The last three years have been extremely significant in the shipping industry as a whole and has been a wake up call to several industry veterans. The starting of the market crash and collapse in 2008 with the slow but steady rise since then has forced many industry players to re-think their strategy and positions across the globe and sectors. Throughout the world shipping companies have closed shops or relocated to more friendly jurisdictions and pruned their top staff and management in order to conserve costs and running expenses. The “green dollars” industry slowly turned into the “red dollars” industry. The veteran shipping banks do not want to finance shipping any further thereby accelerating the rate of foreclosure leading to forced sale of Vessels across High Courts in Singapore, India, Bangladesh and even China.
The Role of a Cash Buyer:
Companies such as WIRANA within the ship recycling industry are known as Cash Buyers since they purchase, from the Owners, the Vessel, basis 100 percent cash. In turn the Cash Buyer would sell the Vessel to a ship recycler in any one of the ship recycling countries. For Vessels purchased basis “as is” the Cash Buyer takes over the Vessel at the delivery port and then boards his own crew for the sailing of the Vessel. In the meantime the Vessel is re-flagged, given a brand new name and is provided a fresh set of Insurance cover for the voyage to the recycling yards. Therefore WIRANA is rightly referred to as an underwriter of recycling market risks. Due to fluctuations in steel prices in an extremely volatile market the Owners / Sellers could stand to lose millions of dollars by the time the Vessel arrives at delivery Port. Irrespective of market conditions Principals of WIRANA have stood by the Owners and Sellers like the ROCK and have underwritten as part of their regular market practice.
WIRANA upon delivery of the Vessel in the Indian Subcontinent accepts Letter of Credit (LC) as the mode of payment from their end ship recyclers something which the original Owners maybe unwilling to accept or perhaps may have little experience in negotiating and therefore Owners prefer to work with Cash Buyers and it is estimated that atleast 98 percent of vessels for recycling are sold via Cash Buyers. Therefore at all times the Owners remain completely secure as their final payment from WIRANA for the Vessel is NOT contingent upon receiving funds from the end ship recyclers which clearly demonstrates that WIRANA act as the cushion between the Owners and the End Buyers of the Vessel.
Therefore WIRANA provide an important economic and distribution function to the Owners as Owners now deal with one single WIRANA who inturn deals with 300 ship recyclers between India, Pakistan, China (North and South), Turkey and Bangladesh.
WIRANA has the inhouse resources to continuously monitor the markets thereby placing WIRANA in the unique position to accurately and firmly guide Owners. This knowledge is country specific and involves the spread across the five major ship recycling markets. Using this position WIRANA remains fully abreast about various Government regulations and is constantly being updated thereby leading to an increase and maximization of the asset value for the Owners.
The Intervention of the Judiciary:
Both India and Bangladesh have seen their fair value of litigations involving the ship recycling markets. In India the arrival of the MV BLUE LADY ex SS NORWAY caused a huge uproar due to the alleged quantities of asbestos and other hazardous materials on her. The matter was dragged right upto the Supreme Court of India which is the apex Court body deciding on major issues. The Supreme Court handled the matter for months and then laid down extremely stringent rules and regulations for the governance of the ship recycling industry. The rules and regulations came to be followed by all sectors and industries involved with ship recycling and it was essentially directed to set the chaos in order. Some of the salient features of the Supreme Court order were:
Submission of the Ship Recycling Plan (SRP).
Details of the Vessel including best possible quantities of wastes on her.
Ship recycling schedules with sequences of work.
Operational work procedures
Availability of work handling equipment and PPEs
Plan for removing of oil and cleaning of tanks.
Hazardous wastes handling and disposal plans.
Gas Free for Hot Works certificate issued by the competent authority.
Identification and marking of all no breathing spaces.
Identification and marking of all places likely to contain hazardous wastes.
Confirmation that ballast water has been exchanged in high seas.
Waste water down stream stage.
The Bangladesh ship recycling industry was hit by the landmark environmental litigation initiated by the Bangladesh Environmental Law Association (BELA) which sought inter alia directions from the Supreme Court of Bangladesh on the safe and environmentally sound recycling of Vessels arriving for recycling at Chittagong.
