Shipbuilding sector remains uncompetitive: U.S. government should take action to make the nation's shipyards more efficient. (Industrial Perspective).The U.S. shipbuilding industry Noun 1. shipbuilding industry - an industry that builds ships
industry - the people or companies engaged in a particular kind of commercial enterprise; "each industry has its own trade publications"
shipbuilder - a business that builds and repairs ships designs and builds sophisticated military vessels, yet remains uncompetitive in the commercial shipbuilding market. The major yards are unable to compete internationally due to the industrial policies, greater efficiency and lower labor rates in other countries.
The U.S. shipbuilding industry represents just 1 percent of the world market for ocean-going commercial vessels, a substantial portion of which is due to the Jones Act. This legislation requires that all vessels operating between U.S. ports be U.S. owned, U.S. operated and U.S. built.
The commercial outlook for U.S. shipbuilders is bleak. They are unable to compete on the global commercial market due to high material and labor costs as well as lower productivity. Labor costs are kept artificially high by continued union resistance to employee cross-training and shipyard reluctance to invest in automated production tooling. Second and third tier shipyards, meanwhile, continue to compete effectively in niche markets on both the domestic and global market.
To make the industry more competitive, the U.S. government should promote what U.S. shipyards do best-military vessels and small/medium commercial vessels. This will require further consolidation of the military industrial base and a stable procurement plan.
Role in U.S. Economy
More than 95 percent of U.S. imports and exports are transported by sea. At over $10 billion in annual revenues and nearly 100,000 employees, the shipbuilding industry plays a significant role in the U.S. economy. U.S. Navy procurement accounts for about 70 percent of the industry's revenue. The commercial side of the industry is less than half the size of the military, but has grown at a faster rate in the last five years. International business accounts for only about 1 or 2 percent of total revenues. However, the survival of the industry is hinged on improving production and management practices as well as increasing foreign sales.
Approximately 250 companies comprise the U.S. shipbuilding and repair industry. But just 10 percent of these firms account for 85 percent of the business. The six largest companies, grossing over a billion dollars annually, are often referred to as the "Big Six." They represent two-thirds of the overall shipbuilding/repair business and 90 percent of the defense work. (Editor's Note-the Big Six now are owned by just two companies: General Dynamics General Dynamics Corporation (NYSE: GD) is a defense conglomerate formed by mergers and divestitures, and as of 2006 it is the sixth largest defense contractor in the world. The company has changed markedly in the post-Cold War era of defense consolidation. owns Electric Boat, Bath Iron Works Bath Iron Works (BIW) is a shipyard located on the Kennebec River in Bath, Maine. Since its foundation in 1884 by Thomas W. Hyde, Bath Iron Works has built private, commercial and military vessels. and National Steel and Shipbuilding Co. The Northrop Grumman Northrop Grumman Corporation (NYSE: NOC) is an aerospace and defense conglomerate that is the result of the 1994 purchase of Grumman by Northrop. The company is the third largest defense contractor for the U.S. Corp. owns Newport News Newport News, independent city (1990 pop. 170,045), SE Va., on the Virginia peninsula, at the mouth of the James River, off Hampton Roads, near Norfolk; inc. 1896. Shipbuilding, Ingalls and Avondale)
More than 100 of the smaller firms have annual revenues of less than $5 million and represent less than 2 percent of the industry's total revenues.
The Congress appropriates naval ship A naval ship is a ship (or sometimes boat, depending on classification) used for combat purposes, commonly by a navy. Naval ships are differentiated from civilian ships by construction and purpose. repair money each year to private shipyards and four publicly owned Publicly owned can refer to:
The Norfolk Naval Shipyard The Norfolk Naval Shipyard, often called the Norfolk Navy Yard, is a U.S. Navy facility in Portsmouth, Virginia, for building, remodeling, and repairing the Navy's ships. It's the oldest and largest industrial facility that belongs to the U.S. , located in Tidewater tidewater, in U.S. history, that part of the Atlantic coastal plain between the shoreline and the farthest upstream points in rivers reached by oceanic tides. In many cases the fall line is given as the western boundary. Virginia, employs over 6,700 people, while the yard in Pearl Harbor Pearl Harbor, land-locked harbor, on the southern coast of Oahu island, Hawaii, W of Honolulu; one of the largest and best natural harbors in the E Pacific Ocean. In the vicinity are many U.S. military installations, including the chief U.S. employs about 5,000. The Portsmouth Naval Shipyard This article is about Portsmouth Naval Shipyard. For Her Majesty's Naval Base Portsmouth, see HMNB Portsmouth.
