Page 15: of Maritime Reporter Magazine (February 15, 1974)

Bigger, Bigger . . . Bigger

Edwin M. Hood*

Edwin M. Hood

The world today is filled with contradictions. In the context of this timely Super Ocean Carrier

Conference, many of those para- doxes have a particular relevance.

Instead of peace and tranquility, there is turmoil and confusion. In- stead of confidence in traditional procedures, there is doubt. Instead of certainty as to energy sources, there is uncertainty as to future energy availabilities. No two fore- casts of supply and demand for fuels agree, and no two sets of pertinent statistics coincide. Public statements are frequently contra- dictory. Moreover, not all analysts agree as to the short and long-term impact of present energy problems.

There are, of course, many other contradictions which affect the life style of people everywhere. But this much can be said with con- fidence : the availability and trans- port of crude oil and petroleum products will profoundly influence all of mankind until the millenium, which, in Biblical terms, is defined as a period of great happiness, good government and freedom from wickedness.

In the sense that we gather here this afternoon, great happiness might be interpreted to include sufficient energy to provide all of the comforts and sustenances of life. Good government might be interpreted to include the ability of nations to perceive and counter situations such as the Arab oil em- bargo. And, wickedness might be interpreted to include price ma- nipulations which could undermine economic stability in all parts of the globe.

Again, in the sense that we meet here, pursuit of the millenium in- troduces another contradiction.

While energy conservation pro- grams have prompted a far-ranging attitude of thinking smaller and smaller, particularly with respect to automobiles, the opposite pre- *Mr. Hood, president and board chair- man of the Shipbuilders Council of

America, delivered this keynote speech before the Super Ocean Carrier Con- ference at the Americana Hotel, New

York City, on January 16, 1974. vails with respect to tankers. The trend toward bigger, and still big- ger, ocean carriers is expected to continue. The economics of ocean transportation and the increasing and continuing, almost universal, demand for energy supplies are shaping and propelling this trend.

This upward thrust started in the 1950s with the placement of orders for 100,000-dwt tankers. Tankers of 200,000 dwt and larger followed in the late 1960s, and last year the first tankers of over 475,000 dwt were delivered. In 1980, the largest super ocean carrier afloat could well approximate 1,000,000 dwt, and by that time nearly half the world tanker fleet could well be composed of vessels larger than 250,000 dwt.

As of November 1, 1973, the world shipbuilding order book in- cluded 549 tankers over 150,000 dwt. Twenty-three were under 200,000 dwt, 473 were in the 200,- 000/399,000-dwt category, and 53 were over 400,000 dwt. This last group included six tankers of 500,000/550,000 dwt and one of 706,000 dwt.

To date, the consequences of the

Yom Kippur war have not damp- ened this trend toward bigger and bigger carriers. Shipyard contracts for additional super ocean carriers were placed in November and De- cember of last year, and others are about to be awarded here and abroad. Assuming an early and satisfactory resolution of Arab/Is- raeli differences—a goal earnestly sought by the United States—the demand for very large (VLCC) and ultra large (ULCC) tankers could be accentuated.

These supertanker potentials are not being ignored by American shipbuilders. Construction of 225,- 000-dwt and 265,000-dwt vessels are now under way, and the U.S. shipbuilding industry will shortly have the capability to produce su- per ocean carriers up to 600,000 dwt. There are indications that a series of 380,000-dwt VLCCs will be ordered from an American yard in the near future. Total U.S. tank- er building capacity is also expect- ed to more than double by 1978.

Interestingly, the Congression- ally - mandated Presidentially - ap- pointed Commission on American

Shipbuilding in October of last year concluded that "where the

U.S. shipbuilding industry has the opportunity to build ships in series and has a reasonable stabil- ity in its order book, it is fully capable of equaling the productive efficiency in any foreign shipbuild- ing industry for the construction of similar ships." The Commission, in addition, focused attention on the U.S. ship financing package which, it was noted, "is substan- tially better than any alternative financing available for the con- struction and acquisition of for- eign-built ships.

Plainly, American shipbuilders are thinking bigger and bigger— as are their counterparts abroad.

