U.S. Ship-Scrapping Program Scraping By.

Maritime Administration says funding for Navy vessel disposal is running low

The U.S. Navy kick-started a pilot program two years ago, to ensure that the dismantling of its ships complies with environmental and worker safety laws. Although this program has been successful so far, the Maritime Administration, which also is responsible for scrapping many Navy ships, does not have enough money to meet its obligations.

Before the Navy pilot program called Ship Disposal Project (SDP) started in 1999, the scrapping of conventionally powered warships was contracted out, via the Defense Reutilization and Marketing Service, said Capt. Lawrence M. Jones Jr., Naval Sea Systems Command (NAVSEA) inactive ships program manager. Companies would pay DMRS for the scrapping rights, but had to cover other costs, such as facilities, dismantling and environmental compliance, out of the revenue generated from the scrap and reusable equipment.

"This process encountered a number of problems, including defaulted contracts, and had not been successful in reducing the backlog of inactive ships in the Navy's inventory," Jones said.

A 1998 series in the Baltimore Sun disclosed that the Defense Department was turning over ships to a number of scrapping firms that were not financially sound and had been charged with crimes such as, fraud, bribing of government inspectors and failure to comply with environmental and safety regulations.

To address the problem, the Navy developed the SDP, "to investigate other options that could expedite the removal of inactive Navy ships in a cost effective and timely manner, while remaining in compliance with all environmental and safety laws," said Jones.

Now, the Navy is paying to scrap these ships and is overseeing the process, rather than selling the ships to the scrapping companies, he added. NAVSEA awarded contracts to four companies, on the East and West Coast, in 1999. Contractors for the pilot program were selected based on technical and cost proposals presented to the government. However, Jones said, the technical factors were significantly more important than the cost. In fiscal 2000, the program's budget was approximately $33.4 million.

So far, the Ship Disposal Project has successfully scrapped six ships with another 12 ships currently under contract, explained Jones. The Navy projects that another 27 inactive warships will need to be dismantled through 2007. The Navy requested $14.1 million for 2001, but the money has not been appropriated yet. The president's budget for 2002 requested $16.8 million for the program.

Meanwhile, the Transportation Department's Maritime Administration (MARAD)--which owns a fleet of cargo ships and vessels that could be used in war and other emergencies--also takes custody of various non-combatant Navy ships. The Navy transfers title control of certain unwanted ships to MARAD and the administration takes custodial responsibility.

Under statutory law, MARAD will have to dispose of 150 ships by 2006, said a Department of Transportation official, who spoke to National Defense under condition of anonymity. For fiscal year 2001, MARAD has contracted out five of the ships in the most critical condition. This leaves them with approximately another 35 ships in need of immediate action.

"They have the same disposal need as we do," said Jones.

So far this year, MARAD has spent its entire $10 million budget, said the DOT official. Initially, the money was allocated to both MARAD and the Navy, but because MARAD had ships in worse environmental condition, it received all the money. For fiscal year 2002, President Bush has requested another $10 million for MARAD alone, but the funds have not yet been approved in Congress.

"Because of the fiscal constraints we are under, it is going to be difficult to scrap all the ships without exceeding the budget unless potential alternatives prove viable," said the official.

MARAD used to sell its ships to overseas companies, mostly in Asia, until 1994. But after that, the EPA objected to the high levels of Polychlorinated Biphenyls (PCBs) present in the ships, the official explained. "This effectively prevents us from exporting PCBs without some approvals or protocols and so we stopped our sales program.

For domestic companies, the ship-scrapping business was not profitable. While the Navy had already introduced its pilot program, MARAD was still trying to sell ships to domestic companies. "It really got nowhere," said the official.

Like the Navy, MARAD now also contracts out its work. "Fundamentally, it is the same system," said Jones. "Since they have a lot of our ships and also their own, we are working with them to standardize procedures."

"We don't have a lot of clarity about what we would do in the long-term," said the official. "We haven't closed the door on any option."

According to the official, MARAD does not exclude sending ships to Asian shipyards, but does not know yet how to proceed. Because of statutory restriction, the vessels would need to be free of PCBs and MARAD would need to get approval from EPA to export the ships.

"We don't have that right now," the official said. "Countries would not want our vessels once they decided they had PCBs." The U.S. government has not signed the Basel Convention, which bans exports of hazardous waste. However, the official said MARAD is following the tenets of the convention. "The notion of scrapping foreign [outside of the United States] will not happen without international agreement," the official said. "We've got a pretty big problem that we have to deal with."

However, the official added, "We are better off today than we were before." If Congress approves the funding request, MARAD will receive about $10 million. The average cost of custody for a ship assigned to be decommissioned is $25,000 per year. MARAD is expecting to get more ships from the Navy each year.

