Could Brownsville be the next Alang?:
US ship recyclers eye new European market source
John Gallagher, Senior Editor | 19 May 2016
Regulations that could drastically limit the ability of European-flagged vessels to be broken up on foreign beaches have the potential to create a significant new market for ship recyclers in the United States.
As part of the EU’s Ship Recycling Regulation, adopted by European Parliament in December 2013, the European Commission is compiling a list of ship recycling facilities in Europe and around the world where EU-flagged vessels will have to be scrapped.
To qualify for the list, ship recycling yards have to meet strict requirements, including showing proof of certification by a classification society or other third-party non-governmental organisation with expertise in environmental control services.
The regulation incorporates the provisions of the 2009 Hong Kong Convention, which is aimed at ensuring that ship recycling poses no unnecessary risk to human health and the environment.
While the convention has yet to be ratified, the Commission’s strict guidelines will in practice make it extremely challenging for shipowners to send their ships to shipbreaking beaches in Bangladesh, India, and Pakistan, where much of the world’s ship recycling occurs but where there is a notoriously poor record of safety and environmental compliance.
“The EU list can really play a strategic role in motivating recycling yards all over the world to be compliant with Hong Kong requirements, ahead of the entry into force of the convention,” said Benoit Loicq, safety and environmental director for the European Community Shipowners’ Associations (ECSA), in a statement on 4 May.
The ECSA has warned against the Commission being overly restrictive on facilities to be included on the list, however, as such a stance could discourage participants and thus delay the Hong Kong Convention from coming into force, the group claimed.
Ship recyclers have until 1 July to apply for inclusion on the EU-approved list to be assured of being published in the Official Journal of the European Union and on the Commission’s website, which is scheduled for no later than the end of 2016.
Ranked by gross tons (gt), eight of the 28 EU countries rank within the world’s top 25 ship registries. The group is led by Malta, the world’s sixth-largest registry, with 1,782 vessels (weighing 1,000 gt or more) representing 42 million gt, according to data compiled by the US Maritime Administration in 2015. EU-flagged registries represent roughly 16% of the world’s total tonnage.
It represents a major potential supply for the United States, where the six major shipbreaking facilities, operating mainly in Texas and Louisiana, have been keeping a close eye on the roll-out of the EU’s shipbreaking regulations.
“We do see this as opening up a new market,” a US ship recycling executive told IHS Fairplay. He estimated the available capacity at US yards at roughly 1.5 million light displacement tons (ldt), which represents the weight of the material involved in the recycling of the vessel (as opposed to the ship’s volume-based gt weight).
Capacity for dismantling large ships at US recycling yards has traditionally been taken up by contracts issued by the US Maritime Administration (MarAd), which is responsible for qualifying US yards for scrapping vessels in its National Defense Reserve Fleet (NDRF) through the agency’s ship disposal programme.
As of the end of fiscal year 2015 (FY 15), the number of ships waiting in the NDRF queue was at “a historic low”, according to MarAd, with only three of 57 vessels remaining to be removed by the end of FY 17 – thus opening up capacity for a potential new supply of commercial vessels from the European Union.
The US recycling executive noted, however, that for the EU regulation to be viable and effective, there must be 3.5 million ldt of shipbreaking capacity available internationally for scrapping. “There are going to be yards in Europe that will open up to absorb the supply as well,” he said, which could limit the tonnage available to the US market.
Another factor weighing on recycling yards in the United States and around the world has been historically low steel commodity prices, which plummeted 58% in FY 15 from USD320/ton to USD135/ton, according to a MarAd report. Such prices fail to provide recyclers enough compensation for the high-cost, labour-intensive dismantling process. Ship recyclers in China alone lost over USD77 million in 2015.
But short-term fluctuations in steel prices are imbedded in the ship recycling sector, and therefore should have minimal effect on the long-term goal of reducing the safety and environmental hazards associated with shipbreaking, according to the environmental group, NGO Shipbreaking Platform.
“We’ve been very supportive of the EU approach, and we think the EU list will provide a reference point for sustainable recycling,” NGO Shipbreaking policy adviser Ingvild Jenssen told IHS Fairplay.
“Cargo owners and financiers are demanding better ship recycling practices, and we think this list is a perfect tool for identifying those types of recycling facilities and at the same time increasing the potential market share for those facilities as well.”
Contact John Gallagher at email@example.com and follow him on Twitter: @JohnAGallagher1
That should give work to a large number of Mexican guest workers.