On 10 October, India’s ship verifier Indian Register of Shipping, or IRClass, opened an office in Alang, Gujarat, joining a growing band of ship verifiers who are setting up shop to tap potential as ship-recyclers located along the world’s largest stretch of ship breaking beaches upgrade their facilities to conform to multiple global rules.
One set of rules has been put in place by the International Maritime Organization (IMO) and another by the European Union (EU) to ensure end-of-life ships are dismantled without posing risks to human health, safety and to the environment.
So far, some 11 recyclers have won certificates of compliance with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships that was adopted by IMO in 2009. It is, however, yet come into force as it has not been ratified by 15 states, representing 40% of world merchant shipping by gross tonnage (capacity) and a maximum annual ship-recycling volume not less than 3% of the combined tonnage of the states, to take effect globally.
While four ship-recycling yards have been certified for compliance with IMO’s Hong Kong Convention by the Japanese ship classification society Class NK, seven have been certified by the Italian classification society RINA. The four ship-recyclers certified by Class NK have also applied to the European Commission to be included in its list of approved recycling facilities where ships flying the flag of a European Union (EU) member-state should be sent for dismantling.
IR Class Systems and Solutions Pvt. Ltd, a unit of IRClass, certified these four yards according to EU standards as an independent verifier.
More recyclers in Alang are rushing to upgrade their yards to meet the global standards.
About 25 ship-recycling facilities have approached IRClass for different services which include compliance audit against the Hong Kong convention, EU compliance audit and ISO certifications.
Alongside, there are two separate yet related developments that are unfolding.
Green ship recyclers have set up or are setting up entities that buy ships for cash within their groups for exclusive needs. Also, certified yards are buying more facilities in the area to build scale to be able to break more ships as demand picks up for responsible ship breaking from shipowners.
In the ship-breaking industry, fleet-owners don’t sell their end-of-life ships directly to a recycling yard. They are first sold to a cash buyer (a sort of middlemen) who sells them to a recycler who pays the best price. Thus far, shipowners had no control over where their ships are taken apart. As a result, 70% of old ships were broken up at sub-standard yards.
There are now as many as eight recyclers who have cash buying entities within their group.
Leela Ship Recycling Pvt. Ltd has GMS Inc., the world’s largest cash buyer of ships for dismantling. Anil Sharma, the president and chief executive officer of GMS, and Komalkant Sharma, who runs Leela Ship Recycling, are brothers.
RL Kalthia Ship Breaking Pvt. Ltd, Priya Blue Industries Pvt. Ltd and Shree Ram Vessel Scrap Pvt. Ltd are among others that have set up cash buying entities. Most of these cash buying entities are located in the maritime hubs of Singapore, Hong Kong, London and Dubai.
Fleet owners such as Maersk Line are seeking out recyclers that have their own cash buying entities to make sure their ships are recycled at safe and environmentally responsible facilities. Maersk does so by writing specific clauses into contracts with cash buyers. That’s how two of Maersk Line container ships ended up at the facility of Shree Ram, a yard certified for compliance with the Hong Kong Convention that has under its fold NKD Maritime, an outfit based in London. Shree Ram also passed a separate, rigorous audit carried out by Maersk for compliance.
The world’s top container shipping firm is currently auditing more Hong Kong-certified yards at Alang as well as those close to getting such a certification in accordance with its own standards, with an eye on spurring competition and realizing better prices for its ships that are being retired.
An exclusive entity that buys old ships for cash has thus become important for recyclers.
Recyclers have started to realize that a single upgraded green facility will deny them more business unless they add capacity. That also explains why more yards are upgrading regardless of whether they have cash buying units within their fold to catch the spill-over business looking for green yards.
Ship-breaking plots at Alang are of varying sizes. Some have a 30 metre water front that can break one ship, 50 metres that can sometimes accommodate two vessels according to size, 65 metres that can dismantle two ships easily and 120 metres that can simultaneously recycle three capesize ships, the biggest of the dry bulk carriers.
Recyclers are snapping up adjacent yards and turning them into bigger plots with a larger water front.
Shree Ram, for instance, is close to adding two more yards, adjacent to its facilities, to the three it already owns. When this happens, Shree Ram will have a waterfront of 420 metres, making it the largest recycler at Alang by capacity, capable of breaking as many as seven ships at a time.
Priya Blue is also close to buying another yard.
Of course, the new yards will have to be made compliant with global standards to reap the benefits but will gain from the experience and expertise of upgrading their first yards.
Things are changing at Alang, once vilified for frequent accidents and deaths, as the next generation of mostly family-run business steps in to run the show, embracing new global standards and processes. One example is Naeem Masani, 27, the managing director of Luck Group, which runs YS Investments Pvt. Ltd, a yard that is hoping to get a Hong Kong convention compliance certification from Class NK within the month.
P. Manoj looks at trends in the shipping industry.