Current Events + Costly Regulations = Cottage Industry Opportunities

Published Jan 17, 2011 11:11 AM by The Maritime Executive

The impact of the economic downturn has hit virtually every aspect of the maritime industry. Nowhere has it presented more upside opportunities – and, perhaps, headaches – than in the ship lay-up, scrapping and recycling sectors.

You actually need a scorecard to keep up. With as much as 11 percent of the world’s container capacity now idle and lesser – but still significant – portions of the bulk, tanker and LNG sectors feeling the same pressures, it isn’t surprising that ship scrapping is now a hot topic again. So, too, are the methods under which “lay-up” should be accomplished. Seems like everyone has something to say; from the regulatory side, the commercial sectors, trade organizations and, of course, the environmentalists. In fact, 2010 is shaping up as a record year for scrapping. There is money to be made, but only for the savvy entrepreneur who considers all aspects of the equation.

My first brush with ship scrapping came back in 1985, when the DAVID D. IRWIN, a UNOCAL chemical tanker that I sailed on for the better part of three years, went to scrap, following a grain run to either Bangladesh or India (I forget which). Ever mindful of economy even back then, the name on the bow was changed to "FAIRWIND" when it was sold, because it involved the least amount of letter alterations on the bow. The vessel took a full load of grain via Capetown, where it took bunkers enroute.

The IRWIN had 33 tanks and 16 pumps and about a million headers fitted with a jungle of crossover deck piping. Any tank on the ship could, in theory, be pumped by any of those pumps, through an elaborate labyrinth of crossovers and isolation valves. The vessel's new (interim) owners found out very quickly that they had their hands full and that the clean-up for the grain run would not be an easy one. I, for one, was glad that I would not be eating any of the grain loaded onto a ship that had, for more than 40 years, carried every conceivable kind of liquid cargo except perhaps asphalt. In today’s environmentally correct atmosphere, I somehow doubt that the same procedures would have been deemed adequate.

It was here that I learned a little bit about the scrapping business. At the time, most of these old hulls were headed overseas. The fully cleaned vessel was usually loaded with grain, fueled up and off they went to the final port of call. There, the grain was unloaded and then the vessel would be run up onto the beach to be dismantled. In general terms, it was explained to me, the (freight on the) grain paid for the operating costs and bunkers during the final sea passage and the scrap value of the boat represented the profit in the deal. I have no idea whether those metrics still hold true in today's markets. Given the plethora of scrapping candidates awaiting their final fate, however, that benchmark is probably no longer valid, either.

Fast forward to present day: Any number of domestic and/or international protocols are in play for lay-up and recycling procedures. Just this week, an ISO-sponsored protocol came across my desk. In general, the document, “ISO 30003:2009, Ships and marine technology – Ship recycling management systems – Requirements for bodies providing audit and certification of ship recycling management,” aims to instill confidence that the certification process has been carried out in a competent, consistent and reliable manner. The document will facilitate the recognition of accredited certification bodies and the acceptance of their certifications on an international basis.

ISO also insists that a “standard” will increase the safety of workers and environmental protection by facilitating independent recognition of good practice. Beyond this, Capt. Charles Piersall, Chair of ISO technical committee that developed the standard, says, “ISO 30000, which gives the specifications for ship recycling management systems is being implemented using independent third party certification. Organizations carrying out ship recycling see certification as valuable for them, their customers and other stakeholders. It all sounds good, but those of us who remember the inception of ISM at sea also know that any type of certification process does not come without costs, mountains of paperwork and, of course, increased costs.

The European Union has their own thoughts on the matter, of course. Click HERE to see the Council of the European Union’s Council Conclusions on an EU strategy for better ship dismantling. The 3-page document doesn’t say a whole lot that is new, but does underscore the coming regulatory requirements that are bound to come into play in the near term. Additionally, the document “ACKNOWLEDGES that accelerated phasing out of single hull oil tankers and the current economic crisis may increase the need for appropriate action in the near future” and ”ENCOURAGES Member States to develop and implement, as appropriate, comprehensive national strategies to ensure environmentally sound recycling of ships consistent with national sustainable development strategies and relevant international commitments and obligations.”

Meanwhile, and also popping up on my computer screen this week was the announcement that RINA has published new lay-up guidelines to help shipowners identify and secure safe and cost-effective locations to lay up their ships during the current economic downturn. The guidelines cover various types of lay-up, mooring arrangements, class, insurance, flag and port authority requirements. They also set out the measures which need to be taken in order to ensure that ships are laid up in a safe condition and that proper maintenance is carried out on machinery and systems.

