MEMORANDUM — KALINGA MARINE BREAKING YARD
To: The Board and the U.S. Treasury Sanctions Compliance Desk
From: Sterling A. Varice
Re: distressed tonnage, and a revised standard for what we do not buy.
Nirmala is a 31-year-old cutter at the shipbreaking yard I own outside Paradip on India’s east coast, and I intend to turn sanctions on Iran’s shadow fleet into cheaper steel and more work for her to cut. The rebar in your building came off a hull she torched. The slab under your parking garage came from the same hull. You paid for both without asking who cut it, and I keep $3.19 a ton in a line called booth ventilation and respirators. I could have afforded them. I didn’t. Miad Maleki’s Wall Street Journal op-ed, “A Buyout for Iran’s ‘Shadow Fleet’” argues that Washington should let sanctioned tankers change hands case by case so legitimate operators can return them to the Strait of Hormuz while sanctions push the oldest out of commercial shipping. I want the scrap. God sanctions the harsh master in 1 Peter 2:18.
Treasury sanctioned 17 of those vessels on Oct. 8. About 160 supertankers now sit under U.S. sanctions. Only about 24 could rejoin mainstream commercial shipping. The rest are what my yard calls paper.
Paper is a hull without insurance, registry, finance, or a lawful buyer. Its only market is the beach.
You want buyers. I own the junkyard at the other end. The hard part is behind you. You have already paid for most of it. I have only the easy arithmetic left.
Let me make this easy to follow. You’re trying to do enforcement and procurement in the same breath, so I’ll show you where they meet. Keep the order of the rates in mind; the rest is arithmetic.
Sanctions rarely make an owner quit. They drive the owner toward customers willing to carry the risk. Your exit creates my input.
War-risk insurance in the Strait costs 7.5% to 10% of a hull’s value. At those premiums, age is cheap.
A supertanker on that route can rent for $1.3 million a day. That rate makes delay expensive.
The oldest hull is the cheapest ship to risk. The arithmetic says it. My purchase order signs it.
Here is my request, and I’ll be exact about it. Give me a general license for sanctioned tonnage sold for breaking. 1 form. A case-by-case delisting after transfer. A letter to the flag state saying that the steel is not the ship. I’ll pay the fee. I’ll take the inspection. I’ll keep the file.
2 container ships have already come off the list after changing hands. A ship that changes hands is a ship you must keep talking about.
The license is revenue. The file is overhead. What I won’t buy is a respirator.
The respirator stays in the supply cage. The invoice never mentions it.
Let me put the costs where you can see them. Here’s the schedule.
| Line | Amount | Status |
|---|---|---|
| Recovered rebar, 12,000 tons at $120 a ton | $1,440,000 | sold |
| Hull acquired, sanctions-distressed, uninsurable | $1,401,720 | bought |
| Booth local exhaust and respirators, allocated over 12,000 tons | $38,280 | declined |
| Margin retained | $38,280 | mine |
Look at the fourth line.
Then look at the third.
They’re the same money.
One of them is a respirator. I book one.
The last hull came alongside on a Tuesday. Her owner couldn’t get insurance for her, so he couldn’t get a charter, so he couldn’t get a crew willing to sign her name, so he sold her to me for $1,401,720. Sanctions did the first of that. I did the last. Hold those 2 facts together, because everything after this is arithmetic.
Nirmala asked for the respirator in March. I told her the allocation: $3.19 a ton. She went back to the torch without asking again.
Nirmala is paid $6.40 an hour. On the older hulls the paint can carry lead and the insulation can carry asbestos. Her cough starts before lunch. The slag burns her forearms. She dresses the burn at the gate, before the bus.
Her cough cost me nothing. What it costs her over a year is not a line I keep, and I wouldn’t know where to put it if it were.
Now move from Paradip to Alang, because the law does not change merely because the body does. Bishnu is a torch-hand at the breaking pad I own outside Alang. He came because his village had no work. Nirmala cuts plates; Bishnu cuts hulls. Same law, different yard: both are paid by the ton, and the air stays outside the ledger.
