A European Parliament vote on 4 November could shape the future of the global ship recycling industry. The decision will decide whether two ship recycling yards in India become the first yards in the Indian subcontinent to be approved under the European Union Ship Recycling Regulation (EU SRR), potentially broadening the options for shipowners looking to dispose of aging vessels.

The facilities are Shree Ram Vessel Scrap and YSI Recyclers. Both want to be on the European List of Ship Recycling Facilities. If they give their approval, it will be a major step forward for a region already at the center of the international ship recycling business.

But they could be excluded because of opposition from the Environment Committee of the European Parliament. This could further reduce the number of approved recycling facilities in the world, increasing the risk of a capacity shortage as tens of thousands of ships reach the end of their working lives.

Growing imbalance between the demand for recycling and the capacity to recycle

The scale of the problem is substantial. Bimco estimates that more than 16,000 vessels, equivalent to about 700 million deadweight tons (dwt), will need to be recycled in the next decade.

That volume would be more than double the number of ships recycled in the previous ten years and almost three times the deadweight tonnage in that period.

Bimco said that the approved recycling network today was not in a position to absorb such an increase. The limited number of European-approved facilities, especially in Turkey, do not have the capacity and infrastructure to deal with the projected number and size of vessels.

The implications for shipowners could be significant. There is less competition and limited access to recycling facilities which may undermine returns at the end of life. Operators may have to pay to have vessels scrapped that would otherwise earn revenue from scrap sales.

An even more disturbing scenario is that unscrupulous operators may scuttle unwanted ships, creating serious pollution hazards and potentially devastating environmental consequences.

Geopolitical tensions slowing ships’ arrival at recycling yards

The geopolitical instability which continues to affect international shipping markets is becoming more and more pressing.

The continued conflicts and the unusually high charter rates have kept many of the older ships commercially active. Others continue to work in markets connected to geopolitical disruptions and with opaque sanctions-related trading activities.

The outcome is that ships which would otherwise have been sent to recycling yards are staying in service longer. Scrap yards are fighting over the available scrap business, which adds another dimension to a tough market already.

Against that background, the decision of the European Parliament is attracting a lot of attention in a sector that is vital to world shipping but often overlooked.

International regulations are in conflict making it difficult to access recycling facilities.

The approval debate additionally emphasizes the complex regulatory framework that governs the dismantling of merchant vessels.

India, Pakistan and Bangladesh have already ratified many recycling facilities under the International Maritime Organization’s (IMO) Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships.

However, compliance with the IMO convention does not in itself grant access to the European Union’s approved recycling list. The facilities are also required to meet the requirements of the EU Ship Recycling Regulation, adding another regulatory hurdle for yards operating across the Indian subcontinent.

The situation is further complicated by another international instrument, the Basel Convention, which restricts the movement of hazardous waste from OECD countries and the European Union to developing nations, including India, Pakistan and Bangladesh, across borders.

Since merchant vessels include hazardous materials, they are subject to these restrictions and cannot be shipped to these countries for demolition.

The majority of countries are parties to the Basel Convention, which means that shipowners have to deal with complex ownership-transfer arrangements and legal procedures if they wish to sell vessels to recycling facilities in the Indian subcontinent.

European shipowners call for Indian yards’ approval

The European Community Shipowners’ Association (ECSA) is urging Members of the European Parliament (MEPs) to vote against the motion against the listing of Shree Ram Vessel Scrap and YSI Recyclers on the European list.

Instead, the association is calling for approval for both facilities, arguing that they have undergone an extensive inspection process and have been thoroughly assessed against the requirements of the EU regulation.

Inclusion would offer shipowners more compliant recycling options at a time when future industry capacity is becoming an increasingly significant issue.

A decision with implications beyond Europe

The results of the November 4 vote haven’t really captured the public’s attention yet, but they could have consequences far beyond the two Indian sites involved.

Denying their applications would reduce the number of approved recycling destinations available to the international shipping industry further at a time when a large wave of ships is expected to reach the end of their working lives.

There are more than 16,000 ships that may need dismantling over the next decade and the availability of suitable facilities is increasingly becoming a strategic issue for shipowners and for regulators and the recycling industry alike.

The outcome could therefore have an impact on the economics of ship disposal for years to come, determining whether owners can continue to get value from end-of-life vessels or face ever more costly and complex disposal arrangements.