Ship Recycling
Steve Wansell
Mideast Shipping and Trading
Introduction
Introduction
Mideast Shipping and Trading and Group of
companies ("Mideast") was founded in 2000 its
principles having been in the industry for over 20
years buying and selling vessels for recycling. The
Group of Companies are headed up by Mr. Shabbir
Baig, Managing Director and owner and an Indian
National based in the UAE.
Introduction
Mideast have concluded hundreds of vessels over the
years and are averaging approximately 70-80 vessels
per annum. Mideast are one of the leading cash buyers
globally. The Groups intention is to increase the
volumes of vessels and this has been reflected in the
recent establishment of a London office. Further
Expansion plans into the Far East are being developed.
Introduction
The Group has many strengths and has considerable
depth to its operation. Mideast have a vast array of
knowledge within its team from the
 commercial,
 operational and
 technical
Introduction
Steve Wansell has recently joined the Group as
General Manger after 24 years in International Banking
having worked for American, German and French
Banks and recently having a long posting at Bank
Mandiri
(Europe)
Limited
Deputy
General
Manager.
Steve has financed vessels into this
recycling sector for over 16 years and has an all round
knowledge of this industry.
Cash Buyers who are they?
 Companies such as Mideast are known as Cash
Buyers
 A cash buyer purchases a vessel for cash from an owner
and resells to a recycling yard
 Cash buyers are the “middlemen” in the sale of ships
and recycling
 Cash buyers take physical delivery of the vessel and are
therefore not brokers
Cash Buyers who are they?
 It is very rare for a shipbreaker/recycling yard to
purchase a vessel directly from a ship owner, as due to
the nature of their business, the scarp yards usually
wish to pay for vessels on a deferred payment terms
under a letter of credit issues by their bankers, whereas
the ship owner is required to be paid on a cash basis.
Cash Buyers who are they?
 This impasse is resolved by trading companies (“cash
buyers”) which stand between the ship owners and the
recycling yards as principles in the transactions. The
cash buyers pay the vessel owners cash for the vessels
and are prepared to accept payment under letters of
credit from the recycling yards.
Cash Buyers who are they?
 DELIVERED In Delivered Basis the cash buyer agrees to
purchase the vessel from a ship owner subject to the ship
owner delivering the vessel to the recycling yards within
a certain time and subject to certain conditions (ie. the
condition and specification of the vessel, release of all
mortgages and debts)
 The risk, responsibility and the cost of delivering the
vessel to the recycling yard is borne by the ship owner
Cash Buyers who are they?
 The agreement between the cash buyer and the ship
owner to purchase the vessel is evidenced by a sale and
purchase agreement called a Memorandum of
Agreement (“MOA”).
 The MOA contains details of the vessels specifications,
the date by which the vessel must be delivered to the
recycling yard and will require a deposit to be lodged to
secure the sale. The amount of deposit varies between
10-30 per cent. The release of the deposit is conditional
upon the ship owner complying with all conditions under
the MOA.
Cash Buyers who are they?
 The payment and transaction method means basically
what it says. The cash buyer pays the ship owner for a
vessel at a price based on the condition of the vessel
(“AS-IS”) at the point of sale (Where-is) ie the cash buyer
pays for the vessel at it current location/last port of
discharge
 The cash buyer, at their own risk, responsibility and
expense will then sail and deliver the vessel to the
recycling yard against payment under a letter of credit
from the breaking yard.
Why use a Cash Buyer ?







Marketing/Sales
Industry Knowledge
Best return for shipowner
Risk management
Efficiency in completion of Sale
Structured Delivery (either delivered or AS-IS)
Relationships
Why ship-recyclers use cash buyers?
 Sourcing ability of vessels (owner and Broker
relationships worldwide)
 Financial Resources (ability to pay outright for a vessel
and accept an LC in Return !!)
 Dealing with local delivery procedures
 Global representation for taking delivery
 Local Representation
 Risk Management (taking market risk)
Volume, Prices and Forecasts
2004- 2008
 Banks calling loan defaults as cash flows under
significant pressure in many cases no cash flow
 Vessels laid up
 Outside creditor pressure
 Increase in vessel arrested
2004- 2008
 Worldwide recession collapse of the shipping
industry
 Charter contracts failing and being re-negotiated
 Banks no longer financing
 Banks under pressure to support non performing
loans
Last Three Years 2008 onwards
 Recycling Prices were higher than older Trading vessels
“ Supply and Demand”
 Ships that should have been recycled were having their
trading lives extended
 Worldwide demand for trading vessels
 Finance: both shipping banks and non shipping banks
lending heavily into this sector. Irresponsible lending!!
