May/June 2008
The Indian shipbreaking industry is suffering due to international criticism and greater regulation of its environmental and worker-safety practices. One company hopes to prove it can meet international standards—and still make a profit.
By Tom Mele
The scrap recycling industry's current prosperity has eluded India's ship dismantling companies. They face fierce competition for ships, unending pressure from environmental groups, a decline in the use of their main product, and shifting government regulations that at times have brought the entire industry to a near-standstill.
This is a stark contrast to the conditions the industry was experiencing in 2003, during my first visit to Alang, the town in northwestern India that serves as the industry's hub. Back then, the industry employed nearly 40,000 people who scrapped 2 million tons of ships a year. Today the beaches contain just 5,000 workers, and the annual tonnage has dropped more than 80 percent, according to industry sources.
For more than 20 years, the Gujarat Ship Breakers Association and its 138 members have faced media scrutiny and condemnation for their poor safety and environmental records. A recent flashpoint came in early 2006, when the French government sent the decommissioned aircraft carrier Clemenceau to Alang for dismantling. European environmental organizations protested the action, which they claimed violated the Basel Convention's ban on exports of hazardous materials because the ship contained tons of asbestos. En route to Alang, the Indian Supreme Court refused the ship entry to Indian waters pending a ruling by a special commission on its asbestos content. Before the commission finished its report, then-French President Jacques Chirac recalled the carrier to France.
The international controversy continued a few months later, when the Blue Lady found its way to the breaking beaches at Alang. This 51,000-ton trans-Atlantic passenger ship—formerly the SS France and SS Norway, and until recently the longest passenger ship in the world—allegedly contains nearly 1,000 tons of asbestos and other hazards. The Indian Supreme Court initially forbid the beaching and dismantling of the ship pending an investigation, which dragged on for more than a year. In the interim the government halted all shipbreaking in Alang until it could develop proper industry guidelines. The Blue Lady got the go-ahead for beaching in September 2007, and the Supreme Court, after much deliberation, issued fairly stringent shipbreaking regulations the following month. The rules require a strict sequence of government inspections and separate permissions for anchoring, beaching, and cutting up recycled ships.
Despite these regulatory changes, the shipbreakers' association—newly renamed the Ship Recycling Industries Association (India)—continues to suffer from a worldwide image problem. In response, its members simply have barred reporters and photographers from their facilities. So when one of the shipbreaking companies invited me to revisit Alang, I jumped at the chance. I was anxious to see what has changed since my first visit to what the group calls "The World's Largest Recycling Operation."
Growth and Generosity
I arrived in late January, when the weather in northwestern India is relatively cool and dry. On my last trip I had flown directly into Bhavnagar, the nearest city to Alang and home to many of the yard owners. On this trip I decided to take a more roundabout route, so I flew to Ahmedabad, the commercial center of this populous Indian state. From there I planned to travel by road and see a little of this region that's well known for its metalworking industries. I lack the courage to drive on Indian roads, so I opted for a car with a driver to make the trip down to the coast. Traveling through this state, I could see how progressive and industry-friendly this area has become. Three new private container ports are in the works, and the Gujarat coast is on the verge of rapid industrial expansion. Steel and nonferrous metal-producing businesses will almost certainly be a big part of that expansion.
Bhavnagar is the gateway for anyone visiting the shipbreaking yards, and many of Alang's 173 active recycling companies maintain offices there. January is wedding season, and when I arrived the city was packed with revelers. With the aid of a fellow recycler, I was able to secure a room in an otherwise booked-up city. Indian weddings are huge, gregarious affairs, and on my way down to the hotel restaurant I was pulled into a wedding in progress. The Gujaratis are famous for their hospitality; it is unthinkable that someone might eat alone when there's a feast underway. Aside from being underdressed, I felt right at home. To my surprise, many of the guests were involved in the metal trade in some way. I reluctantly left the wedding before the band stopped playing so I could get some sleep before my early-morning ride down to the shipbreaking beach.
My host, Komal Sharma, picked me up the next morning for the half-hour trip to his yard. Though he and his brother Anil have bought and sold ships through their company, Global Marketing Systems (Cumberland, Md.), since 1992, they are relative newcomers to the shipbreaking business. They just recently opened Leela Ship Recycling on Plot No. 2 in Alang, which was our destination that morning.
Between calls on his three cell phones, Komal explained his company's philosophy. The Sharmas believe that Indian shipbreakers have a terrific opportunity if they can meet the environmental expectations of the international maritime community. U.S. and European operations currently purchase ships for relatively low prices, Komal pointed out, because they have the proper environmental credentials. The Indian breakers, with their vast experience and low labor rates, could pay more competitive prices for vessels, but they currently lack these credentials. Given the opportunity, he says, Alang's yards could disassemble vessels safely, handle hazardous materials properly, pay a reasonable price for the steel, and still turn a profit. The brothers have built the Leela Yard (which they propitiously named after their mother) to prove it.