Sensing an immediate concern to set the house in Order the Supreme Court of Bangladesh banned the working of the recycling industry for 10 months in 2011 and directed the Shipping Ministry and Ministry of Environment to frame “Ship Recycling Guidelines” within a time frame of six months. Relentless efforts by BELA saw the industry running in all four directions to comply with the Order of the Apex Court which mirrored the Order passed by the Indian Supreme Court. For the very first time Vessels arriving Bangladesh were required to be Gas Free for Hot Works (Naked Flame Rules) as well as opposed to the plain Gas Free for Man Entry requirements which are far less stringent and less onerous.
Ship recycling is an important social economic activity which provides direct and indirect employment to over 500,000 people. Looking at the growing economic burden and perhaps the lack of contribution due to closure of millions of dollars in terms of direct and indirect taxes the Supreme Court allowed the temporary re-opening of the industry in May 2011 for a period of three months further extendable upon the terms and conditions determined by the Court.
Unfortunately Pakistan has consistently lagged behind the global race on upgrading themselves to the next tier. The yards there continue to be rudimentary in nature heavily relying upon human work force and labor with little care for industrial rights and consequent violations. The inherent lack to upgrade perhaps stems from the less number of vessels arriving each year for recycling to Pakistan which is directly proportionate to the price being paid by shiprecyclers.
In India the shiprecycling activities are principally carried out at Alang which is situated on the West Coast of India in the state of Gujarat. At the moment Alang has approximately 175 active and fully licensed and functional yards which are leased by the Government of Gujarat for a period of 10 years to shiprecyclers with the leases being renewed upon their expiry appropriately. To complement the yards at Alang we have some recycling yards at Jamnagar which is a few nautical miles away from Alang but again in the same state of Gujarat. The unique strength of Alang is that they rely upon the beaching tides which vary month to month in order to derive the maximum advantage of the force of the water to push the vessel upto the beach. Ofcourse some vessels that are dead and under tow or those of extremely low LDT do not require meeting the beaching tide schedules and can beach at any time during the month. Both Alang and Jamnagar are under the aegis of the Gujarat Maritime Board (GMB) which operates under the directions of the Government of Gujarat.
More than 8000 Vessels have been scrapped at Alang so far since 1983 generating steel output in excess of 90 million tons. In an average year Alang recycles about 600 Vessels with annual sales turnover from this activity of about of about USD 1.6 billion.
In Bangladesh there are approximately 55 shiprecycling yards which are fully functional and meeting the recycling needs of the nation. This industry now comes under the Ministry of Industries as opposed to the Ministry of Shipping and any ship coming inwards for recycling is required to obtain a “No Objection Certificate” in order for the Letter of Credit to be opened from the shiprecyclers bank. Unless this is provided the Bank will not start the various procedures required for the release of the Letter of Credit which may then considerably delay the beaching process of the Vessel. In Bangladesh as well Vessels are beached accordingly to respective beaching tides and Vessels need to strictly meet these tides in order to prevent considerable waiting at anchorage sometimes upto 14 days until the next tide.
In Pakistan there are approximately 25 shiprecycling yards at the coast of Gadani in Baluchistan which are under the Ministry of Revenue but outside the territorial jurisdiction of Karachi. The inwards formalities are little and vessels are beached without any hassles considering that no tides are required to be met. Therefore any Owner looking for quick beaching and swift money in the pocket may perhaps find his solace and answers in Pakistan as opposed to India and Bangladesh.
In India there approximately exist more than 20 licensing bodies and the industry is extremely and heavily regulated with little possible gaps. With the stepping in of the Supreme Court the industry realized the urgent need to upgrade themselves to the ISO Club. So in this very tough and competitive environment the shiprecyclers spent their own funds and invested manpower to meet the stringent standards of ISO without any financial or other support from any third party. Currently atleast 100 yards are certified with ISO 14001/9001 and OHSAS 18001 and atleast 50 yards have the ISO 30000.
