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a major locational advantage. But as the patterns of trade change yards may lose such advantage. The most critical issues in ship repair pricing are the cost of labor, which generally represent about 70 percent of a yard's total expenditure, and the productivity of that labor. Developing countries which consider entering the ship repair business--in the expectation that rising labor cost in yards of the industrialized countries may induce further shifts towards low wage countries--will succeed only if high productivity levels can be assured.

75. If the 1990s are to be the decade in which quality is to be restored to a position of pre-eminence in shipping, then price will play a lesser role in determining repa, workload distribution, whereas technical standards assume increasing significance. All major ship repair regions can expect an incredse in their total workload during the next five years, with the largest rises forecast for the countries of Southeast Asia. But the extent to which this will materialize will depend on the availability of sufficient capacity and labor. Furthermore, the yards around the Arabian Gulf can expect to gain further market shares. The regions which are forecast to experience more erosion of their market share are Southern Europe and the Far East.

76. In contrast to ship repair, ship upgrading and conversion are concentrated in a few leading yards which have developed expertise and reputation in particular market niches. Contract values are usually high. Unlike repair, much of the cost in upgrading and conversion activities is accounted for by equipment, like a new main propulsion unit in re-engining, and materials, such as steel for vessel lengthening. With newbuilding prices remaining high and shipowners seeking to take advantage of improved trading prospects, the trend towards life extension of existing tonnage is likely to continue, which adds further impetus to ship upgrading and conversion demand. A sobering dimension of this demand is the fact that a total of some 3,500 high volume bulk carriers and tankers will face the third or fourth special surveys by the classification societies during the period 1993-96. There are indications that many of these vessels may undergo conversion during this process. On the basis of a nominal refurbishing time of two months per vessel, this would imply an average requirement of 120 berth per year. Taking the approximately 80 yards worldwide, capable of upgrading and conversion work on vessels of this size, with an average of 2.5 berths per yard, the maximum capacity is around 200 berths. By implication, such type of vessel conversion and classification repair work alone could occupy on average almost 60 percent of total available yard capacity for this market segment.

# C. The Demand for Tonnage Demolition

77. Shipbreaking was attractive during periods when steel pric-es were high and scrap could be used for quick conversion into material for a variety of purposes, such as concrete reinforcing bars. A very large crude carrier of about 200,000 dwt yields around 33,000 to 35,000 tons of steel scrap. Countries with limited or no indigenous iron ore sources found scrapping attractive during times of rapid growth and expanding construction activities. South Korea and Taiwan were prime examples. Both countries are dynamic steel exporters but poorly endowed with domestic iron ore and coal deposits. Hence, the foreign exchange cost of purchasing ships for scrapping could be directly offset by reduced feedstock imports and steel export earnings. But shipbreaking is very labor intensive, and as wages increased and the price of steel in the world market started to decline, these countries withdrew from shipbreaking.

78. Current shipbreaking activities are primarily concentrated in South Asia, although China has entered the market and holds prospects to expand into these activities much more rapidly than the other