8 May 2006 Letter to Oregon International Port of Coos Bay about the Economics of Ship Recycling at Coos Bay

New Has the Commission of the Oregon International Port of Coos Bay Handled Their Land Deal for the Liquefied Natural Gas (LNG) Terminal, Shipbreaking, and Other Issues with Due Diligence? (Nov. 22)
* 23 May 2006 Letter to U.S. Rep. Peter DeFazio with Copies to U.S. Senators Ron Wyden and Gordon Smith about the Possible Shipbreaking Facility at Coos Bay, Inadequate Funding of U.S. Maritime Administration (MARAD) and Navy Ship Disposal Programs, and Congress' and MARAD's Continuing Efforts to Export Obsolete Government Vessels to Be Scrapped
* Proposed Shipbreaking (Ship Recycling) of U.S. Maritime Administration (MARAD) or Navy Ships in Oregon or Washington

Table of Contents for 8 May 2006 Letter to Oregon International Port of Coos Bay. [In the original, the Table of Contents was at the top of p. 3. Some addenda of relevant material has been added inside brackets.]

[Start of Letter]
A. Opportunity: Need to Dispose of Obsolete MARAD and Navy Ships
B. Risk of Building a Drydock for Ship Recycling in Oregon
C. Opportunity and Risk: MARAD Ships Are Available to Recycle But Is There Enough Federal Money to Fund Recycling?
D. Risk of Too Few Ships to Recycle to Pay for the Cost of Constructing a Drydock or to Continue Ship Recycling
..... D-1. MARAD May Dispose of Ships by Alternatives to Ship Salvaging
..... D-2. Competition from Domestic Ship Recyclers
..... D-3. After the Current Backlog of MARAD Ships Is Gone, Few Additional MARAD Ships Are Predicted to Become Available
..... D-4. Foreign Recycling of Obsolete U. S. Government Ships
..... D-5. Foreign Recycling of Commercial (Private) Ships
E. Risk: Higher Scrap Prices in Brownsville and Variable Scrap Metal Prices
F. Risk: Underestimating the Costs Required to Dismantle a Ship
G. Risk: Disposing of Ships Abandoned in Coos Bay
H. Why Aren't More U.S. Companies Involved in Salvaging MARAD Ships?

Appendix A. Income and cost items for ship recycling.
Footnotes

rbayer@orednet.org
P.O. Box 1467
Newport, OR 97365
8 May 2006

Jeffrey Bishop, Manager; Port Commissioners David Kronsteiner, Caddy McKeown, Dan Smith, Brady Scott, Jerry Hampel
Oregon International Port of Coos Bay
P.O. Box 1215
Coos Bay, OR 97420

Dear Mr. Bishop and Commissioners Kronsteiner, McKeown, Smith, Scott, and Hampel:

Re: economics of ship recycling at Coos Bay.

In an April 7 article in the Coos Bay World (footnote *40), it was reported that the Oregon International Port of Coos Bay would be holding a public forum about the business side of ship recycling in early May and that the Port was open to questions and comments. Accordingly, I am writing this letter with comments and questions about business concerns of shipbreaking in Coos Bay. I will also post it at http://www.orednet.org/~rbayer/salvage/coosbay.htm [must use all lower case letters] for your convenience in looking up footnotes.

There is risk in any business venture. But do the construction of a graving drydock and the operation of a ship recycling company in Coos Bay represent a reasonable business risk or is it speculation?

Proper disposal of U.S. Maritime Administration (MARAD) and Navy ships is a federal funding problem. If MARAD, the Navy, or the U.S. Congress decides to require all recycling of MARAD and Navy ships to be done in drydocks and if Congress provides the funds needed to do so, then a Coos Bay ship recycler using a drydock may be a reasonable business risk. However, MARAD is not requesting ship recycling be done only in drydocks, and MARAD is trying to dispose of ships with as little cost to the federal government as possible (*35). Further, legislation to require the use of drydocks would hurt Texas ship recyclers, who have considerable clout in the U.S. Congress (e.g., *61), so it very questionable that such legislation would pass, even if it was introduced.

Some points include:

* The construction of graving docks similar to Ecodocks for shipbreaking has been suggested for Coos Bay. The cost of a graving drydock has been estimated as at least $30-40 million and of an Ecodock as $72-79 million. This is a considerable sum of money in the domestic ship recycling industry as Bay Bridge Enterprises sold for less than $10 million in 2005, MARAD's entire shipbreaking program was budgeted only $16 million in Fiscal Year 2004, and the domestic ship recycling industry continues to have bankruptcies and companies ceasing to recycle government ships.

* The federal government must subsidize the recycling of its ships because the costs of dismantling ships in accordance with safety and environmental standards is generally much greater than the value of scrap.

* MARAD has not asked for or received the funding necessary to scrap all of its obsolete ships. Consequently, the number of ships available to scrap has been irregular. This leads to boom cycles of hiring when ships become available and bust cycles of layoffs when they are not.

* Some U.S. government ships have already been scrapped in drydock. A California drydock used for recycling Navy ships closed in 2001 because of inadequate federal funding and an inconsistent supply of ships. The company stated that it closed because the profitability was marginal compared to the risk.

* A Coos Bay facility would compete with Brownsville in-water ship recyclers that have already scrapped some MARAD ships from Suisun Bay near San Francisco.

* The main competitive advantage of a Coos Bay facility would be lower towing costs.

* One major competitive disadvantage would be paying higher wages to attract workers, unless a Coos Bay facility pays as low as wages as Brownsville ship recyclers ($7-7.50 per hour for laborers without health benefits and $40,000 a year for a bilingual supervisor of 120 employees). Brownsville ship recyclers have a large labor pool that includes Mexicans legally commuting across the border.

* Other significant competitive disadvantages for a Coos Bay facility would be much lower scrap prices than are available to Brownsville ship recyclers, the cost of constructing and operating a drydock, less favorable weather conditions to continually scrap ships, and initial costs for dredging a channel to a drydock.

* In 1999, an in-water Brownsville ship recycling company's bid to recycle a Navy ship moored in California was less than 50% of that by Cascade General, a Portland shipyard with a drydock, and the Brownsville company was awarded the contract, in spite of costs to tow the ship through the Panama Canal to Brownsville.

* After the current backlog of MARAD ships is disposed of, few additional MARAD ships are expected to become available each year, so a Coos Bay facility would then be less viable.

* As of October 2005, MARAD continues to try to export its obsolete ships as it did in 2003. If it is does, then foreign ship recyclers are expected to win the bids for recycling ships. Denny Vaughan's Environmental Recycling Systems (ERS) has been mentioned as interested in scrapping ships in a Coos Bay drydock, and, in 2004 and 2005, ERS sought to recycle MARAD ships in Turkey and Mexico because it would be more economical to do so there than in the U.S.

* Most U.S. commercial ships are exported to be recycled, so a Coos Bay facility may not get enough of them to keep operational between winning competitive bids with Brownville ship recyclers for MARAD ships.

Thank you for your time and consideration.

Sincerely yours,

Range (Richard) Bayer, http://www.orednet.org/~rbayer/salvage/coosbay.htm [must use all lower case letters]

cc: Martin Callery, Port Director of Communications and Freight Mobility

P.S. The Oregon International Port of Coos Bay may consider inviting Alan Sprott and Alan Jones of the Cascade General shipyard in Portland to participate in its public forum about the business of ship recycling. Cascade General has recycled two fishing boats in drydocks, has bid to recycle Navy ships, and has made a public presentation in Newport about ship recycling. Their discussion about the business side of ship recycling was very enlightening.

A. Opportunity: Need to Dispose of Obsolete MARAD and Navy Ships

The U. S. Maritime Administration (MARAD) ship recycling program is for noncombatant vessels of 1,500 gross tons or more, and the Navy's ship recycling program is for combat vessels (p. 4 and 6 in *16, p. 2 of *42). They have separate ship disposal programs (e.g., *35).

The U.S. Congress has long been against mooring obsolete MARAD and Navy ships indefinitely. In 1994, the U.S. Congress gave MARAD a deadline of 1999 to dispose of obsolete ships; this deadline was not attained, so the deadline was moved to 2001, then to September 2006 (p. 2 in *15, p. 6 in *16). It is not possible to meet the September 2006 deadline, so it seems likely that the deadline will be moved again.

