Is the EC proposing illegal demolition?

Continuing European attempts to overturn a ban on sending toxic ships to countries like India and Bangladesh for demolition have long evinced howls of protests from environmentalists. It now appears that even legal experts, including the Council’s own lawyers, are expressing grave concerns at the legality of the move.

Citing leaked European Council legal opinion papers are the source, a British newspaper- The Guardian- now says that the EC’s own lawyers are saying that the proposals may be illegal and against the Basel convention, the international treaty that was designed to reduce the movements of waste between nations, and specifically to prevent transfer of hazardous waste from developed to less developed countries. Under the convention, rich countries must dispose of their own asbestos and other hazardous waste material before sending their ships to developing countries for demolition.

Environmental groups like the Shipbreaking Platform have long claimed that the European proposals were illegal, and would set a precedent in international law. Shipping experts have argued, in addition, that Europe’s proposal to exempt ships from its own legislation was absurd, and would hit at the very foundation of Basel by allowing rich countries to legally export toxic ships to developing countries .

The European Council’s lawyers seem to agree. In a restricted document that the Guardian says it has sighted, the EC legal service says, "[We] consider that there is a serious risk that the … exclusion of ships from regulation 1013/2006 in the manner being proposed could amount to a breach of the obligation not to defeat the object and purpose of a treaty. "

Another environmental toxic watchdog group- the Basel Action Network- stridently criticises what it calls the European Council’s double standards. "The EC's proposal to allow the shipping industry to ignore the Basel convention is scandalous and illegal. It is absurd to imagine that a huge oil company could legally dump their old rusty tanker full of asbestos in Asia when it would be a criminal act for anybody else to likewise export one single barrel of the same asbestos. But that is what the [EC] is proposing," says Jim Puckett of the group.

 Thanks to spiking demolition activity in the current financial crunch, the Europeans sent a vessel a day was sent to Asia to be broken up last year; a 75% increase over 2011. The International Labour Organisation says that workers in shipbreaking yards in countries like India perform jobs that are among the most dangerous in the world.

The World Bank says that Bangladesh alone will have 79,000 tonnes of asbestos and 240,000 tonnes of cancer-causing chemicals dumped on it by ships in the next 20 years. With the Hong Kong Convention not expected to come into force for another decade, there is cause for concern. 

Patrizia Heidegger, executive director of Shipbreaking Platform, says: "To scrap Basel obligations, Europe will be throwing away the very principles it has championed on the world stage, it will be undermining European ship recycling job opportunities, while poisoning some of the world's poorest, most desperate workers”

“It’s a lose-lose-lose proposition, all simply to line the pockets of shipping moguls."

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As race hots up for top ship breaking spot, MoEF clarifies Supreme Court ruling

It remains uncertain who will win the top spot in global ship breaking this year, experts say, pointing out that continuing legislation and court judgements in South Asia will have a major impact on demolition profitability. Meanwhile, in an attempt to assuage fears in Alang and to help Indian ship breaking yards compete better against a resurgent Bangladesh, the Ministry of Environment and Forests (MoEF) has clarified the recent Supreme Court ruling in the country- a judgement that had thrown the business into some disarray.

India will face stiff competition from Bangladesh and Pakistan, analysts warn; the falling Rupee has already hit profitability hard, even though Alang remains the leading ship-recycling yard in the world catering to nearly 90% of Indian demolition activity. The Indian industry has an estimated annual turnover of about Rs 10,000 crore and directly or indirectly affects the livelihoods of 300,000 people.  However, it has lost almost a thousand crores this year because of cash deals- the prevalent custom- in a depreciating Rupee scenario.

Meanwhile, Bangladeshi ship breaking activity- that was almost shut down last year- has accelerated. Reports the well-known demolition newsletter, the GMS weekly, "Bangladesh has indeed been the busiest market of the year so far, opening fully again at the start of the year." 

GMS is still bullish on India. "Having been relatively quiet in the preceding few months due to a struggling currency (which saw some end buyers lose about 20% of the value of their previous purchases), India is now enjoying its moment in the spotlight as deals continue to be tucked away at vastly improved numbers", it says.  

