Within the last two weeks, the ongoing debate on the European Union Ship Recycling Regulation and a bilateral agreement between the European Union (EU) and India to solve the Basel Ban Amendment conundrum is re-surfacing once again, as the Danish Environmental agency is reportedly investigating Maersk’s recycling standards in India. Moreover, in its recent webinar, the European Community Shipowners Associations (ECSA) strongly defended the position that the EU must recognize the developments made by the Indian ship recycling yards and include them in the EU-list of approved yards, in order to boost further development of yards in India. Maersk also stated that some of the Indian ship recycling yards that applied for inclusion on the EU-List are even better than the yards that are already approved by the EU.
Even though the EU has audited a few yards in India, they did not approve them for two external factors, which are beyond the control of yard owners. For example, modern hospitals (including a Trauma centre) and downstream waste management facility that is equivalent to EU Standards. It is to be noted that the Gujarat Maritime Board has already approved a USD 1 million grant for developing a trauma center in Alang, along with advanced healthcare infrastructure for yard workers. The Beaching method itself is the indirect criterion for not accepting any yards in India, even though the EU never pointed it clearly out in its regulation or its audit reports.
In order to deduce whether the beaching method itself be the indirect reason to neglect Indian yards, a technical assessment of the recycling process in India must be conducted, including the cost and quality of recycling at an EU-approved ship recycling facilities vs. at an Indian recycling yard. The most common response echoed in current times about the beaching method of ship recycling is that it is the most dangerous recycling method to the environment and yard workers. Moreover, low labour wages and poor environmental compliance costs are the reasons why South Asian yards offer higher prices on end-of-life ships and more than 90% of end-of-life vessels thus end up in these countries. Accordingly, we present the following assessment!
Quality Vs. Cost:
A typical 10,000 Light Displacement Tonnage (LDT) container vessel will have about 5% weight loss due to corrosion, loss during recycling, and wear and tear over the operational lifecycle of the vessel. In addition, nearly 0.5% non-ferrous, 4% machineries, and 0.5% reusables (such as furniture and fixtures) are recovered during the recycling process. The remaining 90% is ferrous. In the case of South Asian countries, nearly 75% of the remaining 90% of ferrous gets routed to re-rolling mills as steel plates, including direct use of steel plates to make flanges, girders, and pipes. 15% of the remaining 90% heads for melting, which includes irregular size scrap. In the case of Turkey and other EU recycling yards, most of the remaining 90% ferrous heads directly for melting and only a fraction of it is sent to the re-rolling mills.
Comparison of Labour and Hazardous Waste(s) Management Costs for EU Approved recycling yards (for example, in Turkey) and India when recycling a 10,000 LDT Container vessel is as follows:
The daily wages paid to laborers are prescribed by the respective recycling nation, considering its domestic socio-economic conditions. The prescribed wages in South Asian countries for unskilled labor are between US$ 4 to US$ 6 per day. In comparison, wages for unskilled Turkish laborers are about US$ 16 to US$ 17 per day. The difference of US$ 12 per day equates to US$ 36,000 per month (considering 100 workers per yard with paid leave). The recycling duration of such a vessel at a Turkish yard (which typically takes about 4 months to complete), adds up to US$ 144,000or an additional US$ 15 per LDT cost on wages when compared to sub-continent recycling countries.
When evaluating the environmental cost, the removal and disposal of each ton of Asbestos is about US$ 800 in Turkey. In contrast, it costs a mere US$ 300 per ton in India, given that the Government of Gujarat owns the waste disposal facility. Presuming about 10 tons of Asbestos for a given vessel (higher value), it costs about US$ 8,000 for disposal in Turkey. Disposal of paint chips generated during the recycling costs about US$ 500 per ton in Turkey, whereas it is comparatively cheaper (US$ 200 per ton in India).
In summary, it would be safe to presume about US$ 150,000 as environmental / waste management costs in Turkey for all types of wastes identified in an Inventory of hazardous materials developed as per the IMO’s Resolution MEPC.269(68) guidelines and adds an additional US$ 15 per LDT for hazardous waste management if recycled in Turkey as compared to India.
