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Ship Recycling Industry

Scrapping ships (also known as ship breaking or ship demolition) is a dangerous and controversial part of the shipping business. Ships have a life span of 20 – 30 years – sometimes a little more -sometimes a little less. Ships wear out and/, or there may be a lack of spare parts. After a while, they no longer make sense economically. The shipowner needs to make a decision – continue to repair or scrap.

The scrapping process involves selling the ship to a breaker located now mostly in South Asia- although there are scrap yards around the world. The steel and the ship's parts are broken up and sold for reuse. The price paid for any given vessel depends on its size, the shipping market, the steel market, the number of ships available to be scrapped, among other factors. When the shipping market is weak, for example, an oversupply of available vessels and low charter rates, ship owners may be more tempted to scrap a vessel. In the most serious shipping recessions even relatively new vessels may be scrapped.

Container ship laden voyage
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The shipbreaking process involves dismantling an obsolete vessel's structure for scrapping or disposal, conducted on a dismantling yard. It involves a wide range of activities, from removing all the gear and equipment on the ships to cutting down and recycling the ship's infrastructure. It is a challenging process due to the ships' structural complexity and the environmental, safety, and health issues involved. Over the years, the scrapping industry has been subject to intense criticism due to the obvious environmental risks posed. Many ship breaking yards operate in developing nations with little to no meaningful environmental law. It could result in the escape of toxic materials into the environment and health problems among yard workers, the local population, and wildlife.

The international shipping community and some prominent ship breaking nations have worked together to reduce the potential environmental hazards that shipbreaking poses. Some say that shipbreaking regulations should be included under the International Maritime Organization's (IMO) MARPOL (Marine Pollution) agreement. However, since the ships are broken apart on land and not at sea MARPOL does not apply.

In 2009, the IMO drafted the Convention for the Safe and Environmentally Sound Recycling of Ships, also known as the “Hong Kong Convention” . However, it is not yet in force. The Hong Kong Convention would place much stricter environmental restrictions on shipbreaking methods. The IMO states:

Regulations in the new (Hong Kong) Convention cover: the design, construction, operation and preparation of ships to facilitate safe and environmentally sound recycling, without compromising the safety and operational efficiency of ships; the process of ship recycling facilities in a safe and environmentally rational manner; and the establishment of an appropriate enforcement mechanism for ship recycling, incorporating certification and reporting requirements… Ships to be sent for recycling will be required to carry an inventory of hazardous materials, which will be specific to each vessel.
The skeletal remains of a ship at a shipbreaking yard in Shitakundo, some 16 kms from Chittagong, Bangladesh, on April 19, 2009. Image by Munir Uz Zaman
Skeletal remains of a ship in chittagong scrapeyard

In addition to environmental concerns, many shipbreakers have drawn human rights activists' attention because of the questionable labor practices used. This includes the use of child labor, unsafe conditions, and exposure to toxic substances. These concerns, among others, have been associated with shipbreaking.

There are companies within the ship recycling industry that operate as "cash buyers." They purchase ships from ship owners for cash and, in turn, sell the vessel to a scrap yard. The cash buyer will often crew the vessel, change her flag, insure her, and arrange for the vessel's final voyage to the scrap yard. Under a best-case scenario, the cash buyer will charter the vessel out to carry cargo to a port at or near the port where the vessel will ultimately be scrapped. Scrapping is part of the shipping business, and if you work as a cash buyer, you will play an important role. They are traders in ships. Scrapping helps stabilize the shipping market.

Shipowners are also familiar with the scrapping business and could certainly negotiate directly with the scrap yards. However, they often prefer to sell to a cash buyer who arranges for the actual demolition. This avoids the risk of non- payment by the scrap yard. The ship owner's receipt of payment is secure and is not dependent upon receiving funds from the end ship recyclers. Cash buyers may also relieve the ship's Owner of the many technical and legal issues that often arise out of a scrapping operation. Therefore, cash buyers who need to have a thorough understanding of vessel valuations and the scrap market also need to be conversant in ships' commercial operations.

Related articles
  1. General Average & The York Antwerp Rules
    The law of General Average is a principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. It is a unique maritime concept. One of the most ancient aspects of shipping is the general average. When an intentional sacrifice of property is made onboard a ship to avoid a common peril, the law of general average requires all parties to the maritime adventure that benefited by the intentional sacrifice to contribute money on a pro-rata basis.

  2. Ship recycling safety guideline
    In general, ships are not scrapped but are recycled. In the process of recycling ships, almost nothing goes to waste. Steel is reprocessed, generators are reused ashore, batteries find their way into the local economy, oils onboard become reclaimed oil products for use in as fuel in rolling mills or brick kilns and fittings can be reused on land. Recycling makes a positive contribution to the global conservation of energy and resources.

  3. P&I Clubs guideline
    The P&I Clubs are correctly called Protection and Indemnity Associations and number around 20 worldwide, with the majority being the United Kingdom-based. The shipowner in taking out insurance with a particular association becomes a member of that Club. The Clubs are mutual, which means that all costs involved in providing cover or paying out a claim to anyone member are shared by all members. It .ls achieved by setting a rating or premium for the Owner, known as an "advance call," and is based on the Owner's history and exposure to risk.

  4. Marine cargo insurance underwriters
    Ships operate in a difficult environment, and cargo may be lost or damaged during domestic and/or international transit. However, ocean carriers are well protected under the law against responsibility for loss or damage to cargo that might arise during the transportation of goods.