The July 30 Indian Supreme Court judgement apparently upholding the Basel Convention- a treaty on the international movement of hazardous wastes, including ship recycling- had caused some panic in Alang. The ruling said, “... in all future cases of a similar nature, the concerned authorities shall strictly comply with the norms laid down in the Basel Convention ... before permitting entry of any vessel suspected to be carrying toxic and hazardous material into Indian territorial waters.” 

Some buyers had stopped buying ships for scrapping after this ruling, fearing huge losses if the ships were not allowed into India. They also feared that dead vessels would have to be towed from other countries under the SC ruling.  

They should breathe easier now that the MoEF has stepped in to clarify the SC; it has said that the SC's orders issued earlier- in 2007- still apply; these have already been implemented in Alang and elsewhere and should pose no problems. 

Some ship breakers are circumspect about the future, though. "We will have to wait and see. Only after 3-4 months one can say whether India will be able to keep the top title this year as well," said an Alang-based ship-breaker to the Indian Express newspaper before the MoEF clarification.

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Demolition scene roundup

.....the great white hope?

Shipping analysts are looking increasingly at a spike in shipbreaking to counteract the alarmingly high figures for new deliveries scheduled this year. These threaten to stymie any chances of even a short-term recovery in freight markets. As shipowners' profits come under greater pressure, many hope that low freight rates will encourage significantly higher demolition across trades; for now, this possibility seems to offer almost the only glimmer of hope.

Says Intermodal's Theodore Ntalakos "The orderbook for bulk carriers (bigger than 20,000dwt) still stands at just below 2400 bulk carriers, therefore we expect 2012 to be another difficult year", adding that the larger bulk carriers will suffer the most because of high scheduled deliveries. Things are better for tankers, although "we are still experiencing the digestion of the previously swollen orderbook," says Intermodal.

The situation seems to be murkier with boxships. Analysts feel that the larger container vessels- where new supply is concentrated- are more at risk than the smaller ones. The apprehension is that this segment, dependent heavily on the demand for finished goods, may find the going tough in the present economic climate anyway. 

Local developments in Bangladesh- that recently imposed a five percent tax on ships coming in for scrapping- have caused much disruption in that country's demolition businesses as shipbreakers boycotted all new purchases until the issue was resolved. The return of the Bangladesh market is vital to the industry, brokers at Clarkson Hellas say, adding that reports of the scrapping of two Chinese bulk carriers in Bangladesh "have failed to materialise."

In India, shipbreakers at Alang are just recovering from the recent steep rise in the value of the US dollar against the Indian Rupee; the INR has recovered somewhat since then. Bangladeshi issues and the Rupee recovery have meant that Indian breakers have regained the top spot in demolition activity, even though Pakistani breakers next door are offering more competitive rates for scrap. 

"China continues to provide a competitive streak for tonnage completing in the Far East area, however the fast approaching New Year festivities may, next week, ensure a quieter period envelopes the local scene. Currently however, prices levels remain anything from region USD 420-450 depending on the vessels specification" says Clarkson Hellas.

Analysts at Golden Destiny revealed indicative scrap rates last week. "Scrap prices for dry and wet units remain below $500/ldt in Bangladesh with hopes for a firmer rebound," they said. "Pakistan appears to be the most competitive with levels offered $455/ldt for dry and $485/ldt for wet cargo, while China seems to compete with the Indian sub continent region at scrap rates of about $430-$440/ldt". 

Twenty-two vessels are reported to be heading for scrapyards in the middle of January- around 800,000 DWT. India has been responsible for more than a third of this business. Recent activity across markets has, despite local issues, picked up considerably on a week-on-week basis, experts say. This is precipitated, no doubt, by the mini-collapse of the Baltic Dry Index in the last few weeks; a theory that is proved by the fact that the tonnage of bulk carriers headed for demolition has doubled on a WOW basis.  

The industry will be hoping that an even greater number of vessels are sent to the graveyard soon. With the tonnage overhang and new delivery figures being the biggest swords hanging over their heads, a sharp increase in demolition activity will provide a modicum of much needed relief.

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