The ship recycling industry has recently gained attention, particularly with Bangladesh’s commitment to ratify the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships 2009 (HKC). The HKC requires certain criteria to be met for its entry into force, including a minimum number of states ratifying it, a significant percentage of the world’s merchant fleet gross tonnage, and a minimum volume of ship recycling by the ratifying states.
Although the first criterion has been met and the second could potentially be met, the third criterion has been challenging to fulfill. However, with Bangladesh’s substantial ship recycling volumes, its ratification of the HKC could pave the way for major flag states or a coalition of smaller flag states to accede, satisfying the second criterion. If this happens, the HKC will come into force 24 months later.
While Bangladesh’s commitment to the HKC is welcomed, it’s important to note that the convention’s entry into force will not solve all concerns regarding ship recycling capacity. Enforcement of the convention by flag states and recycling states may vary, and conflicts with other approaches, such as the one adopted by the EU, can further complicate the regulatory environment surrounding ship recycling. This issue remains poorly understood by many in the maritime industry.
Ship owners, even those with modern fleets, need to have plans for the recycling of their vessels to comply with environmental regulations. Lenders and insurers increasingly expect ship owners to have recycling plans in place, as unforeseen circumstances such as market collapses or vessel losses can arise. The risks of legal liability and reputational damage related to non-compliant recycling are significant.
Compliance with international conventions is generally routine for ship owners, but the risk of legal liability and reputational harm is real for those who fail to plan ahead or handle recycling incorrectly. Ship owners must familiarize themselves with the regulatory environment surrounding ship recycling, including the Basel Convention, the EU’s Waste Shipments Regulation, and Ship Recycling Regulation. Developing a ship recycling policy that aligns with regulatory obligations and environmental commitments is crucial for mitigating risks.
The absence of a global regulatory regime for ship recycling creates a two-tier system, with some jurisdictions requiring compliance with regulations while others operate without such regulations. Even if the HKC comes into force, this system may persist, although efforts to reduce the gap between tiers are expected. Ship owners are left to navigate conflicting regulations and, where regulations don’t apply, establish voluntary rules and best practices.
Non-compliance with applicable regulations can lead to criminal prosecution, particularly in northern Europe, the UK, Australia, and other jurisdictions. Additionally, there is a growing risk of establishing liability for ship owners or managers in cases of death or injury to ship recycling workers. Charterers and stakeholders, including those in the retail sector, are likely to scrutinize the environmental policies of their suppliers, including ship recycling policies. Activist investors, such as Norway’s sovereign wealth fund, also exert influence and have expressed their stance on ship recycling.
Ship recycling is a complex and reputationally challenging business, but ship owners can develop policies and procedures to approach it with confidence. Structuring deals and drafting contracts with careful consideration can help mitigate risks and allocate liability appropriately.
Credit: Baltic Index
