By Edwin M. Hood, President Shipbuilders Council Of America

For the U.S. shipbuilding industry, the psychology of hope went full circle in 1980. Starting with the optimism of Congressional enactment of c o m p r e h e n s i ve "omnibus" maritime legislation in conjunction with an accelerated naval shipbuilding program and ending with the optimism of a more assertive leadership on the part of a newly elected President, the period in between was marked by a mixture of intense activity, confusing commotion, and much talk but little positive effect.

T h i s c o n v o l u t i o n must be viewed against the background of recent events. The U.S. commercial and Naval fleets have d e c r e a s e d . The U.S. Navy is stretched paper-thin and is now at its lowest level since before World War II. The volume of cargoes carried by U.S.-flag ships has declined. The number of merchant shipbuilding contracts has dropped. The Naval shipbuilding program has been generally down.

The industrial support base for ship construction has diminished.

There has been no coherent policy to assure the uninterrupted movement of c r i t i c a l i m p o r ts without which the U.S. military and industrial structure could not endure.

Alarms have been sounded repeatedly.

The statistics have been recited endlessly. As in other recent years, there was no visible high-level recognition of the nation's endangered national security.

Assurance of an adequacy of ships, shipping, and shipyard resources under U.S. sovereignty to serve essential national interests suffered from unresponsive leadership and adverse economic conditions.

As of December 31, 1980, the order book for merchant shipbuilding totaled 49 ships, with an approximate value of $2.3 billion, being constructed by 13 U.S. shipbuilders (compared to 15 at the end of 1979). Only 17 of these vessels will remain to be delivered a f t e r the end of 1981.

With regard to Naval shipbuilding, commitments were made in 1980 for the construction of six guided-missile frigates (FFGs), one guided-missile cruiser (CG), one nuclear-powered aircraft carrier (CVN), and three ocean surveillance ships (T-AGOS) in 1980.

Contracts for several submarines were still under negotiation at year-end.

The value of the backlog of 91 Navy vessels on order at the close of 1980 is estimated at $9.0 billion, and deliveries will extend through 1987. Eleven shipyards (compared to 10 at the end of 1979) hold these contracts, one of which is also building four U.S. Coast Guard c u t t e rs (WMEC).

New orders at an annual rate of seven merchant ships and 11 Naval vessels will obviously not utilize the full capabilities of the s h i p b u i l d i n g industry of the United States. As a consequence, some 30,000 skilled shipyard workers in those yards which compose the so-called shipbuilding mobilization base face the uneasy prospect of unemployment over the next several years, with another 90,000 in supplier activities similarly affected. Conversion of existing vessels and construction of non-self-propelled barges for coastwise service in addition to non-ship work could moderate this forecast, but not substantially.

This downward trend has been compounded by expedient actions of the Department of Defense in planning to acquire 11 commercial- type, foreign-built vessels to fill ship voids in the nation's sealift forces, which should have been ordered from domestic shipbuilders three or more years ago.

It should be noted that these 11 vessels are greater than the total number of definite contracts (seven ships) signed by U.S.

builders in 1980: an incredible situation, more so because of the role of government.

A loss of 80 million man-hours of employment for the U.S. shipyard labor force takes place while the public treasury is paying millions of dollars in adjustment assistance to U.S. workers displaced by reason of low-cost foreign imports.

With one hand, the government purchases foreign-built ships, while with the other hand, it bestows generous unemployment benefits to U.S. shipyard workers who should have built the ships in the first place.

The order book for offshore drilling rigs presents a much brighter picture. With 72 rigs on order at year-end with 11 U.S.

builders (compared to six at the end of 1979), contracts for 53 were placed in 1980. Valued at about $2.4 billion, deliveries extend into 1984. Worldwide, competition for jackup and semisubmersible rigs intensified during the year as offshore oil and gas fields expanded. In like manner, the demand for new offshore petroleum service vessels has expanded ; more than 200 of these supply boats were reportedly delivered in 1980.

Also on the plus side of the shipyard ledger, the demand for inland waterway barges as well as for commercial ship-repairing services has been strong throughout the year. The dollar value of ship repair work for 1980, both Naval and commercial is estimated at nearly $2.5 billion.

MERCHANT SHIPBUILDING From the record of the past two decades, one is struck by the repeated evidences of a fruitless search for a fully effective and enduring policy to govern U.S.

maritime affairs. 1980 was equally sterile.

At midyear, it became increasingly apparent that proposed legislation to counteract persistent deficiencies as affecting U.S. shipping and shipbuilding capabilities would not be enacted. In point of fact, the m u c h - p u b l i c i z ed "omnibus maritime bill" was never brought to a vote in the Congress because of its controversial scope, Carter Administration indifference, jurisdictional squabbles, and political events.

There was general agreement on the need for change and improvement, but, on details, indust ry and labor didn't agree, the Administration and the Congress did not agree, separate executive agencies within the government did not agree, shipowners and shipbuilders didn't agree, and, on some provisions, shipowners did not agree among themselves. For their part, shipbuilders made a number of concessions and compromises on basic principles in the hope of unity, but in vain.

