HEAVY SEAS: The U.S. Shipbuilding Industry Struggles To Stay On Course

Article Published in the Armed Forces Journal International

In summer of 1990, as the Soviet empire was rapidly unraveling, the U.S. Navy’s Sea Systems Command prepared an assessment of the U.S. shipbuilding industry. As the main organization responsible for the construction, modification and repair of U.S. naval vessels, the command had an obvious interest in understanding how the waning of the Cold War might affect the health of the domestic shipbuilding business. What it found was not comforting.

Despite the Reagan Administration’s hundred-billion-dollar shipbuilding program aimed at achieving a “600-Ship Navy,” the industry had not fared all that well in the 1980s. During its first year in office, the administration had won repeal of the “construction differential subsidy,” a program designed to bolster the competitiveness of the U.S. industry in the global market for commercial vessels. Unilateral termination of the subsidies — other nations continued to provide support to their shipyards — effectively destroyed the commercial shipbuilding business in the United States. The number of large, oceangoing commercial vessels on order in U.S. yards plummeted from 69 the year President Reagan was elected to zero his last year in office. Industry employment never again reached the level seen in 1981 (the highest year since World War II), and no new oceangoing commercial vessels were ordered after 1984 for the rest of the decade.

The impact of the repealed subsidies received relatively little notice while the Reagan Administration’s naval expansion was in progress, but by 1990, when the Sea Systems Command released its assessment of the industry, the boom in naval shipbuilding was beginning to wind down. The command found that the number of domestic shipyards capable of building large, oceangoing vessels of any kind had been cut nearly in half, from 37 to 20. It found that “the Navy now provides more than 90 percent of the work for the private sector.” It found that the vast preponderance of Navy ship-construction funds — about 95 percent — went to a mere five shipyards. And it found that because of this high concentration of federal funding, only one or two yards remained that could produce key types of warships such as aircraft carriers or submarines.

The implication was clear: if the naval shipbuilding boom went bust, much of the domestic ship-construction industry would go bust with it. For example, the command estimated that a notional fleet of 300 warships — about half the size of the Reagan-era Navy at its peak — would require construction of ten new ships per year, a level of effort that “could provide a modest workload for two or three major yards and three smaller yards.” The labor force needed to support this amount of production plus naval repair work expected to be available to the private sector was projected at 50,000 personnel, less than half of the industry’s employment in 1990. Similar erosion was predicted in the subcontractor and supplier base.

The Industry Today

Today, nearly a decade later, many of the Sea Systems Command’s worries about the industry and its main customer have come true. The number of naval vessels on order at domestic yards has fallen from 88 in 1988 to 51 in April of this year. The projected annual rate of warship construction has declined from ten in the Navy’s 1992-1997 spending plan to less than six in the 1998-2003 plan. Every year the size of the fleet shrinks a little further toward the 300-vessel “worst case” envisioned in the command’s 1990 assessment. The service currently has about 330 ships in the active fleet, down from 354 last fall, and is expected to have 315 in the fall of 1999.

In the early years after the Soviet collapse, some of the biggest domestic shipyards seriously pursued business in the global commercial shipbuilding market as a way of filling the gap in revenues left by declining Navy orders. They were encouraged to do so by the Clinton Administration, which provided loan guarantees and other incentives for commercial work while trying to reduce the subsidies foreign nations provide to their own shipyards. But it has become clear that U.S. shipbuilders cannot compete profitably against yards in Japan and South Korea, both of which claim about a third of the global market for large, oceangoing commercial vessels. Of the 2,600 such ships on order around the world at the beginning of 1998, only about a dozen had been ordered from U.S. yards.

With barely one percent of the gross tonnage on order globally, most U.S. shipbuilders now believe it will not be feasible for the industry to become a major factor in the commercial market without massive federal assistance — assistance no one seriously expects. While it may seem strange that the world’s biggest trading nation and preeminent naval power cannot compete profitably in the business of building large, empty commercial vessels, that is the situation the domestic industry has faced throughout most of the current century. Except when major wars artificially stimulated the demand for shipping, the U.S. has seldom been a leading producer or operator of commercial ships. Why this is so — wage rates, foreign subsidies, lack of capital investment, etc. — is a source of endless debate. Whatever the explanation, the biggest U.S. yards have one by one scaled back or ended their most recent forays into the commercial market.

That means the U.S. Navy will be the main customer of the domestic shipbuilding industry for the foreseeable future. But Navy dollars today, as in the past, flow disproportionately to a handful of the biggest and most capable yards. Although the U.S. Maritime Administration reports that there are 18 yards in the U.S. capable of building large, oceangoing vessels and more than 500 other private-sector establishments engaged in various aspects of ship construction, modification, maintenance and repair, almost all of the Navy’s shipbuilding funds go to half a dozen yards. These six yards are the real core of the American shipbuilding industry, and every one of them is heavily dependent on the sea service for their survival.

The Big Six

Although there is considerable overlap in the generic shipbuilding skills of the big six yards, the structure of the domestic shipbuilding industry can best be understood in terms of what Congressional Research Service analyst Ronald O’Rourke calls “four paired groups” — groups defined by the special competencies of particular yards. One such group, arguably the most important from a national-security perspective, is the pair capable of producing nuclear-powered warships. Only Newport News Shipbuilding of Hampton Roads, Virginia and the Electric Boat division of General Dynamics (a defense conglomerate also headquartered in Virginia) can claim this status.

Newport News Shipbuilding integrates nuclear-powered aircraft carriers and attack submarines at the largest shipyard in the United States, a 550-acre complex that stretches for two miles along the James River in Hampton Roads, near the Navy’s sprawling base at Norfolk. Newport News is probably the most capable shipyard in the world, and is the only domestic shipyard possessing all the skills necessary to design, build, repair and refuel the full range of naval surface and undersea combatants. It delivered the Navy’s first nuclear-powered aircraft carrier, the Enterprise, in 1961 and today is the sole shipyard in the U.S. able to build and refuel the current Nimitz cla