Scrapping

Introduction

Ship recycling is a final important part of a ship’s life. The process can involve a direct negotiation between the shipowner and the recycling yard, while the most common practice includes participation of a reseller entity (“Cash Buyer”). Ship reflagging is a common practice in the frame of ship recycling, enabling selling to the higher paying markets of South Asia.

Minimizing the environmental footprint of recycling and improving working conditions in recycling yards are the objectives of international Conventions and Regulations. The international community is promoting their adoption as state laws, so they can be binding for the yards. In all cases, a present requirement of recycling yards is to formulate and follow a plan of ship recycling procedures.  A detailed review of issues pertinent to ship recycling can be found in Mitsa (2019), EPISLON (2020) and in a recent report of DNVGL (2020).

The modeling work undertaken by the NTUA team in the frame of VesselsLife.com includes developing decision tools for supporting ship end of life. The tools are based on a proper adaptation of econometric techniques (binary logistic regression). The present Deliverable first presents main issues associated with ship recycling, and outlines the mathematical approach for developing the decision tool; the tool concerns handysize bulkcarriers, subject to Long Term Chartering, and Short Term Chartering. Next, model development and validation are presented. Finally, results are presented, indicating the effect of varying the model parameters on the calculated values of a proper parameter, the Scrapping Advisor Index (SAI), for a representative case.   

Ship Recycling Process   

Ship recycling can follow two practices. First, the shipowner negotiates directly with the recycling yard, and comes to a selling agreement. Second, and most commonly, the shipowner involves a shipbroker, who identifies a “Cash Buyer” company, which buys the ship, and sells it to a recycling yard. “Cash Buyer” companies are specialized in the dismantling market, and can offer an attractive price per Long Ton of Light Displacement Tonnage, taking into account the global market possibilities. (It is noted that 1 Long Ton equals 1.016 Metric Tons.)

A Cash Buyers becomes, after the purchase (in cash), the legal owner of a ship. Given existing legal issues, a common procedure followed by a Cash Buyer is to reflag the ship; this makes selling to higher paying markets, as those of South Asia (Bangladesh, India and Pakistan), feasible. It is noted that, in certain cases, for example those associated with hazardous materials, ship selling or even selling and reflagging, does not release the initial shipowner from legal liabilities. 

Regulatory Framework of Ship Recycling 

Worldwide concern for minimizing the environmental footprint of shipping nowadays involves the ship end of life phase. Thus, ship end of life is no longer conceived as a demolition/scrapping process, but rather as a recycling one. Ship recycling is subject to a complex international regulatory framework. Regulations are nonetheless non-binding, unless adopted as state laws by countries operating recycling yards; the international community, as represented by corresponding Organizations, is making a substantial effort in this direction. In the present section, reference is made to the main Conventions and Regulations determining ship recycling.  

Basel Convention  

The Basel Convention (http://www.basel.int/) regulates the transboundary transport of hazardous waste, and includes issues pertinent to aged ships. The Convention came into force in May 5, 1992, in the frame of the United Nations Environment Programme - UNEP, and has been ratified by 181 countries. The Convention forbids the export of hazardous waste in countries which are not members of the Organisation for Economic Cooperation and Development (OECD).  

Close to its end of life, a ship commonly contains hazardous materials; these include asbestos, Polychlorinated Biphenyls (PCBs), oil residues, etc. Thus, aged ships are subject to the Basel Convention, i.e., hazardous materials should be removed before recycling. Application of the Basel Convention to the maritime sector is complicated by the fact that a number of the countries offering attractive recycling rates, as Bangladesh, India, Pakistan and China, are not OECD members. The legal constraints imposed by the Basel Convention can nonetheless be circumvented by practices as ship reflagging. An Amendment of the Basel Convention, dictating a complete prohibition of hazardous waste export, addresses the issue, however it has not yet been implemented. 

Hong Kong Convention

The Hong Kong Convention (HKC) (http://www.imo.org/) has set regulations for the safe and environmentally sound ship recycling. The Convention was formed in May of 2009, in the frame of IMO, and was initially signed by five countries (France, Italy, the Netherlands, Saint Kitts and Nevis, and Turkey). The Convention applies to all ships except those under 500 GT, non-commercial state ships (for example, warships), as well as ships traveling to state waters and having the state flag. The Convention forbids the recycling of a ship with a flag of a country that belongs to the Convention to a recycling facility of a non-Convention country. In the frame of setting regulations to the recycling yards, the Convention also sets particular requirements for reports and certifications.  

