Green ship recycling – time to invigorate all the segments of the industry
By Dr. Kanu Priya Jain, Coordinator, Responsible Ship Recycling, GMS (Dubai)
The majority of the global ship recycling activity is operated from a handful of countries such as: India, Pakistan, Bangladesh, China and Turkey. Within the last few years we have witnessed a rapid growth in the ship recycling yards looking to upgrade their facilities in these major recycling countries. In India, almost half of the active yards are operating under a Statement of Compliance (SOC) with the Hong Kong Convention (HKC) and recently, the first yard in Bangladesh also received the same certification. These developments in the market have led to an increase in the capacity of the ‘green’ ship recycling, which denotes the safe and environmentally sound disposal of ships and offshore assets. Ideally, this increased capacity should attract owners of all ship types to opt for ‘green’ recycling of their end-of-life tonnage, however, in our experience, we have witnessed a fragmented demand. It would be interesting to analyze which industry segment is lagging in availing ‘green’ recycling services and the reasons behind it.
The data required to analyze the market of ‘green’ recycling is generally confidential. Therefore, we will use the data of our company in aggregate form. Being the leading company in the ship recycling industry, the dataset used for the analysis represents the general trend of the industry. Within the last few years, we have undertaken about 30 projects annually under our ‘Responsible Ship Recycling Program’ (GMS RSRP) which caters to the needs of the ship owners interested in recycling end-of-life ships and offshore units in a safe and environmentally sound manner. Interestingly, none of the projects are of tankers, whereas 38% projects are of container ships, 29% projects are of offshore units, 17% are of car carriers, followed by 8% for bulkers and 4% for reefers and LPG carriers.
The percentages above, especially that of tankers is quite concerning because despite the fact that tankers pose the highest risk during the dismantling process, owners are not very keen to avail ‘green’ recycling options. This is quite worrying because the availability of the HKC-compliant yards has increased significantly in the recent years. Such a trend doesn’t augur well for yards willing to upgrade their facilities as they do not find enough incentive to do so considering the fact that not all ship types reach ‘green’ recycling yards. These numbers reflect the defensive strategy adopted by the tanker owners which tend to go for ‘as is’ deals at the end of ships’ economic life to condone their duty of recycling end-of-life ships responsibly.
When an industry transits towards enhancement, all stakeholders must assume a collective responsibility of equal and meaningful contribution to achieve an effective progression. Presently, we are seeing more and more yards inclined towards the upgrading of their facilities to meet the standards of the HKC, especially in India. Certain Classification Societies have voluntarily started providing Statements of Compliance (SOC) to the recycling yards that wish to upgrade their infrastructure and processes in line with the HKC. At the same time, we as a vital link between the ship owners and the recycling yards, have been contributing to the industry by delivering workers’ training programs in association with Classification Societies (such as IRCLASS), offering additional services to the ship owners such as supervision, monitoring and reporting of the recycling process, and providing technical expertise to the yards for the upgrading of their facilities. A bigger contribution and will to embrace ‘green’ recycling options from the ship owners’ side is required to boost the ship recycling industry in the right direction.
Authored by Ms. Arnavi Panda, LLM (Maritime Law), Legal Advisor at GMS DMCC
Risk assessment and risk transfer are fundamental to every commercial contract. In English law, in the absence of any contract to the contrary, liability is traditionally assessed on the basis of fault. Emphasis should be laid on the phrase “in the absence of any contract to the contrary”. A knock for knock clause if one such regime whereby the parties can contractually agree that the liability and/or the losses lie where they fall irrespective of fault of either of the parties and without any further recourse against one another. The English Courts have upheld the validity of the knock for knock liability clause describing it to be “a crude but workable allocation of risk and responsibility” and would normally seek to give effect to the “natural and ordinary” meaning to the agreement between the parties so long as it is not repugnant to basic principle of contract.
Knock for knock clauses are a common feature in most maritime and offshore contracts adopted in numerous standard form contracts published by BIMCO. This article focuses on the knock for knock clause in the BIMCO Towcon 2008 contract. The knock for knock clause in a standard BIMCO Towcon appears in Clause 25 which essentially seeks to allocate risk and liability between the parties where each party agrees to bear responsibility for and indemnify the other party for any loss or damage sustained to their respective property i.e. either the tug in the case of the tugowner or the tow in the case of the Hirer, and any injury or death of their own (and their contractors and subcontractors) employees, irrespective of fault. While the rationale behind the knock for knock clause was to protect contractors from accepting liability for a client’s property that might involve significant high risks and to avoid the need of overlapping insurance coverage, and even though the liability regime has developed since 1970s from the time of it’s origin, the primary debate of this regime still focuses on whether the knock for knock regime exempts a party to the contract from gross negligence, material breach of performance of contract or willful misconduct.
