Insuring vessels for their final voyage is a technical business that makes the highly efficient global ship recycling industry possible.

Ship recycling is remarkably efficient. Almost 95% of a vessel is reusable at the end of its life, compared to less than a third for electronics, and about half for the rusting hulks of cars and aircraft. Whilst one of the world’s most effective forms of recycling, it is not without its risks. Insurance lets it happen.

How ship recycling works

Getting there is half the battle. Recycling yards in India, Pakistan, Bangladesh, Turkey, and China execute most of the industry’s work, but end-of-life bulkers, tankers, and rigs are rarely decommissioned nearby. They typically steam to their final resting place, or occasionally are towed, from major discharge ports like Singapore. On arrival the recyclers strip everything from the hulk – generators, pumps, cookers, windows, cots, mirrors, and even the heads – then slice up the hull to make concrete reinforcing rods. 

The economics of the business are simple. End-of-life vessels are auctioned to one of a handful of specialist intermediaries. They assume the costs – and risks – of moving the ships to the recyclers’ beaches, then, if they are fortunate, transfer ownership for a relatively modest profit. The recyclers then sell on the goods. Many local homes and hotels are furnished with the former contents of cruise liners. Many buildings are constructed from concrete reinforced with old ships’ steel.

A true specialist class

The risks of such an exercise are considerable, so insurance is essential in this small, green sector with large pools of invested capital and fine profit margins. By definition, decommissioned vessels are not in the finest of conditions. They often require extensive repair to make them seaworthy, and may be vulnerable in poor ocean conditions. Understanding the specific risks, and especially how to manage them, is limited to a handful of brokers world-wide and a very short list of respected leading underwriters, almost all at Lloyd’s. 

Coverage falls under hull and machinery voyage policies on an Institute Voyage basis, including collision and removal of wreck. For underwriters, Miller includes warranties influenced by the work of experienced marine warranty surveyors to ensure the risk is managed. They conduct comprehensive inspections and surveys prior to each ship’s departure, to ensure that all parties agree the vessel is seaworthy and has reached the best possible standard – given the circumstances – to make the voyage safely, with a particular focus on crew (covered under separate P&I and PA policies). We also pay attention to the weather, avoiding sailings during the monsoon, for example. 

Image of two large ship at sea

Miller's Hull and Machinery capabilities

Completing the journey when things go wrong

Each of about 70 such voyages we placed in 2018 was intensely underwritten and risk-managed, but accidents do happen. One vessel, coming from China to Bangladesh, suffered an auxiliary engine failure. Following constant communication with the client, underwriters and surveyors, we had the ship put in at Singapore, paid for the engine repair, put it to sea trial, and resumed the final voyage – all as quickly as possible. Our daily tracking of vessels, and communication with all parties, keep these voyages moving.

A misunderstood activity

The act of ship recycling frequently comes under pressure from environmentalists, and endures ever-greater regulation, especially in the EU, but concerns are misplaced. Standards have improved dramatically. The industry employs tens of thousands of people, most in developing countries, and - as I stated at the outset - is extremely efficient. 

With so much unrecycled waste in the world, it is disheartening that ship recycling has come under fire. Anything can be improved, but the shipping industry has sought out a highly effective system that means very little of an end-of-life vessel is left to rot or rust. Without insurance, it would not happen at all and those consequences are far more concerning.

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