A main feature of the Convention is that beaching recycling is not forbidden, with the goal of including the South Asia recycling yards. This should be correlated to the following considerations associated with an exclusion of these yards: (a) an exclusion would initiate economic problems for their countries, and also affect the global economy, (b) it would cause a reluctance of several countries to adopt the Convention, and (c) it could initiate a domino of flag change initiatives.

Worldwide enforcement of the Hong Kong Convention is foreseen 24 months after fulfilment of the following requirements: (i) a minimum of 15 countries sign the convention, (ii) the fleet of these states should account for at least 40% (in terms of GT) of the global fleet, (iii) their total maximum annual ship recycling volume over the past 10 years should exceed 3% of the GT of the corresponding total fleet. Regarding requirement (i), it is noted that, up to date, 15 countries have already signed the Convention. With respect to (ii), only 29% out of the required 40% is fulfilled, while for (iii), fulfillment of 0.56% out of the required 3% is noted.

European Union Ship Recycling Regulation  

The European Union Ship Recycling Regulation (EU SRR) (https://eur-lex.europa.eu/legal-content/) adopts the Basel Convention, as well as HKC.  The Regulation came into force in November 20, 2013, and applies to ships that have flags of EU member states. These ships are characterized as hazardous wastes; thus, their export is forbidden. Further, they can only be recycled in OECD countries, in particular only in recycling yards which are included in the corresponding list of the European Union. With respect to HKC, EU SRR includes two additional hazardous materials, perfluorooctane sulfonate (PFOS) and hexabromocyclododecane (HBCDD).

EU SRR is not an International Convention; consequently, EU does not have the jurisdiction to impose the Regulation demands to the recycling yards of third countries. Nonetheless, these yards can become eligible to provide their facilities to EU ships, after undergoing a certification procedure, which includes the following prerequisites: (a) Compliance with article 13 of the Agreement, which dictates adoption of certain international Conventions, and sets guidelines for issues such as safety measures, training of workers and downstream waste management. (b) Verification from an independent inspector regarding infrastructure. It is noted that the yards accept the possibility of a sudden inspection from the EU Commission or its Representatives. The European List of certified recycling yards was first established on December 19, 2016, and last updated on January 22, 2020. Currently, it contains 41 yards, including 34 facilities located in 12 EU member states and in Norway, six facilities in Turkey, and one facility in the USA.

Stockholm and Minamata Conventions

Two additional Conventions, the Stockholm Convention (May 17, 2004) (http://www.pops.int/) and the Minamata Convention (August 16, 2017) (http://www.mercuryconvention.org/), apply to shipping. They regulate persistent organic pollutants (POPs) like Polychlorinated biphenyls (PCBs), and mercury, respectively.

Remarks on the Regulatory Framework  

Sections 3.1 to 3.4 have highlighted the regulatory framework regarding ship recycling. With reference to this framework, the following points need to be underlined. 

The International Labour Organization (ILO) has formulated non-binding directives titled “Health and safety in the demolition market: Guidance for the countries of Asia and Turkey” (https://www.ilo.org/). These directives consist of two main parts: (a) a national framework, and (b) safety operational measures, to be adopted by the recycling yards. The directives are setting serious guidelines for improving ship recycling.

Regarding the central issue of hazardous materials, IMO has introduced the concept of “green certificate”, a record which should include all hazardous materials during ship construction, and should be updated with any change in materials and equipment during the ship’s life cycle. The record should be delivered by the ship’s final owner to the recycling yard. 

Regarding the actual prospects of improving ship recycling, IMO, in his corresponding directives, has concluded that the final responsibility for the existing yard conditions lies on the grounds of governments. Evidently, an improvement on a global scale is not feasible without the consent of the key countries hosting recycling yards. With respect to South Asia yards, it should be noted that, despite the deficiencies associated with workers’ safety and adverse effects on the environment, several stakeholders in these countries make substantial efforts to improve standards and meet increasing expectations. In particular, Bangladesh has developed the Bangladesh Ship Recycling Act, 2018, while India has developed ship recycling regulations, such as the Ship Breaking Code, 2013, and, more recently, the Ships Recycling Bill, 2019, which essentially consists in an adoption of HKC; Pakistan has not yet developed a national law (DNVGL, 2020).  

With reference to certification issues, it is noted that a number of recycling yards provide Statements of Compliance with HKC. However, these Statements cannot have a solid legal substance, as HKC has not entered into force, and there are no HKC-approved recycling facilities. This creates room for different interpretations of certain rules, and varying practices.

