International Shipbreaking Ltd. L.L.C. Business Information, Profile, and History

History of International Shipbreaking Ltd. L.L.C.

International Shipbreaking Ltd. L.L.C. (ISL) is a Brownsville, Texas, company that dismantles obsolete maritime vessels and equipment for recycling. Privately owned, ISL is the largest and most technically advanced of the handful of companies providing shipbreaking services. Its 43-acre yard is able to accommodate vessels as long as 1,000 feet and as wide as 140 feet, and can handle as many as nine vessels at one time. While the competition continues to rely on welding torches to carve out portions of a ship, ISL uses metal shears. It also uses an on-board smelter to melt aluminum, rather than haul the material away in unwieldy and dangerous pieces. Dangerous substances such as PCBs and asbestos are removed by the company's own trucks, unlike other shipbreakers that contract out the work. Taking apart a vessel is a painstaking process. After all dangerous toxins are removed by workers wearing biohazard suits, scores of cutters using torches and shears whittle down the superstructure, and the pieces are removed by cranes using large magnets. The resulting gutted hull, called the "canoe" in the business, is removed from the water, and carved up, and the scrap metal is sold all over the world to recycling mills. Over the years, the industry has come under fire for dangerous work conditions, which resulted in a number of worker deaths, and the reckless handling of hazardous materials. ISL is in the forefront of improving shipbreaking practices and improving the industry's image. Any diesel fuel recovered in vessels is properly recycled, freshly cleaned jumpsuits are issued to workers each day, and management makes sure that water supplemented with electrolytes is available to keep workers hydrated.

World War II-Era Ships Fueling Shipbreaking Industry

The United States turned out hundreds of vessels of all types to support the war effort of the Allies during World War II. When the conflict ended many of the yards that built these ships began scrapping them. More than 2,200 ships were retained to make up the U.S. National Defense Reserve Fleet, which was docked at a dozen harbors. Over the years the country would occasionally find uses for the ships. From 1955 to 1964 the Department of Agriculture stored grain on 600 of them, and also in the 1950s, when the Suez Canal was temporarily closed, the government activated 19 tankers and 223 cargo ships to alleviate the problems caused by shipping delays. During the 1960s, 18 ships returned to service during the 1961 crisis in Berlin. The Soviet Union had attempted to cut off the Western-controlled section of Berlin from the outside world, forcing the United States and its allies to resupply the beleaguered city through the air, an effort that required maritime support. In addition, during the Vietnam War the United States brought 172 ships back into military service. During the 1970s a large number of merchant vessels in the Reserve Fleet reached retirement age, which led to the rise in the number of shipbreaking companies, half a dozen of which were located in Brownsville. This supply of scrap lasted until the mid-1980s, when shipbreaking activities slowed dramatically. Hundreds of World War II-era vessels still remained, rusting in ports around the country, now less a Reserve Fleet than a ghost fleet. With the fall of the Soviet Union and the end of the Cold War, the U.S. Government made more ships available for recycling in 1991, which led to a resurgence in shipbreaking.

Founding the Company in the Mid-1990s

International Shipbreaking was established in Brownsville in 1995 by New Yorker Kevin McCabe and two partners. A city of 100,000, Brownsville was an attractive site for shipbreaking for a number of reasons. It was situated near an artificial deepwater channel, built in 1934, that led 17 miles from the Rio Grande to the Gulf of Mexico and was home to many of the vessels that comprised the ghost fleet. The port's proximity to the Mexican border gave it ready access to cheap, unsophisticated immigrant labor and to the railways that led to southern U.S. and Mexican mills, major customers for scrap steel. Brownsville's moderate climate allowed for year-round operation and its isolation, which made it ideal to bring illegal drugs and laundered money into the United States, also shielded shipbreakers from regulatory interference. In the words of a Pulitzer Prize-winning series published by the Baltimore Sun in 1997, "A businessman got left alone in Brownsville. It's a long way across wide-open, flat scrubland to the rest of Texas. State environmental regulators don't find their way down from Austin very often. The official in charge of PCB enforcement for the Environmental Protection Agency is based in Dallas, several hundred miles away, and went years without coming here. The two-man office of the Occupational Safety and Health Administration, responsible for all of south Texas, is a three-hour drive away, in Corpus Christi."

McCabe left a job with a New York City securities company to become involved in shipbreaking. He and his partners raised $2 million to enter the business, supplemented by nearly $500,000 in incentives and loan guarantees provided by the Brownsville Economic Development Council. It was a capital-intensive business, requiring money not only for an initial outlay for equipment, but also to purchase vessels to dismantle, procure insurance, and pay towing costs. In October 1995 ISL became operational after landing its first decommissioning project with the U.S. Navy, a job dismantling two aging tankers, The Yukon and the U.S.S. Marias. ISL was only one of seven companies certified by the Defense Department to do this kind of work. With about 80 employees the company first took apart the Yukon, which provided 6,900 tons of scrap steel, 75 tons of nonferrous metals, and 200 tons of reusable items such as generators, engines, winches, tubing, and even doors, chairs, refrigerators, and copy machines. Only a handful of items from the Yukon, and later the Marias, were sold for their nostalgic value, but that would change with ISL's third project, dismantling the U.S.S. Iwo Jima. This aircraft carrier had served during the Vietnam War and in 1970 retrieved the three astronauts of the ill-fated Apollo 13 mission that limped home from the moon after its craft was damaged. The Texas Air Museum raised the money to purchase the entire bridge and island (the section of the carrier above the main deck) of the Iwo Jima. ISL first tried, in the summer of 1996, to remove the section using a crane, but finally had to resort to cutting the unit into 16 sections, which were then shipped and reassembled at the museum's grounds in Rio Hondo, Texas.