There are at least three reasons for disposing obsolete ships:

1) FINANCIAL. In 2001, MARAD and the RAND Corp. reported that it cost approximately $20,000 per year to maintain each MARAD ship, $57,000 for each Navy ship, and that it would cost about $900,000/ship to drydock a vessel in 15-year cycles to prevent hull failures plus $200,000/ship to remove fuel (p. 10 of *42, Chap. 2 in *55). Over the long-term, the RAND Corp. estimated that it would probably cost over twice as much to store ships than to dismantle them with domestic ship recyclers (p. xv in *55). The RAND Corp. concluded that long-term storage is "not a sound policy" (p. xvi in *55).

2) RISK OF ENVIRONMENTAL DAMAGE. A MARAD official testified in 2000 about MARAD's obsolete ships (p. 3 in *16):

"Environmental dangers associated with these old, deteriorating ships are increasing daily. The so-called 'worst condition' vessels are about 50 years old and have been awaiting disposal for 22 years on average. These vessels contain hazardous materials such as polychlorinated biphenyls (PCBs), asbestos, lead-based paint and fuel oil. Some vessels have deteriorated to the point where a hammer can penetrate their hulls. If the oil from these vessels were to enter the water, immediate and potentially very expensive Federal and state action would be required. For example, MARAD spent $1.3 million on a costly environmental cleanup because one of the 'worst condition' vessels deteriorated to a point where oil leaked into the water."

Further, MARAD's 2001 report stated about the need to remove its obsolete ships (p. 21 in *42):

"The urgency is in part due to the location of the three fleet sites [California, Virginia, and Texas] in areas bordering on sensitive estuarial wetlands where the release of petroleum products or hazardous materials could generate significant clean up costs and have lasting environmental impact."

3) WASTE OF RESOURCES TO NOT RECYCLE SHIPS. It is not feasible to reuse these vessels for shipping, so they serve no purpose by just being moored. The remaining obsolete ships could be put to use by being scrapped, made into reefs, or donated to become museums, and these alternatives would also create jobs (section D-1). Some U.S. companies have been salvaging MARAD and Navy ships for several years to recycle or reuse whatever is possible. For example, Rick Makoujy of International Shipbreaking Ltd. in Brownsville, Texas stated in 1996 (*53):

"This is merely a recycling business. The biggest aspect of our business is the sale of scrap steel."

One ship they recycled yielded 6,900 tons of scrap steel, 200 tons of reusable items, 75 tons of non-ferrous metals, 200 tons of cutting waste, and 200 tons of debris (*53).

B. Risk of Building a Drydock for Ship Recycling in Oregon

According to the Oregon Department of Environmental Quality's 3 April 2006 Fact Sheet for Coos Bay (*39):

"Governor Kulongoski stated that any ship breaking operations locating in Oregon would have to ensure the level of environmental protection offered by a dry dock operation."

Perhaps, the next Governor will change this executive directive, but, for now, this applies.

Environmental Recycling Systems is interested in building two graving drydocks at Coos Bay to salvage ships (*30). A graving drydock is excavated in the ground, walled in concrete, and separated from water by a watertight gate; in operation: it is filled with water, a ship is floated in, the gate is closed, and the water is then pumped out. Environmental Recycling Systems' Denny Vaughan was reported to have described the Coos Bay facility as (*30):

"All water around the vessel or that falls from the sky into the specialized lock would be filtered. The environmentally conscientious Norwegians come close, he said, with their eco-dock concept. 'We want to be 100-percent self-contained. Once a ship goes in those doors close behind it,' he explained."

A floating drydock is constructed of floodable buoyancy chambers; in operation: it rests in water, the chambers are filled with water, the dock sinks, the ship is moved in, and then the water is pumped out.

Scrapping MARAD or Navy ships in a drydock is not a new idea. Baltimore Marine Industries/North American Ship Recycling (Baltimore Marine Industries after bankruptcy became North American Ship Recycling [*7, *45]) in Baltimore, Maryland and Metro Machine in Philadelphia, Pennsylvania have scrapped MARAD or Navy ships in drydocks (*41, p. 20 of *55). Ship Dismantlement and Recycling Joint Venture also scrapped Navy ships at a drydock in the Hunters Point shipyard near San Francisco until late 2001, when it announced that it would shut down because of the high cost of maintaining a drydock with no work under contract and insufficient projected contracts (p. 10 of *43). Former Navy commander Gary Whitney of Allied Defense Recycling LLC has also been working to get a lease to open the former Naval shipyard and drydocks at Mare Island near Suisun Bay to salvage MARAD ships from nearby Suisun Bay (*25, *26, *27, *28, *60). [Addendum. On 8 May 2006, Metro Machine that had recycled 18 Navy ships in a Philadelphia drydock announced that it would be closing because of financial reasons as it could not compete with Brownsville ship recyclers, *65, *68.]

Constructing a graving drydock is not a small investment. Alan Jones of Cascade General shipyard in Portland that has a graving drydock estimated that it would cost "$30 or $40 million, minimum" to build a graving drydock in Newport (*23). Environmental Recycling Systems' proposed Coos Bay facility was said to be comparable to an Ecodock (*30), and the cost of two Ecodock facilities in Europe has been estimated to be $72-79 million (*63, *64). That is a lot of money considering that Bay Bridge Enterprises (an in-water ship recycling company in Virginia) was sold for less than $10 million in June 2005 (*20), MARAD was appropriated $16.1 million in Fiscal Year 2004 and $21.6 million in 2005 for their entire ship disposal program (p. 21 of *15), and the president of Esco Marine (a ship recycling company in Brownsville, Texas) was worried that their recent $1 million expansion would be wasted (*6).

The investment of constructing new drydocks is also large considering the instability of the ship recycling industry, which has had a history of bankruptcies and closings as reported in a Pulitzer Prize winning investigative report series by the Baltimore Sun in 1998 (*8, *9). This includes the bankruptcy of a ship recycling company (Pegasus Inc.) at the Mare Island Naval yard near San Francisco in 1997 (*34), but also more recently with the closing of Ship Dismantlement and Recycling Joint Venture in San Francisco that was announced in 2001 because of financial concerns (p. 10 of *43, *47) [and the 8 May 2006 announcement that Metro Machine that recycled Navy ships in a Philadelphia drydock would be closing because of finances and competition (*65, *68)]. Further, there has been marked instability of ship recyclers within the past 5 years at the three locations where MARAD ships are recycled (Chesapeake, Virginia; Baltimore, Maryland; and Brownsville, Texas)(section XI in *4, p. 4 in *35):

1) Bay Bridge Enterprises LLC recycles MARAD ships in Chesapeake, Virginia. It was created in 2001 when Mercer Wrecking & Recycling (Trenton, New Jersey) bought Jacobson Metal Co. and Peanut City Iron & Metal Co. Inc. from a defunct company (*10, *11 [these were incorrectly listed as *182, *184 in the original]). Bay Bridge Enterprises was sold in June 2004 and June 2005 (*5, *20), and its current ownership is through a chain of subsidiary companies in Dubai and Mauritius to the parent company in India (*2).

2) In 2003, Baltimore Marine Industries, Inc. that did shipbreaking at the Sparrows Point shipyard in Baltimore filed for bankruptcy (*45). The site reopened in 2004 for recycling MARAD ships as North American Ship Recycling LLC (*7, *41).

3) In 1997, there were three ship recyclers in Brownsville: International Shipbreaking Ltd., Transforma Marine, and Best Group (*62). In 2001, two companies were the same (International Shipbreaking Ltd. and Transformer Marine), there was one less (Best Group), and there were two new companies (Esco Marine and Bedoli Group)(*61). Four years later in 2005, only two of the companies in 2001 remained (International Shipbreaking Ltd. and Esco Marine), and there were two more new companies: Marine Metals, Inc. and All Star Metals, Inc. (*6, p. 4 of *35). Scott Harper (*6) wrote in 2005 that Brownsville has been a center for ship salvage companies since the 1960's and:

"Only the names of the yards have changed over the years, due to bankruptcies and closings."

With a large capital outlay for constructing a drydock, a ship recycling company may close when the number of MARAD ships available for recycling is reduced to the point where it is not financially feasible to continue operation. This supply can be reduced by inadequate funding to support ship recycling (section C), MARAD using alternatives to ship recycling (section D-1), competition with domestic (section D-2) or foreign (section D-4) recycling companies, too few government ships to recycle after the current backlog is depleted (section D-3), or foreign ship salvaging of commercial (private) vessels (section D-5). A second type of risk is losing money with a drop in scrap prices (section E) or underestimating the costs of salvaging a ship (section F).

