May/June 2004
During the scandal-plagued 1990s, domestic shipbreaking seemed about to sink out of sight. Today, a sea change in how the U.S. recycles its obsolete vessels is reviving this still-controversial industry.
By Robert L. Reid
America’s shipbreaking industry has made a remarkable recovery in recent years, growing from a troubled business niche that nearly sank out of sight a few years ago to an increasingly competitive field today in which both veterans and new entrants vie to dismantle old U.S. Navy warships and merchant vessels.
This revival of domestic shipbreaking resulted largely from a sea change in the way the U.S. government handles the recycling of its obsolete fleets. Still, while the business is experiencing smoother sailing, it can’t completely steer clear of controversy. For instance, when the U.S. Maritime Administration (MARAD) (Washington, D.C.) decided to send some 13 obsolete ships to a shipbreaking yard in the United Kingdom, it faced protests, lawsuits, and a federal court’s restraining order.
At the same time, the industry is involved in a far more positive dispute: At least five states are competing to have an old aircraft carrier sunk off their coastline as an artificial reef to promote scuba diving and fishing—with domestic shipbreakers handling the work to prepare this vessel for such recreational reuse.
Controversy and Changes
Controversy is nothing new to U.S. shipbreaking. Indeed, the modern domestic industry was born out of the scandals, investigations, and even a criminal prosecution that scuttled the old approach to shipbreaking in the late 1990s. Under that market-oriented system, the Defense Reutilization and Marketing Service (DRMS), working on behalf of the Navy, and MARAD—which disposes of old merchant ships, including the Navy’s noncombat ships—sold obsolete vessels to domestic or overseas firms. Those shipbreakers then tried to recoup the labor-intensive costs of dismantling ships by selling the scrap metal—and, critics charged, by cutting corners on environmental protection and worker safety.
In 1997, at least one U.S. shipbreaker was sentenced to two years in prison for illegally removing asbestos and dumping waste oil while scrapping an old aircraft carrier in the Baltimore, Md., harbor. That same year, a series of articles in the Baltimore Sun—which ultimately won a Pulitzer Prize—helped prompt Congress to investigate charges that the United States was engaged in “toxic colonialism” by sending vessels laden with asbestos, PCBs, and other hazardous materials to poorly run shipbreaking operations in countries like India and Bangladesh (see “Troubled Waters” in the January/February 1999 issue of Scrap).
Then-Vice President Al Gore picked up the issue in the fall of 1998, establishing a one-year moratorium on the sale of U.S.-government ships to overseas shipbreakers. By then, however, the domestic industry had been swamped by a number of factors, including a dearth of ships needing dismantling during a 1980s Navy buildup, the emergence of tougher environmental regulations, plus “erratic” and “very low” scrap metal prices in the late 1990s, explains a 2001 Rand Corp. study called “Disposal Options for Ships.”
Citing MARAD figures, the Rand study noted that the United States once had a “healthy” ship recycling industry in the 1970s, with some 30 domestic firms actively breaking up ships. By the time of the study, though, the conventional U.S. ship recycling industry was “nearly extinct,” Rand concluded. In fact, an industry newspaper suggested in mid-1999 that only one full-scale shipbreaker was still operating in the United States.
Anchors Away
American shipbreaking was listing heavily as the end of the 20th century neared—but the U.S. government couldn’t allow the domestic industry to disappear beneath the waves. For one, the end of the Cold War had left hundreds of obsolete vessels tied up at moorings and in need of recycling or reuse (see “Nautical Numbers” on page 46). Virginia’s James River, in particular, was home to a number of World War II-era vessels that were literally falling apart and leaking oil—factors that helped earn these ships the derisive nickname, “Ghost Fleet.” While MARAD often sent old merchant ships overseas—prior to the Gore moratorium—concerns over military technology and other secrets meant that the Navy’s decommissioned warships needed to be scrapped by domestic firms.
It was clear that something had to change—and that something was the old market-driven system of shipbreaking.