Second Hand Market in Ship Recycling     

Second hand market is an extensive activity associated with ship recycling, especially in South Asian countries (for example, India’s Alang recycling yards). The market is associated with the repair and reuse of machinery and equipment, such as cranes and engine components, electric devices and furniture located in the dining areas, as well as ship's sanitation equipment (sinks, washing machines), TVs, chairs, tables, cooking machines and other devices. Second hand market complements recycling of steel and other precious metals (for example, aluminum and copper). The market is hardly existing in Europe and Turkey, due to the lack of buyers, and the associated preference for new equipment.

Inadequate strategies and practices for second hand market can lead to criminal liabilities, reputational damage, loss of investors and reduced access to finance. To our knowledge, there are at present no defined, established or commonly accepted certification schemes in place to regulate second hand market. This regulatory gap should be considered by international Organizations.

PRACTICES OF RECYCLING YARDS ALONG THE GUIDELINES OF CONVENTIONS AND REGULATIONS 

To follow Convention guidelines and Regulation requirements, recycling yards should formulate and follow a very detailed plan of ship recycling procedures (Ship Recycling Facility Plan - SRFP). The plan should be in accordance with the MEPC.210(63) guidelines of the Marine Environment Protection Committee (MEPC) (Annex 4, 2012), and include the following: (a) process definition-description, (b) vessel acceptance flow chart, (c) vessel acceptance criteria, and (d) acceptance documentation (DNVGL, 2020).    

Regarding process definition-description, it is important that the details of the important process of ship hull cutting are defined in the SRFP. A proper and safe cutting process should include the following three steps.   

(i) Primary cutting: Consists in cutting the hull and superstructure into blocks, and is carried out in dock, alongside or in the intertidal zone. The SRFP definitions should include safety precautions for the case that a block falls onto an exposed double bottom. Further, SRFP should prescribe cutting of the double bottom, which may result in sea pollution from residues.  

(ii) Secondary cutting: Consists in cutting the blocks into smaller pieces (panels and beams), and should be carried out in an impermeable floor with drainage.

(iii) Tertiary cutting: Consists in further cutting the outcome of secondary cutting, into pieces of a shape and size determined by buyers of steel.

It is noted that, in addition to the market of ferrous materials, ship recycling is also of interest to the market of the (more expensive) non-ferrous materials (as aluminum and copper). It is further noted that planning procedures and technologies used by ship recycling yards may vary substantially. In particular, cutting may involve advanced 3D modeling, low tech approaches as hand sketches and manual calculations, or even a completely empirical approach (DNVGL, 2020).    

With respect to hazardous materials, the SRFP should prescribe detailed procedures, following the international Conventions; most of those have already been adopted as state laws by the major ship recycling states. Adoption of the international Conventions by major recycling countries is presented in Table 1. Despite a Convention’s adoption by a country (as a state law), its guidelines may have not been fully implemented. Thus, it is important to ensure that hazardous materials are disposed at a waste management facility, with a corresponding precise plan included in SRFP. Hazardous materials can be categorized as follows: (a) materials contained in ship structure and equipment, (b) operationally generated wastes, and (c) stores. In particular, hazardous materials in ships can include asbestos, PCBs, TBTs and ozone-depleting substances, PFOS, heavy metals (lead, mercury, hexavalent chromium and cadmium), brominated flame retardants (PBB, PBDE, HBCDD), SCCP, PCN and radioactive materials.  

Finally, with respect to legal issues, it is noted that ship selling (from the shipowner - Cash Buyer to the recycling yard) should follow the national legislation of the yard state, even in the absence of an approval authority. Both parties are legally bound by international agreements, and, when those have not yet been adopted by the yard state, the parties should follow a complying practice. Legal obligations also include the sufficient training of yard workers (for example, in handling hazardous materials), as well as workers’ rights (for example, minimum wage and insurance), according to ILO guidelines.  

Table 1. Adoption of international Conventions by main recycling states (DNVGL, 2020).

	Basel Convention	HKC	Stockholm Convention
India	✓	✓	✓
Bangladesh	✓	-	✓
Pakistan	✓	-	✓
Turkey	✓	✓	✓

VesselsLife.com: MODULE DEVELOPMENT FOR SHIP END OF LIFE DECISION 

Modeling Framework

The preceding sections have highlighted the main issues associated with ship recycling, in particular the legal framework, and the procedures and practices followed by the parties involved. From the point of view of the shipowner, it is essential that the decision on terminating a ship’s lifetime is made on a solid ground, using suitable quantitative methods. In this section, a proper modeling framework for an end of life decision is presented. This framework is implemented for developing two end of life computational modules, pertinent to handysize bulkcarriers. Model validation and results are presented and discussed.

