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Scrapping a Ship? Proceed with Caution

February 5 2019

With increasing global scrutiny on carbon emissions and disposal of waste, combined with major over capacity in the global shipping fleet, it is no surprise that the EU has turned its attention to the ship scrapping industry.
As of 1 January 2019, vessels flying an EU member state flag can only be scrapped at an EU approved yard. At the date of publication, there were only 26 such yards, 23 of which are in Europe and none of which are in Asia. It is well-known that the majority of ship scrapping has taken place on the Indian sub-continent in recent years and so, considering that EU flagged vessels represent around 10% of the world fleet, this development will have a notable impact on the industry.

Background
In 2006, the EU implemented the EU Waste Shipment Regulation (Regulation (EC) No 1013/2006) (incorporating the provisions of the Basel Convention) which, until now, controlled the shipment of waste within the EU and from the EU to countries that are members of the Organisation for Economic Cooperation and Development (OECD) (“the Regulation”).
The EU Commission has, however, identified “near total non-compliance” with the Regulation which it attributes to:
* The largest, and most experienced, vessel scrapyards being outside the OECD (predominantly in India, Pakistan and Bangladesh) where vessels are beached at high tide and then cut into pieces by local workers;
* The lack of recycling capacity in the OECD for the largest ships; and
* Owners changing a vessel’s flag in advance of the final scrapping voyage to avoid compliance.

The New Regulation
In recognition of this issue, the EU has now implemented the New EU Ship Recycling Regulation (Regulation EU No:1257/2013) (“the New Regulation”) which came into force on 31 December 2018.
Under the New Regulation, all large sea-going vessels sailing under an EU member state flag must be scrapped at one of the approved ship recycling facilities set out on the approved EU list. The list currently includes 26 yards, 23 of which are located in the European Union with two facilities in Turkey and one in the United States.
Twenty-seven non-EU yards have applied to be included on the EU list including thirteen from India, eight from Turkey and four from China. These applications remain under review so, for now at least, there are no approved yards in the Asia-Pacific region.
The New Regulation expressly prohibits beaching vessels, stating that recycling shall only be carried out at “built structures”.

Conclusion
The New Regulation should help achieve the EU’s aim of increasing safe and environmentally sound vessel scrapping, and making it more difficult for ship owners to avoid compliance. However, priority needs to be given to ensuring that additional non-EU yards are added to the designated list and it remains to be seen whether the existing yards have the experience to deal with scrapping large commercial vessels.
Changing a vessel’s flag prior to a scrapping voyage with the intention of evading the New Regulation, and beaching on the Indian sub-continent, will no longer be options for vessels flying an EU flag. Recent judgments from EU Courts have shown that significant fines will be imposed on owners who seek to do so. Shipowners are therefore recommend to seek advice before sending a vessel to the scrapyard.

Should you wish to speak with us concerning any of the matters raised in this article, please refer to your usual contact at the firm or the authors.

Matthew Montgomery
Baris Oztoprak

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