How much money will the Oregon International Port of Coos Bay or Oregonians finance for the construction and operation of a drydock in Coos Bay?

C. Opportunity and Risk: MARAD Ships Are Available to Recycle But Is There Enough Federal Money to Fund Recycling?

MARAD had about 60 obsolete ships at Suisun Bay, California in February 2005 (*13), which would be an opportunity for ship recycling. However, to dismantle and recycle MARAD and Navy ships with domestic shipbreaking firms requires government funding because the cost of dismantling these ships in accordance with safety and environmental standards is greater than the income from the sale of recyclable and reusable materials (p. 6 in MARAD's 2001 report [*42], p. 6 in RAND Corp. [*55]). For example, MARAD estimated that the costs of ship recycling in 2001 "will likely range from $240-$440 per ton" but that the average scrap metal value would be $130 per ton (p. 8 of *42). During 2004-2005, MARAD paid $35 million to domestic ship recyclers to scrap 33 ships (*20).

Inadequate federal funding results in an intermittent supply of ships to scrap that leads to companies capable of ship recycling not entering the business (p. 6 of *42, *50), the closing of ship recyclers, or periodic layoffs. In November 2001, Ship Dismantlement and Recycling Joint Venture, a joint venture between Ship Remediation & Recycling Inc. (SRR, a subsidiary of VSE Corp.) and Earth Tech Inc., (Table B of *35, *44) told the Navy that it would be closing its ship recycling operation at Hunters Point in San Francisco (p. 10 of *43). VSE's annual report wrote (*47)(boldface added):

"In 2001, VSE decided to discontinue SRR's ship remediation and recycling efforts at the Hunters Point Shipyard in San Francisco, California, due to the limited business opportunities associated with ship dismantlement work, due in part to an absence of any significant amount of government funding for these efforts. Profitability from the SRR work was marginal for VSE relative to the risk."

The 2002 Navy report about their ship disposal program states (p. 10 of *43)(boldface added):

"Ship Dismantlement and Recycling Joint Venture was the only privately operated facility on the west coast for dismantling of government ships in accordance with strict Federal, State, and local environmental and occupational safety laws and regulations. The establishment of another contractor ship dismantling facility on the west coast, if required or desired, will require new start-up costs to re-establish compliant ship dismantling processes. However, the requirement for another west coast ship dismantling facility will remain questionable without a long term funding stream that supports the award of at least three to four ships per year per facility."

A 2001 National Defense Magazine stated in an article about the U. S. shipbreaking industry for MARAD and Navy ships (*49):

"Every company official interviewed for this story said that he was concerned about keeping a trained crew on board. In order to maintain a trained workforce, Chambers [chief executive officer of International Shipbreaking Limited, ISL] explained, 'We need the ships to sustain it.' 'If Congress doesn't fund the program, the ships continue to languish and we have to let the people go,' he said. ISL laid off 85 people for five months and now only got half of them back, because there was no additional funding for the ships."

In June 2003, Baltimore Marine Industries, Inc. at the Sparrows Point shipyard in Baltimore, Maryland filed for bankruptcy, and one of the contributing factors to its bankruptcy was an unsteady supply of MARAD and Navy ships to scrap (*45).

The unsteady supply of ships as a consequence of inadequate funding leads to boom cycles of hiring when ships become available and bust cycles of layoffs when they are not (e.g., *1, *6, *7, *24, *46, *48).

During Fiscal Years 2001-2005, MARAD was appropriated 0-$31 million for ship disposal (p. 21 of *15). Joel Gallob interviewed Alan Sprott and Alan Jones of Cascade General (*18, *23), and Gallob reports (*18)(boldface added):

" 'Funding for shipbreaking,' said Alan Sprott, environmental manager for Cascade General company, a shipbuilding company in Portland, 'is sporadic. It depends on the whim of Congress. They allocated $21 million for 2006. But I've been told by International Shipbreaking' - one of the companies doing shipbreaking in Texas - 'that half of that money will go to the Navy because MARAD takes custody of some Navy ships, too.' The Navy has a parallel program, with a few contractors across the country approved to bid for ship disposal. 'So that leaves about $10 million, for all three of the MARAD (ghost) fleets, in California, Texas and Virginia. With $10 million you might get five ships scrapped,' warns Sprott. 'The rest of the ships will wait until Congress approves the money again. It's a poorly funded program, it's not dependable. It is not something to build a solid business model upon,' said Jones."

However, Congress appropriated as much or more than MARAD requested during Fiscal Year 2003-2005, but not in 2002 (p. 21 of *15). So it appears that MARAD did not request enough funding to recycle more ships each year; for example, a U. S. General Accountability Office report in 2005 noted (p. 20 of *15)(boldface added):

"In its 2001 report to Congress, MARAD provided a general estimate of costs to dispose of its inventory of 155 ships by the 2006 deadline, and it stated that it planned to further refine cost estimates as additional data relating to merchant-type vessels were collected during fiscal years 2001 and 2002. However, these costs were not converted into a long-term funding plan linked to disposing of all obsolete ships by 2006. In addition, MARAD did not revise its cost estimates based on actual contracting experiences. For example, the 2001 report estimated that it would cost about $350 million to scrap 140 of the 155 vessels--an average of about $2.5 million per ship--using ship scrapping services contracts. However, MARAD's budget requests for ship disposal for fiscal years 2002 through 2005 have totaled only $54.1 million, about one-sixth of the $350 million estimate."

D. Risk of Too Few Ships to Recycle to Pay for the Cost of Constructing a Drydock or to Continue Ship Recycling

D-1. MARAD May Dispose of Ships by Alternatives to Ship Salvaging

MARAD is under Congressional pressure to dispose of obsolete ships (p. 2 in *15, p. 6 in *16). But MARAD is not required to do so only by contracting to domestic ship salvagers. While ship dismantling and recycling of scrap metal is currently the primary means of ship disposal, the number of ships available to shipbreakers may be reduced by other methods of ship disposal that are also forms of reuse or recycling. The General Accountability Office in 2005 recommended that MARAD consider using three alternatives to ship scrapping more (p. 26-27 and 31 in *15).

The first alternative is sinking obsolete ships to create artificial reefs to "benefit marine life, commercial and sport fishing, and recreational diving" after some hazardous materials have been removed (p. 27-29 in *15). The RAND Corp. examined the costs of reefing ships in 2001 and found it would be much less expensive for MARAD than domestic ship recycling (p. xv in *55). There are financial obstacles and environmental concerns as well as benefits in creating artificial reefs by sinking these ships (p. 28-29 in *15, p. 17-18 in *42, Chap. 5 in *55). MARAD only disposed of one ship by reefing during Fiscal Years 2001-2005 but has received applications for five ships (p. 27-28 in *15). In October 2005, MARAD continues to examine ways to use this alternative (p. 7-8 of *35). [Addendum. On 1 June 2006, it was reported that the Northern California Oceans Foundation wanted MARAD to take its Suisun Bay obsolete ships, clean them of toxic substances, and sink them as reefs near San Francisco Bay (*70).]

The second alternative to ship salvaging is deep-water sinking of ships during weapons testing or military training, with environmentally hazardous materials removed beforehand (p. 29-30 in *15). However, some environmental concerns similar to those for sinking ships to create reefs remain (e.g., see p. 18-19 in *42). The General Accountability Office stated that "MARAD has set a goal of disposing of one or two ships a year through this method" (p. 29-30 in *15). MARAD's October 2005 report also indicated that deep-water sinking of 1-2 MARAD ships per year is possible (p. 9 in *35).

The third alternative is donation of ships to groups "interested in acquiring and preserving ships that have historic significance" (p. 30-31 in *15). MARAD did not donate any of its ships during 2001-2004 but is exploring ways to make it easier to do so (p. 30-31 in *15, p. 8 in *35).