Out of the 55 yards atleast 25 yards have the ISO 14001/9001 and OHSAS 18001 including the ISO 30000 which is remarkable considering the levels of Bangladesh some years ago. We applaud the initiatives taken by the shiprecycling community to raise the bar and improve the health and standard of living of their workers and their surrounding environment. This indeed shows that even in non subsidized economies and coming from those industries that receive little or no support from the Government a small group of recyclers are making all efforts to make that “big change” something which shall benefit the future generations of the shiprecycling industry and those directly and indirectly connected with it.
Unfortunately for Pakistan they have lagged behind even in this race and out of the 25 shiprecycling yards none of them are even the basic ISO certified. The lack of interest as explained earlier stems from a variety of reasons including the less offering of Vessels and the potential terrorism ridden economy dealing with a highly unstable Government and regime. For Pakistan the adoption to ISO standards seems difficult in the foreseeable future. Until adopted and strictly enforced the industry will continue to work using old practices and methods.
Process of Beaching: Clean and Green way in the forward march:
The beaching method for ship recycling has been successfully practiced for several years along the 10 km long beach at Alang which has a very high tidal gradient, leaving vessels out of the water during low tide. In order to pronounce a particular method of ship recycling as environmentally friendly, an exhaustive study of beaching or drydocking should be carried out, and only then can one conclude accurately on any particular method.
A comparative life cycle assessment has been initiated of beachings compared to dry-docking in India, and involves estimating the environmental footprint of each for both facilities construction and subsequent operation. In the preliminary analysis it could be clearly seen that the capability of the beaching method practiced at Alang to recycle is far superior than the dry dock method followed elsewhere.
For the drydock approach to scrapping the infrastructure requires cement, concrete and the steel during construction and a power supply for operation adding to environmental footprint.
At Alang the following agencies of the Government of Gujarat are involved upon the arrival of the Vessel for inward clearances:
Gujarat Maritime Board
Gujarat Pollution Control Board
Atomic Energy and Research Board (AERB)
The wastes that fall in the inter-tidal zone and on the dry portion of the ship recycling yard during the dismantling of Vessels remains the same in quality and quantity irrespective of the dismantling method followed. Those criticizing beaching methods have little or no experience of recycling a large number of different types of Vessels.
They have, at best, broken a few small Vessels and committed them to landfill sites. The International Maritime Organization’s International Convention for the Safe and Environmentally Sound Recycling of Vessels (now the HK Convention of 2009) is indeed a most welcome step since it has provided, for the first time, an international convention that addresses and hopefully systematizes all the operations, so that health and safety of workers and prevention of pollution of the environment, both at sea and ashore, can be ensured and verified. In the unlikely event that the beaching method of ship recycling is banned, a far greater socio-economic harm will be caused to more than 500,000 workers who are employed in the recycling yards on the Indian sub-continent than any adverse effect on environment. In addition this will have disastrous consequences on the indirect industries that are fully dependent on this recycling industry for their daily needs.
The benefits of ship recycling by beaching methods as carried out in the Indian sub-continent is environmentally and economically a sound practice and safe for workers; the industry is labor and capital intensive, economically viable for all stakeholders and a highly sustainable activity, considering the socio-economic situation in the region.
Shiprecycling verses Shipbreaking:
Often we see leading “shipping” publications switching between the words “Shiprecycling” and “Shipbreaking” and perhaps the confusion stems from the “lack of knowledge” in the eventual end use of the Vessel by the ship recycling yards.
During the process of ship recycling the following items are recovered for re-use and re-circulation in the markets:
1. Ship steel – this is the primary material from the ship and is used by the steel re-rolling mills to convert in to rods and bars, which are used in the infrastructural projects and in the ever growing construction and other allied industries in the Indian subcontinent.
2. Ropes and Chains – these are generally re-exported for re-use in the maritime industry or re-used by the ship recyclers themselves at their yards.
3. Generators – these are used in most major industrial concerns such as garment manufacturing and washing units or in the agricultural sectors where there is shortage of regular power supply or generation. Often major Owners seek these for their sister Vessels trading in other jurisdictions and therefore this may form an important item of export.