This was not an exercise in total futility, however. The extensive Congressional hearings and accompanying public debate underscored these important points: (1) the devastating disarray with respect to U.S. maritime policy and implementation; (2) the nation's critical dependence on imported strategic m a t e r i a l s of which 95 percent or more is brought to U.S. ports by ships flying the flags of other countries; and (3) the costly impact on U.S. shipbuilding prices resulting from regulatory requirements and standards more severe than those abroad. The resulting dialogue also provided a timely focus on the positive relationship of adequate and productive domestic shipbuilding and U.S.-flag shipping capabilities to the nation's s e c u r i t y and economic structure.

Seen from today's perspective, these points need to be considered in the context of world shipping and shipbuilding conditions as they exist, not in the context of 18th century textbook theories as some classical economists even now h y p o t h e s i z e . With a depressed market worldwide that is not predicted to return to normalcy before 1984 or 1985, shipbuilders in other countries are reportedly quoting prices as much as 40 percent below actual costs, with the e n c o u r a g e m e n t and blessing of their governments.

This is possible through unique patterns of extraordinary subsidies, tax inducements, financ- ing devices, and accelerated capital depreciation.

But as prices are lowered abroad, by whatever means, construction subsidy levels in this country rise, but they cannot exceed 50 percent by statute. The real differential with U.S. shipbuilding prices at this moment is probably closer to 60 or 65 percent.

Obviously, newbuilding opportunities in this country are affected by t h a t which t a k es place abroad and, at the same time, they are inhibited by the myopia of U.S. policies.

Practices of false pricing in other countries cannot continue indefinitely; the elastic limit of artificial government supports to indemnify shipbuilders against losses is not infinite. The elastic limit of government support for maritime affairs in the United States has traditionally been dictated by the a v a i l a b i l i t y and amount of Federal funds for ship construction and operations. Over time, Federal payments for operating subsidies, in total, have exceeded those for construction subsidies.

Yet U.S. shipyards and supporting activities, over time, have provided far more jobs for American workers than seagoing operations.

It is nonetheless a fact of life that U.S. shipbuilders will prosper only to the extent that U.S.

owners are able to order ships from them. To do so, the financing package must assure parity with foreign c o m p e t i t i o n , and that assurance must be predicated on efficient u t i l i z a t i on through good management and profitable o p e r a t i o n s deriving from the transport of an increasing volume of cargoes. As President Reagan has put i t : "a greater market share of U.S. trade for U.S.-flag, U.S.-built ships." The development of a fully effective and e n d u r i n g n a t i o n al maritime policy will require enlightened recognition of the realities of world shipping and the realities of world shipbuilding as presently existing and not as they should conform with someone's vacuity about economic theories of yesteryears. Any endeavors to increase the market share of the U.S. merchant marine must begin with recognition of this pervasive fact: whatever free trade that now exists in shipping services is rapidly disappearing and will, in all probability, be virtually non-existent by the end of the 1980 decade.

As to liner trades, the Code of Conduct for Liner Conferences, dictating a 40-40-20 percent division of cargoes between the shipping fleets of trading partners and third-flag carriers, will enter into force in 1981, notwithstanding the abstention of the United States and the reservations of the European Economic Community and Japan with respect to their trade with the United States. Implementation of the Code, commonly known as UNCTAD, will severely increase pressures on U.S.-flag carriers operating in U.S. liner trades as displaced tonnages flock to the only major t r a d e s r e m a i n i ng open.

While the Code has many welldocumented flaws, it is a reality with which the United States must contend, and to which the United States must assent, if the U.S.-flag liner fleet is to prosper.

As to the bulk trades, the Third World effort to achieve similar cargo sharing arrangements is just beginning, and, as with the Liner Code 10 years ago, it is not taken seriously.

The Department of State has evidently learned nothing f r om that experience, and again steadfastly opposes any momentum toward development of a rational and effective policy.

As suggested earlier, the shipbuilding industry of the United States acknowledges t h a t its prosperity and that of U.S.-flag ship operators depends upon a national maritime policy in tune with the world of the 1980's, not the 1780's or the 1880's. That policy, however, must recognize and deal with the worldwide movement toward bilateralism and promotion of national flag shipping fleets. A realistic maritime policy for the 1980's must also take into account the economic and tax stimuli that underpin the shipping and shipbuilding endeavors of other countries.

For the short term, market opportunities for U.S. shipbuilders not principally involved in naval programs would seem to consist mainly of construction of specialized ships and vessels for domestic and Great Lakes trades; construction of barges and shallow d r a f t vessels for the inland waterways and coastal trades; conversion of existing vessels; repowering of existing vessels with more fuel- and cost-efficient propulsion systems; retrofitting of existing tankers to comply with environmental requirements; and certain types of non-ship work.

For the long term, a gradual increase in merchant ship construction to accommodate incremental increases in world trade and a rise in the volume of cargoes carried by U.S.-flag shipping seems likely. Overage or uneconomic vessels will need to be r e p l a c e d . Opportunities to build dry bulk carriers, ocean mining ships, ocean thermal energy conversion plantships, and other specialized vessels should also develop.

Other stories from June 1981 issue


Maritime Reporter

First published in 1881 Maritime Reporter is the world's largest audited circulation publication serving the global maritime industry.