West Coast Shipyards

In our world of rapid and continuous change, we have come to accept many situations and events which, just a few years ago, we would have thought "could never happen": the first man on the moon; Japan's technological ascendancy over many major U.S. industries; $33 per barrel oil; the breakup of the world's best telephone system, Ma Bell; and a trillion dollar national debt, to name just a few. Most of us would not have conceived of such developments very long before they occurred, and I don't believe our foresight is greatly improved now.

Today, I'm going to discuss a future possibility you probably haven't thought about because it is in that "it could never happen" category.

What would happen if, by the year 2000, there were no longer any privately-owned, full-service shipyards, that is, shipyards capable of doing both naval and commercial work, operating on the West Coast?

What economic, social and military impact would such a development have on our nation, and on the Pacific region?

Your immediate response will, understandably, be that such a development is highly unlikely and could easily be avoided by common sense government and public support.

As a person who has been intimately involved with shipbuilding for over 40 years, I must reply that, no, this possibility is not unlikely but, yes, it can be avoided with public support.

Let me review some of the reasons why I don't think this scenario can be easily dismissed.

As you well know, the U.S. shipbuilding industry is currently undergoing a drastic shakeout caused by a variety of factors: First, commercial ship construction and repair work is at an all-time low. Shipyards solely dependent on this sector are desperately short of work and many have closed. Todd has not been exempt; we closed our Brooklyn and Houston Divisions in 1983.

Second, current government policy through the Maritime Administration has eliminated construction differential subsidies and will use operating differential subsidies to actually promote the construction of ships for the U.S. Merchant fleet in foreign shipyards. Jones Act protection is in jeopardy and, in my opinion, is very likely to disappear, I regret to say.

Third, the few healthy yards remaining are engaged in naval construction and repair but, as Vice Admiral Joseph Metcalf, Deputy Chief of Naval Operations (Surface Warfare), recently said, "The Navy simply cannot generate the work required either in repair, new construction or conversion to maintain the existing industrial base in any condition of profitability. We are almost the only game in town but we are by no means a large enough game to support so many players." Which facilities are likely to succumb?

The industrial base to which Admiral Metcalf referred is currently comprised of 23 shipyards, not all of which have work today and only 5 of which are located on the West Coast, three in this area (Todd, Lockheed and Tacoma). Obviously, any further shakeout here on the West Coast would be a severe blow to the national security interest, and to the Pacific region.

Last summer, the local ship supervisor of shipbuilding for the Navy who was also in charge of Navy repair contracts in the Northwest— was quoted by the press as saying that unless shipyards out here got their wage costs more in line with Eastern competitors, they could not expect to get any more work. This apparently reflected the Navy's "low-bid" procurement policy, which has ignored the need to maintain shipbuilding resources on all coasts and has resulted in the overwhelming majority of new construction contracts being awarded to East and Gulf Coast operations.

Todd's two major competitors for frigate/destroyer/cruiser type ships, for instance, one of which is on the East Coast, the other on the Gulf, will share an estimated $11 billion of ongoing work during the next five years, including 27 Aegis cruisers (CG 47) and several Aegis destroyers (DDG 51), whereas the opportunities available to all five West Coast mobilization base shipyards are a small fraction of that amount during the same period.

This lack of work has impacted employment unfavorably in the Seattle area. In the past three years, 6,000 jobs have been lost and about 3,000 of these layoffs have been at Todd's Seattle Division.

What is the cost differential between East and West Coast private shipyards that has led to such a harsh procurement policy towards Pacific Coast shipyards? An October 1984 Maritime Administration report estimated West Coast shipbuilding costs to be 4.6% higher than in the East and 9.2% higher than in the Gulf. Is this such a considerable difference that our nation can risk losing its West Coast private shipyard capability to build and support the Pacific Fleet, plus the U.S. merchant fleet and ships owned by nations of the Pacific Basin, our number one trading area? Further, what will the real defense costs be after the initial savings by low-bid, or "low balling" procurement have been realized?