New Safety Infrastructures
The roads and villages along the route from Bhavnagar to the beach were a lot less crowded than I remembered from my previous visit. The same was true of the Alang Bazaar, where the ships' nonsteel items are parceled out among specialized sellers. These markets, which resell wood, glass, kitchen appliances, lifeboats, and other marine bric-a brac, are Alang's secret advantage over European and U.S. breakers, Komal said. "In India, we recover every last ounce of value. We recycle 99 percent of the on-board materials, not just the steel.
We cruised past the guardhouse and headed south on a recently improved four-lane road that runs parallel to the 10 km-long beach. The Gujarat Maritime Board serves as the landlord for these operations and leases 173 different plots to scrap companies. The board also maintains the infrastructure and oversees the operations of their shipbreaking tenants. It recently constructed a modern building at the southern end of the beach that it uses as an education facility for shipyard employees, where it offers classes on safe working procedures, fire prevention, health, and other work-related issues. The building also has an outdoor movie theater, where it screens Hindi films in the evening.
Behind this facility is a new water-treatment plant that will soon supply clean drinking water to the yards and workers. A little farther north, in the center of the stretch of beach, is a new fire department which the Ship Recycling Industries Association (India) funded and built. Alongside the entrance road is a new hazardous waste compaction plant, which has a fully lined hazardous waste landfill in back. The maritime board contracted an ISO 14001-certified environmental firm to operate the facility. Long overdue, these improvements might help the Alang shipbreakers overcome the industry's Wild West reputation.
As we approached, the Leela Yard stood out clearly from its neighbors. The freshly painted walls and potted petunias were in stark contrast to the recycled-steel walls that block most of the other yards from public view. The International Maritime Organization had recently made an inspection tour, as evidenced by the welcome signs and perhaps the flowers out front.
As the gates rolled open, the inside appeared just as fastidiously maintained, with recently renovated buildings and an immaculate, sandy beach. After signing in, I was led into the offices and presented with a cool glass of water, a universal sign of Gujarati hospitality. From the second-story window, I could see a small tanker at the water's edge and dozens of other intact ships up and down the shoreline. An equal number of vessels were visible anchored offshore, including the infamous Blue Lady. Except for a few holes in their bows, all these ships were still intact. (The first 15 cutting permits issued under the new rules had just been announced at the time of my visit.)
The works manager and environmental and safety officers offered me a tour of the operation. With hard hats and goggles, we headed out for a look around. The first stop was the safety and environmental compliance office, which was well-equipped and covered with locally produced safety posters. A list of the company's mandatory safety procedures—in Hindi—was hanging on the building's exterior. Required are the use of gloves, safety glasses, boots, coveralls, and hard hats, as well as life vests and supplied air when appropriate. Though during my previous visit to Alang I saw workers using very basic safety gear, others have documented more primitive conditions, including barefooted workers with rags wrapped around their hands, making Leela's efforts a welcome improvement. The environmental equipment included oxygen sensors, supplied air tanks, radiation detectors, and a thorough set of procedures and logbooks for tracking their use and calibration. The staff seemed well-versed in their tasks and took great pride in explaining their responsibilities as well as their sophisticated equipment.
Across the yard were a series of containment lockers for isolating paint waste, asbestos-containing materials, biohazards, batteries, glass wool, thermacol (expanded polystyrene), and other special wastes. The next stop was the incinerator for medical waste and combustible materials removed from the ships. Waste materials not incinerated on site will be bagged and shipped to the maritime board's hazardous waste landfill. The Leela yard also has a well-engineered asbestos-removal building for collecting, stabilizing, and bagging contaminated items. The company then ships the asbestos to a containment facility, where it is encased in concrete and sent on to the landfill. The yard also has a small medical facility for the workers and a lab for environmental testing.
As we walked around the yard, I noticed that the employees were wearing jumpsuits in a variety of colors. The colors differentiate the yard's workers, the plant manager explained. Those in orange jumpsuits are supervisors; those in green are torchcutters or other skilled workers; those in blue are laborers; and white is reserved for management and visitors.
The Economics of Shipbreaking
After touring the land-based facilities, I was eager to check out the ship wedged in the sand at the water's edge—the Gas Tiger, a 1,889-ton Japanese-built liquefied petroleum gas tanker that had clearly outlived its usefulness and is now Leela's first attempt at ship demolition. After donning coveralls and the requisite safety equipment, we headed down toward the water.
Workers had cut several holes in the bow of the ship and tied sturdy cables and chains through them, held fast by winches on either side of the yard. Entry was up a 12-foot aluminum ladder and through a 4-foot-square access hole cut in the starboard bow. Once inside, we climbed another ladder and popped through a round hatch out onto the sunny main deck. The center of the ship was taken up by two large, orange steel tanks that had been filled with LPG, a highly flammable mix of propane and butane, in the not-too-distant past. Considering the overall condition of this ship, it was a scary thought.