It is to be noted that the higher cost of wages and hazardous waste management cannot be associated with a higher quality of work. For example, heavy metal contamination levels at the coast of Aliaga’s ship recycling zone exceed the prescribed limits and is considered heavily polluted (Source: Heavy metals contamination levels at the coast of Aliaga ship recycling zone, Marine Pollution Bulletin 64(4):8827 published in March 2012). Including labor and hazardous waste management costs, Turkey should offer US$ 30 - US$ 35 per LDT less than the prices offered in India (or any South Asian recycling Country).However, the fact is that Turkey consistently offers US$ 90 to US$ 160 per LDT less than India (or any South Asian recycling Country) as the domestic value of steel generated from recycling is less when compared with South Asian countries. The EU-list of ship recycling yards even offers US$ 200 - US$ 300 less per LDT than the sub-continent.
All of the above factors should serve as an eye-opener for those who believe that ship recycling yards in South Asia offer higher prices due to the implementation of poor/inferior recycling practices aimed at cost-cutting. The significant improvements undertaken by the South Asian ship recycling facilities within the last few years must be acknowledged and appreciated by the global maritime community, rather than criticized and ignored because of the use of beaching as a method for docking/grounding/landing ships for recycling. The contribution of the ship recycling industry towards sustainability is immense. It also helps to decarbonize the atmosphere in the wake of issues such as global warming, depletion of the ozone layer and climate change.
In conclusion, irresponsible recycling is possible in all methods of recycling. However, associating such practices only to a particular geographical region or a specific recycling method is a fallacy. The landing method practiced in Turkey is, in fact, no different from the beaching method practiced in South Asian countries. What should truly matter is how a ship is recycled safely and environmentally soundly after beaching or landing. A bilateral agreement between India and the EU should take place at the earliest and yards in India should be included in EU-list of approved ship recycling yards. In any event, even without EU-flagged vessels, South Asian yards will survive, but effective implementation of EUSRR becomes questionable.
What do you think? Is EUSRR an inhibitor or catalyst for safe and environmentally ship recycling?
Dr. Anand M. Hiremath
Head, Research & Development
Lead Coordinator, Sustainable Ship and Offshore Recycling Program (SSORP),
Global Marketing Systems DMCC
DUBAI, United Arab Emirates
Recycling has been widely described as “the 4th Pillar of the Shipping Industry”, behind the Newbuilding, Chartering, S&P sectors. The majority of shipping professionals have indeed heard or were involved at some point in time with an Asset that had to be recycled, was about to be recycled, or simply liquidate an Asset in a constantly active market and always guarantees the minimum residual value of their Vessel. The tricky part is though, that despite the fact that everyone has heard of the recycling of normal Bulkers/ tankers/ containers when it comes to offshore Assets (mainly jackups, floaters - rigs in general, offshore support Vessels), the understanding of the Industry is not to the same extent as on the normal commercial Vessels.
The reason behind the fundamental lack of experience in this sector can be justified.
Such Units are not considered as part of the normal shipping industry but mainly constitute part of the Oil & Gas – Energy sector, as they have been used on exploration, drilling and support, not in the actual transportation of the commodities.
Owners of these Assets have not been considering the residual value of their Units since the spread between the NB prices, and the recycling rates is the biggest that anyone can find across the shipping sector. Just for comparison purposes, while the price of a VLCC tanker in the NB market would be in the 70-80mil range, her residual value would fluctuate in the 16-20mil, indicating approximately a 25% return when selling for recycling. On the other hand, when an NB price of a Jackup Rig would say in the $250mil, her recycling value will marginally come to $3mil (on average), which indicates a 1-1.5% return on the investment. Commercially rig Owners were never dependent on the recycling market for cashing out on their Units.