Validated end of life models are based on the econometric technique of binary logistic regression, and produce a suggested value of a proper parameter for ship recyling, the Scrapping Advisor Index (SAI). The final variable to be determined is binary in nature, acquiring a value of 1 for a “recycle” suggestion, and a value of 0 for a “not recycle” one (Knapp et al., 2008).   

The essence of binary logistic regression is contained in Eq. (1), where the n independent variables x_icorrespond to important factors affecting the end of life decision, and b_i are corresponding weight factors, calculated based on existing data. It is noted that the values of b_i can be either positive or negative, corresponding to an increased or decreased Scrapping Advisor Index, respectively.   

  (1)

For ship end of life applications, important independent variables include (Knapp et al., 2008):

·         Freight rates (earnings), for example, in terms of the Baltic Exchange Rate, or in terms of US dollars per day

·         Recycling prices in terms of $/LDT

·         Ship’s Age

·         Ship’s DWT

·         Second hand market rates    

·         New-building prices

In particular, the end of life decision is expected to depend strongly on the ship’s age, main characteristics as the Deadweight (DWT), and the state of shipping market. On the other hand, literature studies have shown that there is a high correlation between second hand prices and earnings, as well as between new building prices and recycling prices (Knapp et al., 2008); this means that a leaner modeling approach, excluding second hand and new building prices from the list of independent variables, is still realistic, and is therefore adopted in the present work. Equation (1) thus takes the specific form of Eq. (2). In all cases, the values of weight factors (Eq. (1)) are expected to have a clear deviation between different ship types.  

Less important variables include the presence of a double hull, changes in the ship’s classification society, while safety and vetting inspections, as well as casualties, give a mixed result regarding the recycling decision (Knapp et al., 2008).      

                                    (2)

Applying end of life modeling evidently requires data for the values of independent variables. Reliable data can be found in associated commercial databases; important databases are listed next. 

·         Lloyd’s Register – Fairplay

·         Lloyd’s Maritime Intelligence Unit

·         Clarksons Research Services

·         Clarksons Shipping Intelligence Network

In the course of VesselsLife.com, the NTUA team has developed a decision tool on ship’s end of life using the approach of binary logistic regression, and tested it for the representative ship type of handysize bulkcarriers. The development of associated computational modules and representative results are highlighted in the following sub-section.   

Development of Modules and Results   

Development of the present end of life decision support tool has utlized extensive data of vessels of the global commercial fleet from the Clarksons Shipping Intelligence Network database. Two computational modules have been developed, corresponding to handysize bulkcarriers subject to: (i) Long Term Chartering (contracts of 1, 3 or 5 years), characterized by a very mild variation of freight rates. (ii) Short Term Chartering (chartering for one trip or up to 6 months), also characterized by a mild variation of freight rates. It is underlined that the complexity of the freight market should be taken into account in developing End of Life decision support tools, i.e., each ship type and individual categories should be treated separately. For handysize bulkcarriers,  a proper categorization accounts for vessels subject to Long Term Chartering and Short Term Chartering. It is finally noted that the modules developed account for the Bangladesh recycling prices, which are the most competitive ones in the global recycling market.

Long Term Chartering Module

Developent of the Long Term chartering module has utilized 23 representative ships, carefully selected from the Clarksons Shipping Intelligence Network database. Selection of these ships has considered the following factors: (a) The experience of the NTUA team, (b) Including a fundamental set of representative important cases, (c) Taking into account the accuracy of the method, and, in this context, avoiding an excessive size of the database created. Considering the above factors, the following independent variables have been included in the present model development: (i) earnings (in US dollars per day), (ii) recycling price (in US dollars per ldt), (iii) ship’s age (in years), (iv) ship's DWT (in tn).

Implementing Binary Logistic Regression has yielded the values of coefficients b_i; they are presented in Table 1.

In a next step, the model has been validated against seven cases of scrapped vessels, not included in the model development. Table 2 presents the values of independent values, as well as the computed value of the Scrapping Advisor Index (SAI), for each of the seven cases. For all seven scrapped vessels, the calculated value of SAI is higher than 0.5, verifying the accuracy of the present approach.