D-2. Competition from Domestic Ship Recyclers

Even if MARAD does not use alternatives to ship scrapping, a ship recycling company in Coos Bay is not guaranteed to get all or even most obsolete MARAD ships from Suisun Bay, California. Some of MARAD's ships at Suisun Bay have already been towed to Brownsville, Texas and scrapped. For example, in 2005, five MARAD ships were transported to three Brownsville ship recyclers (*14, *17), and former Navy commander Gary Whitney has towed ships from Suisun Bay to Brownsville (*22, *27, *60). [Addenda. In October 2005, MARAD reported that eight vessels from the Suisun Bay fleet had been disposed of without a West Coast shipbreaking facility (p, 12 of *35). In 2006, MARAD plans to remove an additional 7 ships from their Suisun Bay fleet (*67). On 15 June 2006, it was announced that MARAD had awarded the recycling contract for four more Suisun Bay ships to two Brownsville shipbreaking companies for a total of 9 since October 2005 (*71).]

Whitney is also working to re-open the drydocks at the former Navy shipyard at Mare Island near Suisun Bay to scrap MARAD ships with his company, Allied Defense Recycling LLC (*25, *26, *27, *28, *60). To do so, it has been estimated that it might cost $10 million initially for dredging and then as much as $2 million a year later (*25, *27). He has been unable to get the funding (*60). [Addendum. On 1 June 2006, Whitney is reported to have bid on the contract to scrap four MARAD ships from Suisun Bay at Mare Island drydocks *70), but he must have not been competitive as MARAD awarded the contracts to two Brownsville ship recycling companies (*71).]

It is questionable that a Coos Bay ship recycling company with a drydock could compete with Brownsville ship recyclers. A Coos Bay company would have one competitive advantage--lower towing costs, but it also has several disadvantages (Table 1). Some of the disadvantages are detailed in Appendix A and include:

1) Prices paid for scrap are higher for Brownsville shipbreakers (section E).

2) Wages are a critical part in being competitive, and many Brownsville workers are paid $7-7.50 hour without health benefits; the average wage has been reported to be less than $17,000 per year, which would be about $8.17 per hour (footnote c in Appendix A). A bilingual supervisor of more than 120 laborers earned only $40,000 in 2005 (*6). [Addendum. A Metro Machine executive "believes that Texas wages top out at $9 an hour" (*68).] A very large labor pool is available to Brownsville ship recyclers as shipyard workers in Mexico earn only about $50 a week, but they can make much more in Brownsville (*6). As many as half of Brownsville shipbreaker workers live in Mexico and commute to Brownsville under various labor programs (*6). Ship dismantling is labor intensive; for example, a mid-range MARAD ship at Suisun Bay of 7,500 tons may take 75,000 hours to scrap (footnote c in Appendix A). To be competitive, a Coos Bay recycler could not afford to pay much more than in Brownsville, since $2 more per hour without health benefits could be estimated to cost about $150,000 more for a 7,500 ton ship.

3) A Coos Bay company would have weather-delays and rainfall costs that a Brownsville ship recycler would not (footnote f in Appendix A).

4) A Coos Bay shipbreaker would have initial costs of dredging to the drydock site that may be several million dollars (footnote g in Appendix A).

5) A Coos Bay company would have the costs of paying for a drydock that Brownsville ship recyclers do not (footnote h in Appendix A).

6) A Coos Bay ship salvager would have higher costs for operating a drydock than Brownsville ship recyclers using in-water shipbreaking (footnote i in Appendix A).

In a 2005 interview with Alan Jones and Alan Sprott of Cascade General, Joel Gallob wrote (*59):

"So even though there is a higher cost for towing the mothballed vessels from Suisun Bay through the Panama Canal to Brownsville, the labor cost and scrap metal market numbers, Jones and Sprott say, make Brownsville a cheaper place for shipbreaking."

Cascade General should know as they have a drydock and lost a competitive bid in 1999 for scrapping a Navy frigate to International Shipbreaking Ltd. of Brownsville, whose bid was less than 50% of Cascade General's (*44). Presently, Cascade General is not interested in doing shipbreaking because it is too risky financially, and they cannot compete with Brownsville shipbreakers (*17, *18, *19, *59).

[Addenda. On 8 May 2006, Metro Machine that had recycled 18 Navy ships in a Philadelphia drydock announced that it would be closing, and competition with International Shipbreaking Ltd. in Brownsville was cited as one of the reasons for its closure (*65, *68). A May 14 article in a California newspaper states; "Two empty dry docks in the [San Francisco] Bay Area could handle ship recycling, one on Mare Island in Vallejo and the other at the former Hunters Point Naval Shipyard in San Francisco where the Navy cut up three frigates in 2000 and 2001. But even with their proximity to the Suisun fleet, strict environmental regulations, state toxic waste requirements and labor costs make those locations likely money losers, one expert said. 'We can't compete with Texas where they pay minimum wage,' said Werner Hoyt, an engineer who has worked in the ship recycling industry. 'The guys in Brownsville can bid against us and absorb the cost in reduced labor' payrolls."]

If MARAD, the Navy, or the U.S. Congress decides to require all recycling of MARAD and Navy ships to be done in drydocks and the Congress provides the funds needed to do so, then a Coos Bay ship recycler may be more competitive. However, it seems doubtful that such legislation that would hurt Texas shipbreakers would pass because they have legislative clout (e.g., *61) and funding is currently inadequate (section C). Further, MARAD is not requesting ship recycling be done only in drydocks (*35).

In the National Defense Authorization Act of 2001, the U. S. Congress required MARAD to dispose of ships at "the best value" and "at the least cost to the Government" (p. 1 of *42). MARAD would violate this Act by awarding ships to a Coos Bay facility if its bids were higher than those of the Brownsville facilities.

Proper disposal of MARAD and Navy ships is a federal funding problem (section C). Will Coos Bay or Oregon taxpayers subsidize a Coos Bay shipbreaker to make it more competitive with Brownsville ship recyclers?

D-3. After the Current Backlog of MARAD Ships Is Gone, Few Additional MARAD Ships Are Predicted to Become Available

For a ship recycling facility to survive, it will need a steady supply of ships after the current backlog of MARAD ships is depleted. During four Fiscal Years from 2001 to 2004, the U.S. General Accountability Office found that there was a total average of 10.5 obsolete vessels per year (range 2-20 vessels) being transferred into MARAD's three fleets in Virginia, Texas, and California (p. 15 in *15), so the number added to just the California fleet at Suisun Bay could be expected to be less than that. Further, in 2001, MARAD estimated that after their current backlog of ships is gone that "an annual scrapping rate of about 6 ships per year is expected" (p. 10 of *42)--this again would be for all fleets.

If a ship recycling company is only viable for a few years, how will the costs of building a drydock be paid for?

D-4. Foreign Recycling of Obsolete U. S. Government Ships

The number of government ships available to a Coos Bay recycling company would predictably be reduced if foreign export is permitted again. From 1983 to 1994, MARAD scrapped almost all of 200+ vessels by sales to foreign companies (p. 7 of *15). In 1993, the EPA advised MARAD that the Toxic Substances Control Act (TSCA) applied to the export of government vessels containing PCBs, and during 1998-1999 there was a moratorium on overseas recycling of government ships because of environmental and worker health and safety issues (p. 11-12 of *16, p. 13-14 of *42, p. 8-9 in *52).

In 2003, MARAD awarded a contract for 13 vessels to be recycled in England at Able UK, and four of those vessels were towed there (p. 5-6 in *35). This transaction resulted in lawsuits and was controversial domestically and in England (*21, p. 5-6 in *35, *54). In March 2006, 18 months after the four vessels were towed to England, they remain moored, and their fate is unknown (*54).

Denny Vaughan of Environmental Recycling Systems has expressed an interest in constructing a graving drydock in Coos Bay to recycle ships (*30). In 2004 and 2005, he was negotiating with MARAD to recycle all obsolete ships from MARAD's California, Virginia, and Texas fleets in Turkey and Mexico (*29):

"The federal government is moving forward with a tentative deal to send all the remaining obsolete James River Reserve Fleet ships to recycling yards in Turkey or Mexico at a reduced cost. All the rotting ships in the James River ghost fleet could be gone in two years if the proposal succeeds, said Denny Vaughan, senior partner with Environmental Recycling Systems, a shipyard in Turkey that is coordinating the plan.
"The James River fleet currently has about 55 obsolete ships. Vaughan's group is also offering to dismantle 77 ships in reserve fleets in Texas and California.
"It's far from a done deal. Environmental Recycling Systems must compete with other shipyards vying for the recycling work. And the foreign deal needs approval from the Environmental Protection Agency, which would have to waive federal laws that forbid exporting hazardous waste.
...
"Environmental Recycling Systems is offering to dismantle the ships in the Texas and California fleets for free, and charge only preparation, pre-cleaning and towing costs for the James River fleet ships, Vaughan said.
"The Turkey-Mexico proposal has been in the bidding process for about two years.
...
"Environmental Recycling Systems is a shipyard near the Aegean Sea in Aliaga, Turkey, and has a coalition of 29 additional yards interested in taking American ships. Dismantling ships in developing countries is cheaper because of lower labor costs and high demand for the ships' metal, boilers and generators, said Vaughan, a retired Navy rear admiral.
"Vaughan would not disclose the exact locations of the Mexican shipyards in the proposal, other than saying they were on the country's east and west coasts."

