June 1983 - Maritime Reporter and Engineering News


By Edwin M. Hood, President, Shipbuilders Council of America

For the U.S. shipbuilding and ship repairing industry, 1982 was a year of disappointments mixed with blessings.

Blessings in the sense that the proposed five-year Navy shipbuilding and conversion plan will provide a measure of stability for the industry. Disappointments in the sense that a meaningful national maritime policy to regenerate commercial shipbuilding in the United States has not been forthcoming: instead, advocacy of foreign building/ rebuilding for subsidized merchant ships has emerged as a key A d m i n i s t r a t i o n position.

Meanwhile, shipping conditions worldwide showed little improvement.

Expansion of the U.S. Navy fleet does indeed compose a potential for builders of combatant and auxiliary vessels, but, on the other hand, most commercial shipbuilders face a lean period.

For them, it is presently difficult to forecast new orders for as many as five deep draft ships annually in the next few years. The U.S. shipbuilding mobilization base accordingly cannot be maintained through naval construction only, and this reality has yet to be fully appreciated, in or out of government.

Despite the outlook for commercial work, some U.S. shipbuilders and ship repairers have continued to modernize their facilities.

They are truly investing in the future. In 1982, approximately $280 million were invested in new facilities and equipment, drydocks, computer aided design and production systems and robotics.

These investments are in addition to $2.3 billion expended for capital improvements during the last ten years.

The generally downward trend in shipyard employment also continued to prevail. Over the span of the last seven years, some 30,000 workers in the recognized shipbuilding industrial base which has long been considered important for national security have been diverted from the essential task of building ships.

The significance of this resource depletion is perhaps best illustrated by the fact that layoff costs of severance and unemployment benefits plus the eventual rehire and retraining costs of one qualified shipyard journeyman amounts to an estimated $25,000. This cumulative burden of stop-and-go shipyard operations remains unappreciated by U.S. policymakers, but it affirms the rationale of extraordinary subsidies in other countries.

In this country, more immediate and effective action must be undertaken to preserve the nation's shipyard capabilities in the national interest. The shipbuilding industrial base is the "tap root" of "maritime superiority" which the Reagan Administration espouses, and sea power, in its fullest meaning, is essential to the national security and economic well-being of the United States.

The enduring pattern of official neglect, either through policy decisions or indecisions, must be reversed, and a solid national commitment to an industrial strategy which will sustain and preserve an essential shipbuilding and repair mobilization base can no longer be postponed.

Naval Shipbuilding Attainment of an active balanced U.S. Navy fleet of 600 ships by 1989 is a central objective of the Reagan Administration. The purpose is to assure naval superiority well into the 21st century.

To achieve this goal, a fiveyear naval shipbuilding plan anticipating 133 newbuildings and 16 conversions/reactivations/ acquisitions was proposed in early 1982. While 18 newbuildings and seven conversions/reactivations were requested for Fiscal Year 1983 (which commenced on October 1, 1982), the Congress approved 14 and three respectively.

Another five-year plan, submitted to the Congress in early 1983, contemplates 124 newbuildings and 21 conversions/acquisitions,/ reactivations. Although fiscal pressures may force other modifications, Navy ship construction, conversion, repair and overhaul will obviously sustain a significant segment of the U.S.

shipyard industry for the balance of the 1980 decade.

Contracts for 30 Navy ships were placed with U.S. shipbuilders during 1982, and, at yearend, a total of 102 vessels were under construction at 12 of the 27 private yards in the shipbuilding mobilization base. Approxi- mately 72,000 workers are employed on this backlog which now constitutes more than 75 percent of the total U.S. orderbook.

Another 10,000 workers in the base are engaged in Navy ship repair and overhaul work.

Naval ship repair and overhaul work has always been an eagerly sought market for the industry.

About 60 percent of the private shipyard repair workforce perform their work on Navy ships.

Here again, there are dynamic forces altering the style in which that work is performed. The naval fleet is becoming more sophisticated as new ships are being delivered and older vessels are being retired.

The Government-owned naval shipyards, with an employment level almost double that of the combined private workforce engaged in both naval and commercial ship repair, are being hardpressed to handle the maintenance of combatant ships. As a result, more and more of these complex ships are being assigned to the private sector.

Consequently, more and more constraints are being placed upon the facilities required to handle this increasing number of corn plex ships. The "good old days" of "invitations for bids" and low bidders clearly getting the jobs are fast disappearing. Sophisticated ships are begetting sophisticated procurement procedures and contract award processes.

For example, multiship procurements meant to provide incentives for shipyard improvements and capital investments are increasing.

1982 also marked the timely award of construction/conversion contracts for support vessels for the Navy's Military Sealift Command to shipyards urgently in need of work. These so-called T-Ship projects included Maritime Prepositioning Ships (T-AKX), Fleet Oilers (T-AO), Clean Product Tankers (T-5), and Fast Logistics Ships (T-AKRX). Planning for the conversion of two existing vessels f o r Hospital Ships (T-AH) has likewise been initiated.

