The HKC–Cash Buyer Nexus: A Structural Loophole

 

The global debate on ship recycling has, for far too long, centered on scenes from the beaches of South Asia: ships driven ashore at high tide, steel plating cut by hand, and regulators struggling to impose control over a complex and opaque industry. Yet these images, while powerful, do not reveal the true center of gravity in the global recycling system. The real locus of power lies upstream in the commercial and regulatory architecture that determines the final voyage of a ship. At the heart of this architecture are the cash buyers—specialized intermediaries whose influence is so decisive that no credible conversation about responsible or sustainable ship recycling can proceed without acknowledging the structural role they play.

The cash buyer is not an ordinary shipowner. Unlike a beneficial owner, who manages vessels throughout their working life, the cash buyer exists solely for the end-of-life transaction. It is the cash buyer who chooses the flag for the last voyage, establishes the offshore corporate structures through which the ship will pass, obtains the documentation required for recycling, and ultimately selects the yard that will dismantle the vessel. In almost every practical sense, it is the cash buyer—not the original owner—who determines the environmental footprint and safety consequences of a ship’s final chapter.

The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC), widely hailed as the sector’s global solution, was drafted in a regulatory environment heavily shaped by the operational realities of this cash-buyer-dominated market. Those involved in the technical development of the HKC included experts with deep familiarity with the economics of recycling, including the centrality of intermediaries in managing the final voyage. This is neither unusual nor improper; regulators commonly rely on experienced technical practitioners when crafting complex international frameworks.

However, this blurred the boundary between the market practices already entrenched in ship recycling and the regulatory architecture meant to reform them. The HKC emerged not in a vacuum but in an institutional ecosystem where the commercial logic of cash buyers was already dominant and where the convention’s provisions naturally reflected that logic. Because of this, the HKC was built on the underlying assumption—now outdated—that the beneficial shipowner is the primary actor responsible for end-of-life decisions. In reality, the beneficial owner, in the overwhelming majority of cases, exits the transaction long before the ship reaches the yard. The HKC therefore directs its legal responsibilities toward a stakeholder who is rarely present and largely absent from the operational process. Meanwhile, the cash buyer, the party who invariably controls the recycling decision in practice, remains only partially captured by the structure of the convention.

This mismatch between regulatory theory and market reality is not a minor technicality but a serious structural failure with profound consequences. The HKC treats cash buyers as if they were merely transactional brokers rather than the decisive agents of recycling. As a result, it assigns responsibility to the wrong actor. The beneficial owner, having sold the ship “as is” or “upon delivery,” typically does not participate in determining where the vessel is recycled.

Once a cash buyer assumes control, the ship moves rapidly through a sequence of steps that include re-flagging into lenient registries, transferring ownership to single-purpose offshore companies, preparing HKC-style documentation, and ultimately delivering the vessel to a yard chosen for its price rather than its performance. Every one of these steps is executed by the cash buyer. Yet the HKC continues to impose obligations on the original owner, who is no longer involved, leaving the actual decision-maker outside the treaty’s core enforcement logic.

The convention’s design reflects this structural alignment. It permits last-minute flagging, a practice central to the cash-buyer model. It emphasizes inventories, documentation, and ship-specific recycling plans, processes that intermediaries interpret as administrative requirements rather than substantive controls. It does not prohibit beaching, maintaining access to the highest-value markets. And it relies heavily on self-certification by flag and recycling states, a system that aligns more closely with the paperwork-driven model of cash buyers than with verifiable environmental performance.

These features indicate an intentional favoring of intermediaries, and they do demonstrate how the HKC evolved within a regulatory environment deeply informed by the commercial patterns governing the final voyage. The convention was not constructed to disrupt the cash-buyer system; it was constructed to function around it.

The ethical consequences of this structural arrangement are significant. Under utilitarian principles, responsibility should rest with the actor whose decisions most significantly affect welfare outcomes. In ship recycling, that actor is the cash buyer—not the beneficial owner. A convention that ignores this reality cannot maximize collective benefit or minimize harm. From a deontological perspective, imposing duties on parties unable to fulfill them while overlooking those who can violates the fundamental logic of rule-based ethics. Duties only hold moral force when assigned to those with the agency and capacity to act. Justice theory highlights the inequitable distribution of environmental and human risks. The communities living near recycling yards bear the consequences of decisions made by intermediaries who, under the HKC’s current design, are not the primary addressees of the regulatory duties intended to protect those communities.

Beyond the ethical domain, the structural misalignment threatens the sustainability of the market itself. A regulatory system that assigns responsibility to actors no longer involved creates perverse incentives. Responsible shipowners, who seek to comply with higher standards, find themselves undercut by competitors who can exit responsibility early through cash-buyer sales. Recycling yards that invest in safer and more environmentally sound methods struggle to compete with facilities that rely on cheap labor and minimal oversight. Financial institutions attempting to apply ESG criteria face difficulty tracing beneficial ownership across offshore structures designed for rapid transactional opacity. In the long run, a system that places legal responsibility on an absentee stakeholder and overlooks the operative one cannot foster a level playing field or promote the development of genuinely responsible recycling capacity.

The adoption of the HKC is often portrayed by the shipowners’ communities as a major step toward global accountability, but adoption alone is not sufficient. The deeper issue is alignment. A treaty rooted in a conception of ownership that no longer reflects market reality cannot deliver meaningful environmental or social protection. If the HKC continues to regulate the traditional owner while the cash buyer directs the final voyage, the convention’s impact will remain limited. Ship recycling cannot be sustainably regulated unless responsibility follows control. Cash buyers, as the decisive agents in the recycling chain, must be recognized as a distinct stakeholder class with direct and separate regulatory responsibilities under the HKC. Without such recognition, the convention risks perpetuating the very gaps it was created to close.

The time has come for the industry and regulators to acknowledge the structural connection between the HKC’s development and the operational dominance of cash buyers. This connection does not necessarily imply misconduct or improper influence; it reflects the institutional reality in which the convention was drafted. But unless this reality is confronted—and unless the HKC’s legal framework is updated to reflect who actually controls recycling outcomes—the global ship-recycling regime will remain vulnerable to the very loopholes that have long undermined its integrity.

Closing this gap is essential not only for environmental and labor protections but for the credibility of maritime governance itself. A regulatory system that assigns responsibility to those who do not participate while overlooking those who do is neither ethical nor sustainable. Aligning the HKC with the true operational dynamics of the market is therefore not an optional refinement; it is the foundation on which any genuine reform must rest.

Author’s Biography: Dr. Ishtiaque Ahmed is a Professor and Chair of the Department of Law at North South University, Bangladesh. A former Merchant Marine Engineering Officer, he holds a Doctor of the Science of Law (J.S.D.) from the University of Maine School of Law, USA, where he specialized in International Ship recycling laws and policy. He contributed to the drafting of Bangladesh’s Ship Recycling Rule 2025 (proposed) and revising Bangladesh Ship Recycling Act 2018 as the sole Legal Consultant. Dr. Ahmed is also a qualified Barrister of England, an active member of Chartered Institute of Arbitrators (MCIArb) in London and an Advocate in Bangladesh Supreme Court. His expertise lies at the intersection of maritime law, environmental regulation, and sustainable ship recycling practices. He can be reached at [email protected].