DEMOLITION20 23 November 2018

SHIPBREAKING STILL EXCITES SHARMA, EVEN AFTER 26 YEARSThe environmental impact of the shipbreaking industry is often misunderstood. Yet that is also why shiprecycling has been so exciting, according to GMS chief executive Anil Sharma.

Having established one of the world’s largest cash buyers of scrap vessels over the past 26 years, Sharma has lately been promoting the Indian subconti-nent’s green recycling.

The region makes up the bulk of world’s shipbreaking capacity, and is where Dubai- headquartered GMS often completes its business.

However, Indian, Pakistani and Bangladeshi shipbreakers are often criticised for their beaching methods.

MITIGATING IMPACTBy following the IMO’s Hong Kong International Convention for the Safe and Environmen-tally Sound Recycling of Ships, shipbreakers can actually miti-gate the environmental impact of beaching, Sharma said. For example, using concrete floors prevents pollutants from enter-ing the subsoil.

Moreover, recycling vessels in the subcontinent can achieve a lower aggregate carbon footprint, as there is a thorough recycling industry supply chain, he added.

“The industry is so green [there], and yet it has been elaborated as opposite,” Shar-ma said.

For example, there will be collectors picking up nearly everything onboard, such as wire and furniture, before the cutting process starts.

“Can you do this in the West-ern market? No, they are going to think about dumping [those] into some [landfill] sites.”

On the Indian subcontinent, scrap steel will be sent to local re-rolling mills and converted into rods and bars, which can be used as construction materials. 

“When you recycle a ship in Europe and America, the steel is exported as scrap,” Sharma said.

Environmental concerns have resulted in more rules, locally and sometimes regionally, such as the European Union’s Ship Recycling Regulation.

“The industry [has] got so many more issues than any oth-er parts of the maritime world … there is more excitement,” Sharma said.

OTHER BUSINESSESHaving grown to handle about 200 scrap ships a year from its eight offices worldwide, GMS has also developed various side businesses. 

It owns and operates five modern kamsarmax, ultramax and handysize bulkers and one 1998-built feeder boxship.

GMS Capital funds second-hand deals of $3m to $20m via debt and equity.

“[But] I enjoy scrapping more than being a shipowner,” Sharma said.

MODERNISATION: Some Indian shipbreakers have updated their yards to include concrete floors and other environmental features

Scrap values of EU-flagged ships could plummet 50%Europe’s Ship Recycling Regulation will only allow EU-flag vessels to be recycled at approved shipbreakers, which are expected to offer much lower market rates

Max Tingyao LinDubai

Brussels’ new ship demolition rules mean European Union- flagged vessels could face at least a 50% loss in residual values and have trouble finding yards to recy-cle them, one of the world’s largest cash buyers has warned.

When the regulations come into force at the end of this year, a number of approved shipbreak-ing facilities are expected to offer demolition rates much lower than market levels, according to Anil Sharma, founder and chief execu-tive of GMS.

It is going to be “a totally dif-ferent ball game”, Sharma told TradeWinds at his Dubai office.

There are 26 approved ship-breakers under the EU’s Ship Re-cycling Regulation, with some non-EU yards added to the list last month.  One US yard, two Turkish breakers and 23 European facilities are now included.

The regulation will prove cost-ly for owners of EU-flagged ships, with Turkish yards  — which are likely to be the most competi-tive —  expected to offer only 50% of prevailing demolition rates, Sharma said.

“If you go outside of Turkey, it’s about 70% or 75% [of prevailing rates],” he added.

Industry officials suggest that EU-approved shipbreakers will need to offer lower rates to recov-er the investment needed to meet Brussels’ environmental stand-ards, and that some of them may even charge owners rather than pay them.

VARIABLE LUMP SUMA ship’s residual value can be a use-ful cash lump sum to owners when vessels are sold for demolition, but it fluctuates with scrapping rates.

“If that gets 50% off, would that affect cash flows? Obviously,” Shar-ma said.

Another concern over the new European regulation, shared by Sharma and some shipping execu-tives, is that the total shipbreaking capacity of the EU-approved yards might not be sufficient to meet de-mand.

Environmental group NGO Ship-breaking Platform refutes such concerns.

Based on TradeWinds’ calcula-tions, yards on the list could recy-cle up to 884,600 ldt per year. But most of the capacity is not yet on-line or not tested.

There have also been some doubts over whether Interna-tional Shipbreaking  — the only US yard on the list — can actually recycle EU-flagged ships, giv-en that the US Toxic Substances Control Act restricts the import of hazardous substances found on vessels.

“A bigger concern is the capac-ity,” Sharma said. “European and American yards cannot really ef-fectively recycle the large vessels.”

In an extreme scenario, cash buyers such as GMS may need to find anchorages for the vessels they acquire from owners before sending them to scrap.

“We buy those assets, we park them somewhere … and we send them one at a time,” Sharma said. “I am joking, but it could be [that case].”

Eventually, the EU list may in-clude some yards in the Indian subcontinent — where most of the world’s major shipbreakers are based — even though their beach-ing methods face criticism from some environmental groups. 

China is out of the picture, as Beijing will ban imports of scrap vessels from the end of 2018.

“All the yards [in the subconti-nent] that meet the Hong Kong

Convention will apply to the EU,” Sharma said. 

The IMO’s Hong Kong Conven-tion for the Safe and Environmen-tally Sound Recycling of Ships, unlike the European rules, does not regulate for the downstream disposal of waste.

For now, 11 Indian yards have applied to be on the EU list. Two applications are at an advanced stage, according to Sharma, which TradeWinds has reported as Shree Ram Vessel Scrap and Priya Blue Industries.

‘CIRCUMVENTING’The EU’s existing Waste Shipment Regulation requires all EU-flagged vessels and non-EU-flagged ships whose last ports of call are in Eu-rope to be recycled within OECD

countries. European owners often meet this rule by selling the ships to cash buyers, who reflag the ships.

However, after a Dutch judge deemed Seatrade guilty of sell-ing four reefers via a cash buyer to non-OECD scrapyards earlier this year, some legal experts have questioned whether such practic-es may be illegal as they merely dodge EU laws.

Sale of EU-flagged vessels to cash buyers, even if they are destined for Brussels’ approved yards could still raise legal ques-tions.

“There might be litigation on whether you are trying to cir-cumvent the regulation,” Sharma warned. “Those are the questions you have to ask [yourself].”

’’ Anil Sharma: A bigger concern is the capacity. European and

American yards cannot really

effectively recycle the large

vessels

ANIL SHARMA: GMS chief executive, who is based in Dubai Photos: GMS