Why beaching is so hard for companies to resist

(c) Amit Dave

Ships being broken on the beach of Alang, India

The road to Alang is lined with shops and warehouses selling items that once used to sail across the world’s oceans. Oak desks, faux crystal chandeliers, life vests and boats, ropes, electric cables and switches, leather chairs, paintings and reproductions, giant generators and motors – you name it. It is ship recycling in its most literal sense, even though all these commodities are in reality no more than surplus products. The real reason why huge ships end up on the beaches of Alang is their steel hulls and frames. Steel is where real profit is.

“Top dollars” are the two words that keep coming back when Indian shipbreakers talk profit, especially when referring to the profits made by others. “I am a businessman, so I know the world would stop turning if not for money,” Nitin Kanakiya explains between bouts of hard coughing. Kanakiya owns the Triveni ship recycling yard in Alang and is the secretary of the local Ship Recycling Industry Association (SRIA), an umbrella organisation that brings together almost all the owners of the 150-plus shipbreaking yards in Alang. He makes the statement during a discussion in his Bhavnagar office about regulations aimed at making shipbreaking and recycling socially and ecologically sustainable.

The mercenary approach Kanakiya refers to is illustrated by Maersk’s previously mentioned U-turn on its decision not to use beaching and shipbreaking yards in South Asia. For years, Maersk had instead opted to send its end-of-life ships to yards in Turkey and China, which provided better labour conditions and a reduced risk of ecological damage. Maersk argued that its 2015 about-turn should be seen an investment in Alang’s best-performing yards and thus as a way of incentivising the entire shipbreaking industry along Gujarat’s beaches to do better.

The company touted its new approach in its 2015 sustainability report. “Today, the majority of ships are dismantled and recycled at facilities on beaches. Here, the standards and practices often do not adequately protect the people working at the facilities and the natural environment. We have decided to play a role in changing this situation,” CEO Nils Andersen wrote in the report’s foreword.

But a short sentence in the report hinted at the company’s true motives. “On average, using one of these yards [in Turkey or China] has an added cost of one to two million US dollars per recycled vessel,” it said. A bit further down, the report furthermore observed that “using only responsible recycling facilities is estimated to incur extra costs of more than 150 million US dollars [over the coming five years], compared to using upgraded facilities in India.”

The NGO Shipbreaking Platform itself calculated the difference in profit based on where ship owners send their ships for breaking. A container ship of 25,000 LDT, they estimate, would sell for more than $11 million in India, $7 million in Turkey and a little over $5 million in China. These considerable differences are explained by several factors: the infrastructure investments required for beaching are obviously much lower than those for concrete slipways, peers and dry docks. Labour is cheaper in South Asia than in China and Turkey, while the demand for recycled steel is higher. The NGO Shipbreaking Platform estimates that a big shipping company like the Swiss MSC, which has sent at least 80 vessels to Alang in the past decade, has made €300 million in profits by choosing beaches over sound shipbreaking facilities.

Maersk’s decision was met with severe criticism from Danish civil society and media, especially when a 2016 DanWatch investigation revealed that the first two ships the company sent to Alang were all but sustainably recycled. But the company stuck to its decision. This September, the Maersk Phuket arrived in Alang, the seventh Maersk vessel to be broken on an Indian beach since 2015, according to Jignesh Patel of the Gujarat Maritime Board.

Maersk sent its own staff to the Shree Ram shipbreaking yard, the site where the Maersk Phuket is beached. Although critics don’t believe that Maersk’s permanent on-site presence can make shipbreaking on beaches clean, other major shipping companies like the Swiss MSC – which has sent at least 80 ships to South Asian beaches in the past decade – don’t even make the effort of overseeing the actual shipbreaking process.

A Europe of many guises

Under the Indian Shipbreaking Code, the Gujarat Maritime Board is the state administration responsible for drafting and enforcing Indian rules and regulations for the shipbreaking industry. The GMB’s real focus, however, seems to be to keep independent journalists and researchers away from the yards. What I observed during the two trips I made along and to the beaching yards of Alang without GMB authorisation made me understand why the administration is so keen on keeping outsiders out.

In spite of the talk of green yards, Hong Kong compliance certificates and upgraded facilities (estimated to account for 50 to 70% of all the Alang yards), most of the ships I saw were being broken on naked beaches and even the ones beached in front of upgraded yards would have the ocean washing in and out when the tide was high and the hull open. The beaching yards might be closed off to people like me, but there are no barriers to contain the substances and debris that wash out of the open vessels and onto the beach, where I also spotted fishermen, women selling trinkets and playing children.

I interview several shipbreaking yard owners in Bhavnagar, the district capital, some 50km from Alang. Almost all of them claim to be HKC compliant and say their yards are certified as such. Since the Hong Kong Convention still hasn’t entered into force, those certificates are of course hardly evidence of good practices. They in fact only prove that the private companies issuing them have drafted a statement that the yard that hired them understands the demands laid out in the convention.