For the Navy, follow-on cost increases would be unavoidable for normal peacetime operations and would be greatly increased under emergency conditions. Why? Let me describe a few "could never happen" scenarios based on a series of interrelated events which are pure fiction today but have enough plausibility to be seriously considered for contingency planning. Scenario number one: • The Panama Canal is blocked by terrorist action. As a result, submarines, cruisers and other ships built in the East and assigned to Pacific fleet duty, which normally travel an average of 6,000 miles to West Coast ports, must now travel around the tip of South America, adding over 10,000 miles to the voyage. Clearly, this compromises fleet readiness, increases operating costs, exposes the ships to unnecessary risk and involves the crew and ship in weeks of nonproductive activity. Scenario number two: • Government-owned shipyards replace the private sector on the West Coast. Since naval yards had not been building naval vessels, they will not be able to overhaul and repair them as costeffectively as the experienced private builder. Furthermore, in my judgment, having dealt with relative private and government shipyards' costs since before World War II, the cost of doing work in Government non-taxpaying yards in terms of dollars, time and bottom line results are 30% higher than private yards and this cost variance would be further increased by West Coast Navy yards' wage rates which are 18.7% higher than their East Coast counterparts, as reported in the 1984 Maritime Administration report.

Over the 30-year life expectancy of the ships, therefore, the added cost of life-cycle support services required to keep a ship in state of readiness would far exceed any savings realized from initial low-bid purchase. Scenario number three: • The national shipbuilding industrial base is reduced to eight East and Gulf Coast yards because West Coast yards, forced to bid for new business at a 4.6% to 9.2% loss by Navy procurement policy, are eventually closed down. New construction and repair competitions fail to reduce prices since fewer competitors exist—the inevitable economic result of creating near monopolistic conditions— and government yards are overloaded.

"Surge" capacity is nonexistent, labor strikes for less overtime, and crew morale sinks because of overhaul delays and prolonged separations from families at home ports. The problem is particularly acute for the nine Pacific Fleet aircraft carriers and their escort ships, some of which must return to the East for major overhaul. The fleet is put at greater risk when a South American country, denied further credit by the U.S., gives the USSR rights to establish a naval base in return for economic aid.

As these scenarios so clearly point out, the loss of future naval work and industrial capacity would have a severely unfavorable impact on the nation, and the Pacific region.

Implausible as some of these fictional occurrences may seem today, present government maritime policy and procurement actions are heading this nation towards an era of maritime insufficiency that could bring them about. By allowing our U.S.-flag merchant fleet to decline— as of January 1, 1985, our active fleet totaled only 393 ships, down 50 units from 1984—by concentrating the overwhelming majority of our nation's fleet construction and repair resources in the Eastern half of the country and by allowing West Coast resources to wither, government policy will surely lead the United States into economic, military and political decline by abdicating its position of supremacy at sea and leaving the world's sealanes open to whatever nations have the ability to command or interdict them. Lack of sealift capability spells weakness to our opponents just as surely as does lack of domestic sources of basic commodities and strategic materials. Admiral Ike Kidd said it concisely: "If the (merchant ship)-owning nations chose to deny sealift to us, the result could be economic blackmail to which we could not respond in peacetime, much less in war." This concern was dramatized by the following fictional scenario by Harlan Ullman in the May issue of Naval Institute Proceedings which, if present downward trends continue for the merchant marine and shipbuilding industries, could be tomorrow's reality.