Last Three Years 2008 onwards
 Finance: banks with no lending experience in the
shipping sector setting up specialised desks for lending
 Cash Buyers saw opportunities to become short term
vessels owners. Historically this was only seen for “one
voyage”
 Reduced volumes of vessels being recycled into India
Subcontinent, China and Turkey.
2009
 Increases in vessels being recycled into the
Indian Subcontinent, China and Turkey
 Continued increase in ship-owner loan defaults
 Increase in vessels sold at auction
 Record recycling volumes expected
Historical Demolition By Vessel Type
m. Dwt
Others
Gas Carriers
Containerships
Bulkers
Tankers
35
30
25
20
15
10
5
Source: Clarkson Research Services
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Historical Demolition By Location
Other
8%
m.
Dwt
Bangladesh
33%
China
21%
Pakistan
8%
India
30%
Source : Clarkson Research Services
Historical Demolition By Vessel Type
m. Dwt
Tankers
Bulkers
Containerships
Gas Carriers
Others
25
20
15
10
5
Source: Clarkson Research Services
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Historical Scrap Price Development,
VLCC, Indian Sub-Continent
$/ldt
800
700
600
500
400
300
200
100
Source: Clarkson Research Services
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
0
Historical Scrap Price Development,
VLCC, Far East
$/ldt
800
700
600
500
400
300
200
100
Source: Clarkson Research Services
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
0
Historical Scrap Price Development,
VLCC, Bangladesh
$/ldt
800
700
600
500
400
300
200
100
Source: Clarkson Research Services
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
0
2010-2011
 The ‘base case’ average lifespan of ships in different
sectors is assumed to follow historical trends, although it
should be borne in mind that a ‘realistic’ trend may not
have been established yet for many ship types and sizerange segments due to a lack of historical data.
 The phasing out of single hull tankers is projected to be
related to the continued impact of IMO/EU regulations,
based on the 2010 enforcement scenario.
 Demolition decreased in 2010 to total 880 ships, 18.3
m.GT, 29% down on 2009.
2010-2011
 Removals are projected to increase in 2011-2013 to 28.0
m.GT. In this scenario remaining tanker phase-out has
been spread over a number of years.
 Gradual phasing out of older tonnage in the fleet
projected to lead to continued increased levels of
removals in the longer-term. Long-term annual average
removals 2013-2023 remain projected at 25.7 m.GT,
1,409 ships, generating significant ‘replacement
demand’.
Current May 2011
 Dry bulk demolition continued apace in April, with 32
vessels of a combined 1.9m dwt being sold for scrap.
This is a similar level of activity to March and was driven
by an upturn in the number of smaller Panamax and
Handymax bulk carriers being sold for scrap in monthon-month terms. Owners appear to be responding to the
poor market conditions in the dry bulk market by selling
their oldest (and by extension, most costly to run)
vessels first, as demonstrated by the fact that the
average age of vessels scrapped in the dry bulk sector
exceeds thirty years in the year-to-date.
Current May 2011
 The issue of over-capacity in this sector seems likely to
get worse in the short-term with over 100m dwt of new
vessels still due to be delivered during the rest of 2011.
A large proportion of the 6.7m dwt of dry bulk tonnage
that has been sold for scrap has been constituted of
elderly vessels and it seems feasible that there is scope
for further significant demolitions during the rest of the
year. Thus, dry bulk demolition is projected to reach
18.7m dwt, which would exceed the total seen at the
height of the recession, in 2009, by 8m dwt.
The future of recycling volume and sales
 Understanding of Economic Conditions and Shipping
Markets Iron Ore and Steel are of Paramount importance
 On-going Developments on primary freight market and
World net fleet growth
 High Volatile Industry Sector prone to mega cycles in 4-5
year periods
The future of recycling volume and sales
 Financial Institutions in 2008 at the peak estimated
global Bank Shipping Portfolio funded and unfunded to
the industry USD 382 Billion. Where are they today ?
 Regulations local Ship Recycling regions
 “Real Cash Buyers” who are they ?
 Compliance/KYC Regulatory Requirements
 Hong Kong Convention
The future of recycling volume and sales
 Office of Foreign Control Sanctions (ownership,
management, Flag etc
 On-Sale Terms Letter of Credit Negotiation, Bill
Discounting and Confirmation Services (Bangladesh,
India and Pakistan)
 Insurance (Increase in premiums, Piracy, Kidnapp and
ransom Armed Security)
 Increase in loan defaults and Banks calling time ?
m. Dwt
Projected
scenario 2011
onwards
2009
2011
Demolition Scenario Projection By Vessel Type
50
Others
Gas Carriers
Containerships
Bulkers
Tankers
45
40
35
30
25
20
15
10
5
Source: Clarkson Research Services
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2010
0
Bangladesh challenging times
Thank you