As part of the lawsuit against MARAD and the U.S. Environmental Protection Agency (EPA) to remove MARAD vessels from Virginia but not necessarily to ship them to Environmental Recycling Systems' facilities in Turkey and Mexico (*29):

"An EPA spokeswoman said that the agreement has been reached in principle, but not all the parties have had a chance to sign the settlement. A Maritime Administration spokeswoman did not respond to requests for information.
"In the settlement, EPA agreed to process, 'without unreasonable delay,' the Maritime Administration's request for a waiver to the Toxic Substances Control Act, which bans the export of solid PCBs.
"The administration is seeking the waiver to move ahead with sending the remaining nine James River ships that are part of the Able UK deal to England. The Maritime Administration, known as Marad, also agrees, 'without unreasonable delay,' to award contracts for removing the remaining reserve fleet ships and to apply for more EPA waivers as needed."

In March 2005, Brownsville shipbreakers were concerned that the Bush Administration will seek exemptions and resume export of MARAD ships overseas to recycle because of recent trips by Bush aides to China's shipyards (*6).

[Addendum. On 25 May 2006, ERS was also reported to be partnering with a Mexican ship recycling company to scrap U.S. government vessels (*69), so ERS' commitment to shipbreaking in Coos Bay seems questionable.]

There are obstacles to exporting MARAD's ships, but MARAD continues to lobby for exporting obsolete vessels as recently as October 2005 (p. 5-6 and 11 of *35).

D-5. Foreign Recycling of Commercial (Private) Ships

A ship recycling company in Coos Bay could theoretically augment an inconsistent supply of government ships to salvage with private/commercial vessels as Denny Vaughan has suggested (*30). However, the Toxic Substances Control Act does not prohibit the export of commercial ships (p. 11 in *16). Private ships continue to be generally exported to be recycled (p. 16 in *42, p. 18 in *55). In spite of higher towing costs, foreign ship salvaging is more economical because of lower labor costs and higher demand and prices for scrap (*29, *51). The RAND Corp. also notes that overseas ship recyclers, especially those in Asia, recycle and reuse more equipment and materials than U.S. recyclers (p. 113 and 126 in *55).

E. Risk: Higher Scrap Prices in Brownsville and Variable Scrap Metal Prices

Shipbreaking firms make money by selling scrap (especially steel) and reusable materials (Appendix B in *55). Excluding submarines, the RAND Corp. estimated that 79-90% of Navy and MARAD ships of various types would be ferrous scrap (i.e., containing iron), 0-4% aluminum, 1-4% copper or copper alloys, 0-4% lead, and about 9% waste (p. 124 in *55).

FIGURE 1. Average monthly U.S. prices for Heavy Melting No. 2 Steel Scrap. This is from a RAND Corp. report (p. 138 in *55). There are more than 100 classes of scrap, depending upon the size and source (p. 137-141 in *55), and prices differ among classes. Note the monthly variability in prices and also that West Coast prices in Seattle and San Francisco were consistently lower than in Houston.

A Coos Bay shipbreaking facility would be able to sell scrap metal, but it is predictable that the prices it would receive would be less than for Brownsville ship recyclers, so a Coos Bay facility would be less competitive (Appendix A).

The value of scrap varies with location (Figure 1). For example, the RAND Corp. reports that the price is directly related to the proximity to where the scrap will be processed and that the price for Heavy Melting No. 2 Steel Scrap in August 2000 was about $60 per ton greater in Houston (which is near Brownsville) than in Seattle or San Francisco (which are near Coos Bay) (Figure 1). Further, International Shipbreaking Limited wrote in 1998 (*51):

"Ship scrappers in the Gulf Coast area of the United States currently receive approximately $180 of revenue per ton for scrapped vessels. This is the highest scrap market price in the nation due to the proximity to so many mini-mills in the United States and Mexico."

Additionally, in a 2005 interview with Alan Jones and Alan Sprott of Cascade General, Joel Gallob wrote (*59):

"The market for scrap steel is not uniform across the country. Steel fetches $100 per ton more on the Gulf Coast than on the West Coast, Jones explained, because a lot of Mexican mills are competing for the metal. 'Say that's $260 per ton there versus $150 per ton in this area, that makes a big difference when you're talking about a 10,000-ton ship,' says Sprott.' "

If a ship recycling company is distant from high scrap prices (e.g., along the Oregon Coast), not only may it receive less for its scrap metal, but it may have higher transportation costs to transport the scrap to market. Such a company would have a more challenging time competing in bids for MARAD or Navy ships with ship recycling companies in Brownsville that are closer to markets with higher scrap prices.

Another risk for a Coos Bay shipbreaking facility would be that the scrap steel price may drop after it has been awarded a contract. For example, scrap steel prices dropped during 1997-1999, and International Shipbreaking, Ltd in Brownsville, Texas lost more than $3 million, reduced staff from 170 to 15 workers, and was on the verge of bankruptcy (*36). Further, MARAD's 2001 report stated about its sales to domestic ship recycling companies (p. 3 of *42):

"Since 1994, MARAD has sold 22 vessels, only eight of which have been scrapped. The purchasers did not accept the remaining vessels and most of the sales contracts were terminated. Key factors were the marginal profits stemming from ship scrapping, which were influenced by the constantly changing market prices for scrap metal versus the costs for removal and disposal of hazardous material."

In 2006, the Wall Street Journal reports about Harsh Mishra of Bay Bridge Enterprises, a ship recycling company (*20):

" 'This is an inherently risky business. You could lose your shirt or you could get lucky,' says Mr. Mishra. He points out that shipbreakers must bid on contracts months in advance and 'you don't know what the steel scrap prices will be four or five months down the line.' "

Shipbreaking companies may not finish disposing of ships until 6 months or more after winning a contract. For example, Esco Marine was awarded two ships by MARAD in August 2004 but had not completely disposed of the ships until 8-10 months later, and Bay Bridge Enterprises was awarded contracts for three ships in late August 2003 but had not entirely disposed of them until 15-17 months later (p. 4 in *35).

The average international scrap steel price increased to $204 in 2004 (p. 42 in *15) and to as high as $350 in 2005 (*12). Experts are not sure what prices will now do (*56), but it seems likely that they will rise and fall as they have done in the past (Figure 1; p. 42 in *15). A price drop to 1994-2003 levels (p. 42 in *15) could test the finances of shipbreaking firms. Drops in the price of scrap steel are one reason why ship recycling and scrap metal firms sometimes go bankrupt or close.

F. Risk: Underestimating the Costs Required to Dismantle a Ship

Another business risk is that the amount of time required to dismantle a ship or the costs involved in doing so may be much greater than estimated while bidding for a ship. As a consequence, the costs can be much greater than expected. For example, Sims Metal lost $2 million to dismantle one Navy ship in California, and they got out of the ship recycling business (p. 45 in *37).

G. Risk: Disposing of Ships Abandoned in Coos Bay

Government ships have been towed to facilities to be scrapped, but the ship recycling company has later gone bankrupt. For example, six Navy ships were awarded to a shipbreaking firm (Pegasus Inc.) at the former Naval base at Mare Island near San Francisco in 1995 but that company went bankrupt in 1997 (p. 6 in *33, *34). A year later, the five smaller ships were taken to Suisun Bay, but the partially scrapped USS Oriskany (a large aircraft carrier) remained until April 1999, when it was towed to Texas, after the City of Vallejo had threatened lawsuits and went to the U.S. Congress to get it removed because it was taking up valuable property without compensation (*31, *32, *34).

