Hot Metal With Steel Soaring: A Ghost Fleet Is In High Demand

• Shipbreakers Vie for Scrap From Navy's Discards
• Concerns on Environment
• An Indian Player's Big Plans

CHESAPEAKE, Va. -- Harsh Mishra, a businessman from India, stepped carefully along the jagged hull of a 50-year-old Navy submarine-rescue ship called the Sunbird. His workers had spent days tearing it open like a giant sardine can, revealing a maze of bunkrooms, pipes and engines below.

"Money doesn't always look pretty," said the 46-year-old, speaking through a haze of fumes from noisy diesel engines and odors from aged, rotting ship hulls.

Dismantling the 220-foot ship took three months and generated 1,200 tons of scrap metal valued at about $300,000, not including the engines, anchors and propellers that were sold separately. The U.S. government paid Mr. Mishra's company, Bay Bridge Enterprises LLC, an additional $85,920 just to take the ship, laden with environmental hazards, off its hands.

The Sunbird came from a group of about 129 old ships, collectively known as the "Ghost Fleet," which sit idle in a half-dozen ports around the U.S. These ships, maintained by the U.S. Navy and the U.S. Maritime Administration, or Marad, have become a juicy target for the industry known as shipbreaking. All but shut down for a few years in the late 1990s amid environmental concerns, the shipbreaking business in the U.S. is now making a comeback. It is being fueled by a convergence of government action with developments in the global steel, energy and freight industries.

The driving force is the steel business, which is booming amid demand from China and other fast-growing economies. Just under two-thirds of the one billion tons, or $400 billion, in new steel produced each year comes from iron ore; the rest is recycled from torn-up cars, washing machines, ships and other forms of scrap metal.

Steel mills around the world buy roughly $100 billion of scrap steel each year. Old ships are a major source of this recycled steel, providing as much as 5% of the scrap metal consumed annually.

Voracious Appetite:

But there's a shortage of old ships available to feed the steel industry's voracious appetite. With a global commodity boom under way, older ships are being kept in operation longer than normal to carry freight, oil, coal and other raw materials, not to mention huge amounts of scrap steel. Shipbuilders are expanding production, but it typically takes three years to build and launch a new freighter. Despite the huge demand for steel, Lloyd's List, a London-based maritime-industry trade publication, reports that about 232 vessels were scrapped in the first 10 months of 2005, down from 422 ships scrapped during the same period last year.

That helps explain why Mr. Mishra and other shipbreakers are fighting for a piece of the Ghost Fleet. Old ships can be bought all over the world, but the U.S. has one of the largest government-owned stockpiles and an active program to get rid of the ships for scrap or other uses.

Marad maintains three fleets in Virginia, Texas and California, spending thousands a year per ship trying to prevent corrosion, mold and mildew growth. As ship custodians for the federal government, the agency decides when to get rid of ships by paying a company to scrap them. Otherwise, the agency can sink ships in the ocean, either as part of military testing or to create artificial reefs for fish and scuba divers.

Shipbreaking has a long, dangerous and environmentally tainted history. Places like Bangladesh, Pakistan, India and China have become huge centers for shipbreaking. Lax regulations in many places allow companies to simply drag ships onto beaches and tear them apart. That creates huge environmental and worker-safety concerns. Workers in those countries often lack basic safety gear and can be exposed to dangerous substances like asbestos. Oil and other hazardous materials are routinely spilled into the sea.

Highest Bidder:

For years, commercial and government owners of old ships in the U.S. and other countries sold their ghost ships to the highest bidder, home or abroad. In the U.S., the dirty business was handled by a shadowy group of companies that dodged environmental regulations by frequently moving and changing company names. The business was virtually shut down after a series of articles in the Baltimore Sun in 1997 exposed industry practices. The government tightened regulations on domestic companies and stopped scrapping vessels overseas. A backlog of aging government ships soon developed.

Now, the U.S. government is forcing Marad to get rid of its current batch of aging ships quickly to avoid expensive maintenance costs. With tight environmental rules making shipbreaking more expensive in the U.S., Marad pays domestic firms to take the Ghost Fleet ships.

Workers at Bay Bridge Enterprises in Virginia cut scrap metal from the inside of the Sunbird, a submarine-rescue ship that was dismantled at the shipbreaking facility.

The policy shift has been a boon in recent years for domestic shipbreakers, including four in Brownsville, Texas: International Shipbreaking Ltd., ESCO Marine Inc., Marine Metals Inc. and All Star Metals LLC. It also required them to change their practices and business models.

Richard Jaross, 65, president of ESCO Marine and a 35-year industry veteran, says the industry has moved from being labor intensive to capital intensive. With 160 employees and about $25 million in revenue, ESCO is spending millions on new equipment to cut and clean metal from the ships, he says. He has hired environmental experts to make sure workers follow government regulations on removing and disposing of fuel, asbestos and other chemicals as they tear apart the ships.

In 2003, Marad, concerned that domestic shipbreakers couldn't dispose of the ships fast enough, tried to send 13 ships to Able UK Ltd., a shipbreaker in Teesside, England. Environmental groups on both sides of the water fought the transfer of the ships. Delivery of the last nine ships is being held up by a lawsuit in the United Kingdom.