Harish Parmar, owner of the Shiv Ship Breaking Company and joint secretary of the SRIA shipbreaking industry association underlines that all the shipbreaking yards in Alang will be HKC certified by 2020. But he is later forced to admit that his own yard has fallen behind on that schedule and that he is waiting for funds to arrive from Japan before investing in an impermeable floor for the secondary cutting of large steel ship parts, before installing cranes to prevent steel parts from falling down, before putting proper waste collection infrastructure in place, and so on.

Japan promised to lend €180 million to the Alang industry under an international assistance programme in 2018, so yard owners would be able to upgrade their yards to HKC standards. “Ship owners who really care for the environment should opt for HKC-certified yards – else they are not serious in their commitment,” Parmar concedes. But between knowing and investing, there is a deep financial gap it seems.

Many of the interviews I conduct in Bhavnagar had a common refrain. It goes like this: “Alang’s yards are well on track to becoming green, but the Europeans lack serious commitment to the cause they preach.” Kanakiya, the SRIA secretary, is even louder and clearer. “Europe is hypocritical. From one side it demands the impossible in terms of salaries, insurances, safety and environmental protection, while from the other side their only interest is profit maximalisation, for which they are prepared to play one yard against the other,” he says.

The Europe Kanakiya fulminates against is a container concept, one that simultaneously encompasses the EU institutions and their new regulations and demands, the large European ship owners who usually disagree with the Commission on those rules, the media and NGOs. I hear similar complaints at Leela Ship Recycling, KBR Bansal Group, Shree Ram, Rudra Green and Shiv Ship Breaking.

“We did business with the big companies like MSC,” says Komalkant Sharma, the owner of the Leela Group of Companies. “But when we find that ship owners are only interested in top dollars, then it becomes impossible for us to continue doing business with them. Leela aims to be better than the rest in social and ecological terms, but that does not come free. And that is why European ship owners should shoulder their share of responsibility by stimulating the necessary investments by accepting lower prices for their vessels, or by engaging over a longer term with recycling companies. But the impression is that ship owners are in it only for maximum profit, while they dump the responsibility on the recyclers.”

A merry-flag-go-round

The polarisation between European ship owners and Indian shipbreakers has all the hallmarks of a great news story – rich company owners and shareholders in the North in a no-holds-barred pursuit of ever greater profits, versus businesses in the global South that want to become more sustainable but are being forced to compete in a race to the bottom. But as appealing as it may sound, that story doesn’t hold up in reality. Sustainability is the mantra, but not at all the universal ambition the Indian shipbreaking industry claims it is. Money makes Alang go round, as Nitin Kanakiya said, and most yard owners are perfectly ready to sacrifice the environment, workers’ health and state coffers as part of that pursuit.

In February 2012, tax authorities cracked down on a number of ship recycling companies in Bhavnagar. According to an article in the TradeWinds shipping news publication, the operation was focused on Shree Ram, the Leela Group of Companies and Bansal Group, the three yards that are considered to have the best environmental practices. According to the TradeWinds story, the investigation produced evidence that the yards together failed to disclose an income of $6.75 million.

To maximise profit, yard owners also work hand in glove with cash buyers. These are companies that buy the ships from their owners, pay them the agreed price up front and subsequently sell the vessels for scrap to the yards. The cash buyer scheme is a very non-transparent system primarily used for beach breaking yards in South Asia. Some yards have privileged relations with cash buyers. GMS, for instance, has very strong links to Leela. This does not surprise since GMS owner Anil Sharma is the brother of Komalkant Sharma, the Leela owner. Best Oasis is the cash buyer for the Alang yard Priya Blue although they also sell on ships to yards in Pakistan and Bangladesh. NKD is linked to Shree Ram but also resells to other South Asian scrap yards. Wirana has a privileged relationship with Kalthia shipbreaking yard.

The companies that function as cash buyers often also operate in other economic sectors such as diamond cutting (GMS) and timber trade (ACE EXIM). They often rename and reflag the vessels they buy for scrapping in order to escape regulatory oversight, even though the rules are lax and inspections rare.

During their active life, most commercial ships operate under so-called flags of convenience, such as those of Liberia and Panama. This practice allows ship owners to dodge European regulations and national laws, disregard labour and environmental standards, and allows them to pay fewer taxes. A separate flagging-out cottage industry has developed for end-of-life vessels. The European Commission estimates that 40% of vessels make their final trip to a scrapping destination under the flags of states that are exceptionally bad at enforcing internationally agreed rules such as the Comoros, Palau, St Kitts and Nevis, and Tuvalu.

