The Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships is set to enter into force on June 26, 2025. This is a significant development for the maritime industry, as it will establish a global framework for the safe and environmentally sound recycling of ships, reports Breakwave Advisors.
HKC Standards
The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC) was adopted in 2009. However, it entered into force in June 2023 after meeting the necessary criteria: ratification by at least 15 contracting states, representing 40% of the world’s merchant shipping in gross tonnage, and ship recycling capacity of at least 3% of the combined merchant shipping of the contracting states. The official entry into force will take place on June 26, 2025.
The HKC will apply to ships of at least 500 gross tons flying the flag of a member state and to ship recycling facilities operating under the jurisdiction of a member state. A key requirement for vessels is the Inventory of Hazardous Materials (IHM), which identifies hazardous materials on board. New vessels must maintain this inventory while existing vessels have five years to comply or before being sent for recycling, whichever comes first.
Member states must establish standards for authorized ship recycling yards, ensuring environmentally sound management of materials and wastes, as well as safe working conditions. Authorized shipyards must prepare a Ship Recycling Plan for each vessel, outlining the dismantling process and a Ship Recycling Facility Plan addressing worker safety, protection of human health, safe disposal of hazardous materials, and compliance with HKC standards.
Implementation Challenges
The implementation of the HKC presents challenges for many shipyards in the Indian subcontinent, particularly in Bangladesh and Pakistan. These yards will need to make significant investments to upgrade their facilities and meet the new regulatory standards. In contrast, Indian shipyards appear to be more advanced in terms of HKC compliance, potentially providing them with a competitive advantage.
Many shipyards in the Indian subcontinent face difficulties in meeting the upgrading expenses due to several factors, including a poor economic outlook, depreciating local currencies against the US dollar, and weak steel markets impacted by Chinese imports. These factors limit the purchasing power of recyclers and their ability to offer competitive prices to shipowners, potentially dampening overall market activity.
In 2024, demolition activity declined to 368 units, compared to 449 and 414 units in 2023 and 2022, respectively. In 2025, alongside compliance with environmental regulations and the challenges faced by shipyards, geopolitical factors are expected to significantly influence the market outlook.
A potential resolution of the Red Sea disruptions could alter trading routes, leading to a reduction in ton-miles and an increase in active tonnage capacity. This may soften freight rates, prompting shipowners to consider dismantling older vessels. However, the timeline and full extent of these shifts remain uncertain. Even if the Houthis cease attacks, a full reopening of the Red Sea trade may not occur before mid-2025.
Considering the high orderbook in sectors like containerships and LNG carriers, along with the gradually increasing age of vessels across multiple segments, a resolution of the Red Sea disruptions could create a market environment conducive to increased demolition activity in 2025.
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Source: Breakwave Advisors
