Sometimes being an industry supplier offers
interesting insights – your business is touched by the ups and downs of the
charter market, but you are never so involved in it that you lose sight of the
big picture. Some of our clients have been hit hard by the market’s general
downturn; one client I visited last month began 2008 with 41 maritime software
licenses for their vessels – just seven remain today.
“We just sold another ship yesterday,” he
said, and then after a pause: “Please spare me the update costs for this one,
it won’t receive any.” Of course, I nodded. It might be unpleasant to see
another piece of your development finance blow off, but it might be even more
unpleasant to see your ship management company being dismantled piece by piece.
“So what will they do with the vessel?” I asked, he shrugged and said: “I would
put my two cents on a beaching.”
Beaching is an ugly word in the maritime
industry. As we know, it holds the silent threat of working men’s death and
environmental pollution. Greenpeace will chase you and widows will curse you,
but what choice did he have? After all, the countries involved could simply
forbid the practice or release new regulations. Well, they could - but they
won’t, and here is why:
The Economy of the Ship
Breaking and Recycling Industry (SBRI)
What started in 1965 with the stranded vessel
M D Alpine in Chittagong became the most important part of Bangladesh’s
national steel production, satisfying up to 35% of the current demand of five million
tons (2015). The scrap metal industry feeds over 350 steel re-rolling mills and
22,000 workers in approximately 40 yards – dragging with it a long tail of
200,000 indirectly employed workers (e.g. supply chain and downstream market).
If extended families are taken into account, the numbers double.
The picture in India and Pakistan is very
similar. India hosts the world biggest beaching facility in Alang,
accommodating 66,000 yard workers.
These statistics support the fact that this
industry involves thousands of companies and influences the shape of the local
area, government and society for a considerable distance inland. The SBRI plays
a vital role in the national budget and development plans of Bangladesh. For
example, 40% of the national steel demand is driven by public construction projects and so 35% of steel demand is
covered by recycled re-rollable scrap and melting scrap, which is used
especially in construction.
The operators involved (e.g. steel mills,
suppliers and local authorities) resist changes that could endanger their
business; environmental protection laws and wage rises are major threats. This
is the main reason why neither India nor Pakistan nor Bangladesh would ratify
the “Hong Kong International Convention for the Safe and Environmentally Sound
Recycling of Ships” of 2009 – a currently inactive IMO attempt to regulate ship
breaking.
History shows that it is a volatile business,
taking place only in Europe and the USA up to the end of the second world war.
Due to rising demands for steel in Asia and the availability of a cheap
workforce the industry began to relocate there. By 1977 more than 50% of all
recycled ships had been beached in Taiwan (3,391 vessels). A decade later in
1990 it was only two ships!
How much do they make?
The yards have a good standing in Bangladesh.
In mid 2009 Maria Sarraf’s team estimated in their report “Ship Breaking and
Recycling Industry in Bangladesh and Pakistan” (Report No 58275-SAS) that the
average profit from a Panamax oil tanker with 80,000 DWT is approx. $920,000.
(See Chart 1)
The vessel is often bought via middle men who
establish contact between the international owner and a local yard. Such agents
are usually brokers based in London, Hamburg, Dubai or Singapore specializing
in buying scrap ships from shipping companies in order to resell them. They
also might change to a favorable flag and/or class.
The yard will receive a loan from a local
bank with the obligation to pay it back within six months – the time required
in order for the vessel to be stripped. Owners should be aware that the price
might be re-negotiated when the vessel arrives at Chittagong if scrap prices
have decreased.
Multiple administrative processes are set in
motion as soon as the ship arrives in the international waters off Chittagong.
The industry is supervised by the Ministry of Port and Shipping and the
Ministry of Industry, whereas the Explosive Department is responsible for
checking the vessel and declaring it gas-free (merely nominal). Import tax must
be paid and valuable items such as the radar system will be distributed to the
navy. Further checks and certificates must be effected before the Chittagong
Port Authority allows beaching.
The beached vessels are then handled by yard
workers. The yards attract mainly people from poor districts – in Chittagong
95% are migrant laborers. Of course, they enroll because it is their only
option if they want to feed their families; the daily wage is approximately $3
- $7 with a working time of eight hours per day and an expected extra four paid
hours. In comparison, a rickshaw puller would have to work more than a week to
earn this, but he does not risk his life doing it.
Hidden Costs
However, the almost one million dollar profit
per beached ship comes at a high price. Bangladesh and other beaching
facilities in Asia have been polluted for decades with hazardous chemicals.
PCB, asbestos, TBT and lube oils are often just dumped inland, burned during
the recycling process or sold to local markets, they also contaminate the yards
themselves. This might raise concern soon to a number of countries due to
rising sea levels.
The sea level at Chittagong beach might not
rise more than 0.4 meters in the future, but it would still influence high
tides which regularly surge 3 to 10 meters above sea level and would cause an
additional 11,000 to 25,000 sq. m. of polluted sand to be washed into the
ocean. Mrs. Sarraf suggests in her study that this could submerge up to 12,000
kg of lead, 60 kg of cadmium, 6,000 kg of chromium and 7 kg of mercury at
Chittagong beach alone. Effects on the health of local residents and workers
can be observed easily. Rising cancer rates and intoxications from chemicals
like lead and asbestos, and injured workers (88% of all workers) are a big
social problem. Furthermore, Greenpeace
claims in its report “End of Life Ships“ that between 60 and 100 people per
year die at Chittagong, based on local media news.
Improvements
Although the business has existed for 50
years in Bangladesh, improvements have only recently been made. Public
awareness raised by investigative reports such as “Working Man’s Death” by
Michael Glawogger has ramped up international pressure. This might be part of
the reason for the improvements, which include more workers wearing protective
equipment like welding goggles and gloves, enhanced worker training and more
local authorities fighting for better working conditions and healthcare.
In Alang, India the first workers union has
been formed, stepping in when compensation for widows or injured workers is not
paid. Despite this, little has been achieved. It is possible to do a lot for
the local yard workers, residents and the supply chain. Receiving a couple of
hundred thousand dollars in tax and duties per ship, Bangladesh’s authorities
have the means to improve yard supervision and streets, or to invest in waste
recycling. All the reports cited in this article make numerous suggestions
about what could be done – ranging from MARPOL reception facilities for
operational waste (e.g. paint) to road maps for improving local conditions.
Necessary measures to achieve HKC compliance
in Bangladesh:, Maria Sarraf, 2008 (See Chart 2)
If the assumptions of Mrs. Sarraf are
correct, Bangladesh earns at least $24 million annually from tax and duties
related to ship scrapping. Hence a long-time investment of $53 million over 10
years seems feasible as it will avoid high costs in the future. Additionally,
even small steps like avoiding the manual handling of asbestos without
protective gear can bring great improvements.
However, the sad truth is that nothing is
likely to happen – and for the usual reasons: the problems are remote, and who
cares about the poor, when so many people are making a profit?
Source: marine
link. 24 August 2016
http://www.marinelink.com/news/economics-scrapping414382.aspx
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