The ultimate lesson here, I suppose, is that beyond the financial pressure wrought by the grim but slowly recovering economy, owners, operators and those who would try to make a buck either recycling or laying up surplus tonnage have a whole new set of headaches to deal with. Nowhere is that more apparent than in the sunny state of California, where the U.S. Maritime Administration has finally navigated the labyrinth of Golden State environmental regulations in order to start removing obsolete tonnage from the Suisun Bay fleet located there.

That federal effort, however, does not come without added costs – sometimes triple what it would take to process the old ships elsewhere domestically – as well as the unnecessary political baggage loaded onto it by the new administration. MARAD has found itself beaten up in the West Coast media for something it had little control of in the first place. Not everyone is happy about how that has come about. The Obama Administration and its maritime administration call it progress. Others have another word for it.

Beyond (and I suppose, to a certain extent, hand-in-hand with) the regulatory process itself, is the environmental lobby who are purportedly looking out for our best interests. In September, Green campaign group Basel Action Network (BAN) says that two US-flag ships sold by a US company – supposedly to be scrapped – meant that the United States would be breaching international law and was somehow culpable for the alleged sins of some operators who were up to no good. The news item was perhaps interesting, but with no substantiation of allegations that the ships were actually on the way to the boneyard, or that toxic materials were on board, the effort to stop their departure is, so far, a case of “the sheep crying wolf.” Still, it gives those in the business of environmental stewardship something to do and a paycheck to cash, like everyone else.

This week, we revisited the case of the 1979-built, 21,050 dwt Ro-Ro “ex-Pvt James Anderson Jr” and “ex-1St Lt Alex Bonnyman,” which departed from Norfolk in August for Brazil. BAN spokespersons admitted this week that the ships “…landed a charter from Brazil to East Africa and loaded cargo in Brazil. Beyond this charter, we do not know where the vessels are headed. I suppose if they land another charter they will continue operating.” They added, “We are watching closely to see how this plays out, scrapping in South Asia is still a legitimate concern.” Rest assured that if you try anything underhanded in the way of ship scrapping any time soon, BAN will be on the case. Still, it brings up the question of why it is okay to send ships to scrap from the U.S. Gulf and East Coasts without scamping off the “invasive species” and toxic paint, but not from California. Maybe BAN will find out for us.

It turns out that there are some happy endings. Take for example – not coincidentally, another vessel that I had sailed on in my seagoing career – the USNS VANDENBERG, which was recently sunk off of Key West, FL to serve as an artificial reef there. The former missile tracker had miles of toxic wiring and other similar fittings which had to be removed before the vessel could be intentionally scuttled, but its new purpose as a reef to attract fish and of course, divers, might actually outshine its considerable service to country in a previous life. If so, then the VANDY should serve as a model to others who contemplate the same sort of idea. The effort was predictably not without red tape and bureaucracy, and took far more money and time than originally thought to accomplish.

The VANDENBERG’s wiring and other “non-environmentally friendly” toxins that had to be stripped away prior to reefing also bring to light another new aspect of the rapidly greening maritime industry. The American Bureau of Shipping’s (ABS) set of Clean Class notations, referred to as ES (Environmental Safety) incorporates the provisions for IMO Resolution A.673(16) in their ABS Rules for Steel Vessels (< 90 meters). ES also includes other requirements to address the treatment of black and gray water, ballast water treatment, and the processing of garbage. Today, Gulf Coast operators are planning OSV newbuilds to double-hulled and “ES+”-certified standards, or in other words, “environmentally green.” Eventually, that type of thinking ought to make the vessels easier to dismantle in a safer fashion at the end of their useful lifespan.

It hasn’t been the easiest year for anyone on the waterfront to navigate, but even amidst the bad news, different opportunities for those who can think outside the box are emerging. Sorting out the deals that won’t have the bottom line swallowed by the mounting regulatory jungle is harder still. That’s a job for someone just a little smarter than me. Still, if I had a West Coast shipyard with an open dry dock at this point, I might be tempted to bid on a couple of these Suisun Bay NRDF ships that need to be scrapped. Saving the cost of towing them all the way around to Brownsville (hey!: split the difference with the Feds...) and making some money off the scrap value might just be a creative way to turn a profit. But, I’m just spitballing now. – MarEx.

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Joseph Keefe is the Editor in Chief of THE MARITIME EXECUTIVE. He can be reached with comments on this editorial at [email protected]. Join the Maritime Executive ‘Linked In’ group at by clicking http://www.linkedin.com/e/gis/47685