Article

The dynamics of fleet size and shipping profitability: the role of steel-scrap prices

Authors:
  • Deree College,the American College of Greece
  • Lancaster University, Management School, UK
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Abstract

We discover that in each shipping segment the price of scrap, earnings, and the fleet size are jointly determined. Deploying a Vector Error Correction model, we find that international steel-scrap prices explain ship scrap prices, but the price of nickel, crude oil, and seaborne trade have an even higher positive explanatory power on them. This dependence is mainly attributed to the economic nature of the major ship-breaking countries: they are all emerging economies, heavily relying on steel as well as nickel in their development process.

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... As a result, the demand-side is currently concentrated on South-Asia (i.e., Bangladesh, India and Pakistan) and Turkey. In 2019, Bangladesh represented 60% of the global ship-recycling market (SAJ, 2021), to the extent of their ship-scrap/offer price determining the global freight rate and ship investment (Andrikopoulos et al., 2020). Demand for end-of-life ships in South-Asia is driven by the local need for melting steel-scrap (Kagkarakis et al., 2016), and facilitated by open-beaching friendly sea-shore and abundant cheap labour (Hiremath et al., 2016). ...
... Lastly, Cluster C3 largely comprises conceptual/position papers which have provided general overviews of the environmental impacts from ship-recycling, as described in Cluster C1 and C2. Notably, it is General - (Andrikopoulos et al., 2020;Chatzinikolaou and Ventikos, 2015;Choi et al., 2016;Devault et al., 2017;Girgin et al., 2018;Kagkarakis et al., 2016;Knapp et al., 2008) Brazil China - (Du et al., 2018;Yan et al., 2018) argued that addressing environmental sustainability in practice will require regulatory implementation, for example, by policing proper waste management processes in the recycling facilities and subsequent disposal in the TSDFs (treatment, storage and disposal facilities) (Hiremath et al., 2016). Furthermore, interviewing the Norwegian ship-owners, Schøyen et al. (2017) found that substantial financial gains in substandard recycling and inferior infrastructure in the Asian dismantling facilities are considered as the root of sustainability challenges in this sector. ...
... An ongoing and growing line of research concentrated on the micro-level (Cluster B2 and C2), which typically emphasized the negative impacts of the sectorfor instance, impairing the immediate natural surroundings (Deshpande et al., 2013), and, causing socio-economic (Demaria, 2010) and health-related (Courtice et al., 2011;Deshpande et al., 2012) problems of the ship-recycling workers in the developing world. The other line of studies (2015 onwards), in contrast, adopted the meso and macro level perspectives (Cluster A1, A2, B1 and C1) and frequently made the case for more positive aspects of the sector, for example, reduction of global environmental emission for steel production (Ko and Gantner, 2016;Rahman and Kim, 2020), addressing the sectoral social and OHS problems through organisational (Mitra et al., 2020) and collective actions by the workers (Balasubramanian and Sarkar, 2020), supporting the local industrial ecology through circular usage of recovered material (Rahman et al., 2021), and, maintaining the dynamic balance among the four global shipping markets (Andrikopoulos et al., 2020). Taken together, the industry can be considered as largely contributing towards global sustainability when national/regional and industrial aspects are considered. ...
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Resource recovery industries play a significant role in global sustainable development. Although existing reviews have been undertaken on how such sectors address sustainability, these tend not to consider the interconnections among sustainability dimensions in the macro (national/regional, international), meso (industry) and micro (firm/operation) levels of analysis. Taking ship-recycling as a focal resource recovery industry, this systematic literature review of 286 studies provides a holistic synthesis of six sustainability dimensions, producing a taxonomy of three sustainability challenge (environmental, social and economic) and three enabler (law and policy, technology and management) themes. Studies have to date focused on identifying the challenges, typically in a mono-dimensional manner, with less attention paid to developing enabling solutions. Across the challenge dimensions, sustainability is better regarded at the macro and meso levels of analysis, while remaining challenged and less understood at the micro level operations. Thus, the industry in its current state has been argued to face a ‘multi-level sustainability paradox’. Of the enabler themes, the law and policy investigations in ship-recycling predominantly addressed the macro-level issues in analysing the deficiency of current regulatory mechanisms and offering future ones. Conversely, the comparatively scarce studies on developing technological and management enablers have addressed the micro-level issues more to create environmentally and socially sustainable ship-recycling practices. This review concludes with suggestions for future research that considers a systems view to demonstrate how the sustainability challenges and enablers in ship-recycling are interconnected across various dimensions and levels of analysis – and form self-reinforcing vicious cycles which are more readily addressable through management enablers.
... To improve the profitability and efficiency of cargo transportation, shipping costs must be reduced. Moreover, the sustainability of the transport business is related to profitability and demand, which are influenced by reduced operating costs [2]. Currently, fuel cost is the biggest contributor to the overall operating costs of the shipping industry [3]. ...
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