Ship recyclers again making headway as recession loosens grip

 Sure, shipbreakers might be able to reduce a battleship to scrap, but they’re still vulnerable — to steel prices, that is.

Robert Berry, chief operating officer of International Shipbreaking Ltd. at the Port of Brownsville, describes the "great fall" of September 2008, when steel prices plummeted. Prices have been creeping back up, even though they dropped again slightly most recently. That’s steel for you. As a commodity, it’s still just as subject to price fluctuations, Berry says.

At the same time, recyclers like International Shipbreaking that mostly handle government contracts are partly protected from the whims of the market. Even if the company takes an occasional loss, those government contracts — towing and dismantling old Navy warships, for example — mean a reliable supply of contracts no matter how steel behaves.

"If the (steel) market’s down sometimes the government actually pays us to do these things," Berry says. "When the market’s high enough we pay them for the ship."

For shipbreakers around the world that handle private contracts, recessions are actually good for business. That’s because ship owners often choose to scrap older ships when the price of shipping goes down, which happens during a recession. Older ships cost more to operate than newer ones, but when shipping prices are high it doesn’t matter — owners can still make a profit. When prices go down, however, owners often find it more economically feasible to scrap older vessels. An example of how much things have changed: In late 2007 and early 2008, the cost of shipping a ton of cargo was around $100, Berry says, though by early 2009 the price had fallen to $18 or $19 a ton.

"It was really big," he says. "Literally thousands of ships came out of the market."

International Shipbreaking is one of four shipbreaking operations at the port, all of them certified by the Maritime Administration, the federal agency responsible for disposing of the government’s obsolete ships. There are only six Maritime Administration-certified recyclers period. International Shipbreaking and Esco Marine, also located at the port, are Navy-certified to boot — the only two shipbreakers with that designation. The port is likely to get a fifth operator, Virgina-based Baybridge Enterprises, in 2010 — against the wishes of the port’s established shipbreaking operations. But Baybridge negotiated a lease with the port in 2007 and has been paying rent, though the recession postponed the company’s move to Brownsville.

Shipbreaking began at the port in late 1960s. Berry himself came to Brownsville as a tug captain in the mid-1970s. Eduardo Campirano, the port’s director and CEO, says the industry has become a vital niche for the port, producing $630,000 a year in rent from leases — $655,000 if you count the Baybridge lease. That figure does not include income from other scrap metal businesses at the port, or revenue the port gets from recyclers’ use of docks, rail cars and barges. Plus, shipbreaking employs a lot of people.

"When our four yards are at full capacity that represents approximately 1,200 employees, so you can see that’s a big deal," Campirano says.

Although the recession hurt business, a recent visit to the port revealed three of the port’s recyclers with ships in their slips. One operation, All Star Metals, is bringing in two vintage vessels from the "ghost fleet" of Navy and merchant reserve anchored in Northern California’s Suisun Bay, one source of business for the port’s shipbreakers. Other vessels come from reserve fleets on the St. James River and in Beaumont, Texas. This month International Shipbreaking welcomes the Saipan, a decommissioned, 819-foot amphibious assault vessel. A transportation and infrastructure bill recently signed by the president includes approximately $6 million to tow two Navy ships larger than the Saipan to Brownsville for dismantling, Campirano says.

While shipbreaking was once synonymous with maimed workers and environmental degradation, today’s industry is tightly regulated by the government — in this country, at any rate.

"Shipbreakers themselves are very keen in making sure they dot the I’s and cross the T’s when it comes to environmental standards and safety standards," Campirano says.

Berry says there’s a misconception that Brownsville is the nation’s shipbreaking capital because it’s "at the end of the world" where operators can get away with anything. Actually, the reverse is true. The Occupational Safety and Health Administration, for instance, is a constant presence.

"We have government regulators that live on our yards," Berry says. "OSHA comes to see us for every ship. We get anywhere from five to 10 times the inspections that a ship yard might get. It’s not that Brownsville is at the end of the world. It’s that Brownsville has a trained, skilled workforce and has been doing this since the 1960s. Brownsville knows more about how to do it right than anybody else in the world."