The well-performing ship-breaking industry in Bangladesh has paved the way for the shipbuilding industry. Since 2008, the shipbuilding industry has been an area of focus as the locally made ships began to be exported. The global ship recycling industry has been mainly concentrated in Asia and Bangladesh has been a prominent ship-recycler and emerging ship-builder. According to a study by the United Nations Conference on Trade and Development (UNCTAD), Bangladesh appeared as the primary destination for ship demolition in 2019.
Although demands for vessels were on a decline in the global market, the shipbreaking industry in Bangladesh amounted to around USD 1 billion and aimed at steady growth backed by domestic demand from megaprojects and rising construction. However, developing a backward linkage industry remains a prerequisite for establishing a prominent ship-exporting industry. Therefore, the industry requires strong policy support to utilize its potential to the maximum level in the post-COVID-19 era.
Due to lower labor costs and a high proportion of usage of steel from recycled ships in domestic manufacturing, the ship scrapping segment of the maritime supply chain is dominated by the developing countries. By dismantling 236 ships in 2019, the country took the lead position in shipbreaking. 47.2 percent of the ocean-going vessels were dismantled by Bangladesh, followed by India with 25.6 percent, Pakistan with 21.5 percent, Turkey with 2.3 percent and China with 2 percent.
The following figure for the period 2014–2018 suggests that China and India, and to a relatively lower extent, Turkey, illustrate a reduction in scrapping activity while Bangladesh displays a steeply rising trend. China and India have limited the number of imports of scrapped vessels due to environmental concerns.
The trends are influenced by such regulatory advances and voluntary initiatives by industry associations to make ship recycling more environment-friendly which have put Bangladesh in a favorable position.
Oil tankers, bulk carriers, and container ships are related to most of the tonnage sold for demolition. While previously bulk carriers were the most frequent vessel type sold for demolition, the type was replaced by oil tankers in 2018. Bangladesh was reported to sell 5,980,000 gross tons of oil tankers and 1,115,000 gross tons of bulk carriers. Despite the progress made in 2019, the Bangladesh shipbreaking industry has surely faced mention-worthy disruptions in its operations due to COVID-19.
The adverse impact of COVID-19 on the shipbreaking industry in Bangladesh steered spillover effects on associated industries including shipbuilding and steel. Owing to lockdowns imposed in March 2020, the shipbuilding industry has faced order cancellation issues, paralleled with the readymade garments sector. According to the Association of Export Oriented Shipbuilding Industries of Bangladesh (AEOSIB), the exporting companies have witnessed the cancellation of export orders worth USD 120 million.
Global shipbuilding giants were not immunized from the dire impact of COVID-19 as well. Chinese yards and South Korean yards have seen plunging orders, 50 percent and 81 percent of falls respectively. The number of orders is predicted to decline by 26 percent throughout the year. In tune with the global scenario, FMC Dockyard, a shipbuilding company encountered postponement of 52 sale orders with 12 for exports.
Meanwhile, the ship-breaker companies employing 0.2 million people could not supply scraps, the vital raw materials for steel, to the steel mills. In April 2020, the industry insiders had demanded a BDT 3000 crore cash incentive with 2 percent interest for keeping the shipyards functional. However, given the economy gradually reopening, both the shipbuilding and shipbreaking industries are expected to resume their operations and recover from the crisis in the near future.
As the evolving shipbuilding industry had attracted a strong focus from the government, a draft of the Shipbuilding Industry Development Policy 2019 was prepared by the Ministry of Industries. Being provided with necessary fiscal support, the industry is projected to earn USD 4 billion over the next five years by exploring its export potential. Moreover, the policies are designed with high hopes of generating employment for 0.1 million people.
The policy suggested forming a national council of 24-members to supervise implementation, monitoring, and evaluation of shipbuilding. Public-private partnerships for building futuristic shipyards, guidelines of backward linkage industry, and lowering the bank interest rate to 4 percent with a repayment period of 20 years are also proposed in the policies. The government should fine-tune the policy as early as possible and enact the regulations for the quicker development of the industry.
In January 2020, the Ministry of Industry signed a memorandum of understanding (MoU) with two foreign companies, Damen Group of the Netherlands and Gentium Solutions of Australia to collaboratively establish a shipbuilding and ship recycling industry in Bangladesh. The state-of-the-art shipbuilding yard along with a backward linkage industry is about to be built on 105 acres of land at Patuakhali with an investment of USD 1 billion. If the Shipbuilding Development Policy 2019 can maintain international standards of compliance, more foreign investments can be attracted.
Quality control along with human and environmental safety issues are also rising concerns in the shipbuilding nations. High-quality professionals are needed to ensure the quality of the ships for which exclusive training programs should be arranged by the government. In January 2020, the PHP Ship Breaking & Recycling Industries Limited was certified by ClassNK, verifying that the yard is in line with Hong Kong Convention for safe and environmentally friendly recycling of ships. The shipbuilding policy should be inclusive of environmental compliances for greener and safer ship recycling practices.
Bangladesh currently builds smaller vessels of 10,000 DWT (deadweight tonnage). To increase the capacity of building larger vessels in the future, alongside foreign investment and public sector assistance, major infrastructural changes and a highly skilled workforce are imperative. To conclude, finalizing the policy and translating it into reality should be prioritized to establish sustainable shipbuilding and ship repairing industry in the country.
Ishrat Jahan Holy, Content Writer at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]
The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long-term ramifications of the global pandemic. Read all the articles in the series.
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