Focus on Shipbuilding

National Defense Magazine has an excellent article out in the March 08 issue on shipbuilding. As you might guess, it isn't pretty. Alan L. Gropman educates the reader on a number of issues, from shipbuilding construction worldwide to an internal look at the issues specific to US shipbuilding. There are about 6 points within this article that make it a must read, but this part stuck out for our discussion.

As a result of labor shortages at U.S. yards, domestically built ships will become more expensive, which makes it even less likely the United States can recapture a major market share of global shipbuilding. According to shipyard executives, companies are having difficulties finding younger workers who are interested in providing the manual labor required to build ships, at the current wages that the industry pays.

Maintaining the country’s shipbuilding industrial base will probably not be achieved unless domestic shipbuilders can maintain a certain threshold level of industrial activity. When a country stops building a certain class of vessel, it can rapidly lose its intellectual ability to resuscitate the industrial capability.

One major challenge is the cost/quantity paradox with respect to building warships. Ships cost more today because of low volume procurements. This is a significant factor that drives up costs because of increased overhead expenses to maintain the country’s shipbuilding industrial base. The current Navy fleet consists of 276 ships — the lowest since 1929. The Congressional Budget Office in 2006 concluded that unless shipbuilding budgets increase significantly in real terms, or the Navy designs and builds much cheaper ships, the size of the fleet will fall substantially.

You can talk about build rates and fleet size all day, but at the end of the day the real challenge is maintaining qualified people in the industry. Congress can artificially add or subtract ships from a Navy or Coast Guard annual budget, and in fact they do, but if the industry doesn't find a way to maintain qualified people in the yards and within the design base, it doesn't matter how many ships Congress wants at some later date, the expertise required to fill those orders won't be there, and the quality of product won't meet requirements. Loss of skill in the workforce is certain to lead to higher costs and lower quality, regardless of any other factor, which makes the workforce issue the most important.

Alan L. Gropman produces this story as part of a comprehensive study recently completed by the Industrial College of the Armed Forces. The report is very interesting, and provides a number of areas of guidance for Congress. We note that it is the oil and natural gas industry that appears to drive a large percentage of the commercial shipbuilding market in the US, too bad that industry is under assault by political interests.

However, as we see it, Congress needs to find a way to offer the Navy some flexibility in fleet design while maintaining the industrial base. The challenge for Congress is not to create 30 year plans of shipbuilding for the purpose of the industry, rather insure that the Navy orders warships for 30 years well rooted within the context of strategy. We believe that within the context of that process, the Navy will produce more ships to support the industry, and will find more success on Capital Hill for the money that will be required for a healthier shipbuilding industry.