of nuclear power plants.