Eimskip Faces Investigation Over Sale-Leaseback Deal With Cash Buyer

Godafoss in service (Eimskip)

Published Sep 25, 2020 10:14 PM by The Maritime Executive

On Thursday, Iceland's national broadcasting company aired an investigation into the demolition of two vessels formerly owned by Eimskip, the country's largest container carrier. The segment details a complex sale-leaseback agreement that culminated in the scrapping of the vessels Godafoss and Laxfoss on the beach at Alang. The export of end-of-life ships to South Asian shipbreakers is regulated by environmental law in Iceland, and the arrangement has been referred to prosecutors for investigation. 

According to NUV, Eimskip sold the aging ships to the cash buyer GMS, the world's leading specialist in demolition sales to South Asia. As part of the agreement, Eimskip chartered the vessels back for several months and continued to use them in its commercial operations. In the spring, Eimskip canceled the charters early, citing poor market conditions, and it ceased utilization of the vessels. The new owners - described as GMS-controlled Liberian holding companies - then sold the ships on to a shipbreaker in Alang, where they were beached and demolished.

"In 2017, Eimskip signed a contract to build two new vessels in China with the aim of replacing the vessels Godafoss and Laxfoss, therefore the vessels were circulated for sale by various shipbrokers for some time. At year end 2019 the vessels were finally sold, and the new owner took over their operation at beginning of this year. Parallel to the sale Eimskip chartered the vessels back until planned delivery of the new buildings," Eimskip said in a statement. "Due to unexpected adverse market conditions the decision was taken by the company to redeliver the vessels to their new owners last spring, earlier than expected. Subsequently, the new owners made the decision to sell the vessels for recycling in India. It was not Eimskip’s decision to recycle the vessels neither where, when nor how they would be recycled."

Eimskip said that it when it checked with the Environment Agency of Iceland on Friday, it learned that it has been reported to prosecutors for alleged violations of the Icelandic Waste Management Act. "Eimskip rejects these allegations as the company complied with all laws and regulations in the sale process," the firm said in a statement. 

“First, I am shocked over what I saw [in the program]. You feel sad and, at the same time, angry that a company in the West would exploit vulnerable people that have no choice but to work under such horrible conditions," explained Iceland’s Environment Minister Guðmundur Ingi Gudbrandsson, speaking to RUV. "Workers are at constant risk of accidents and even losing their life, and environmental issues are given zero attention. The owners of these companies must respond to whether this is, in their view, morally acceptable, and if this is in line with the environmental and social responsibility policy that they set for themselves."

Eimskip joins a growing list of firms investigated in connection with demolition sales to South Asia, where regionally-specific scrap metal reutilization and recycling methods allow shipbreakers to pay substantially more per hull. Local operating methods entail a comparatively high risk for fatalities, injuries and uncontrolled release of pollutants, according to NGO Shipbreaking Platform. 

In addition to potential non-compliance with national laws (where applicable), transferring an end-of-life ship from an OECD nation to a developing country may be a violation of the Basel Convention Ban Amendment on the export of toxic waste, the NGO contends.