The Danish firm’s decision was a major shot in the arm for the beleaguered ship-breaking yards in Alang, often in the limelight for unsafe practices and working conditions.
What led Maersk, the world’s biggest container shipping firm, to look at Alang and reduce its dependence on favourites Turkey and China for demolition?
Annette Stube, head of group sustainability at AP Moller-Maersk A/S, reveals the strategy in an interview during a visit to India last week.
What made you pick India and not Pakistan or Bangladesh?
India is clearly the best place of the three places. In India, you have the yards that have made the most progress. You have the four yards that have the certification of compliance with a global rule. Also, very important, in India you have the best infrastructure to support responsible ship-recycling, in particular the waste disposal facility. That’s not the case in Bangladesh or Pakistan.
Besides, the topography, the way the beach is laid out, is better in India than in some of the other places because the vessels can come right up to the edge of the facility. With the latest improvements made at least in one of the yards (where Maersk ships are being recycled), there is very little space between the bow or the beginning of the vessel and the concrete floor which is very important because that means you can lift the blocks right onto the concrete floor and avoid contamination. So, there are several things in India that actually makes it a better place.
Alang yards have come a long way; they have the right infrastructure in terms of the waste facility and the topography supports ship-recycling in a much better way.
Is there a commercial reason behind the move?
We get $1-2 million less when we sell a vessel, depending on the size, in Turkey and China. It’s just more expensive to recycle there. The conditions in China and Turkey have for years been better than in India, Pakistan and Bangladesh. So, there is lot of investments already going into those yards, I believe, higher salaries as well and better infrastructure. So, all these things coming together, it has been a more expensive choice; but the only choice for us really (until now). It’s a market play. They will do what they can do to get the best prices. That’s how it works.
So, will you ditch Turkey and China in future?
No, we won’t totally ditch Turkey and China. We probably still have vessels going to these places. Sometimes it is relevant. For example, a few months ago, one of our vessels had a big collision outside the coast of China and it really didn’t make sense to tow it all the way to India, it was taken care of in China. Also, some of our smaller vessels, the (oil exploration) supply vessels, if they have been operating in Europe, then they would probably go to Turkey.
So, the large container vessels, we would probably take all to India because there we can decide the last trading routes. If they have been trading in the US, then we can shift them to another trade lane towards their end of life so it doesn’t have to go without any containers in the last voyage. That’s just a matter of logistics actually.
For the large container vessels, we would probably seek to take all of them to India at this point, but we are not ruling anyone out. It’s also a matter of price and as long as the yards can live up to our standards.
Is there is a change in your vessel scrapping strategy, more younger ships being retired?
Previously, the vessels have been older, more than 20 years old. Typically, I do believe we will see younger ships being scrapped, we are already seeing that from some companies because of the general trade and market conditions. So, it’s likely the age of the vessels destined for scrapping will be going down.
What was it like earlier?
We used to scrap between two and six ships depending on world trade and steel prices. Steel prices are very volatile so that really change a lot actually… but in that range. We have been reluctant to put an exact number to that because of this volatility in steel prices, because we don’t know how the world trade is developing. Of course, we hope it goes well; so that means we will employ more ships and that they will be scrapped at an older age. So, we are reluctant to give out those numbers.
Maersk could take the two ships to a particular yard in Alang of its choice because the ships were sold to a cash buyer (middlemen) who was a part of the recyclers group. Is that something you would be looking in future also?
It makes our task easier. Typically, you see, there are ties between cash buyers and certain recycling yards. So, if we were to do also with another yard in Alang, there would typically be another cash buyer we would approach. This is not normal practice. Normally, most shipowners would contact a cash buyer and they decide they would sell it for the best price. That’s why we have 70% of all ships going to substandard beaches. That’s their decision and there is no requirement from owners. This is what we are changing.
We are putting specific requirements into the contract with the cash buyer regardless of who it is to make sure that this vessel is going to this yard or one of these yards that pursue ship-recycling in a responsible way according to our standards. You can do it with anyone who is willing to go into those types of negotiations obviously.