The Navy was the first to launch a new approach, starting in September 1999 with a pilot project called the Ship Disposal Program (SDP) that initially gave one ship to each of four contractors, who were chosen from some 15 domestic shipbuilding and repair yards and other facilities. This $12.6-million pilot project was unique in several ways, including the fact that the Navy would handle the program itself (rather than handing the ships over to DRMS). Most importantly, though, the Navy started to pay shipbreakers to dismantle the obsolete vessels in a safe and environmentally sound manner, with the scrap value now credited back to the Navy to offset the cost of the new subsidy.
The four firms in the pilot program were spread out across the United States, with International Shipbreaking Ltd. in Brownsville, Texas; Metro Machine Corp. in Philadelphia; Baltimore Marine Industries Inc. in Baltimore, Md.; and Ship Dismantling and Recycling Joint Venture in San Francisco.
In contrast to the chaos of the old market-driven system, the new subsidized approach seemed to work well. The four ships—all fast frigates—were successfully scrapped over the next year or so, and the Navy’s SDP moved beyond its pilot phase to award a second round of ships to some of the same contractors in 2000 and 2001.
But shipbreaking never seems to enjoy smooth sailing for long.
Limited funding meant that only a couple of ships could be scrapped on each coast per year, explains Capt. Lawrence M. Jones Jr., program manager for the Naval Sea Systems Command’s Inactive Ship Program office (Washington, D.C.). The Sept. 11, 2001, terrorist attacks, in particular, shifted the Navy’s financial priorities, cutting the ship disposal budget by about two-thirds, Jones notes.
As a result, the Navy simply couldn’t afford to scrap enough ships each year to keep four facilities operating. The first to drop out was Ship Dismantling and Recycling Joint Venture, which had dismantled three frigates and one guided-missile destroyer at the Hunter’s Point shipyard in San Francisco before advising the Navy in November 2001 that it was shutting down that operation “due to the high cost of maintaining a dry-dock facility dedicated to ship dismantling with no work under contract and insufficient projected future throughput,” explained a 2002 MARAD report to Congress, which examined both the Maritime Administration’s and the Navy’s shipbreaking efforts.
Baltimore Marine Industries also dropped out of the ship disposal program after completing at least eight projects for the Navy at its Sparrows Point shipyard facility. The company declared bankruptcy in June 2003 and was auctioned off later that November. A lack of government work, while not the direct cause of the firm’s troubles, was possibly a contributing factor, the Baltimore Sun reported.
That left the Navy with just two shipbreakers, Metro Machine on the East Coast and International Shipbreaking Ltd. as a “West” Coast scrapper (due to the Gulf Coast-based facility’s proximity to the Panama Canal, explains Capt. Jones). Fortunately, Jones adds, “the funding profile has gone back up again,” with some $5 million for Navy shipbreaking in the Bush Administration’s budget for fiscal year 2004, along with an expected $10 million for each of the next several fiscal years.
Moreover, Congress routinely adds funding for the program, Jones says, with an additional $7 million earmarked by lawmakers for FY 2004. In fact, more than half of the Navy’s shipbreaking budget for the past five years has come from such congressional “plus-ups,” as Jones calls the extra allocations.
Meanwhile at MARAD
While the Navy was getting its sea legs with subsidized shipbreaking, MARAD sailed on with market-driven efforts for several more years. That’s because MARAD didn’t receive the authority to pay a subsidy until 2001, explains Robyn Boerstling, an agency spokes-person. Even when MARAD received that authority, it still didn’t receive a direct appropriation. Instead, $11 million was allocated to the Department of Defense and then given indirectly to MARAD, which is part of the Department of Transportation, Boerstling says.
Once it had money to subsidize scrapping, MARAD got right to work, awarding six merchant ships to three facilities in Brownsville, Texas: International Shipbreaking (the firm working with the Navy program); ESCO Marine; and Marine Metals. But just as MARAD’s new efforts were getting underway, the ups and downs of shipbreaking hit another down, with no money allocatedfor MARAD ship disposal in FY 2002, Boerstling says.
This lack of funding was more than just a minor setback. The same legislation that gave MARAD permission to spend government funds on shipbreaking also gave the agency a deadline of 2006 to dispose of all obsolete ships in the government’s inventory—an inventory that would likely reach 155 vessels by that date given the growing backlog of ships, MARAD predicted.