Regarding the charter Hire for the Offshore Units, one can observe that “when it rains, it pours”. Retaking the JUR as an example, the Units, depending on the region and specs, when on charter - can easily earn anywhere from $50,000- 150,000 per day, exceeding the typical historical average earnings of commercial Vessels. In times of turmoil of the Oil Industry, when oil prices fell to the $25-30/bbl, the decision was clear for Owners to lay up their Units and wait for the next upside- instead of immediately sending them for scrap – who would normally get rid of a cash cow, mainly if she can be laid up cheaply and have proper maintenance at logical rates to avoid huge reactivation bills?
On the 2 points above, we have taken only the example of the JURs. When looking into floaters, such as semi-submersible rigs, or even drillships, the NB prices as well as the daily earning, are even more significant.
Furthermore, let’s not forget the Ownership of these Units. Mainly rig Owners tend to be either state-owned companies or stocklisted companies – eitherway firms that can have easy access to substantial financing lines to perform their operations and stockholders that need to be involved in the process. Owners described above have always been conscious and hesitant to sell their Units for recycling, especially in the subcontinent, in view of the lack of a necessary framework & regulations governing the recycling activity. Owners had to wait for the IMO guidelines of the Hong Kong Convention to be exercised and implemented, with India leading the charge and Bangladesh slowly following, for considering the recycling of their Assets as a viable solution.
Additionally, we can not avoid the issue of the logistical nightmare of transporting the Assets. For example, the majority of Drilling Rigs, since operating in major oil fields all around the globe, are often located in the middle of the oil fields, or in layby berths/ anchorages in jurisdictions and locations far away from the actual recycling destinations. Taking into account the weather restrictions on transporting the Units (US hurricane season, COGH winter season, monsoon season in the subcontinent), the principal dimensions (leg protrusion on JUR/ thrusters in Semi-sub Rigs, increased beam, heavy drafts, reduced stability), the means of transportation (wet or dry tow) it is evident that transporting these Units was never a ‘‘stroll in the park” and not compared to normal towing of a ship shaped Unit. It certainly requires tremendous logistical preparation and increased cost for bringing such Units to the subcontinent destinations. Adding to the above, the low LDT of such Units (f.e. JUR has on average 6,000-10,000 LDT) can make the exercise futile, and the transportation cost may overcome the residual value of the Asset.
Finally, the values of the Drilling rigs in terms of recycling are heavily dependent on the extra equipment that remains onboard at the time of the recycling, which is included in the recycling sale. While price fluctuations in normal Vessels could be in the $10-20/lt for 2 similar size Vessels, 2 rigs are most probably never the same, and one can observe $40-50/lt differences in the recycling rates for 2 similar rigs. The main reason behind this is the extra equipment, especially on the drilling side. Riser pipes, BOP, cementing Units, mud pumps, raw water towers, thrusters are equipment that can considerably increase the value of the Asset if left onboard. Rig majors though, due to the value of these items being great, tend to remove the equipment for further use in other Assets (or due to these being 3rd party hired items), literally stripping them and leaving only the basic shell to be recycled, which of course will not be demanding any premium over a normal, more accessible to cut, Bulk Carrier. Discounting the already reduced recycling price of a Rig was not leading Owners towards seriously considering the demo market.
BUT THE TIDE IS TURNING.
Over the past 6-7 years, we have observed that oil prices have not been anywhere near the excess $100/bbl levels, which would make the exploration and drilling highly lucrative for Owners. The two significant downturns of the Oil price, in 2015-2016 and just recently during COVID-19, have normalized the prices in a prolonged period of lean cows. Rig Owners have been forced to look more actively into the recycling market, especially for their unemployed laid-up Assets.
Locally, the tolls for improving the recycling industry are well known and adhered to. The Hong Kong Convention has strong roots in India, with more than 80 yards being certified by IACS classes as compliant to the relevant guidelines, for which the yards are vetted regularly for certification renewal. This is a token to an evolving industry that had come a long way since 2014 when only 4 yards had taken the initiative to invest in such a direction. With only a handful of yards not being certified yet, but working towards this direction, India has emerged as the primary location for recycling Offshore Assets (and preferred), with many Owners opting also for a 3rd Party monitoring reporting service during the recycling process. Following India, Bangladesh already has its first HKC approved yard, with several more yards working towards the certification. For those who have experienced the early stages of HKC implementation in the subcontinent, our hope is that we will see Bangladesh rapidly increasing in the number of HKC yards within 2021-2022 and Pakistan to join overall, providing more solutions to Offshore Rig Owners for recycling their Assets.