Shipbuilders' performance on U.S. Navy contracts has steadily improved. Through modular ship construction, preoutfitting techniques and incentives for cost control, a general pattern of ontime or earlier than planned deliveries at or less than budgeted costs has emerged. In addition, private shipyards have improved their performance on Navy ship overhauls by an average of 45 days during the past two years.

These developments reflect a significant improvement in Navyindustry business relationships, acquisition policies and procedures, contract terms and conditions and cost estimates as well as shipbuilders' investments in facility modernization, computer aided design systems and robotics which have contributed to increased productivity.

Industry rapport with the Navy in addressing impediments to the effective realization of shipbuilding and repair plans has especially progressed. Through the medium of "forums," discussions on problems relating to specifications, standards, drydock certifications, berthing and messing requirements, home port policies, quality assurance, work package growth and source selection, all of mutual concern, have been appropriately aired and, in most instances, satisfactorily resolved.

Merchant Shipbuilding In sharp contrast to the encouraging U.S. Navy shipbuilding situation is the market for merchant ship construction in the United States. With world conditions and domestic policies at interplay, the outlook is, at best, unclear for another several years.

Excluding the T-ships of commercial characteristics for the Navy's Military Sealift Command, contracts for only three merchant-type vessels of 1,000 gross tons and over were awarded U.S. shipbuilders during 1982.

None of these were cargo ships.

Orders or offshore drilling rigs totaled two. At year-end, the U.S.

orderbook comprised 21 merchant vessels and 20 rigs all of which are now scheduled for delivery by the end of 1984.

Approximately 11 percent of the world trading fleet has been idled by reason of the international and domestic shipping recession, and, under these circumstances, decisions by shipowners to defer maintenance or replacement of existing vessels are understandable.

Market conditions have thus become extremely competitive: as ship construction activity has declined overall, some U.S. shipbuilding yards, in an effort to sustain economic via- Write 648 on Reader Service Card bility, are shifting emphasis and workforce toward ship repair.

In this atmosphere, the actions of the Administration in 1982 have not been salutary.

First, there has been no recognition of the below-cost pricing aberrations induced by foreign governments—"political pricing" —which preclude any hope of competitiveness in world markets for U.S. shipbuilders. Secondly, the outdated ideology that free market concepts govern the world shipbuilding scene illogically pervades U.S. policymaking. And thirdly, the Reagan Administration, by the admission of its own officials, has consciously adopted a stance to support U.S. shipowners at the expense of those U.S. shipbuilders who have historically been engaged in the construction of commercial vessels.

Bickering within the Federal bureaucracy has prevented the development and postulation of a comprehensive shipping/shipbuilding policy, as promised by the President probably without his direct knowledge. The Department of the Navy and the Department of Transportation Maritime Administration have differing views in regard to the maintenance of an essential shipbuilding mobilization base which the President declared must be ensured by way of an adequate throughput of both commercial and naval ship construction work.

The Navy says the base cannot be preserved by naval shipbuilding and repair alone. Conversely, DOT/MarAd say the volume of commercial shipbuilding and repair is irrelevant in terms of retaining a nucleus of shipyards, skilled workforce and support facilities capable of quick expansion in times of national emergency.

During 1982, this ambivalence has confused not only the U.S.

shipyard industry but also the Congress and the general public.

In May and August, the Secretary of Transportation announced "initial" and "additional" elements of the "Administration's ongoing efforts" to formulate a national maritime policy, none of which will encourage the construction or repair of a single ship in U.S. shipyards.

Mainly, the so-called policy package would (1) facilitate the foreign construction, reconstruction or acquisition of U.S.-flag merchant ships whose operations are to be subsidized by the public treasury, (2) repeal the longstanding 50 percent ad valorem customs duty for other than emergency repairs to U.S.-flag vessels in foreign shipyards, (3) limit Title XI Federal ship mortgage guarantees on an annual basis, and (4) permit the use of tax-deferred Capital Construction Funds (CCF) for foreign construction, reconstruction or acquisition. Since inception, CCF withdrawals and the 50 percent ad valorem duty have been intended for expenditure in U.S.

shipyards to reinforce and sustain an essential mobilization base. The Administration would also cancel the three-year waiting period for the transport of Government-impelled cargoes by foreign-built vessels documented under the U.S.-flag.

These negative proposals have yet to be enacted into permanent law, but a temporary waiver, which expired on September 30, 1982, prompted the approval by the Maritime Administration of applications for the foreign construction of 36 new subsidized vessels and the foreign reconstruction of 13 ships. Applications for another 16 foreign buildings are anticipated.

The combined face value of these projects would be in excess of $2.0 billion. If carried through, a minimum of 30,000 jobs for U.S. skilled shipyard workers will be lost. This number equates to more than 25 percent of the present employment in the active shipbuilding industrial base, and does not include some 90,000 workers or more in supporting industries who will also be affected.

In addition, U.S. steel producers will lose orders f or more than 500,000 tons of steel.

This export of contracts f or U.S. shipbuilders and jobs f or U.S. shipyard workers takes place at a time when unemployment has reached a 42-year high, and ironically, at a time when the Government is searching for ways and means to put people back to work. A major source of sustenance with which to preserve a shipyard mobilization base has thus been purposely torpedoed, and the repercussions will be far-reaching.

Other stories from June 1983 issue


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