With “no money but a new mandate,” MARAD decided to solicit “ideas and creative solutions to our ship disposal challenges” so it would be ready to award contracts when funding resumed, Boerstling says. These solicitations took the form of a Program Research Development Announcement (PRDA), which was essentially a process for bidding on ships that would hopefully be funded in FY 2003.
Some 77 firms worldwide submitted PRDA proposals, Boerstling says, with 30 of these from domestic scrappers, 31 from foreign facilities, and the rest focused on other approaches to disposal such as artificial reefing and “miscellaneous” ideas. In that initial PRDA, “some of the most interesting proposals were the ones that utilized foreign facilities,” Boerstling says. MARAD representatives visited sites in the United Kingdom and Mexico, and they even examined China’s capacity for shipbreaking, she adds.
Though exporting old vessels was an option again—the Gore moratorium had long-since expired—foreign disposal would require permission from EPA because of the presence of PCBs on the obsolete ships. Under the Toxic Substances Control Act (TSCA), PCBs can be exported only if EPA grants an exemption following formal rulemaking.
Ultimately, MARAD did obtain FY 2003 funding of $31 million—$11 million in the agency’s first direct appropriation for ship scrapping along with another $20 million allocated to the Navy for MARAD’s efforts. With this money, MARAD began to think big, setting a goal of removing more than 20 ships from its inventory in a single year. Multimillion-dollar contracts for scrapping multiple ships went to ESCO Marine as well as a new entrant, Bay Bridge Enterprises (Chesapeake, Va.), which is run by the Mazza scrap processing family. International Shipbreaking and Marine Metals also received MARAD contracts, as did another new player in subsidized scrapping, Resolve Marine Group (Port Everglades, Fla.).
Rough Waters
The biggest and most contentious contract in 2003 went to an overseas firm that offered the unique capability of scrapping 13 vessels at once, Boerstling says. That $14.8-million contract—awarded to Able UK Ltd. of Teesside, England, working with Post-Service Remediation Partners (New York City)—involved 13 James River ships, plus two partially built oil tankers the Navy did not wish to complete, Boerstling says.
Though MARAD thought it had received the necessary EPA exemptions for exporting PCB-laden vessels, the deal faced a tidal wave of criticism from environmentalists in both the United States and the United Kingdom—who feared that the Ghost Fleet ships could not be towed safely across the Atlantic—as well as British groups that simply wanted the Americans to keep their toxic ships at home. Domestic shipbreakers also opposed the plan, arguing that they had the capability to handle the ships at a lower cost.
Members of Congress denounced the export of U.S. jobs, while the specific congressman representing the Brownsville district asked the General Accounting Office (GAO) to investigate MARAD’s decision.
Assuming it had met all requirements of both U.S. and U.K. authorities, MARAD prepared in September 2003 to send the ships to Able UK’s Graythorp yard. Then a lawsuit by the Sierra Club and the Basel Action Network brought a temporary restraining order from the U.S. District Court for the District of Columbia. The restraining order noted that EPA had not engaged in the required formal rulemaking to grant an export exemption to MARAD but instead had simply issued an “enforcement discretion” letter indicating that it wouldn’t enforce the export ban so long as certain conditions were met. Such a letter didn’t meet the letter of the law, the judge held, ordering that nine of the scheduled 13 ships should temporarily stay in U.S. waters. Four ships were permitted to leave for England in October because Congress had authorized a pilot export program involving that number of ships, the court said.
While the fours ships were in the middle of the Atlantic, Britain’s Environment Agency suddenly reversed course and declared that the permits it had issued were no longer valid. Moreover, questions were raised over Able UK’s plans to adapt its facilities to handle the vessels.
Though some groups called for the ships to be turned around and returned to a U.S. port, the four vessels did make it safely across the ocean and docked at Able UK’s Graythorp yard—and that’s where they were at presstime, caught in a legal limbo, unable to sail and unable to be scrapped.
MARAD is working closely with British officials to resolve the permitting issue, Boerstling says, and the agency remains confident that the four ships will eventually be scrapped by Able UK as planned, perhaps starting this summer.