The Portsmouth Naval Shipyard (PNS), often called the Portsmouth Navy Yard , which specializes in repair work for the Los Angeles-class nuclear submarine, is located in New Hampshire New Hampshire, one of the New England states of the NE United States. It is bordered by Massachusetts (S), Vermont, with the Connecticut R. forming the boundary (W), the Canadian province of Quebec (NW), and Maine and a short strip of the Atlantic Ocean (E). , and employs over 3,300 workers annually. The Puget Sound Puget Sound (py`jĕt), arm of the Pacific Ocean, NW Wash., connected with the Pacific by Juan de Fuca Strait, entered through the Admiralty Inlet and extending in two arms c. Naval Shipyard, in Washington State, employs 7,700 workers, giving it the status as the largest shipyard on the West Coast. In total, Navy repair yards currently employ about 22,700 workers, which combines both U.S. Navy personnel and civilian employees. The U.S. Coast Guard also has access to its own public facility for ship repair and construction. The Coast Guard yard at Curtis Bay, near Baltimore, has $60 million available for internal revenue and is a full service shipyard."
Even the most cursory cur·so·ry
Performed with haste and scant attention to detail: a cursory glance at the headlines.
[Late Latin curs review of world shipbuilding statistics and forecasts reveals a major cause of concern for the survivability sur·viv·a·ble
1. Capable of surviving: survivable organisms in a hostile environment.
2. That can be survived: a survivable, but very serious, illness. of America's shipbuilding industry. During the last two decades, world trade by sea has continually increased: 3.3 billion tons of cargo in 1980, to 4.3 billion tons in 1995, to a projected 5.5 billion tons in 2010.
Current levels of ship construction for the past few years and forecasts through 2010 are for 1,500 to 2,000 ships. The building of ships worldwide has increased every year for the last 10 years, or 137 percent from 1988 to 1998. At the same time, cargo vessel market shares have changed dramatically. Western Europe Western Europe
The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). has declined from 33 percent to 18 percent, while South Korea has increased from 1 percent to 29 percent. The largest share of the world total has been held by Japan at over 39 percent. Together, Japan and Korea hold two-thirds of the total world production.
Continued facility modernization and improved labor force productivity are required to compete. The results of increased productivity is readily apparent in Japan, where market share has been preserved, even though the $57 per hour wage rate far exceeds that of a $25 per hour in Europe and $15 per hour in Korea. The United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. suffers from high labor rates caused by low rates of productivity. Overseas shipyards build ships more efficiently and are able to keep material costs low due to volume production and efficient production processes.
The U.S. shipbuilding industry faces a number of challenges, including a changing U.S. Navy fleet, excess capacity, increased competition from non-traditional players, increased pace of technology insertion, funding fluctuations that challenge workforce retention, industry shortage of qualified technical resources and an aging workforce.
Changing Navy Fleet-The Navy acquisition budget for the past eight years has been insufficient to meet fleet replacement schedules. The build rate needs to double (to 12 ships per year) to sustain fleet size at 305 vessels.
The same situation, however, can be seen in a different light. A Navy report sent to Congress in June 2000 showed that construction rates within the 2001-2005 period (average 7.8 ships per year), combined with a similar rate through about 2012, can sustain between 305-315 ships. This report also shows that rates of 10-12 ships per year will be needed between 2013 and 2026 to sustain a 301 to 315-ship fleet.
The Deepwater acquisition program of the U.S. Coast Guard is scheduled to begin production in 2003. It could include as many as 40 new vessels and service life extensions of others, representing significant work for the industry.
Budget efficiencies can be achieved with stable, high rates of production using multiyear procurement appropriations.
Excess Capacity-Worldwide shipbuilding prices are at historically low levels. Attempts to strike a balance between excess capacity and preservation of the industrial base will be the focal point focal point
See focus. of discussion should a new round of base realignment and closures Base Realignment and Closure (or BRAC) is a process of the United States federal government directed at the administration and operation of the Armed Forces, used by the United States Department of Defense (DoD) and Congress to close excess military installations and realign (BRAC Brač (bräch), Ital. Brazza, island (1991 pop. 13,824), 152 sq mi (394 sq km), off the Dalmatian coast in the Adriatic Sea, Croatia. It is a popular summer resort and tourist spot. Supetar (Ital. ) be authorized by Congress.
Funding spikes-Unsteady and unpredictable government procurement Government procurement, also called public tendering, is the procurement of goods and services on behalf of a public authority, such as a government agency. With 10 to 15% of GDP in developed countries, and up to 20% in developing countries, government procurement accounts practices are forcing shipyards to compete based on short-term initiatives.
Funding uncertainty creates an unsteady work environment that causes skilled labor to seek employment in other industries.
Aging workforce--The current nationwide average age of shipyard production workers is 42.1 years, maritime professionals 43.5 years and administrative workers 45.1 years. This trend indicates that the shipbuilding industry is quickly reaching a crisis situation, as replacements are not readily available.
International dimension--The downturn in commercial shipbuilding orders and a dwindling dwin·dle
v. dwin·dled, dwin·dling, dwin·dles
To become gradually less until little remains.
To cause to dwindle. See Synonyms at decrease. U.S. Navy fleet have led to significant reductions in the shipbuilding industry workforce. The pressure to further reduce the workforce through mergers and downsizing (1) Converting mainframe and mini-based systems to client/server LANs.
(2) To reduce equipment and associated costs by switching to a less-expensive system.
(jargon) downsizing of the shipyards is being mounted in the hope that the industry will adopt policies that would make it competitive.