This is particularly a cause of concern in the ship breaking and recycling market where the Hirer will be seen to waive off his rights to claim any damage for damage sustained to the physical property of the tow i.e. the Vessel and/or any other asset that is often towed from one destination to the recycling yard depending upon the condition of the Vessel to sail on her own power or in need of being towed. Such waiver includes but is not limited to pillage of material onboard the Vessel which might be of commercial value at the end destination i.e. the recycling yard where every part of the Vessel is either dismantled or reused. Furthermore, it is important to note that gross negligence is not recognized as a distinct concept with no set defined meaning in English law and is open to the interpretation of the Court from a case to case basis. Parties are only required to observe a minimum level of due diligence in conducting the towage operation based on the precedent established in the landmark judgment of ATurtle  EWHC 3034 and therefore in the absence of a specific provision in the contract must ensure to carefully word such knock for knock clauses in such contracts. Under English law, courts will usually give preference to enforce the contractual terms agreed to between the parties excluding negligence, gross negligence, material breach of contract, consequential losses or willful misconduct provided that the wording used of such exclusion is clear. Such amended clauses normally require the assessment and approval of the tugowners and the Hirer’s underwriters specially in the case of Towcons where the damages suffered may very well be over the cost of the asset. A clearly drafted knock for knock provision coupled with a complimenting insurance cover is therefore vital and needs particular attention when negotiating a towcon and assessing the potential recourses in the event of defaults, negligence, misconduct or material breach of contract amongst other primary terms of contract.
Myriads of responsibilities and possibilities for ship owners seeking to recycle end-of-life tonnage
By Dr. Kanu Priya Jain, GMS Green Team
For ship owners, it is critical to manage the recycling of end-of-life ships and offshore assets carefully, keeping in mind the relevant national and international regulations and the CSR policy of their company. However, most ship owners lack time and resources to dedicate specifically to such tasks because their main focus is on operations. In recent days, managing end-of-life ships is becoming increasingly complex due to revamped international and national regulatory landscape. Moreover, environmental protection has taken a spotlight amidst the talk of corporate social responsibility towards the environment and climate change. Therefore, ship owners, besides seeking the best possible monetary value for their end-of-lifeships and offshore assets, are also in need of partners capable of end-to-end management of such projects.
The entire end-to-end management of such projects includes memorandum of agreement between the ship owner, the last voyage owner and the end-buyer, i.e. the ship recycler; the technical management of the ship’s last voyage to the recycling yard; and the safe and environmentally sound management of the ship recycling process with continuous supply of technical expertise and supervision. All these tasks must be undertaken within the purview of a complex mesh of national and international regulatory regimes governing the shipping industry. With such tasks, responsibilities related to legal, technical, regulatory and social must be diligently undertaken by the concerned parties.
In the current market, India, Pakistan, Bangladesh, China and Turkey continue to be the major recycling countries in terms of recycled tonnage volumes. However, within each country many different types of ship recycling facilities co-exist. The facility types can be broadly classified as non-ISO-certified, ISO-certified and Hong Kong Convention (HKC)-compliant. Usually, ship owners are free to choose the type of yard they want their ships to recycle.
Since GMS’ inception over two decades ago, the company has successfully negotiated about 3200 ships for recycling. Our job goes beyond negotiating ships for our principals. We monitor the recycling process with monthly reports created by our Green Team of dedicated Ph.D. professionals from the moment a ship is sold to our principals till the completion of the recycling process, keeping the ship owner informed about and involved in the entire procedure. The decision on critical aspects such as the selection of the recycling yard is also left to the ship owners during initial negotiations. In the past few years, we have seen an increase in demand for the HKC-compliant facilities as more and more ship owners are seeking environmentally conscious options to dispose of end-of-life tonnage and we have been strongly advocating in favor of Responsible Ship Recycling at HKC compliant recycling facilities
Amongst major recycling centers, India is now emerging as a leader of HKC-compliant yards where almost half of the operational yards now have acquired a HKC Statement of Compliance (SOC) issued by reputed (IACS members) classification societies. Also, Turkey, that has recently taken legal steps towards ratifying the HKC, and China, too have several HKC-compliant yards. Interestingly, quite recently (19th Oct 2017) we saw the first recycling yard in Bangladesh receiving a SOC with HKC from classification society RINA. We hope this trend amongst yards to become HKC-compliant keeps growing in all major recycling countries. It will create a fair competition between major recycling regions and increase the options for ship owners seeking the services of ‘green’ yards.
For any questions or comments, please contact our Green Team at: email@example.com