The risk of abandoned ships continues because MARAD has awarded contracts to companies that have not had all the necessary permits. In 2003, MARAD awarded a contract for 13 vessels to be recycled in England at Able UK, and four of those vessels were towed there (p. 5-6 in *45). This transaction resulted in lawsuits and was controversial domestically and in England (*21, p. 5-6 in *35, *54). In March 2006, 18 months after the four vessels were towed to England, they remain moored, and their fate is unknown (*54).

H. Why Aren't More U.S. Companies Involved in Salvaging MARAD Ships?

There are many shipyards, including ones with drydocks, that could recycle MARAD ships. The obstacles appear to be inadequate MARAD funding that leads to an irregular supply of ships to scrap (section C), domestic competition with companies with high scrap prices and low wages (section D-2), and variable scrap prices (section E). MARAD's 2001 report stated (p. 6 of *42):

"In February 2001, the President of the Shipbuilders Council of America indicated that 'the domestic capacity and expertise already exists to dismantle all of the surplus vessels in MARAD's custody within a five-year period.' According to some shipyards, their interest is dependent, in part, on some continuity of work. The assignment of more than one or two ships to a facility is necessary to justify the capital and labor costs required to integrate scrapping into normal shipyard activities."

It appears that shipyards capable of doing ship recycling are aware of the bankruptcies and instability of ship recycling and choose not to do so because it is too speculative.

a Sale of Recyclable and Reusable Items in Brownsville=($64 or $100/ton) X (7,500 ton ship). The RAND Corp. estimated that the sale of recyclable metals and reusable equipment was $64/ton (p. 30 of *55). But scrap steel prices have risen since then (*20, *56), so $100/ton may be more accurate for the average value for the entire ship. There are more than 100 classes of ferrous metal depending upon size and source, and the value of nonferrous metals also varies (p. 128 and 137 of *55). Further, there are regional differences in prices of recyclable metals (*51, p. 138 of *55; *59), and Alan Jones of Cascade General indicated in 2005 that the price of steel available to a West Coast recycler ($150/ton) was 58% of that available to a Gulf Coast recycler ($260)(*59). These regional differences are also examined in section E.
Here, it is assumed that the Sale of Recyclable and Reusable Items in Coos Bay=58% of (Brownsville sale value).

b Towing Costs to Brownsville (*22, p. 33 of *55) or to Oregon (*17, *22).

c Labor Costs=(wage/hr) X (ship weight in tons [7,500 tons in this example]) X (hours/ton to dismantle a ship). The average wage rate of Brownsville shipbreaker workers has been reported to be "less than $17,000 a year," without health benefits (*6). Many workers earn "about $7 an hour" (*6) and may have the opportunity for bonuses and overtime (*6, *48). The president of International Shipbreaking was reported to have said that they had no problem getting workers who work hard at $7.50 per hour (*59). Based on a year of 52 weeks of 40 hours per week, an average wage of ($17,000/year)/(2,080 hours)= $8.17 per hour. A bilingual supervisor of more than 120 laborers in Brownsville earned only $40,000 (*6). [Addendum. A Metro Machine executive "believes that Texas wages top out at $9 an hour" (*68).] As many as half of Brownsville shipbreaker workers live in Mexico and commute to Brownsville under various labor programs (*6).
In Portland, Cascade General paid union wages of about $20-21/hour (*59), but the average amount that workers in Coos Bay will be paid has not been reported nor if workers would receive benefits. Because of the unknowns, several average wage rates without benefits are calculated.
For these estimates of Labor Costs, it was assumed that it would take 10 hours/ton to dismantle a ship. In 2005, Cascade General estimated that it took 8-12 hours/ton to dismantle a ship (*17). For a Navy warship, it was estimated to take 38 hours/LSW ton for dismantling in a RAND Corp. report, but noncombatant ships in MARAD fleets are 50-500% less complex and would presumably take fewer hours (p. 22-25 of *55).

d Remediation is the removal and disposal of hazardous materials that includes transport to suitable facilities. This cost may vary between Brownsville and Coos Bay.

e Disposal of Nonrecyclable/Nonreusable Materials. The RAND Corp. estimated that about 6-9% of a merchant ship would be waste (p. 123-126 of *55). The cost of disposal may vary between Brownsville and Coos Bay.

f Weather-caused Delays and Rainfall. International Shipbreaking Ltd. notes that Brownsville has "favorable climate for year round scrapping operations" (*51), and Brownsville is a shipbreaking hub, in part, because of "tropical weather that allows for an uninterrupted work schedule" (*6). However, in Oregon storms are expected that could stop or slow ship recycling, which would increase the cost of recycling relative to Brownsville. Further, it often rains along the Oregon Coast, and rainwater could become contaminated bilgewater in a partially dismantled ship (p. 4-1 of *3) and cost more to process. For example, "rainwater is a hugely expensive problem for the shipyard run by Cascade General in the Portland Harbor" (*38).

g Dredging Costs. Brownsville ship recycling companies are already set up to receive ships in slips, but there would be a cost to dredge a channel to a Coos Bay graving drydock. It was estimated to cost $3-12 million to dredge a channel for Bay Bridge Enterprises' proposed in-water ship recycling facility in Newport that did not include the cost of pile driving (*57, *58). Bay Bridge wanted the Port of Newport to pay for this cost and some other costs for site development, and these financial costs, not environmental concerns, are why the Port of Newport rejected Bay Bridge's proposal (*57, *58).

h Drydock Construction. Alan Jones of Cascade General shipyard in Portland that has a graving drydock estimated that it would cost "$30 or $40 million, minimum" to build a graving drydock in Newport (*23). Environmental Recycling Systems has proposed to build two graving docks comparable to an Ecodock in Coos Bay for shipbreaking (*30), and the cost of two Ecodock facilities in Europe has been estimated to be $72-79 million (*63, *64).

i Drydock Operation Costs. MARAD noted in 2001 that the costs for dismantling a ship in a drydock were "considerably more expensive" than an in-water slip (p. 8 in *42). Ship Dismantlement and Recycling Joint Venture also scrapped Navy ships at a drydock in the Hunters Point shipyard near San Francisco until late 2001, when it announced that it would shut down because of the high cost of maintaining a drydock with no work under contract and insufficient projected contracts (p. 10 of *43).

j Some costs for dismantling ships were discussed by the RAND Corp. (p. 21-24 in *55) and in a Cascade General presentation (*17).

Footnotes

*1. Harper, Scott. 2003. Local Yard Wins in Bid to Scrap 5 'Ghost' Ships. Sept. 4, The Virginian-Pilot. This is at http://www.cpeo.org/lists/military/2003/msg00992.html

*2. Adani Overseas Operations is cached at http://www.orednet.org/~rbayer/salvage/adglbl.htm.

*3. U.S. Environmental Protection Agency (EPA). 2000. A Guide for Ship Scrappers: Tips for Regulatory Compliance. EPA 315-B-00-001. U.S. Environmental Protection Agency, Office of Enforcement and Compliance Assurance. This is a 261 page [1.2 MB] document.

*4. U. S. Department of Labor, Occupational and Health Administration (OSHA). 2005. OSHA's National Emphasis Program (NEP) on Shipbreaking. Directive Number: CPL 02-00-136. Information Date: 03/16/2005.

*5. Marley, Michael. 2004. More 'Ghost' Ships to be Exorcised in US. June 28, American Metal Market.

*6. Harper, Scott. 2005. Dismantling the Ghost Fleet. March 21, The Virginian-Pilot. The text is cached at http://www.orednet.org/~rbayer/salvage/footnote-28.htm. The slide show with photos by Chris Tyree is also no longer available at the Virginian-Pilot web site on 8 March 2006, but part of the photos are at W-Photo 1, W-Photo 2, W-Photo 3, and W-Photo 7; part of photos are also at http://navy.memorieshop.com/Brownsville/Slides-1.html.

*7. Harper, Scott. 2004. 2 More in "Ghost Fleet" Slated for Environmentally Safe Scrap. Sept. 14, The Virginian-Pilot. This is at http://www.ban.org/ban_news/2004/040914_2_more.html

*8. Englund, Will and Gary Cohn. 1997. Scrapping Ships, Sacrificing Men. Dec. 7, Baltimore Sun. This is part of a series on shipbreaking that earned the 1998 Pulitzer Prize for Investigative Reporting (http://www.pulitzer.org/year/1998/investigative-reporting/works/).