The other nine ships held back by the temporary restraining order are another matter, though. The next hearing in that case is likely to be held this summer. Since some of the vessels are considered “high priority” for disposal—to avoid potential environmental damage from oil spills or other problems—MARAD might send some of those ships to domestic yards for immediate scrapping and substitute other vessels for Able UK’s contract, Boerstling says. In that case, however, MARAD would need EPA approval to export the substituted ships.
Rising Tide
The accusations, lawsuits, and bad publicity surrounding the Able UK contract might make it seem that America’s shipbreaking efforts haven’t progressed far from the scandal-plagued 1990s. In fact, the domestic industry has left the bad old days in its wake, especially in terms of worker safety, environmental protection, and technological innovation, according to industry participants and outside observers.
For instance, International Shipbreaking—once cited in the Baltimore Sun series for two worker deaths in a year—has seen its reportable injury rate fall from about 35.0 in the late 1990s to 1.8 recently, which is well below the industry average of 8.0, says Barry Chambers, one of the firm’s two COOs.
Some of that improvement resulted from greater supervision by the Navy, which only awards ships to firms that can demonstrate the ability to operate in a safe and environmental manner, Chambers says. Moreover, the Navy has assigned two people to International Shipbreaking’s Brownsville facility to monitor all subsidized scrapping of Navy vessels. By comparison, under the old market-driven system, DRMS once had only a single inspector to monitor the entire shipbreaking industry.
MARAD has also increased its inspections, notes Mike Dunavant, general manager of Bay Bridge Enterprises, which has so far scrapped only merchant vessels. In addition, the paperwork is a lot stricter. “You really have to be organized in how you do your bookkeeping for financials and other recordkeeping—everything’s got to be accounted for,” Dunavant says.
Ship scrappers have also made their own safety and environmental efforts more shipshape. International Shipbreaking, for instance, increased the number of its safety personnel from one to three, established a safety-training building, and made environmental safety and health management a line function, equal to production. In fact, Chambers says, safety and environmental concerns are placed ahead of production. “Safety comes first,” he explains. “If a job has to be slowed down, it gets slowed down.”
In this case, the proof is in the production times: A ship that might have been scrapped in 20 or so weeks five years ago under the market-driven system could easily take 36 weeks today, Chambers notes.
The company now also designates teams for specific tasks rather than having employees change jobs from day to day. This way, tank cleaners only clean tanks, asbestos removers only handle asbestos, metal cutters only cut metal. Such work specialization means that the people doing a particular job are well-trained and physically capable of doing that job—as opposed to having an asbestos remover handle steel some days, even though his back and arms might not be used to that kind of activity, Chambers notes.
New Ideas
Various shipbreakers are also using more technology today than in the 1990s, notes Allan Roberts, executive director of the National Environmental Education & Training Center (NEETC) (Indiana, Pa.), which was asked by the Navy to evaluate ship disposal programs. Roberts points to mobile shears as one such device, which some shipbreakers use instead of handheld reciprocating saws. Using a reciprocating saw can lead to carpal tunnel problems for workers, Roberts says, whereas an excavator- or skid-steer-mounted shear would “take fewer people, put technology to use where it improves worker health and safety conditions, and quite possibly improve the economic cost factors of scrapping.”
Other promising innovations for shipbreaking include an incendiary cutting device to reduce the need for torchcutting, as well as a laser scanning tool to create a digital three-dimensional model of a ship and its various compartments to determine how best to cut the vessel apart, Roberts explains. There’s even a new PCB-remediation product that can be sprayed or wiped onto a contaminated surface to break down the PCB molecules. This product, currently being evaluated by the Navy, could help address a major environmental obstacle to dismantling ships—one vessel NEETC studied had more than 60 tons of PCBs just in its paint, Roberts notes.
MARAD is also seeing more “technology-enhancing proposals” because the PRDA approach solicits innovative ideas from industry that traditional procurement methods might not generate, says Robyn Boerstling.