  5. Hull & Machinery underwriters
    A hull and machinery underwriter provides insurance coverage for boats, ships, and other naval assets. It gives protection to shipowners against the hull, machinery, and onboard equipment damages in the event of any perils encountered while on the water, including collision with another vessel, natural obstacles, other structures, and storms and other natural disasters.

  6. Procedure for insurance claim
    A ship is insured against various risks by the Owner taking out different insurance policies. But for many reasons, insurance claims often being denied by marine insurance providers. A shipowner can prosecute a claim accurately and successfully. The Master needs to send full details and documentation relating to any accidents or incidents resulting in damage to the ship, property, cargo, or personal injury. Nautical Institute publication, "The Mariner's Role in Collecting Evidence," is a good source of guidance to shipmasters.

  7. The role of a insurance broker
    Marine insurance brokers play a significant role in helping companies and individuals procure marine cargo insurance, hull and machinery insurance, P and I cover, and other forms of insurance as the case may be. They can canvas the worldwide marine insurance market. The goal is to assist in getting the best terms of insurance cover at the most competitive premium rates.

  8. Marine salvage procedures
    Marine salvage contracts fall into two main categories. First, those which enable salvage services to be rendered on the basis that the compensation to be paid to the salvors will be determined after the completion of the services, either by settlement or if the parties cannot agree, then by a court or by an arbitrator

  9. Role of a freight forwarder
    A freight forwarder, forwarder, or forwarding agent, is a person or a business entity that organizes shipments for individuals or corporations to get the goods from the point of origin to the desired market or from a producer directly to the customer or a distribution center. A freight forwarder dispatches shipments via a common carrier and books or arranges space for those shipments on behalf of shippers.

  10. How a Non-Vessel Operating Common Carrier ( NVOCC) differs from a freight forwarder?
    A NVOCC (Non-vessel Operating Common Carrier) is "a common carrier that holds itself out to the public to provide ocean transportation, issues its bills of lading or equivalent documents, but does not operate the vessels that transport cargo." An NVOCC is a carrier. It enters into a contract of carriage with the cargo shipper. It undertakes responsibility for the carriage like a shipowner that owns a vessel. However, the NVOCC is a carrier that does not own or operate the vessel used to perform the carriage.

  11. P & I Insurance cover and Members of IG club
    At the heart of P and I is the concept of "mutuality." Shipowners form a nonprofit association to protect and indemnify one another against third party liabilities. Unlike commercial insurance, the insured ship owners, meaning the "members" of the Club, are both the insurer and the insured. Each P and I Club is controlled by its members.

  12. Role of shipbrokers
    London and New York have always been viewed as major shipbroking centers. In recent years, many U.S. ship brokerage firms have relocated to offices in Stamford and Greenwich, Connecticut, and nearby communities. Of course, there is a large shipbroking presence in Singapore, Hamburg, and other cities.

  13. Sale & purchase brokers
    Sale and Purchase Brokers (S and P Brokers) are highly specialized shipbrokers. Their clients are typically ship owners. S and P Brokers serve as intermediaries in the business of selling and buying ships. They assist in the sale and purchase of second-hand tonnage and newbuilding. Their compensation is normally in the form of a commission.

  14. Ship agency services
    A ship's agent works on the front lines, and there might involve an unlimited number of issues in port. The agent must work towards solving these problems. An agent needs to learn a lot fast about ships and cargo.

  15. Role of a ship management company
    Ship management companies are located in the world's maritime centers. Many companies manage large fleets on behalf of numerous ship owners. Many of the larger management companies also own vessels. Essentially, the decision to outsource a ship management function is a financially driven one. In most cases, outsourcing of ship management services means that the shipowner can conduct business at a reduced cost, primarily due to the reduction of in-house staff and resources.

  16. Ship finance considerations
    Ship finance is somewhat different from other asset-based lendings such as real estate finance. After all, shipping business earnings can be quite volatile and, therefore, less predictable. Additionally, the collateralized asset (the ship) is extremely mobile. The traditional method for ship finance was private resources.

  17. Ship registry procedure
    To trade internationally, a ship must have a nationality. Without being registered under certain flag states, a ship cannot enter another state's geographic limit. Once registered, a ship becomes subject to the laws of a registering nation. Registration makes the ship entitled to military protection, and therefore it is an extension of that nation anywhere in the world.

  18. Maritime security concerns
    Maritime security issues affect how ship owners, charterers, cargo interests, ports and terminals, and their insurers do business. There is the added expense to deal with. There has also been an increase in the number of international conventions and domestic legislation geared towards furthering maritime security.

  19. How maritime law works in the United States?
    Maritime law used to apply only to American waters within the ebb and flow of the tide. However, it now covers any waters navigable within the United States for interstate or foreign commerce. Admiralty jurisdiction also includes some maritime matters not involving interstate commerce, for example, recreational boating.

  20. The Master’s Responsibility during Salvage Operation
    Request for Salvage - The Master shall normally request salvage after consultation with the Company. However, he has complete authority to seek salvage assistance without reference to the Company if he considers this necessary.

  21. Requirement of towing arrangement in oil tankers, readyness, & training onboard
    All Oil, Chemical and Gas Tankers above 20000 DWT, constructed on or after 1st July, 2002, are equipped with an “Emergency Towing Arrangement (E.T.A.) both Forward And aft to provide the ship with a rapidly deployed towage capacity in an emergency.

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