*9. Cohn, Gary and Will Englund. 1997. The Curious Captains of a Reckless Industry. Dec. 8, Baltimore Sun. This is part of a series on shipbreaking that earned the 1998 Pulitzer Prize for Investigative Reporting (http://www.pulitzer.org/year/1998/investigative-reporting/works/).

*10. Anonymous. 2001. Mercer Finalizing Deal for Idled Recycling Industries Yards. August 20, Recycling Today: The Portal to the Recycling Industry. This is at http://www.orednet.org/~rbayer/salvage/rtoday-39.htm.

*11. Anonymous. 2001. Scrap Industry News: More Recycling Industries Assets Sold. Sept. 20, Recycling Today: The Portal to the Recycling Industry. Scroll down http://www.orednet.org/~rbayer/salvage/rtoday-40.htm.

*12. Sleeth, Peter. 2005. Newport's Dilemma: Good Jobs vs. Big Risks. Dec. 4, Oregonian. This is at http://www.oregonlive.com/search/index.ssf?/base/front_page/1133663106105660.xml?oregonian?fpfp&coll=7

*13. U.S. Maritime Administration (MARAD). 2005. Obsolete Non-Retention Vessels for Standing Quotations. February 8. This is at https://voa.marad.dot.gov/programs/ship_disposal/standing_quot/docs/Obsolete%20Non-Ret%20Vessels%20for%20SQ%2002-8-2005.pdf. (P. 7-10 lists 60 MARAD ships at Suisun Bay that are "obsolete," and gives their lengths, weights, and order of priority for disposal.).

*14. U.S. Dept. of Transportation. 2005. Maritime Administration Moves Ahead on Ship Disposal: Four More Disposal Contracts Announced. Sept. 30. U.S. Dept. of Transportation, Office of Public Affairs, U.S. Dept. of Transportation.

*15. United States Government Accountability Office (GAO). 2005. Maritime Administration: Improved Program Management Needed to Address Timely Disposal of Obsolete Ships. March 2005. GAO-05-264. Report to the Ranking Minority Member, Subcommittee on Readiness, Committee on Armed Services. 62 pages, 2.2 Mb (slow to download).

*16. Howard, Thomas J. 2000. Maritime Administration: Limited Progress In Disposing of Obsolete Vessels. May 24. Statement of Thomas J. Howard, Deputy Assistant Inspector General for Maritime and Departmental Programs, U.S. Department of Transportation, Before the Subcommittee on Coast Guard and Maritime Transportation, Committee on Transportation and Infrastructure, U.S. House of Representatives. Report No. MA-2000-097.

*17. Presentation by Alan Sprott and Alan Jones of Cascade General of Portland, Oregon to a public meeting of the MidCoast Watershed Council on 5 January 2006 at the OSU Hatfield Marine Science Center. Carole Cole and Range Bayer independently took notes; in addition, Carol Cole received a copy of their presentation.

*18. Gallob, Joel. 2005. Federal Shipbreaking Funds Inconsistent. Dec. 16, Newport (Oregon) News-Times.

*19. Gallob, Joel. 2005. Shipbreaking: Players Based Throughout the United States. Dec. 16, Newport (Oregon) News-Times.

*20. Glader, Paul. 2006. With Steel Soaring, A Ghost Fleet Is In High Demand. P. A1 and A11 in Jan. 10 Wall Street Journal. A cache of the article without images is at http://www.orednet.org/~rbayer/salvage/fnote-92.htm; the image of the ship is at BBE Image 1.

*21. Basel Action Network. 2003. Needless Risk. Basel Action Network, an international network of activists seeking to prevent the globalization of the toxic chemical crisis.

*22. Sleeth, Peter. 2006. Oregon Assets Lure Shipbreakers: Cheaper Costs for Land and Labor to Scrap a California Fleet are Driving Business and the Government North. Jan. 8, Portland Oregonian.

*23. Gallob, Joel. 2005. Winch vs. Dry Dock for Shipbreaking's Heavy Lifting. Dec. 23, Newport (Oregon) News-Times.

*24. Anonymous. 2005. Metro, in Brief: Three Aging Ships to Be Dismantled. Scroll down to second article on P. B3 of Sept. 5 Washington (District of Columbia) Post.

*25. Denina, Chris G. 2003. Will Mare Island Sink or Swim? Before the Military Closed the Base in 1996, the Navy Was Responsible for Dredging the Mare Island Strait. July 5, The Reporter.Com; Denina is listed as from the Vallejo (California) Times-Herald.

*26. Friedman, Gabe. 2004. WW II ship waits in limbo at Mare Island. May 8, Napa Valley (California) Register.

*27. Denina, Chris G. 2004. Company Pins Its Hopes on Dredging M.I. Strait. July 24 Vallejo (California) Times-Herald. This Article ID: 2291930 is available for a fee at the Times-Herald's Archives at http://timesheraldonline.com/fastsearchresults?vertical=archive

*28. Denina, Chris G. 2005. New Venture Would Restore M.I. Shipyard. July 14 Vallejo (California) Times-Herald.

*29. Schleck, Dave. 2005. Deal Would Export 'Ghost Fleet' at Reduced Cost. July 19 Daily Express (Newport News, Virginia).

*30. Hamner, Elise. 2006. Issues Generate Waves of Interest. Feb. 17 Coos Bay (Oregon) World. This may be available for a fee by doing an Advance Search for the article title enclosed by quotation marks at http://www.theworldlink.com/archives/.

*31. Gallob, Joel. 2005. Why Not Break the Ships in the Bay Area? Dec. 28 Newport (Oregon) News-Times.

*32. Anonymous. 1999. Crowley Marine Services Completes 15,000-Mile Tow of USS Oriskany. Sept. 15, Crowley Liner Shipping Services.

*33. U. S. General Accounting Office (GAO). 1998. Federal Surplus Ships: Government Efforts To Address the Growing Backlog of Ships Awaiting Disposal. Letter Report, 10/22/98, GAO/NSIAD-99-18.

*34. Baxter, Kevin. 1999. DRMS Aircraft Carrier Offer Gets Scrapped - Defense Reutilization and Marketing Service Has Hard Time Finding Anyone Willing to Bid on Scrap Purchase of USS Oriskany. April 19, American Metal Market.

*35. U.S. Maritime Administration. 2005. Report to Congress on the Progress of the Vessel Disposal Program. October 2005. U. S. Dept. of Transportation, Maritime Administration.

*36. Stewart, Christopher S. 2004. Ship Breaking: an Upstart Is Revolutionizing the Arcane, Dangerous Business of Boat Recycling. Oct. 1, Fortune Small Business (Vol. 14[8]:71-77). Photos by Nathaniel Welch. Text is at http://money.cnn.com/magazines/fsb/fsb_archive/2004/10/01/8187304/index.htm (index is at http://money.cnn.com/magazines/fsb/fsb_archive/2004/10/01/toc.html). Text and images are also at http://www.usshorne.net/horne/breaking.htm; that web site says the article is from Forbes Magazine, but the page images indicate it is from "FSB," which suggests Fortune Small Business, and some of the page numbers are visible.

*37. U. S. Congress. 1998. 47-309CC. Ship Scrapping Activities of the United States Government. 105-59. Hearings before the Subcommittee on Coast Guard and Maritime Transportation of the Committee on Transportation and Infrastructure. House of Representatives, One Hundred Fifth Congress. Second Session, March 18 and June 4, 1998.

*38. Rojas-Burke, Joe. 2005. Safe Water at Stake in Saga of Two Shipyards. March 5, Portland Oregonian. The article is given at http://www.orednet.org/~rbayer/salvage/hoy.htm#cwa-permit and may be available for a fee by searching Oregonian Archives, http://www.oregonlive.com/search/oregonian/.

*39. Fuller, Brian. 2006. Fact Sheet: Ship Breaking Project Proposal for Coos Bay. April 3, Oregon Department of Environmental Quality--Eugene, Regional Environmental Solutions, Western Region. DEQ 06-WR-006. (Fuller emailed this as a DOC file. In transforming this into a smaller PDF file that can be quickly downloaded, the quality of the DEQ logo has diminished.)

*40. Hamner, Elise. 2006. Forum: State Laws Murky on Ship Recycling. April 7, Coos Bay World. This is available for a fee by doing an Advance Search for the article title enclosed by quotation marks at http://www.theworldlink.com/archives/.