By reason of improved techniques, expanded production facilities and attention to cost reduction oppor- tunities, the gap between U.S. and foreign ship construction prices is narrowing. As the gap closes, as productivity quickens, as the pat- tern of relative inflation changes, the price disadvantage of U.S. yards, reflecting the higher wages and the higher standard of living of the American economy becomes less crucial, and the American ship- building industry should not be counted out as a factor in furnish- ing tomorrow's requirements for super ocean carriers. There is good reason to believe that its competi- tive posture will improve as time goes on.

To a substantial degree, that competitive posture will be further influenced by governmental actions in the domestic, geopolitical and economic arenas.

Domestically, the energy prob- lem has already initiated a manda- tory fuel allocation system, and more controls are anticipated. The energy crisis and related problems have triggered shortages of steel, aluminum, copper and other basic materials, as well as shortages of castings, forgings, and other com- ponents essential to ship construc- tion. Material purchase lead times are extending, some potential sup- pliers have been. forced to curtail production, and prices are rising substantially. The economics and output of American shipbuilding are sensitively involved, and the role of Government in assuring that national interests are properly served will no doubt be heavy.

Also, domestically, the Middle

East situation has given added im- petus to, and prompted added sup- port for, a national policy to as- sure that up to 30 percent of U.S. oil imports will be brought to U.S. refineries in U.S.-flag, U.S.-fouilt tankers. In a world beset with re- curring crises, the rationale is that the United States must become more self reliant and independent without reverting to isolationism.

The Congress is expected to act on this matter during the current year, and the prospects for enact- ment of enabling legislation are considered good. No other nation could reasonably object. A mini- mum of 70 percent of U.S. oil im- ports would still be available to ships flying other than the Ameri- can flag, and as imports increase, in keeping with most long-term forecasts, the tonnage available for movement will increase substan- tially for both the U.S. tanker fleet as well as the fleets of other coun- tries.

The United States has no desire to reserve transport of all of its waterborne commerce for its own shipping fleet—vessels of other na- tions shared substantially in recent

American grain movements to

Russia. On the other hand, the ramifications of the present oil em- bargo dramatically demonstrate the wisdom of assured supplies in adequate quantities and the logic of assured control of transportation resources in adequate numbers.

Even in these days of detente, the Soviet Union's manifested awareness of the strategic impor- tance of the Arab oil states is not to be treated casually. One can never be sure of the Kremlin's pur- poses. But, United States Senator

Henry Jackson, who is hardly a neophyte in discerning Russian motivations or in appraising the consequences of the present energy crunch, has warned: "I regard the

Soviet Union as an opportunistic hotel iburglar who walks down the corridors trying all the door han- dles to see which door is open."

Through well-intentioned leader- ship and "shuttle" diplomacy, the

United States is striving to ener- gize an effective compromise be- tween the Arabs and the Israelis to restore some modicum of sta- bility in the Middle East. Secre- tary of State Henry Kissinger's latest travels are directed toward this objective. But, more than that, the countervailing force of U.S.

Naval units in the Mediterranean area must be strengthened and modernized if the threat of the oil jugular by Russian power is to be continuously neutralized.

Turning to another point, the im- plications of recent oil price in- creases are so staggering that, in the judgment of some analysts, they threaten the economic and monetary stability of the world.

Price, not embargo, it is said, is the key issue. These same authorities contend that restoration of Middle

East oil production cuts (which

Japan, Europe and lesser developed countries desperately need) and abandonment of the oil embargo (which the United States earnestly seeks) could lead to widespread cri- sis. The 400-percent increase set in December by the oil-producing nations could shift the financial re- sources of the oil-consuming na- tions, it is explained, to the extent that worldwide economic upheaval and depression, accompanied by more political and social unrest, could follow. This grave threat ar- gues forcefully for some kind of cooperative action, such as Presi- dent Nixon and Secretary Kissin- ger have proposed, among produc- ing and consuming nations to pre- vent global chaos. For the sake of equilibrium, the price of oil should be negotiated by both parties in a way that will preserve the stability of each, as well as the stability of the balance of the world.

Clearly, the energy problem transcends national boundaries, and all governments must think bigger and bigger in terms of appropriate solutions. Transportation of crude oil and petroleum products will be important to these solutions. It is of course technologically possible to build and operate bigger and bigger tankers and, should the sources and the price of oil be stabilized, as they must be, the op- timum operational economics of these super ocean carriers will be increasingly attractive. 18 Maritime Reporter/Engineering News