Thus, scenario number four: • "It is winter 1990. The war in the Persian Gulf between Iran and Iraq, after ten years of bloodshed, has finally spilled over. As a result of a series of bone-chilling winters and other economic factors, Western dependence on Gulf oil significantly grew in the latter part of the 1980s. A Western naval task force, largely composed of U.S. forces, was ordered into the Gulf to protect both the shipping routes and the oilproducing facilities on the Arabian Peninsula. Conflict resulted, and large numbers of Western forces were brought to bear. Unfortunately, because of the spread of advanced weapons to the belligerent states and terrorist groups acting in their behalf, Western naval losses, including warships and merchantmen, have been heavy. But worse, after several months of a grinding campaign of attrition, the United States has found itself increasingly hamstrung by lack of a merchant fleet. It has only limited ability to provide the "wherewithal" for Western forces engaged in the region and the cargo capacity to compensate for the economic embargo imposed by non-aligned states against all belligerents. Further, erosion of the U.S. shipbuilding base has made repair work on damaged ships a very lengthy process." Surely, this scenario suggests that now is the time to return to reality and a good start would be to observe the law of the land. In 1956, Congress recognized the importance of maintaining a geographically-dispersed shipbuilding mobilization base to enable us to build ships when and where they're needed, on all three coasts, and enacted statute 10.7302. I quote: "Construction on the Pacific Coast. The Department of the Navy shall have constructed on the Pacific Coast of the United States such vessels as the President determines necessary to maintain shipyard facilities there adequate to meet the requirements of national defense. Aug. 10, 1956, c. 1041, 70A Stat. 451" Second, in regard to shipbuilding and repair, the government should not be involved in any activity that the private sector can do better and at less cost—and that applies to all our coasts.

Third, we must face up to the real cost of not maintaining total seapower resources. The difficulties we face in making such an analysis have been the lack of an overall maritime strategy, the mistaken belief that U.S. maritime industries must survive under "free market" conditions, and the misconception that the Navy can fulfill its peacetime or military missions effectively with its own sealift resources and a greatly diminshed shipbuilding industrial base.

Without a clear national policy to maintain adequate seapower resources it is difficult to accurately define how much of each resource (naval, merchant and industrial) is needed and how we can pay for it.

This subject needs urgent consideration at the highest policy levels. I believe the Center for Strategic & International Studies has stated the issue succinctly in its recent report "Forecasts for U.S. Maritime Industries in 1989: Balancing National Security and Economic Considerations." This report concludes that "U.S. commercial maritime capabilities will probably decline by a third or more by this decade's end. That condition may or may not be in the national interest. That decline must not, however, occur by default.

Broader public debate and discussion are essential. The issue is too vital to be resolved through inaction." This issue, we believe, transcends partisan and parochial interests and is truly a national issue. Furthermore, it is an issue on which we have clear historical perspective. Two world wars have demonstrated beyond all argument the essentiality of maintaining three-coast shipbuilding capacity, as reported in Frederick Lane's comprehensive history of World War II shipbuilding entitled "Ships for Victory." I quote: "In 1940 and 1941, the Maritime Commission and the leaders of the shipbuilding industry attempted to applv lessons learned from 1917-1919. Recalling the overconcentration in the Northeast, they wisely placed many new shipyards on the Gulf and Pacific Coasts." In addition, of four administrative offices established, "the most important regional office was that in Oakland, California" which from 1939 to 1945 delivered 10.2 million displacement tons of ships all from West Coast commercial yards, compared with 7.7 and 3.9 million displacement tons, respectively, on the East and Gulf Coasts.

Todd is fully committed to seeing that none of the foregoing scenarios becomes a reality. We intend to speak out and to stay in business despite current and projected difficulties in our industry.

Should the citizens of the West Coast also be concerned about these "could never happen here" events?

You bet they should. We have the responsibility to make citizens in our ten neighboring Western states aware that they, too, have a stake in maintaining a healthy private West Coast shipbuilding industry and must convince government decision makers to redirect national policy towards preserving balanced maritime resources.

As things now stand, the West Coast is the area most severely impacted by government misdirection.

It is also a strategically located maritime/ industrial center of immense value to national security and economic well-being. The message to be sent is not from a supplicant with hat in hand, but from a group of proud and productive citizens who are greatly disturbed at its government's shortsightedness. We at Todd urge you to share our sense of deep concern on this issue and we pledge to support your action with all our resources.