U.S. environmental groups say they would rather have government ships scrapped in the U.S. "From an environmental perspective, we should be responsible for our own waste," says Michael Town, Virginia chapter director of the Sierra Club. "And if we sent the ships overseas, we can't control the environmental impacts." He said that although shipbreaking is an industry few want in their community, the U.S. companies are more responsible and also provide hundreds of jobs.

In the confluence of Marad's backlog and the strong demand for scrap steel, Mr. Mishra's firm Adani Group, a fast-growing commodity-trading company based in Ahmedabad, India, sees an opportunity to become the biggest U.S. player.

Adani, with annual revenue of $3 billion, is the largest importer of coal to India as well as a major importer of scrap metal. Shipbreaking is a small new venture for Adani, but it has big plans. It wants to open a second shipbreaking facility on the West Coast and to buy a scrap yard on the East Coast to export up to 1.2 million tons of scrap metal per year to India.

Last June, Adani bought Bay Bridge for less than $10 million, Mr. Mishra says. Bay Bridge operates from a small construction trailer on a football-field-long muddy finger of land extending from an industrial section of Chesapeake into the Elizabeth River. The property has 2 large berths, where ships are parked during dismantling. Two 150-ton cranes loom next to the ships and are used to swing clumps of metal and other debris off the ships. Adani has more than doubled the number of workers at Bay Bridge to 93 since acquiring it.

Already, International Shipbreaking of Brownsville is being forced to compete fiercely with Mr. Mishra's firm, which has been winning a larger share of ships from the government. "For a while, there was nobody cutting ships," says Bob Berry, chief operating officer of International Shipbreaking. "You couldn't do it because of all the environmental regulations and safety regulations you have to deal with. It cost a lot more to scrap a ship than the ship is worth in parts."

Besides the four shipbreaking companies in Texas, there are a couple of others on the East Coast, but virtually none on the West Coast. Hoping to tap the Ghost Fleet in San Francisco Bay without the long, expensive journey through the Panama Canal, Mr. Mishra is planning to set up a second shipbreaking facility in Oregon. He is hoping to select a site by next month and to dismantle nine to 12 government vessels there each year.

In some Oregon towns, Bay Bridge faces opposition from environmentalists, who fear a phenomenon called "hull fouling." The concern is that tiny organisms such as mussels and algae attached to the aging Ghost Fleet vessels docked in San Francisco could harm Oregon's rivers and bays if released there.

Risky Business:

The environment is only one challenge for the industry. "This is an inherently risky business. You could lose your shirt or you could get lucky," says Mr. Mishra. He points out that shipbreakers must bid on contracts months in advance and "you don't know what the steel scrap prices will be four or five months down the line."

The business is also dangerous. Mr. Berry, at International Shipbreaking, says his firm, which employs mostly Hispanic workers, has experienced some fatal worker accidents in recent years. "It can be a dangerous business," says Mr. Berry, "but we make it as safe as it possibly can be."

At Bay Bridge, workers in protective suits and respirators first drain oil and remove hazardous materials such as asbestos-laden insulation and cables coated with polychlorinated biphenyls, or PCBs. They then rip out copper plumbing, metal bunks and lavatory appliances.

Taking apart the ship itself usually starts at the top, with workers using blowtorches to cut the hull into removable chunks. Shipbreakers must consider the weight and balance of a ship as they do this, to make sure the ship doesn't tip from side to side during the demolition process, potentially injuring workers.

On a recent day, Sheldon "Patrick" Dass and other workers were down inside the Sunbird with hand torches, slicing up rusty file cabinets, piping, sinks, beds and metal walls.

"You've got to know what you are cutting," says Operations Manager Denson Spence, 47, who often joins the men in cutting up the ships. "You don't want to cut the wrong thing." Platforms could collapse, a pipe leading to a tank could explode or a cut below water level could cause water to gush in.

Daniel Reppert, 25, sat behind the wheel of a huge, yellow front-end loader, watching wads of scrap get lowered onto piles in front of him. Mr. Reppert's job was to sort the metal, creating piles of copper piping in one spot, steel plate in another. At a nearby scrap yard, workers sorted the metal further and then ran it through huge shredding machines.

When the work day was done, the men headed for a special locker room in a "decon" trailer in a fenced-off area. They decontaminated their work clothes by placing their white, disposable plastic suits in a sealed bin and their cotton work uniforms in a hamper to be washed. They showered and scrubbed with industrial soaps. Half the laborers at Bay Bridge are Hispanic, and most start at $8.50 an hour.

Bay Bridge gets most of its ships from the Ghost Fleet, which has a collection of ships stationed on the James River, a half-day boat tow away.

The Maritime Administration gave 33 ships and about $35 million to a half-dozen certified recyclers around the country in 2004 and 2005. By contrast, the agency made $35 million from 1991 to 1994 by selling 81 ships, before it stopped selling ships to third-world shipbreakers.

Not all Ghost Fleet ships are earmarked for the scrap yard. Some are bound for museums. Some were called back into service during the Iraq War and during the aftermath of Hurricane Katrina. Others are bound for watery graves. The Hoyt S. Vandenberg, a Cold War-era mobile tracking ship nicknamed "The White Ghost," could be sunk in the Florida Keys to create a fish habitat.

Workers at Bay Bridge Enterprises in Virginia cut scrap metal from the inside of the Sunbird, a submarine-rescue ship that was dismantled at the shipbreaking facility.

Source: Wall Street Journal. By Paul Glader. 10 January 2006

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