This approach may not yield the desired results without considering the requirements of the international customers. Because of this posture, the policy of restrictions on technology transfer to potential customers is implemented with the negative effect of driving such customers to European and Asian shipyards, where the technologies are made available to them. The restrictions on this type of technology transfer are inconsistent with globalization globalization
Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation trends.
The options available to the U.S. shipbuilding industry include taking advantage of opportunities available in emerging markets, such as in Africa, to engage the excess design and construction expertise, and relaxing restrictions on technology transfer in order to attract foreign acquisitions. In addition, U.S. ship designers would have to consider giving some attention to designs that meet foreign requirements rather than focusing on meeting U.S. requirements for which there will be no customers outside the United States.
Options are also available for U.S. shipbuilders taking on life-cycle support of naval ships to partner with repair facilities overseas. For example, the major shipyards in Singapore are world-class facilities with a robust skilled workforce. Their port infrastructure and third-tier supplier base is highly developed, making replacement parts easy to obtain. Although the U.S. government is not able to form long-term relationships with specific firms due to contracting restrictions, U.S. shipyards with responsibility for life-cycle maintenance of naval ships may be able to enter into strategic partnerships with these yards.
Excess capacity continues to cause industry instability. In particular, redundant capabilities in public and private shipyards warrant further consolidation or closure. Near exclusive reliance on Department of Defense contracts by private shipyards has stifled the required investment and innovation necessary to compete in the commercial markets.
However, with increased government support of foreign military sales That portion of United States security assistance authorized by the Foreign Assistance Act of 1961, as amended, and the Arms Export Control Act of 1976, as amended. This assistance differs from the Military Assistance Program and the International Military Education and Training Program , shipyards could make profitable use of their current excess capacity.
The U.S. government is responsible for supporting an adequate naval force and reserve shipping capacity for times of national emergency. Towards that end, two agencies have leading roles: the U.S. Navy for military vessels and the Maritime Administration (MARAD) for commercial interests.
MARAD needs to be committed to capitalizing on existing niches, vice attempting to salvage an entire industry replete re·plete
1. Abundantly supplied; abounding: a stream replete with trout; an apartment replete with Empire furniture.
2. Filled to satiation; gorged.
3. with inefficiencies and inabilities to compete on a global scale.
The "Big Six" shipyards collectively have up to 40 percent excess capacity. This capacity is expensive, and its associated maintenance costs are being absorbed by existing ship construction contracts.
Maintenance of that over-capacity has been accomplished through increased overhead charges from each of the major shipbuilders. The policy of competition for the purchase of naval vessels is no longer viable. The existing bilateral monopoly In a bilateral monopoly there is both monopoly (a single seller) and monopsony (a single buyer) in the same market.
A bilateral monopoly model is often used in situations where the switching costs of both sides are prohibitively high. must be recognized for what it is and steps must be taken to achieve cost savings through reduction of excess capacity. The government should give shipbuilders incentives to eliminate unnecessary redundancy and achieve greater efficiencies in construction and design.
In the commercial shipbuilding arena, the United States is simply not competitive in the construction of large vessels. Government subsidies, inexpensive labor and efficiencies of scale have enabled Asian shipbuilders to swallow up Verb 1. swallow up - enclose or envelop completely, as if by swallowing; "The huge waves swallowed the small boat and it sank shortly thereafter"
eat up, immerse, swallow, bury the large ship construction market. The United States is, however, competitive in the smaller inland and coastal vessel construction arenas. The U.S. government should pursue these niche markets. Currently, only three of the Big Six shipbuilders are involved in the large commercial vessel ship construction business, with the Jones Act being the primary driver for this expensive market.
The United States cannot compete in the large-vessel market. Korea can sell a vessel for less than what domestic shipyards pay for materials.
The U.S. government should consider legislation that amends existing cabotage cab·o·tage
1. Trade or navigation in coastal waters.
2. The exclusive right of a country to operate the air traffic within its territory. laws to afford U.S. owners and operators the opportunity to buy foreign built vessels. To make this fair to those who may have recently entered the Jones Act fleet, this initiative would be phased in over a period of years, and a heavy tariff would be levied on owners pursuing foreign markets for Jones Act ships. Allowing U.S. owners to purchase foreign built vessels at a third of the cost of domestic shipyards is prudent and economically sound. Such an initiative would stimulate the purchase of more vessels and the savings from buying 'foreign' could be passed along to the freight carrier and, in turn, the consumer.
Another Jones Act related initiative that needs positive endorsement by the government is the Title XI loan guarantee program. Though not an enabler for competing with subsidized sub·si·dize
tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es
1. To assist or support with a subsidy.
2. To secure the assistance of by granting a subsidy. foreign competitors, this program allows shipbuilders to get the money needed to proceed with contracts for which they might not otherwise receive monetary support. Administered by the Maritime Administration, this program is one of the few that actually returns more dollars into federal coffers than it doles out.
Title XI funding is required to sustain the Jones Act fleet and for cruise ship and container ship projects. Title XI funding has supported $3.8 billion in commercial ship construction since 1994. The proposed presidential budget zeros funding for the Title XI program.