Though cleaning up PCBs is considered one of the major technical obstacles to shipbreaking, budgets have also slowed the pace of dismantling. Up to now, Roberts says, the amounts allocated for shipbreaking were “unable to supply enough ships in a timely manner to produce economies of scale by the contractors because, as one ship was being dismantled, you may not know when your next ship was coming in.”
International Shipbreaking’s Chambers agrees. “The domestic shipbreaking industry is wholly dependent on federal funding,” he says, but “the flow of ships is cyclical, which makes you lay off people, then hire them back and retrain them.” That, in turn, degrades the effects of safety training and makes shipbreaking jobs more expensive, he adds.
On the Horizon
Perhaps the industry is finally sailing out of its funding doldrums, however. MARAD recently received $15 million for FY 2004 and expects its largest-ever allocation—$19 million—for FY 2005, says Robyn Boerstling. The agency is also evaluating another round of PRDA proposals, with plans to award contracts this spring. Though MARAD remains committed to both overseas and domestic scrapping, the agency does feel that with the new PRDAs domestic scrappers have made some of their most competitive proposals, Boerstling says.
On the Navy side, the Ship Disposal Program’s current, increased budget should pay for up to four ship scrappings a year, notes Capt. Jones. That’s enough to keep the current two contractors in business, he expects, though no new scrappers need apply at this time.
The Navy is also interested in sinking certain vessels as artificial reefs. MARAD has done that in the past, using shipbreakers such as Bay Bridge Enterprises to clean up a former Navy transport vessel—the USS Spiegel Grove—that was sunk off the Florida Keys in 2002 and has since brought the state more than $14 million in tourist revenue. Now, Florida, Texas, Mississippi, and a combined effort by Georgia and South Carolina are all competing to do the same with an obsolete aircraft carrier, the USS Oriskany, which is being prepared and environmentally cleaned by a joint venture of shipbreakers ESCO Marine and Resolve Marine, notes Capt. Jones.
Reefing is an especially attractive option because it costs only one-fourth to one-third as much as conventional scrapping, Jones says. Other less-expensive options are using ships for naval target practice and turning them over to historical groups for museums.
Holding down costs for the Navy is also the idea behind a recent experimental contract under which International Shipbreaking scrapped an obsolete cruiser. Given the current bull market for scrap steel, the company worked out a deal in which the Navy paid a smaller subsidy and the company kept a portion of the revenue from selling the metal, Chambers explains. Though the scrapyard ultimately received the same amount of money as it would have received under the regular subsidized contracts, Chambers hopes such innovative proposals will keep his firm competitive, though he admits it’s a bit of a gamble.
Chambers, a shipbreaking veteran who briefly left the business when steel prices fell too low in the late 1990s, concludes: “The Navy put the onus on us to determine the [scrap] market ... and the change in the market has been a plus for everyone, so at this particular point in time we’re doing well.”
Shipbreaking Resources
For more information on shipbreaking, visit these Web sites:
• An online version of the 2001 Rand study, “Disposal Options for Ships,” can be found at www.rand.org/publications/MR/MR1377 (this PDF file requires Adobe Acrobat Reader to view).
• NEETC offers various documents and resources, including its online shipbreaking newsletter, Ship Recycling News, at http://shiprec2001.neetc.org/shiprec.
Nautical Numbers
From a backlog of 206 U.S. government ships in need of scrapping in October 1998, the Navy and MARAD have reduced their inventories as of March 2004 to the following (with more ships to be added over time):
Navy: 40 inactive vessels suitable for ship dismantling, artificial reefing, or target-sinking exercises, plus 17 scheduled for options ranging from donations as museums to foreign military sales or transfer to other federal agencies.
MARAD: 106 ships (including 46 in the James River “Ghost Fleet”) not yet contracted for reuse or recovery options such as reefing or scrapping, though some MARAD vessels are also considered for sinking exercises or historic preservation.
Costs: The Navy estimates that it costs on average $750 per ton of a ship’s displacement weight to scrap a typical vessel. Scrapping times range from seven to 12 months.
Robert L. Reid is managing editor of Scrap.•
During the scandal-plagued 1990s, domestic shipbreaking seemed about to sink out of sight. Today, a sea change in how the U.S. recycles its obsolete vessels is reviving this still-controversial industry.