Ship Recycling: TradeWinds Business Report

Ship recycling is an unfashionable industry but one that in the past couple of years has caught everyone’s attention.

It can be a dirty and dangerous business that until recently most shipowners have largely ignored until their vessels reach maybe 25 years old.

But with owners buckling under the pressure of depressed freight rates and still more newbuildings set to join already bloated sectors of the market, ship scrapping is suddenly viewed as a potential panacea.

It happened back in the bad old days of the 1980s. History is repeating itself. 

But this time, the scale of scrapping could beat even the record 42 million dwt to 44 million dwt that went to the torch in 1986.

The first two months of this year saw more than nine million dwt of ships sold for recycling, including 10 capesize and 22 panamax bulkers, as well as five VLCCs and six suezmax tankers. On an annualised basis, 2012 could see 50 million dwt turned to scrap.

Both bulkers and tanker owners are feeling the pain and with a 20-year-old capesize fetching over $9m by being recycled, why go to the expense of a special survey only to 

be paid a mere $6,000 per day in freight?

However, questions are being raised over whether there is even sufficient capacity globally to recycle 50 million dwt of ships, especially given the experience of the last year, which saw Bangladesh disrupted for long periods.

Meanwhile, commercial pressures have obviously blunted owners’ interest in green recycling but the environmental and safety lobbyists will not go away. 

They know they have had an impact and it is only a matter of time before standards in especially Pakistan and Bangladesh have to be improved. Deaths and serious injuries remain all too common.

The International Maritime Organisation (IMO)’s Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships continues to be criticised for allowing the beaching of vessels to continue — but ban it and the shipping industry would be in a mess.

Norway says recycling services provided by the Indian subcontinent are needed and, like Japan, it is providing financial aid to lift standards. The argument will continue for years as to whether such moves are misguided and the only satisfactory answer is by investing in new systems more akin to what happens in China.

No state has yet ratified the IMO convention and even conservative estimates are that it could be another five years before it enters into force.

With more than 1,000 ships likely to go for scrapping in 2012, the pressure is increasing for some of the technical aspects of the convention to be introduced voluntarily.

So far there is little evidence of owners falling into line, with top dollar still their priority.

Source: TradeWinds Business Report. By Geoff Garfield. 9 March 2012