Home ›› 10 Apr 2023 ›› Editorial
The shipbreaking industry in Bangladesh has been facing a multitude of challenges for several years now. The country is currently one of the world's largest shipbreaking destinations, with a significant portion of the industry centred in the coastal town of Chattogram. However, the industry has been facing a range of challenges, from environmental and safety concerns to labour rights violations and economic hurdles.
The latest hurdle comes in the form of Letters of Credit (LC) issued by banks, which have caused a severe shortage of working capital and hampering raw material imports.
Environmental hazards are one of the most significant challenges that the industry faces. The process of breaking down ships involves the use of dangerous chemicals and materials that can contaminate the air, soil, and water in and around the shipbreaking yards. The industry has been accused of polluting the surrounding environment and exposing workers to hazardous working conditions.
However, the industry has been plagued with various issues, including safety concerns, environmental hazards, and labour rights violations. Despite the implementation of safety and environmental regulations, the industry has failed to improve its safety and environmental record.
A recent report published at The Business Post revealed that the Bangladesh’s shipbreaking industry in dire straits amid LC hurdles.
Bangladesh ranks first in the global shipbreaking industry, but stakeholders are worried that the country may lose the position as letter of credit (LC) opening complexities are hampering raw material imports.
Import sector expenditures fell by 22.5 per cent in the first six months of FY23, but still many small and large factories, including shipbreaking, were closed as they could not open LCs due to the strict measures taken by the Bangladesh Bank.
There are more than 160 shipbreaking yards in Chattogram, but only 35-40 are now operational and the rest are closed. This has resulted in many job losses while many more workers are at risk.
Scrap ship prices in the international market are on the rise amid the dollar crisis in Bangladesh. In this situation, the Bangladesh Bank has directed banks to open LCs within $520 per tonne. But in the international market, depending on type and quality, the average scrap ship prices are $580 per tonne.
The LC is a crucial financial instrument used in international trade to ensure payment between the importer and exporter. However, due to a lack of trust and transparency in the shipbreaking industry, many banks have become hesitant to issue LCs for shipbreaking transactions.
The shortage of LCs has caused a severe liquidity crisis in the industry, making it challenging for shipbreakers to procure working capital to continue their operations. This, in turn, has resulted in the suspension of many shipbreaking activities, causing significant losses to the industry.
It is crucial for the government of Bangladesh to step in and address the issue of LCs. The government must take proactive measures to improve the transparency and accountability of the shipbreaking industry. It must also work with banks to create a system that ensures the safe and sustainable dismantling of ships and encourages banks to issue LCs for legitimate shipbreaking transactions.
The government must take stringent action against shipbreaking yards that violate safety and environmental regulations and labour rights. By doing so, it can improve the reputation of the industry and restore the trust of banks and other stakeholders.
The shipbreaking industry in Bangladesh is in dire straits, and the issue of LCs has only exacerbated the industry's challenges. It is time for the government to take proactive measures to address these issues and ensure the sustainable growth of the industry.
