Tradewinds – Domestic owners shy away

(Written by Bob Hurst)

10 April 2013 – CNSA president Xie Dehua says it is not entirely the owners’ fault because the tax is quite high for shipbreakers to buy Chinese-flag ships

Chinese shipbreaking has won plaudits abroad for its sustainable methods, resulting in some environmentally-conscious European and Japanese owners sending their ships there by preference.

As of the first two months of this year, about 38% of scrapped tonnage globally went to India. The figure for China is about 22% and rising, although Xie Dehua, president of the China National Shiprecycling Association (CNSA), warns that it is hard to predict a full-year trend from that seasonal statistic.

But one sector where Chinese shiprecycling has definitely made little headway is with Chinese owners, whether private or state-owned.

Only about 10% of the tonnage scrapped in China by light displacement tons (ldt) is Chinese owned. In absolute terms, the number of Chinese ships scrapped at home is very high, but that includes a large number of river-trading ships of under 500 gross tons (gt).

Xie says he is not sure whether the number is increasing, but he has hopes. He recently received a delegation from Beijing-based Cosco to look into the possibility of sending a higher proportion of Cosco ships to Xie’s members — something that may be related to moves by the Chinese government to subsidise accelerated scrapping.

Part of the reason for the low proportion of Chinese ships that go under Chinese torches is that the Chinese-owned foreign-flag fleet is relatively young on average. Another part is the arithmetic. South Asian scrap prices remain between $30 and $40 higher per ton, a gap that is not likely to disappear, and although Xie would be happy to see more Chinese ships, and would welcome steps by the government to increase the figure, he realises owners have to balance between profit and social responsibility.

For Chinese-flag ships, paradoxically, the problem is worse.

“It’s not entirely [the owners’] fault, because the tax is quite high for shipbreakers to buy Chinese ships,” he said. “We are trying to contact the Ministry of Finance to ask them to give a tax break to encourage Chinese yards to buy Chinese-flag ships.”

Sceptical about subsidies

The China Shipowners’ Association (CSOA) has been pushing a measure under which the Chinese treasury would lend support to its troubled domestic owners and deflate their overtonnaged market by subsidising early scrapping. China’s Ministry of Finance has been less enthusiastic about this proposal than its Ministry of Transport (MOT).

Xie is sympathetic but thinks that in the end market forces, not government policy, will determine the outcome.

“The Chinese shipping industry doesn’t have too much choice,” he said, citing in addition to oversupply the problem of ships that do not meet the standards of some port states. “It has ships that need to be recycled and it wants support. But if they don’t get it, they still have to scrap.”

Education needed

New international standards and regulations for shiprecycling mean that more training is needed to keep up, both within shiprecycling companies and in the educational institutions that train their managers and technical and commercial staff. But so far this is a demand that is not being met.

“There is no shiprecycling major in any Chinese university, or in any university in the world,” said Xie. “The two Chinese maritime universities have majors in shipbuilding, shiprepair, ship engineering but no shiprecycling programme.”

He says the CNSA has had contacts with the maritime universities but it is a long process getting people to understand what shiprecycling involves.

For now, the CNSA is taking its own steps to get the industry up to speed on requirements of the International Maritime Organisation (IMO)’s 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (Hong Kong Convention).

“Our organisers this year will begin training programmes for shiprecycling,” Xie said. These will be held at government training centres with professors invited from maritime universities or, if necessary, onsite at shiprecycling facilities.

The CNSA also has a training co-operation in place with the Germanischer Lloyd (GL) side of the Det Norske Veritas (DNV) GL Group and is planning a similar arrangement with the China Classification Society (CCS).