Shipbreaking, A Glossary

(c) Amit Dave

 

Every industry has its own jargon, and reading stories about shipbreaking without a good glossary can be challenging. Here are the most relevant terms to follow our reporting:

Cash buyer

Company that specialises in the trade of end-of-life vessels. Cash buyers pay ship owners up front before the ship reaches its final destination and is dismantled. The cash buyer sells the ship to the recycler that offers the highest price for the ship, thereby making a profit with the price difference.

By using cash buyers, ship owners seek to avoid legal, financial and other risks related to the selling of a ship for breaking. It also allows them to claim that they aren’t responsible for the demolition of the ship when complaints emerge about substandard practices, pollution or shipbreaking accidents.

An end-of-life sale with the help of a cash buyer usually includes a change of flag to one of the typical last-voyage flags, and the registration of the vessel under a new name and new registered company (often located in a tax haven) in an attempt to conceal the origin of the vessel.

Flag state

The jurisdiction under whose laws a vessel is registered or licensed, and that is deemed the nationality of the vessel. The flag state has the authority and responsibility to enforce regulations over vessels registered under its flag, including those relating to inspection, certification and the issuance of safety and pollution prevention documents.

Flags of convenience

To avoid responsibility and exploit loopholes in international legislation, the shipping industry has recourse to so-called “flags of convenience”, which see ship owners registering their vessel under the flag of a country that has nothing to do with them or their company. Many countries offer this kind of low-cost registration with the promise of little regulatory control and reduced tax rates. 

To flag out

To change a ship’s flag. An end-of-life sale with the help of a cash buyer usually involves a change of flag to one of the typical last-voyage flags. These include registries of jurisdictions like Tuvalu, Comoros, Palau or St Kitts and Nevis, which offer special registration discounts and little oversight.

LDT

Light displacement tonnage (LDT) is defined as the weight of the ship with all its permanent equipment and usually the weight of permanent ballast and water used to operate steam machinery, but excluding the weight of cargo, fuel, water, ballast, stores, passengers and crew.

GT

Gross tonnage (GT) is a nonlinear measure of a ship’s overall internal volume.

Beneficial owner

The “real” owner of a vessel who is responsible for its recycling. In legal terms, the beneficial owner is deemed to be the ultimate owning entity or representative thereof (whether an individual, company, group or organisation). It is the entity that benefits from the rent and/or sale of the asset.

Commercial operator

The third party managing a ship’s daily operation. These companies do not own the vessel and usually do not take decisions regarding the sale of a vessel.

Registered owner

The company or individual to whom the ship’s legal title of ownership has been registered. This is where “open registry”, “paper” or “name-plate” companies often come in, with ships being registered in countries with low or zero taxes on profits realised from the trading of ships or with lax requirements concerning manning or maintenance. It is common for the registered owner to be a so-called one-ship-company, or a company that owns only one ship.

End-of-life-ship

A ship that has reached the end of its operational life and is ready to be scrapped.

Beaching

The process in which a ship is laid ashore or deliberately grounded in shallow water. Beaching is the leading breaking method. Every year, more than 70% of ships are scrapped on the tidal beaches of Bangladesh, India and Pakistan.

Intertidal beach/zone/area

The area that is above water at low tide and underwater at high tide. In other words, it is the area between tide marks.

Historical capacity

The maximum tonnage (i.e. LDT) recycled by a facility in the past 10 years.

Theoretical capacity

A yard’s real recycling capacity. It is the tonnage (i.e. LDT) a facility is actually licensed to handle.

Statements of compliance with the Hong Kong Convention

Statements of compliance with the Hong Kong Convention are business-to-business agreements between yard owners and classification societies, which act as private consultants rather than as recognised organisations on behalf of countries. These privately issued statements of compliance assess the possibility for a given yard to comply with the convention’s requirements.

These consultants make their assessments by checking whether the yards can fulfil the list of Hong Kong Convention requirements as interpreted by the classification societies. 

There are reportedly currently 66 yards with statements of compliance with the Hong Kong Convention in Alang, India, up from four yards in 2015. The Italian RINA was the first and so far only classification society to certify a yard on the beach of Chittagong, Bangladesh.

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