Once a vessel reaches the end of its service life, most ship owners sell their vessel to a so-called cash buyer. These scrap-dealers bring the vessel to its final destination and are inherently linked to the beaching yards in South Asia.
Cash buyers are companies that specialise in the trade of end-of-life vessels, and most - if not all - sales of end-of-life ships to beaching yards in South Asia are conducted with the help of these scrap-dealers. Therefore, ship owners rarely enter into direct contact with the beaching yards. Instead, cash buyers first pay ship owners up-front before the ship reaches its final destination to be dismantled, and then re-sell the ship to the breaker that can offer the highest price, thereby making a profit with the price difference.
By using cash buyers, ship owners seek to avoid legal, financial and other risks related to selling a ship for breaking to a beaching yard. They can also claim not to be responsible for the demolition of the ship if criticised for the poor standards under which their vessel is broken, including accidents and pollution. Indeed, one of the most used excuses when a ship owner is confronted with having sold a ship to a beaching yard is: “But, I only sold my ship to another owner – that owner alone chose to scrap the ship at a beaching yard”. All ship owners however know that a cash buyer is in fact a scrap-dealer, and the higher prices cash buyers pay for end-of-life ships are a clear indication that the vessel will end up on a beach in South Asia. It is well known that cash buyers have close personal ties to the shipbreaking yards in South Asia and that they almost exclusively sell vessels to beaching yards in Bangladesh, India and Pakistan.
An end-of-life sale with the help of a cash buyer usually includes a change of flag to one of the typical last voyage flags, and the registration of the vessel under a new name and a new post-box company. All these changes are intended to undermine accountability, the purpose being to conceal corporate structures and exploit weak enforcement of existing laws. Also the ship owners avoid to share information about the cash buyers they do business with, as that would amount to admitting that they knowingly sold their vessel for the highest scrap price to the worst yards.
Cash buyers purchase a ship either “as is, where is” or “upon delivery”. The former entails that the cash buyer is responsible for crewing and bringing the vessel to the breaking yard, whilst in the latter case, the sale occurs upon arrival to an agreed location, typically close to the breaking yard. In both cases, however, the ship owner is fully aware of the fact that the vessel will be scrapped.
‘AS IS, WHERE IS’ SALE
The ship owner sells its ship exactly how it is and where it is at the point in time defined in the contract. The cash buyer then takes care of moving, managing and crewing the ship on its last voyage and dealing with the required paper work and authorities at the breaking site.
‘UPON DELIVERY’ SALE
The ship owner delivers the vessel to an agreed location, usually in the proximity of the yards, for instance at anchorage point outside a beaching destination. Sometimes ships can be delivered in a port which may not be in the country of breaking, however. Operational costs until the delivery location are covered by the seller. Any movement of the ship or further administrative work is done by the cash buyer after that point, in the same way as an ‘as is, where is sale’. A common delivery location is Singapore.
HOW MUCH DO SHIP OWNERS EARN?
The amount of money paid to the ship owner for the sale of an end-of-life vessel depends mainly on steel prices and size/type of the ship. Since steel prices fluctuate significantly over time and per region, the price of ships (demolition rates) also change. They can range anywhere between 100 USD per LDT to 500 USD per LDT. The highest prices for ships are obtained from selling to the beaching yards in South Asia. Ship owners, cash buyers, and also brokers that represent the ship owner and earn a certain percentage of the sales price, benefit therefore considerably more by selling to yards that use the low-cost, dirty and dangerous method of beaching to scrap ships.
Recycling in a safe and clean way will bring extra costs to the recycling yard as it has to invest in e.g. infrastructure and pay for the environmentally sound disposal of hazardous wastes. An evaluation (see page 66-69) made by DNV GL, using the example of a medium sized ship recycled in Turkey, gives a good overview of the additional costs (= foregone revenue) of an environmentally sound recycling process.
WHO ARE THE CASH BUYERS?
The most well-known cash buyers, which, based on rough estimates, control about 2/3 of the market, are Global Marketing Systems (GMS), incorporated in the US, but now headquartered in Dubai; Singapore-based Wirana; and Hong-Kong-based Best Oasis. However, approximately 15 other smaller cash buyers seek to get their share of end-of-life sales. Indeed, cash buying has proven to be a lucrative business, over the past 10 years these companies have grown from three-man basement offices to managing agencies globally, seeking now also to expand to the decommissioning of oil and gas structures.