Will the ship breaking industry survive?

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Asian countries were flourishing with ship breaking and related business in the last decade. The Asian dry-docks high on dismantle and salvage for scrap iron and other electronic scraps. Hundreds of companies operate in India. It had been the worst affected industry by the Global economic slowdown and declining demand for steel. This was a beneficial business till the beginning of 2008, when the prices were as high as $700 for a ton of salvaged metal from the ships. It has declined steadily from there to reach $200 now. This is a serious threat to shipping industry as the labour costs and overheads have increased while the prices are going downhill. The worst hit state is Gujarat wherein Bhavnagar; the main industry is ship breaking which is facing severe hurdles now. Ship owners are not willing to sell their ageing ships as the fall in the price of scrap steel has depreciated the value of ships. The liquidity crunch have also brought bad phase for the industry. Ship Breakers Association of India is doing its best but lack of manpower and recruiting the immediate resource is the biggest challenge. This is a major issue for the ship breaking companies. No one wants to break their aged ships for the 30 per cent of its value compared to the peak prices. So, these oldies are floating idle on the seashores.

Now the scenario has changed, the ship-breaking industry in India is likely to witness hectic activity in the next 10 years with the European Union’s proposed accelerated phase-out of single-hull tankers. According to a recent study, there are more than 2,250 single-hull tankers of 5,000 DWT, or a total of 129.5 million DWT (till January 2004), that will have to be scrapped. This is 25-30 per cent higher than the estimate of peak volume of 2015. These tankers will be withdrawn by 2010 and 2015 in accordance with the strict time-tables set by the European Commission (EC) and the IMO (International Maritime Organisation). The new regulations include a ban on carrying heavy grades of oil in single-hull tankers.

According to an EU-commissioned study, the ship-breaking industry’s present capacity, in Asia, and particularly India, may still be enough to meet the demand generated by the proposed accelerated phase-out. The European Commission’s Directorate General of Transport and Energy initiated the study in October 2003 following the environment catastrophe caused by sinking of Prestige, a single hull oil tanker, in November 2002. The ship sank off Spain resulting in massive oil pollution off that country’s coast. The EU Parliament and Council amended Regulation 417/2002 to phase out single-hull tankers, and the IMO followed suit. According to the study, in the past ten years decommissioning of ships has been concentrated in the Indian sub-continent. Ship-breaking in India, Bangladesh, Pakistan and China accounted for more than 90 per cent of all vessels scrapped. Of all the vessels scrapped from 1994 to 2003, less than 2 per cent were broken in Europe, with Turkey accounting for more than 85 per cent of this.

For instance, 4,658 ships were scrapped between 1994 and 2003. Of this 2,638 were scrapped in India, followed by Bangladesh (603), China (523) and Turkey (125). In other words, India accounted for around 60 per cent of the global ship-scrapping, and whole of Asia 75 per cent. On an average, oil tankers accounted for 40 per cent of the volumes scrapped during 1993-2004, the report said. Some 250 Indian companies are involved in ship-scrapping, mostly along the Gujarat coast.

According to the study, the reasons for limited ship-scrapping activity in the EU countries are not just the higher labour cost and the environment considerations, but also the fact that the demand for recycled steel and other reusable items from ships is lower in the EU compared to, say, the sub-continent or China.

So what happens next? Government needs to look into issue seriously because the manpower challenge will certainly break down the ships. It is better to sink them and pollute the ocean. The governments should take action and put a restriction on mining iron ore. This may help to increase the usage of scrap steel to be recycled. I would suggest that the Government provide more tax benefits to companies which use recycled steel and to those who produce them. This will certainly give a fresh air to the business which may possibly go into a blackout. The global volume of scrapping is a function of the overall size of the world fleet. With the world fleet expanding steadily, there has been a general increase in ship scrapping too. According to the report, demolition of European vessels moved from the Continent, notably Spain and Italy, and Japan during the 1960s and the 1970s to Taiwan and Korea in the 1980s. Then, scrapping took place along piers in connection with ship-building activities. During the 1980s, beaching became the common method for demolitions since such expensive infrastructure as piers, sufficient depth of the harbour, and cranes could be replaced by a mud flat, portable equipment and a huge labour force. As the economy grew in Korea and Taiwan, labour costs rose, making ship-scrapping less attractive in these countries, and prompting a shift to such low-cost destinations as India, the report said. During the last two years, scrap prices have tripled, from $125/LDT (light displacement tonnes or lightweight — ships without cargo, fuel, lubricating oil, ballast water, fresh water and feed waters, but including liquids in piping), to $400/LDT at the beginning of 2004. The key factors for these are the increased need for steel for the construction industry in China, and the limited supply of vessels for decommissioning.

Vaidehi

Group Editor at NBC Pvt. Ltd.
Vaidehi, is an investigative Journalist, Editor, Ethical hacker, Philanthropist, Author and an inspiration to many. She is Group Editor of Newsmakers Broadcasting and Communications Pvt. Ltd. Since 4 years, which features an English daily tabloid – Afternoon Voice, a Marathi daily tabloid – Mee Mumbaikar, monthly magazines like Hackers5, Beyond the news (international) and Maritime Bridges, dedicated to IT industry, Indian news to the world and shipping industry, respectively. Besides the business perspective, she is an Offensive Security Certified Professional (OSCP), Certified Security Analyst and is also a Licensed Penetration Tester which she caters for her sister-concern Kaizen-India Infosec Solutions Pvt. Ltd.