Reliable shipping databases put that figure at 50% and the real number is probably even higher as many flag changes are not necessarily officially registered, and the flag change may only surface in shipping databases at a later stage. This practice allows flag states to cash in on registration rights, while it relieves ship owners of a number of rules and responsibilities. Everybody counts their profits.

Few economic sectors are as deeply globalised as international shipping. Large companies are multinational by nature – they are engaged in international activities and often operate in international waters that are never the jurisdiction of a single nation state. The factors that make it a complex, global and hard-to-regulate industry do not cease to exist when a ship is decommissioned.

There are so many ways to steer clear of the rules and regulations that it comes as something of a surprise when owners are held accountable.

The Antwerp Port Authority did just that when it prohibited the Global Spirit and the City of Antwerp from leaving the port in 2014 and 2016 respectively over clear indications that the cargo vessels would be scrapped on South Asian beaches. The City of Antwerp ship was released after its Lebanese owner assured the port authorities that the ship would be broken in accordance with European rules, that is, the Waste Shipment Regulation, which transposes the Basel regime on exports of toxic waste into Union law. The ship nevertheless did end up on an Indian beach, with no further legal action taken by European or international institutions. Such is the reality of regulation on the high seas and low tides.

No such thing as implicit recognition

It became absolutely clear during my visit to Alang and Bhavnagar that the Indian shipbreaking yards wish to obtain EU SRR approval because they want to continue to be able to break vessels operating under an EU flag beyond 1 January 2019, when the new EU regulation will enter into effect. Of course, not many ships are EU flagged and those that are can simply change flags. But failure to get a stamp of approval from EU officials would be a major setback and a clear indication that a yard’s operations are not green. The yard owners claim that most of them already comply with the HKC rules and that all of Alang will have only sustainable yards soon. But even a quick visit to some of the supposedly leading yards reveals that those are far-fetched claims.

Out of some 150 shipbreaking yards in Alang, 13 applied for inclusion in the EU SRR list. We received 11 names from the European Commission – Priya Blue Industries Private Limited; Shree Ram Vessel Scrap Pvt. Ltd; Leela Ship Recycling Private Limited; RL Kalthia Ship Breaking Private Limited; P. Rajesh Ship Breaking Pvt Ltd; Ghasiram Gokalchand Ship Breaking Yard; Ashwin Corporation; Alang Auto & General Engineering Company Private Limited; Y.S. Investments; R.K. Industries (Unit-II) LLP. JRD Industries Plot No. 30. Shubha Arya and Atam Manohav also applied, according to our information. Commission officials could not confirm this, probably because the yard owners didn’t agree to have their names revealed.

The Commission sent an inspection team with experts from DNV GL, the classification society that developed from the merger of Det Norske Veritas and Germanischer Lloyd, to Alang in September. Two shipbreaking yards were inspected between September 23 and 28 – Priya Blue and Shree Ram (plots 78-81). The inspection team also met with the workers’ union representative and visited the Waste Management Facility run by the Gujarat Maritime Board. Proper downstream waste management is one of the requirements for inclusion in the EU list.

One of the pages on the Shree Ram website includes a quote lifted from a TradeWinds article. “The European Commission has agreed to inspect Shree Ram Vessel Scrap in Alang, India, with a view to including it in its list of approved yards under Europe’s Ship Recycling Regulation (SRR). The move is significant because it suggests the EC is ready to consider the most advanced Indian beaching yards as acceptable to scrap European-registered ships, having previously indicated such recyclers would be ruled out. Shree Ram, which has a Statement of Compliance with the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships from ClassNK, had earlier submitted an application to be recognized under the SRR. Shree Ram’s desktop application has now been approved by the EC, meaning in principle it accepts the yard is capable of demolishing ships in line with the standards outlined in the SRR.”

Asked whether this assessment was correct, a Commission spokesperson told me it isn’t. There is no guarantee that an inspected yard will also be recognised as compliant and no such thing as implicit recognition, the official said. On the other hand, not every yard will receive a team of EU experts because several other steps first need to take place. A lot of paperwork must be filed, including a private certificate ascertaining that the yard in question would indeed fall within the standards set by the EU SRR. Those certificates are paid for by the companies themselves and are issued by the same companies that produce the HKC certificates – Class NK, Rina and IRClass, also known as the Indian Register of Shipping.

The European Commission spokesperson I interviewed did not expect a decision about the two inspected yards in Alang before the January 1 deadline. A first draft of the report, he said, would be ready by the end of October and sent to the two yards to give them a chance to clarify or discuss the findings, or to give their general feedback on the report. A final report will then be made available to the EU member states. If the Commission officials consider that the yard complies with the EU requirements, they can propose inclusion in the EU list to the EC Ship Recycling Committee, which will then make a decision. If this final vote is positive, the yards are added to the EU list in the subsequent months.

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