Bishnu cuts at the hull with an oxy-fuel torch. Call him a cutter. The honest phrase is a man without a respirator whose hands split in the salt. I don’t need the honest phrase at dinner, so I say cutter.
I entered his hours. The form asked whether he could lift. It didn’t ask whether he could breathe.
His pay is by the ton. I pay the ton, and the ton doesn’t care about his face. His cough doesn’t stop the torch. I don’t slow the cut.
One plate lower, Sakina is a tank-hand in the double bottom of a hull I own, where fumes gather and nobody can reach her alone. She’s faster than the other cutters, so I keep her. I do not buy a gas tester.
When she coughs, I write “break” in the attendance column. When she returns, I write “present.” Both are true. Neither says what happened inside the tank.
The arithmetic isn’t particular to the sea. Ilse is a 44-year-old presser at the dry-cleaning shop I own outside Reno. Nirmala cuts plates; Ilse presses shirts. I decline the closed-loop reclaim for the perchloroethylene because it costs $0.41 a garment. Her headache starts before lunch. I keep the 41¢. The shirt on your hanger arrives without a stain, and Ilse’s headache stays at the shop.
Here is the system. A sanction doesn’t erase a market. It drives the market toward the edge, where there is no insurance, no registry, no bank, and no lawful exit. The vessel leaves legitimate trade before the worker leaves the hull. Then the law of the terminal hull takes over: if the owner can’t insure, register, bank, or sell, the hull becomes raw material. The owner becomes a buyer of empty berths. The cutter becomes a cost.
The policy has handed me a pipeline. Every week the blockade ages another hull out of the insurance market, and every week the owner has 1 fewer reason to keep her. Maleki’s gate is irrelevant to my purchase order. I don’t need the fleet to trade legally. I need it to stop being insurable.
Here’s what the sanctions actually do. They don’t take a ship out of the water. They take it out of the insurance market, and a hull without insurance is a hull without a future. Washington thinks it’s closing a door on Iran’s trade. My purchase order says it’s discounting steel. Nobody has to be cruel for this to work. A sanctions officer files a list. A registry renews a certificate. My yard sends an invoice. Everybody only has to do what their office permits.
That law is older than maritime law. Deuteronomy 15:13 put a border around ownership. Cato gave the disposal schedule.
“Sell the worn-out oxen, the blemished cattle, the blemished sheep, the wool, the hides, the old wagon, the old iron tools, the old slave, the sickly slave, and whatever else is superfluous.”
— Cato the Elder, De agri cultura, in the usual English rendering
Cato needed no fleet, no bank, and no board. He put the old wagon and the sickly slave in 1 line because 1 rule covered both: stop paying for an asset once its upkeep exceeds its yield. I have the same rule and better logistics. The sanctions price the asset. Nirmala absorbs the upkeep I never budgeted.
My pad sits on the wrong side of that border because I priced the crossing. The fleet is new. The rule is not.
Every tanker you legalize takes a crew away from my beach. The yards won’t have enough cutters. My tea is still hot.
The order book is full. The board is quiet. I eat well.
Route the inspection forms to my compliance desk. Your rebar will be in the slab before anyone asks for Bishnu’s respirator.
At 6:40, Nirmala is on the plates. The torch is hot. The hull is older than she is. Another plate goes onto the slab, and it will be in your city in 9 days.
Your parking garage gets the slab.
The rebar in your building came off her torch.
Nirmala gets the torch because I own the yard.
Sterling A. Varice holds the Hayek-Friedman Chair and serves as Dean of Instruction at Warden University’s College of Business and Economics in Richmond, Virginia. He is the author of three textbooks: Divine Mandates for Labor Utilization, Social Obligations for Profit Maximization, and Calibrated Deprivation: A Manager’s Guide to Employee Motivation.