The last 3 years have been extremely significant
for the shipping industry as a whole, acting as a wake-up call to industry
veterans. The start of the market crash and collapse in 2008 with the slow but
steady decrease 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 down 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 current capesize tonnage on order for 2011 is
approximately 103.2 million DWT and it is anticipated that in excess of 25
million DWT for scrapping would hit the beaches of India ,
Bangladesh and Pakistan
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
To put numbers in perspective, capesize rates were
USD30,587 / day last year and they have significantly fallen to USD8,296 / day
this year. It was joked that charterers could charter hire a super yacht at the
same price as a VLCC from South Africa to India, something which has sent alarm
bells ringing across the shipping industry.
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% 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 to sail the vessel. In the meantime, the vessel is
re-flagged, given a brand new name and provided with a fresh 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 steadfastly stood
by owners and sellers.
Upon delivery of the vessel in the Indian
subcontinent, Wirana accepts Letter of Credit (LC) as the mode of payment from
the end ship recyclers, something which the original owners maybe unwilling to
accept or perhaps may have little experience in negotiating; therefore, owners
prefer to work with cash buyers and it is estimated that at least 98% of
vessels for recycling are sold via cash buyers. 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.
We therefore provide an important economic and
distribution function to the owners as they now deal 15 with one single entity
which in turn deals with 300 ship recyclers between India ,
Pakistan , China (north and south), Turkey and Bangladesh
Wirana has the in-house resources to continuously
monitor the markets thereby placing it in a unique position to accurately and
firmly guide owners. This knowledge is country specific and involves the spread
across the five major ship recycling markets. Wirana remains fully abreast
about of 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 India
The rules and regulations came to be followed by
all sectors and industries involved with ship recycling.
Some of the salient features of the Supreme Court
order were:
1. Submission of the Ship Recycling Plan (SRP).
2. Details of the vessel, including best possible
quantities of onboard wastes.
3. Ship recycling schedules with sequences of work.
4. Operational work procedures.
5. Availability of work handling equipment and PPEs
6. Plan for removing of oil and cleaning of tanks.
7. Hazardous wastes handling and disposal plans.
8. Gas Free for Hot Works certificate issued by the
competent authority.
9. Identification and marking of all no breathing
spaces.
10. Identification and marking of all places likely
to contain hazardous wastes.
11. Confirmation that ballast water has been
exchanged on the high sea.
12. Dismantling stage.
13. Waste water downstream 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 in 6 months.
Relentless efforts by BELA saw the industry running
in all four directions to comply with the Order of the Apex Court Bangladesh
Ship recycling is an important social economic
activity which provides direct and indirect employment for 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 reopening of the industry in May 2011 for a
period of three months, further extendable upon the terms and conditions
determined by the Court. As we write the Order remained in force until 12
October 2011 and will be suitably reviewed by the courts in order for any
future extensions to be granted. Until this time the Ministry of Environment
has to present the framed guidelines for the approval stamp of the courts. Once
the guidelines have been framed it is hoped that the Industry would rise from
the ashes like the Phoenix
Unfortunately, Pakistan
The yards there continue to be rudimentary in
nature, relying heavily upon human workforce and labor, with little care for
industrial rights and consequent violations.
The inherent lack to upgrade perhaps stems from the
fewer number of vessels arriving each year for recycling, which is directly
proportionate to the price being paid by shiprecyclers. In fact, vessels from
the Pakistan National Shipping Corporation (PNSC) have routinely been sold
outside of Pakistan and have
come down to India and Bangladesh
Recycling Capacities:
In India
the ship recycling activities are principally carried out at Alang which is
situated on the west coast of India
in the state of Gujarat . At present, 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 ship recyclers,
with the leases being renewed upon their expiry appropriately.
To complement the yards at Alang we have some
recycling yards at Jamnagar , 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 onto the beach.
Of course, 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
More than 7,000 vessels have been scrapped at Alang
since 1983, generating steel output in excess of 80 million tons. In an
average, year Alang recycles about 600 vessels with an annual sales turnover of
about of about USD 1.4 billion.
To complement the 2 destinations, a few vessels are
also beached at Mumbai at the Darukhana which falls under jurisdiction of the
Mumbai Port Trust (MBPT) which functions under the Government of Maharashtra.
However, this port has size restrictions and not
all vessels can be recycled here. For example, vessels
in excess of 170 meters in length will have to go to Alang or Jamnagar
In Bangladesh
In Bangladesh
In Pakistan
there are approximately 25 ship recycling yards on the coast of Gadani in
Baluchistan which are under the Ministry of Revenue but outside the territorial
jurisdiction of Karachi Pakistan as
opposed to India and Bangladesh
ISO Certifications:
In India
With the stepping in of the Supreme Court the
industry realized the urgent need to upgrade to the ISO Club.
So in this very tough and competitive environment
the ship recyclers 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, at least 100 yards are certified
with ISO 14001/9001 and OHSAS 18001 and at least 50 yards have ISO 30000.
This is remarkable as since 2007 the industry has
pushed all buttons to gear itself to the constantly changing challenges in this
labor and economic intensive industry.
Of the 55 yards at least 25 have ISO
14001/9001 and OHSAS 18001, including ISO 30000, which is remarkable considering the levels of Bangladesh some years
ago.
We applaud the initiatives taken by the ship
recycling 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” that will benefit future
generations of the ship recycling industry and those directly and indirectly
connected with it.
Unfortunately for Pakistan
terrorism-ridden economy dealing with a highly
unstable government and regime. For Pakistan
By: Shashank Agrawal, Legal Advisor
Wirana Shipping Corporation, SINGAPORE
This article is the first in a two part series by
Mr Shashank Agrawal of the Wirana Shipping Corporation. 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 DW T in excess
of 12 million and has so far negotiated over 1,700 vessels and delivered a
total DW T in excess of 48 million since 1983. They are 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.
Wirana has so far successfully negotiated over 300
tankers, 5 ULCCs, 28 VLCCs and in excess of 110 container vessels, with the
list continuing to rise and grow every day. On a final note, Wirana will be the
principal sponsor of a Ship Recycling Forum in Singapore
Source: NHST Events. December 2011
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