Closing this explanatory article, I need to mention that what many believe to be a super cycle for commodities has affected the residual values. We are currently experiencing the most robust recycling market of the past 5-6 years, with prices well above $500/lt for normal commercial Vessels and the mid- high $400s for Offshore Assets- Rigs. In such an environment, the ideal conditions are there for Rig Owners to get the best residual value in many years for their Assets.
It should be pointed out that at the time of this article being written, there are more than 20 Offshore Rigs in the recycling market, either being marketed or already sold to Cash Buyers, which is a historical high for the Offshore Recycling Industry and a sign of things to come.
Everyone is looking forward to an era where Offshore Assets recycling will no longer be a “terra incognita” but rather a “Terra Nova”.
Mr. Faidon Panagiotopoulos
Number of Recycling Facilities Having Hong Kong Convention Statement of Compliance
In Demystifying Ship Recycling issue number 21 we discussed the process for issuance of Statement of Compliance (SOC) to recycling facilities by classification societies. Do we know when the first SOC was issued? Which classification society stepped forward for technical consultation of the yards? Which recycling facility got the HKC SOC for the first time? How many yards have presently held HKC SOC?
The International Maritime Organization (IMO) adopted the Hong Kong International convention in 2009. The HKC would come in force provided the three conditions mentioned in the convention are met. However, until 2015 there was not much progress on meeting the three conditions.
In 2015, ship recycling facilities based in India voluntarily came forward to develop the infrastructures by heavily investing in recycling ships as per HKC guidelines. ClassNK was the first classification society who developed guidelines to issue SOC to the recycling facilities. After persistent efforts of recycling facilities and continuous guidance of ClassNK, four recycling facilities in Alang, India, were issued SOC for the first time in November 2015.
This was the trigger point in the history of ship recycling. Classification societies like Lloyd’s Register, RINA, Indian Register of Shipping, and Bureau Veritas came forward and developed guidelines for recycling yards to recycle ships for HKC compliance.
Recycling facilities had options to get guidance for developing infrastructure from multiple classification societies.
Few recycling facilities in China, Turkey, and Bangladesh also developed their premises to recycle ships in a safe and environmentally sound way.
At present, India (92), Turkey (14), China (2), and Bangladesh (1) have recycling facilities that comply with HKC and have valid SOC.
As of today, ClassNK (44), Lloyd’s Register (18), IRS (11), RINA (72), and Bureau Veritas (2) are the classification societies that issue SOC.
Many yard owners have received multiple SOCs from different classification societies for a single recycling facility.
At least 20 yard owners are working on building infrastructure to comply with HKC guidelines, and in the next year, it is expected that 100% of yards in Alang will be HKC compliant.
Shipowners and Capital providers started vetting the recycling facilities that have valid SOC to ensure ships are recycled as per HKC. It has given them the confidence and assurance that their vintage ships would be recycled sustainably in HKC compliant yards. Admittedly, many responsible ship owners recycle their superannuated ships ONLY at HKC compliant yards.
The responsible role played by classification societies is significant in changing the face of ship recycling. Although HKC is not in force, the willingness to comply with HKC shown by the recycling facility owners is praiseworthy.
Established in 1992 in historic Cumberland, MD. (U.S.A), GMS is the world's LARGEST and FIRST ISO 9001 certified Cash Buyer of ships for recycling. With exclusive representatives in all of the major ship recycling markets in the world, GMS has negotiated about 3,500 ships for recycling since inception. In addition to its original office in the United States of America, the company continues to expand its operations with offices in Hamburg (Germany), Athens (Greece), Dubai (UAE), India (Bhavnagar), Singapore, Seoul (Korea), Shanghai (China) and Tokyo (Japan).
P.O. Box 346041, Suite 101,
Saba 1 Jumeirah Lake Towers, Dubai, UAE