4. Boilers – these are used in rice and jute mills across the country. Again these sometimes form the bulk of the export orders due to their high re-use value.
5. Furniture, beds, cots, bunks, cabin materials – these are either purchased by mid-tier households and / or by public hospitals, emergency camps, hotels, motels, hostels, Red Cross and YMCA etc.
6. Utensils, crockeries – these are purchased by households, emergency camps, hospitals and hotels.
7. Electrical items, electronic appliances, irons, heaters, Insulators – these are re-used by Industrial concerns and agricultural houses.
8. Sanitary wares, bathroom mirrors – Mid-tier households and hotels are the biggest purchasers.
9. Food items, bottled water, packed non perishable food stocks, biscuits, tinned food – Households and small hotels are potential buyers.
10. Glassware – Industries and showroom owners are the biggest Buyers.
11. Fridges – these are purchased by households, small hotels, Industrial houses, mid tier purchasers and factories.
12. Pipes and Fittings, wires, coils, rubber – Agricultural and domestic use for most pipes and fittings and other items.
13. Paintings / Sofas / Desks / Chairs – Households, hotels and factories hold the biggest shopping bags.
14. Oil and other products removed – Depending on the quality they are resold to licensed factories for their use.
15. Sludges, paints etc – Are disposed under the guidelines framed by the Gujarat Maritime Board into specific incinerators.
16. Asbestos and hazardous materials – Are sent to the pre-determined and Government approved landfill sites after being appropriately bagged, itemized and sealed.
17. Rubber and other materials recovered – These are sent to the various recycling units for their secondary market use and are often utilized by the car and transport industry due to its durability and thickness.
In short, the recycling markets have developed a ‘reuse’ market for every nut, bolt and the kitchen sink found on board the vessel. This industry is entirely ‘self dependant and reliant’ and infact it supplies all the essential items to the world at large and is the backbone for many indirect industries in the Indian subcontinent. You will be surprised but Alang in an average year recycles about 600 Vessels with annual sales turnover of about USD 1.6 billion. Certainly ‘breaking’ would not generate this revenue income!
The IMO Convention is indeed a most welcome step since it has provided, for the first time, an international convention that addresses and hopefully systematises all the operations, so that health and safety of workers and prevention of pollution of the environment, both at sea and ashore, can be ensured and verified. In the unlikely event that the beaching method of ship recycling is banned a far greater socio-economic harm will be caused to more than 500,000 workers who are employed in the recycling yards on the Indian sub-continent than any adverse effect on environment. The benefits of ship recycling by beaching methods as carried out in the Indian sub-continent is environmentally and economically a sound practice and safe for workers; the industry is labor and capital intensive, economically viable for all stakeholders and a highly sustainable activity considering the socio-economic situation in the region.
Strange as it may sound, unlike any other industry in the western world, the ship recycling industry does not have an international trade association, which represents the interests of the ship recycling industry. In light of the above, there are no media savvy individuals that can get the message of the industry across to policy makers, bureaucrats, media and the public at large. The gap between perception and reality is perhaps the widest in the ship recycling industry than any other industry in the modern world. If the shipping fraternity does not take the initiative to work together and find practical solutions, then the day will arrive soon, when a ship for scrap is indeed a liability and not an asset.
Wirana and Its background:
Shashank Agrawal is the Group Legal Advisor to Wirana Shipping Corporation which is based in Singapore and can be reached on +91 9825205665 or +91 9825207746
Wirana is the OLDEST Cash Buyer and was established in 1983. In 2009 and 2010 Wirana successfully negotiated over 320 vessels with LDT in excess of 3 million and DWT in excess of 12 million and has so far negotiated over 2200 Vessels and a delivered a total DWT in excess of 51 million since 1983.
Wirana is the FIRST and ONLY Cash Buyer to feature in the Guinness Book of World Records for the two ULCCs purchased with a combined LDT of 148,691 a record which EVEN TODAY REMAINS UNMATCHED AND UNBROKEN.
Source: shipping tribune. 8 September 2013