The Regulated Fade-Out: Ship Demolition Enters a New Era Under HKC

3 min read

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2025-07-02

The Hong Kong Convention (HKC) officially entered into force on 26 June 2025, exactly two years after ratification and 16 years after its adoption. This landmark regulation introduces stricter rules on ship recycling, particularly impacting bulk carriers registered under flags of convenience, which now must be dismantled at HKC-compliant facilities in Party States.

Compliance Reshapes the Industry

HKC mandates:

Verified Inventory of Hazardous Materials (IHM) for every ship. HKC requires multiple lifecycle surveys:

  • An Initial Survey (to verify IHM)
  • Renewal and Intermediate Surveys (conducted periodically during the ship’s life)
  • A Final Survey prior to recycling, ensuring compliance with the ship’s Inventory of Hazardous Materials (IHM) and dismantling plan Use of certified ship recycling yards with approved environmental and safety protocols.

Scrapping at a Standstill

Despite rising vessel age and favourable regulation:

  • 40 bulkers were scrapped in H1 2025 (-11% y-o-y), totalling 2.36mln Dwt.
  • This follows a weak 2024 and is well below the 10-year average of 155 bulkers—set to be the lowest since 1990.
  • The average age of scrapped bulkers has increased to 29.5 years, up from 23.0 in 2016.

Capacity Crunch & Regional Shake-Up

  • India has 112 HKC-compliant yards, but ongoing upgrades are slowing activity.
  • Bangladesh, now handling 53% of global ship recycling, has only 10 compliant yards, expected to grow to 15.
  • Pakistan has no compliant facilities; Turkey has one.
  • Each Bangladeshi yard needs ~$7mln for HKC upgrades, but funding is scarce—most rely on personal capital or informal lending.

Regulatory Bottlenecks & Uncertainty

  • Many smaller owners lack the necessary International Ready for Recycling Certificate (IRRC).
  • Certain non-Party flag States—notably Panama, Palau, and Togo—may still permit scrapping with only an IHM, bypassing the full HKC framework. This creates regulatory loopholes and raises concerns over inconsistent recycling standards
  • In the EU, stricter Ship Recycling Regulations (SRR) require EU-flagged vessels to be dismantled only at facilities listed on the European List of Approved Ship Recycling Facilities, all of which must comply with heightened safety, environmental, and worker protection protocols.
  • A broader conflict persists between the HKC and the Basel Convention, particularly over jurisdictional overlaps in transboundary movement of hazardous waste. The Basel Ban Amendment prohibits OECD-to-non-OECD waste exports—yet HKC allows ships from developed nations to be recycled in South Asia under regulated conditions. This regulatory friction creates legal ambiguity, especially for EU-based owners, and undermines global alignment.

Looking Ahead

The HKC marks a meaningful step toward safer, greener ship recycling, but significant challenges remain—not least regulatory fragmentation, legal ambiguity, and uneven yard capacity. Demolition volumes continue to fluctuate with regional scrap demand—notably from electric arc furnace operators in India, Pakistan, and Bangladesh—as well as broader global steel dynamics, particularly pressure from competitive Chinese steel exports. This complex backdrop may give rise to pricing dislocations, where compliance-ready, mid-aged ships are undervalued relative to non-compliant peers, presenting strategic opportunities for forward-looking buyers. In the meantime, many owners may opt to prolong vessel trading, deferring green recycling decisions until greater regulatory clarity and yard availability emerge.