Finally, the model performance has been tested in terms of varying the independent variables, i.e., the economic parameters, and the ship’s age and DWT, on the calculated value of P. Here, variation has been performed with respect to a representative reference ship profile, characterized by the following values of the model parameters: (i) earnings of 9700 $/day, (ii) recycling price of 380 $/ltd, (iii) ship’s age of 26 years, and (iv) DWT of 24700 tn. Results are presented in Figures 1 to 4, and further support the accuracy of the present development, verifying: (i) a decreasing SAI at increased earnings (Figure 1), (ii) an increasing SAI with recycling price (Figure 2), (iii) an increasing SAI with vessel’s age (Figure 3), (iv) an increasing SAI with DWT (Figure 4). All trends are in accordance with the sign of the corresponding b_i coefficient (Table 1).

 

Table 1. Calculated values of coefficients of Long Term chartering module

 

Table 2. Long Term chartering module validation

 

Figure 1. Long Term Chartering Module: Effect of earnings on the Scrapping Advisor Index.

 

Figure 2. Long Term Chartering Module: Effect of Recycling price on the Scrapping Advisor Index.

 

Figure 3. Long Term Chartering Module: Effect of age on the Scrapping Advisor Index.

 

Figure 4. Long Term Chartering Module: Effect of DWT on the Scrapping Advisor Index.

 

Short Term Chartering Module

Development of the Short Term chartering module has utilized 24 representative ships; as also done for the case of the Long Term module, they were carefully selected from the Clarksons Shipping Intelligence Network database. The same factors taken into account for the Long Term module were also considered here.  

The values of coefficients b_i were calculated by means of Binary Logistic Regression, and are presented in Table 3.  

Next, the model was validated against six cases of scrapped vessels, not included in the model development. Table 4 presents the values of independent values, as well as the computed value of the Scrapping Advisor Index (SAI), for each of the six cases. For all six scrapped vessels, the calculated value of SAI is higher than 0.5, verifying the accuracy of the present approach.  

Finally, the model performance has been tested in terms of varying the independent variables, i.e., the economic parameters, and the ship’s age and DWT, on the calculated value of P. Variation has been performed with respect to a representative reference ship profile, characterized by the following values of the model parameters: (i) earnings of 9100 $/day, (ii) recycling price of 380 $/ltd, (iii) ship’s age of 26 years, and (iv) DWT of 24850 tn. Results are presented in Figures 5 to 8, and further support the accuracy of the present development, verifying: (i) a decreasing SAI at increased earnings (Figure 5), (ii) an increasing SAI with recycling price (Figure 6), (iii) an increasing SAI with vessel’s age (Figure 7), (iv) an increasing SAI with DWT (Figure 8). The trends are in accordance with the sign of the corresponding b_i coefficient (Table 3).

 

Table 3. Coefficients of Short Term Chartering module

 

 

Table 4. Short Term Chartering module validation

 

Figure 5. Short Term Chartering Module: Effect of earnings on the Scrapping Advisor Index.

 

Figure 6. Short Term Chartering Module: Effect of Recycling price on the Scrapping Advisor Index.

 

Figure 7. Short Term Chartering Module: Effect of age on the Scrapping Advisor Index.

 

Figure 8. Short Term Chartering Module: Effect of DWT on the Scrapping Advisor Index.

 

Summary

The present document has highlighted the main issues associated with ship recycling: legal framework, and the procedures and practices followed by the parties involved. It has also presented an outline of the Binary Logistic Regression, used by the NTUA team for developing a decision tool for ship end of life applications. Two decision support modules were developed for the representative case of handysize bulkcarriers, subject to: (i) Long Term Chartering, (ii) Short Term Chartering. Here, an extensive established database of representative global fleet vessels, including scrapped vessels and vessels in operation, has been used. Model validation and representative results have been presented.

 

 

References

1.       DNVGL, Ship Recycling: Navigating a Complex Regulatory Landscape, 2020.

2.       EPSILON, Holistic Optimisation of Ship Design and Operation for Life Cycle, 2020.

3.       Knapp, S., Kumar, S. N. & Remijn, A. B. Econometric analysis of the ship demolition market. Marine Policy, 32(6), 1023–1036, 2008.

4.       Mitsa E-A. Ships’ demolition, recycling and reuse of materials. Master’s thesis, Dept. of Maritime Studies, University of Piraeus, 2019.

5.       Marine Environment Protection Committee, ANNEX 4 – RESOLUTION MEPC.210(63). Guidelines for Safe and Environmentally Sound Ship Recycling, 2012.