*41. Boerstling, Robyn. 2004. Transportation Secretary Mineta Announces Baltimore Ship Scrapping Contracts, Says Work Will "Set Stage for a Revival" of Local Transportation Economy. Sept. 13, DOT 170-04. U.S. Dept. of Transportation, Office of Public Affairs.

*42. U.S. Maritime Administration. 2001. Report to Congress on the Progress of the Vessel Scrapping Program. April 2001. U. S. Dept. of Transportation, Maritime Administration. This does not appear to be available at MARAD's web site but is at http://www.cbc.ca/fifth/bigbreak/2001report.pdf

*43. U.S. Maritime Administration. 2002. Report to Congress on the Progress of the Vessel Scrapping Program. June 2002. U. S. Dept. of Transportation, Maritime Administration. This does not appear to be available at MARAD's web site but is at http://www.foe.co.uk/resource/evidence/report_congress_vessel_scrap_2002.pdf

*44. Baxter, Kevin. 2000. Dismissal of Ship Repair Company's Plea Lets Warship Scrapping Get Under Way. March 1, American Metal Market.

*45. Macaluso, Nora. 2003. U.K. Shipbreaking Contract Questioned. With the U.S. Maritime Industry Ailing, Some Are Asking Why a British Scrapyard Was Chosen to Dismantle 13 Aging Vessels. Sept. 8, Special to SunSpot, Baltimore Sun (Maryland).

*46. Sentementes, Gus G. 2000. Sparrows Point Yard Gets Navy Ship-Scrapping Job. Dec. 8, Baltimore Sun (Maryland).

*47. VSE Corporation. 2004. Securities and Exchange Commission: Form 10-K Annual Report on 11-March-2004. (VSE also discusses its discontinuance of its subsidiary SRR's ship dismantling in: VSE Corporation. 2002. Securities and Exchange Commission: Form 10-Q Quarterly Report on 30 June 2002.)

*48. Salinas, Gilberto. 2004. Port Busy Dismantling 10 Ships from Ghost Fleet. Oct. 15, Brownsville Herald (Brownsville, Texas).

*49. Tiron, Roxana. 2001. U.S. Ship-Scrapping Program Scraping By Maritime Administration. October, National Defense Magazine. This is now at http://www.allbusiness.com/periodicals/article/816879-1.html

*50. Interagency Panel on Ship Scrapping. 1998. Report of the Interagency Panel on Ship Scrapping. April 1998. Panel included representatives from the U.S. Department of Defense, Department of State, the Department of the Navy, the Defense Logistics Agency, the Department of Justice, the US Department of Labor (Occupational Safety and Health Administration), the Department of Transportation (both the US Maritime Administration and the US Coast Guard), and the US Environmental Protection Agency.

*51. International Shipbreaking Limited, LLC. 1998. An Industry Perspective. March 3 Letter addressed to the U.S. Interagency Ship Scrapping Review Panel, which was officially known as Interagency Panel on Ship Scrapping.

*52. U. S. Dept. of Transportation. 2000. Audit Report: Report on the Program for Scrapping Obsolete Vessels, Maritime Administration. Report No. MA-2000-067. Office of Inspector General, U. S. Dept. of Transportation. This is also at http://www.foe.co.uk/resource/evidence/audit_scrapping_vessels.pdf

*53. Cisneros, Oscar. 1996. Company Has Contract to Dismantle Naval Vessels. June 9, Brownsville Herald (Texas).

*54. Vidal, John. 2006. Ghost Ships May Leave Limbo. March 31, The Guardian (England).

*55. Hess, Ron, Denis Rushworth, Michael V. Hynes, and John E. Peters. 2001. Disposal Options for Ships. RAND Corporation, Document Number: MR-1377-NAVY. ("This research was conducted for the U.S. Navy within the Acquisition and Technology Policy Center of RAND's National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Commands, and the defense agencies.")

*56. Hamner, Elise. 2006. Toxins Slow U.S. Effort to Recycle Ships Effort in U.S. April 13, Coos Bay World. This may be available for a fee by doing an Advance Search for the article title enclosed by quotation marks at http://www.theworldlink.com/archives/.

*57. Gallob, Joel. 2006. Port Says No. Jan. 25, Newport News-Times.

*58. Casper, Beth. 2006. Newport Halts Plan for Ship Cutting. Commissioners Not Willing to Invest to Support the Business. Jan. 26, Salem Statesman Journal.

*59. Gallob, Joel. 2005. Shipbreaking Economics - Labor, Towing, and Markets. Dec. 23, Newport News-Times.

*60. Hamner, Elise. 2006. Political Red Tape Big Reason Ships Leave California. April 27, Coos Bay World. When this is no longer available for free, it may be available for a fee by doing an Advance Search for the article title enclosed by quotation marks at http://www.theworldlink.com/archives/.

*61. Hartnett, Dwayne. 2001. Legislation Could Sink 1,200 Local Jobs: Ship Builders Council Measure Threatens Port of Brownsville Companies. Sept. 1, Brownsville (Texas) Herald.

*62. Vindell, Tony. 1997. Old Ships Prove to Be Boon for Local Economy. Sept. 15, Brownsville Herald (Texas).

*63. Garfield, Geoff. 2005. Green Yard in Netherlands Gets Funding. June 10, TradeWinds (Norway)(an international shipping newspaper, http://www.tradewinds.no/subscribe/). This is at http://www.ecodock.info/uk/infobase_show.php?id=160.

*64. Garside, Ben. 2005. Shipbreaking Yard Eyed in Northeast England. Aug. 17, American Metal Market.

Relevant References That Were Added after the Original Letter

Addendum *65. Holcomb, Henry J. 2006. Shipyard to Close Facilities in Phila. The City Is Seeking Another Ship-repair Company to Lease Metro Machine Corp.'s Dry Docks at the Old Navy Yard. May 8, Philadelphia Inquirer. (The night of May 8, after mailing my letter, I read this article. It stated

"While rivals for Navy work were winching ships onto land to cut them up, 'we did the work in a dry dock so we could catch anything that spilled. We served the Navy well,' Metro president John W. Strem Jr. said. It scrapped 18 warships in Philadelphia. With the price of scrap steel rising, it had high hopes for building a ship-recycling business here, Strem said. But the Pentagon shifted much of its ship-scrapping work to International Shipbreaking Ltd., on the U.S.-Mexico border in Brownsville, Texas."

In effect, Metro's ship recycling in drydocks could not compete with the in-water ship recycling of International Shipbreaking Ltd. For bids awarded by the Navy during 2003-2004, the average cost per ton for Metro was $682/ton (N=6 ships, range $535-$854/ton) but averaged about half as much at $346/ton (N=4 ships, range $187-$451/ton) for International Shipbreaking (p. 20 of *35). In 1999, Cascade General's bid to recycle a Navy ship in a Portland drydock was over twice as great as International Shipbreaking's bid (*44). A company with a drydock in California stopped recycling of Navy ships in 2001 because it was not financially feasible to continue, and Baltimore Marine Industries, Inc. went bankrupt in 2003 (section C).

How will a Coos Bay facility burdened with the additional cost of constructing new drydocks compete with in-water Brownsville ship recyclers if established shipyards with drydocks can not?

Addendum *66. Peele, Thomas. 2006. Few Options for Scrapping Obsolete Ships. May 14, Contra Costa Times (California).

Addendum *67. Peele, Thomas. 2006. Suisun Bay Fleet Hardly Shipshape. May 14, Contra Costa Times (California). [Includes 11 photographs of Suisun Bay fleet.]

Addendum *68. Hamner, Elise. 2006. Ship Recycling Sailing South. May 25, Coos Bay World.

Addendum *69. Anonymous. 2006. Mexico Firm Eyes U.S. Fleet. May 25, Coos Bay World.

Addendum *70. Denina, Chris G. 2006. No More Mothball Fleet? June 1, Vallejo (California) Times-Herald. If this article no longer available at the link given, then it may be available for a fee at the Times-Herald's Archives at http://timesheraldonline.com/fastsearchresults?vertical=archive

Addendum *71. Anonymous. 2006. MARAD Signs Four More Ship Dismantling Contracts. June 15, Recycling Today Magazine.

[Return to Top of Letter or to Proposed Shipbreaking (Ship Recycling) of U.S. Maritime Administration (MARAD) or Navy Ships in Oregon or Washington]

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