ISL started strongly, building its workforce to 170 in 1997, but then fortunes began to change. Scrap steel prices that peaked at $145 a ton began a two-year slide, bottoming out in 1999 at $70 a ton. But perhaps even more problematic was the adverse publicity that ISL and the entire shipbreaking industry received upon the publication of the Baltimore Sun investigative series. ISL was spotlighted, as the newspaper chronicled the death of one immigrant worker, 43-year-old Raul Mendoza. According to writers Will Englund and Gary Cohn, Mendoza was paid $250 a week but his family said he had to kick back $50 to the yard superintendent. On the money that remained he supported his family in Brownsville and helped his parents in Mexico. In December 1995 he was working in the dark, below deck, on the Yukon without a safety harness, attempting to drain water by cutting a hole in a compartment. He decided to cut a second hole on the other side of the tank, but when he walked over a beam he disappeared in the dark. All his partner heard was a scream. Mendoza suffered a broken pelvis, a lacerated leg, and internal bleeding. He died two days later.

ISL maintained that it had a substantial safety program, but to make matters worse, in December 1996, as the Sun series was being researched, another worker, 59-year-old Maximino Chavez, was killed. He was walking across the noisy yard when a cutter was torching through a bulkhead of the Iwo Jima. A one-ton section of iron fell to the ground and struck Chavez in the head. He died in the hospital several hours later. The company was faulted for not using braces to hold debris in place. The Sun also pointed out the practice of ISL workers who burned the PCB insulation off electrical cables rather than properly dispose of the hazardous material in a designated landfill. Aside from exposure to PCBs, workers were exposed to asbestos dust without the benefit of protection.

But ISL was not alone among shipbreakers to be scrutinized by the newspaper. The entire industry received scathing treatment, with a number of other incidents reported: fires, pollution, and accidents in Baltimore; the death of a worker without a safety harness in Chesapeake, Virginia; the exposure of workers in Richmond, Virginia, to lead, cadmium, and copper fumes; the death of one worker and another badly burned in accidents that occurred in Wilmington, North Carolina; major safety violations at Quonset Point, Rhode Island; workers exposed to asbestos in Terminal Island, California, and told to lie to government regulators; toxic substances dumped into San Francisco Bay by an area yard; and also in Brownsville, the explosion of a 30-foot oxygen tank in another shipbreaking yard. The adverse publicity led to the convening of a Defense Department review panel, which would recommend increased government oversight and lead to Congress establishing a Ship Disposal Project in the Navy to revisit the decommissioning process.

Industry Crippled in the Late 1990s

Because of a bad reputation and poor scrap steel prices, the shipbreaking industry was all but ruined by 1998. From 1997 to 1999, ISL lost more than $3 million. Along the way, one of McCabe's partners pulled out. The company was on the verge of bankruptcy when McCabe renewed his commitment to the venture, investing another $2.25 million. While others in the industry were retrenching, he was buying another 16 acres of land and adding high-tech equipment including giant metal shears that worked much faster than welding torches and reduced labor costs. The company also acquired high-temperature smelters to melt aluminum on the decks of ships being dismantled.

Prospects began to improve in September 1999 when the Navy launched a pilot program to safely scrap ships in the United States. ISL was one of four out of 15 applicants to be awarded a contract. The project, to scrap the U.S.S. Bagley, was worth $1.81 million. ISL was the only one of the shipbreakers actively involved at the time in dismantling operations: three ships for the Navy and another for the U.S. Maritime Administration, an arm of the transportation department.

Good news continued for the company in 2001 when Congress passed legislation mandating that the 130-vessel ghost fleet be dismantled by 2006. Over the next three years the Maritime Administration spent $41 million on the project, of which more than $5 million went to ISL, the largest amount received by any shipbreaking firm. Indeed, by 2004 ISL emerged as the industry leader, the most technologically advanced company, offering much improved safety conditions and environmentally sound practices. It was well positioned to take full advantage of the opportunities presented by the ghost fleet, which would see another 45 ships added to its ranks in the next few years.

Although shipbreakers depended heavily on government contracts, there was also the possibility of increased private-sector work due to the phasing out of single-hulled tankers by the oil industry. In 2002, ISL generated some $8 million in revenues, and in 2004 the company was expected to do $40 million in business. There were some caveats, however. The Maritime Administration's budget was cut in half in 2004, from $31 million to $16.2 million. Well aware that the government was not a guaranteed revenue stream, McCabe told Fortune Small Business in October 2004 that "on years" and "off years" were to be expected. "We're not going for home runs," he explained. "Think of it as a single game."

Principal Competitors: Baltimore Marine Industries Inc.; Earl Industries, L.L.C.; Gulf Copper Ship Repair, Inc.; Todd Shipyards Corporation.

Chronology

• Key Dates:
• 1995: The company is formed.
• 1997: The shipbreaking industry is rocked by investigative newspaper reports.
• 1999: The company is awarded a contract in a pilot program.
• 2001: Congress mandates the dismantling of the "Ghost Fleet."