In June 2025, the Hong Kong Convention (HKC) is set to enter into force, establishing a regulatory framework for shipowners and shipyards towards an environmentally sound and safe ship recycling.
Although the convention was initially adopted in 2009, the entering-into-force criteria were met in June 2023 following ratification by Bangladesh and Liberia. In brief these criteria include (i) at least 15 contracting states, (ii) at least 40% of the world's merchant shipping in gross tonnage represented by ratifying states and (iii) ship recycling capacity of not less than 3% of the gross tonnage of the combined merchant shipping of the contracting states. Two years after these conditions were met, the official entry into force will take place, in 26 June 2025.
The HKC will apply to ships of at least 500 gt, flying a flag of a member state as well as to ship recycling facilities operating under the jurisdiction of a member state. One significant requirement for vessels will be the Inventory of Hazardous Materials (IHM). New vessels will need to maintain the IHM, which identifies hazardous materials onboard or contained in the ship’s structure, such as hazardous liquids, highly flammable paints, and other toxic substances. Existing vessels will have five years to comply with this requirement, or before being sent for recycling, whichever comes first.
In addition, each member state must establish standards for the ship recycling yards authorized to operate under HKC requirements, ensuring environmentally friendly management of materials and wastes and safe working conditions. Furthermore, the authorized shipyards must also prepare a Ship Recycling Plan for each specific vessel going for recycling, outlining how the ship will be dismantled and a Ship Recycling Facility Plan in line with HKC regulations addressing issues such as the safety of workers and protection of human health, training of the personnel, safe and environmentally sound disposal of hazardous materials and management systems ensuring compliance with HKC standards.
The implementation of the HKC presents challenges for many shipyards in the Indian subcontinent, especially in Bangladesh and Pakistan, which will need to invest in upgrades to meet the new regulatory standards. In contrast, Indian shipyards appear to be more advanced in terms of complying with the HKC, which could give them a competitive edge in the market. Many shipyards in the Indian subcontinent are likely to face difficulties in meeting these upgrading expenses due to several factors. These include a poor general economic outlook, the depreciation of local currencies against the US dollar, and weak steel markets adversely affected by Chinese imports. Collectively, these issues are limiting the purchasing power of recyclers and their ability to offer shipowners competitive recycling prices, potentially dampening overall market activity.
Taking a broader look to the demolition sector, activity was declined in 2024 with 368 units demolished, versus 449 and 414 units in 2023 and 2022 respectively. As for 2025, alongside compliance with environmental regulations, the challenges faced by the shipyards in subcontinent and steel market fundamentals, geopolitics are expected to play a crucial role in the market’s outlook.
A potential resolution of the ongoing disruptions in the Red Sea would alter trading routes, leading to a reduction in ton miles and an increase in the active tonnage capacity. This may contribute to a softening of freight rates, which could prompt shipowners to consider dismantling older vessels. However, the timeline and full extent of these shifts remain uncertain. Even if the Houthis cease attacks as announced, full reopening of Red Sea trade may not occur before mid-2025. Should the Red Sea trade disruptions be resolved and taking into account the high orderbook in some sectors such as containerships and LNG carriers along with the gradually rising age of vessels across multiple segments, all the above could foster a market environment conducive to increased demolition activity in 2025.
Finally, another factor expected to contribute to the increase in candidate vessels for recycling is the impact of announced sanctions, pushing to demolition older units, linked with sanctioned oil trading.
Data Source: Intermodal