Business models

Business models

The Danish environment protection agency says in 2002, the scrapping price for a standard tanker in a European facility was us $3.2 million; in an average Asian facility, the same was us $1.2 million.

Business in Alang is also suffering in this price war: from 347 ships in 1998, the yard is down to 196 in 2004. This has as much to do with higher freight rates as with competition from neighbouring countries like Bangladesh and Pakistan offering shipbreaking facilities cheaper than Alang.

The dirt business meets Bangladesh's domestic iron and steel demand. It has worked its duty structure to provide incentives. The Indian industry complains that, while the duty on import of metal scrap has been done away with, the tax on shipbreaking has increased and it has to pay 23 per cent of its turnover in taxes. "This duty is very debilitating as the ship breakers end up paying 5 per cent customs duty on melting scrap that is recovered off the ship, while there is no duty on it if it is imported," says N M Khatri, marine engineer, Gujarat Maritime Board (gmb).

China and Bangladesh have more favourable duty structures. In a market driven solely by prices, they have edged India out of the top slot in the past three years. China offers a subsidy of 14 per cent on each ship. In Bangladesh, the duty on ships for recycling (2.5 per cent) is 10 per cent higher than that on finished steel. Pakistan has stated it wants to meet 20 per cent of its local steel demand by recycling ships. So, in 2005, it reduced the duty on ships that come for breaking by around Pak Rs 1,300 per tonne. "Just a week ago, a 4,000 light displacement tonnes (ldt) Japanese oil tanker sailed off to Bangladesh, which offered a rate of us $360 per ldt whereas Alang businesses offered a maximum of us $330 per ldt ," rues Sanjay Shah, a leading ship broker for the Alang yard (see chart: Shipbreakers' millions).

Compliance with environmental and safety regulations also raises the cost of dismantling. In India, for instance, after the 2001 explosions in the shipyards, pollution control authorities have stipulated that each ship must be required to have a gas-free certificate. In other words, it is cleared for gas cutting by the Indian explosives department. Bangladesh and Pakistan do not require this certificate, say shipbreakers.

Ships ahoy!
The number of ships to be scrapped is expected to increase and the shipbreaking business will boom. Because all single-hulled oil tankers -- of which there are many -- will be phased out. Their deadline for phasing out has been predated from 2015 to 2010. 12jav.net12jav.net