The four companies that won the contracts from the Navy and are also working on MARAD ships are Baltimore Marine Industries Inc.; Metro Machine Corp., Philadelphia; International Shipbreaking Ltd., Brownsville, Texas; Ship Dismantling and Recycling Venture of VSE Corp., Alexandria, Va., together with Earth Tech Inc. at Hunters Point, San Francisco.

Jones said the Navy does not plan to solicit any additional contractors. The contracts were awarded over a five-year period. Until 2004, only these four companies will be competing to scrap the ships.

Yard Supervisors

The Navy has two employees from its Supervisor of Shipbuilding, Conversion and Repair organization on-site fulltime at each yard. One is a project manager, and the other is an environmental and safety specialist, Jones explained.

Baltimore Marine Industries began to compete for the contracts two years ago once an organized process was in place, said Hank Jones, vice president for technology and engineering. Now, the company is working on scrapping the last seven wooden mine sweepers on the East Coast.

Failure to heed worker-safety standards had been a problem at most of the scrap yards doing Navy work since 1991. It was reported that the employees were pressured to work fast, because the only way to make money for the companies was to sell as much steel as possible.

International Shipbreaking Ltd. (ISL), one of the companies that received contracts under the pilot program, had been under scrutiny for workers' injuries.

The company has "substantially improved its processes since being awarded a Navy Ship Disposal project contract as noted in the Navy's December 2000 report to Congress," said Jones. That report is classified.

"We have developed methods and teams of people and trained them, and they have more than the usual safety gear, safety glasses and gloves [...] everybody is in uniform," said Bill Chambers, ISL's chief operating officer.

"People will work safely if they are properly taught," said Chambers. "It's like a ball team. You can have a good one or a bad one."

He said the Navy was very concerned about awarding them the contract. "But then we turned out to be the best," he said. With the change in management, he added, the business practices have improved.

"I have been around ships all my life," Chambers said. "Shipyards have the tendency to have accidents by the nature of the job. The trick is to be ever vigilant."

Because it has a Navy contract, the company gets to scrap the ships the "Navy way," as Chambers put it. "We (Navy are not driven by production." Currently, ISL is working on a Navy ship and a Maritime Administration vessel. For the average ship, it takes about 25 weeks to finish the job and the average contract amounts to $2.5 million.

He explained that crews clean the vessels before they cut them. They strip them of all equipment and wires. ISL has 35 employees who deal solely with asbestos. Last year, they handled 100,000 pounds of asbestos. The asbestos has its own path in a landfill, said Chambers.

Mercury has become recyclable material. From one ship, the company removed 16 pounds of mercury, Chambers recalled. ISL has its own aluminum smelter as well. During the work, the ship is used as a container, just like a bathtub, Chambers explained, so that rainwater, for example, stays inside the ship.

Metro Machine in Philadelphia performs a similar process. After the removal of PCBs, asbestos and other hazardous materials, instead of cutting pieces at deck level, the workers cut them half-way up, to create a safety rail, explained John Strem, vice president of Metro Machine. He said that the company has introduced many safety programs and training sessions. Every morning, the workers receive a ship briefing. Respirators are mandatory at the site.

Metro Machine is a ship-repair yard. Strem said the company introduced specialized processes, to handle ship-breaking work. The yard is working on scrapping its third and fourth ship since the pilot program started.

"We move it relatively quickly, so that we don't become a storage facility," said Strem. "It's not something you stick in the corner for six months."

Company officials regularly meet with Navy supervisors. "They monitor what we do. We don't have any problems working with them at all," said Strem. "As long as you are complying with the rules, there is nothing to be concerned about."

In the past, he said, because the Navy sold the inactive ships to companies at a low cost, the companies started losing money, cutting corners, hurting people and breaking laws. He said the Navy eventually realized that, "Gee, it actually costs money to dispose of ships. Now, there is more burden put on the owner of the vessel."

"This is very dangerous work. If you do not put control into place, you can hurt people," said James Knowlton of VSE and the Ship Remediation Joint Venture. "We are nor hiding anything in the dark of night." He said the company is in full compliance with Occupational Safety and Health Administration and EPA regulations. The firm monitors workers' health, checking their blood levels for lead poisoning.

At the end of September, VSE was scheduled to finish the fourth Navy ship. Knowlton said the company received about $12 million worth of ship-breaking contracts.

Knowlton said that he believes that the biggest problem for the Navy is to keep the work throughput to make it cost effective.

"There is not a lot of money [in the ship scrapping] business," said Strem. 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 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. According to Strem, Metro Machine could scrap about seven ships a year, but it is pacing the work from six to eight months per ship, to keep a steady workflow.

"There are more than enough ships, but the problem is the funding," said Chambers. "Politics will override the environmental and safety considerations involved."

The Navy's plan to reduce its inactive ship inventory does not rely only on ship scrapping. It plans to reduce its fleet by selling ships to foreign navies, by authorized sinking at sea and by donating vessels to qualifying non-profit organizations to use them as museums.