The crew was finishing the pre-dismantling cleanup: venting any enclosed tanks and clearing the compressed gas from the boat's fire-suppression system. All traces of oil and flammable materials had to be removed for the final inspection prior to getting a cutting certificate. All the workers on board seemed to know their tasks, and they were bagging up the last bits of rubbish for transport onto the shore. Once the final inspection approval was in hand, the Leela crew could fire up the torchcutters for the very first time.
The ship was small compared to the 60,000-ton supertanker I had seen on my last trip, but I was told smaller ships are fairly common in Alang these days. Most of the larger scrapped vessels are going to Chittagong in Bangladesh, I heard, where companies are paying about $75 more a ton—and international scrutiny is a bit more lax.
The yard superintendent who escorted me around the Gas Tiger gave me a brief primer on valuing scrapped ships. Japanese vessels carry a premium, he said, because their cutting losses are only 4 percent to 5 percent, compared with 8 percent to 10 percent on a ship manufactured in any other country. He surmised this was due to good maintenance and perhaps the quality and thickness of the original steel plate. In addition, tankers carry a premium over passenger ships, he said, because they have less wood on board and contain about 1 percent nonferrous metal. That percentage seemed very low to me, but on this relatively small boat, he explained, 1 percent is still more than 18 tons. The bronze propeller would account for almost half of the nonferrous yield, with the rest coming from radiators, window frames, piping, valves, and the like.
The most desirable ships come from so-called "blue-chip" lines that take good care of their vessels, the yard superintendent explained. American ships also are highly sought-after because they have a reputation for greater nonferrous content, up to 2 percent. Both of these factors garner premium sale prices in comparison with the less-desirable, stripped-down Russian and other Eastern European ships. Other pricing considerations are the quality of the generators, galley equipment, and other resalable components.
With everything taken into account, the total steel yield might be 80 percent of the ship's light displacement tonnage—its weight without anything on board. Most of that steel will end up as feedstock for local rerolling mills, with perhaps 3 percent to 5 percent going as scrap to remelters. It seems like buying a scrapped ship takes a bit of experience and some insider knowledge if you intend to turn a profit. It's not a game for amateurs, and it's certainly a risky venture for a startup operation like Leela.
Komal told me that in January, scrapped ships were fetching about $500 per LDT in Alang, compared with $575 in Bangladesh, $475 in Pakistan, $350 in Turkey, and $250 in China. Bangladesh, the current price leader, scrapped 175 to 200 ships in 2007, totaling some 2.5 million mt. India was second, with 183 smaller ships in the same year. China and Turkey each dismantled 20 to 30 vessels last year, while Pakistan accounted for another six to 10.
India's Shipbreaking Future
Driving along the beach, Komal Sharma explained that he and his brother have entered the shipbreaking business to prove a point. They firmly believe that if Alang's companies can prove that they can achieve safety and health standards comparable to expensive First World operations, then they can compete successfully for business as environmentally responsible shipbreakers.
Here's their reasoning: Right now, sellers of scrapped ships have a choice between expensive but environmentally sound and accountable destruction with a First World dismantler or selling their vessels to the highest bidder—and, perhaps, turning a blind eye to the conditions in Bangladesh and the other Third World shipbreaking beaches. Alang's shipbreakers potentially could offer an option that straddles these alternatives. With low labor rates and good markets for the nonsteel parts of the vessels, Indian shipbreakers enjoy an economic advantage over competitors in Europe and the United States. The Alang scrap community could pay cash for vessels and offer safe shipbreaking that satisfies their critics. It's a gamble, however, because in this marketplace ship sellers often still choose a high price over environmental and worker safety.
On the trip back up to Bhavnagar, I stopped at the farm of Jhivrajbhai Patel, my host when I visited Alang back in 2003. His house and farm were every bit as organized and well-maintained as his shipbreaking yard. Like so many of the other shipbreakers, Patel has diversified into real-estate development, diamond cutting, farming, and any other opportunity that crosses his field of vision.
Several shipbreaking veterans were visiting him that evening, and I asked them how they felt about the changes in their industry. They all shared the opinion that the government had gone a little bit overboard with the new spate of regulations. The trade association—which on its Web site calls the rules unjust, unconstitutional, and "a death sentence for the industry"—has filed for a number of changes in the new laws, and these men were optimistic about the outcome.
When I asked about general business conditions, the men agreed that the last few years had been rough, and by that I assumed they also meant unprofitable. How about the future? Well, certainly things were looking up, they said. The government was finally issuing cutting permits, steel prices were going up, and bank interest was on the way down.
Then I asked them one final question: Do you think the new Leela yard is the way of the future for India's shipbreaking industry? The only response was silence. If anyone had an opinion, he wasn't going to share it with me in front of his colleagues. As I was leaving, however, one of these veterans pulled me aside and whispered, "Let's see how they do after they've finished their first ship." •
Tom Mele is co-owner of Connecticut Metal Industries (Monroe, Conn.).
The Indian shipbreaking industry is suffering due to international criticism and greater regulation of its environmental and worker-safety practices. One company hopes to prove it can meet international standards—and still make a profit.