U.S. Shipbuilders: The Tide Begins To Turn

Article Published in the Sea Power Magazine

There is a saying among economists that a rising tide lifts all boats. With defense spending expected to rise significantly in the years ahead, the nation’s shipbuilders hope that adage also applies to their shipyards. After a decade of disappointments, they could use a lift. But they aren’t waiting passively for the fiscal tide to turn: since Sea Power’s last sea-air-space edition appeared in April of 1998, mergers have reduced the ranks of major naval shipbuilders from five to three.

The remaining companies are also pursuing a host of less visible initiatives aimed at bolstering the efficiency and resilience of their operations. Investments in digital design and engineering tools, adoption of commercial standards and practices, long-term teaming among yards and public-private partnerships all reflect the industry’s willingness to do business in new ways.

It hardly has a choice. Employment in the domestic shipbuilding and ship repair industry has been cut in half since its recent peak of about 190,000 workers in 1981. That was the same year that the Reagan Administration unilaterally abolished subsidies for the construction of oceangoing commercial vessels, virtually eliminating demand for such ships from U.S. yards (other nations retained their subsidies). The buildup to the 600-ship navy took up much of the resulting slack in capacity during the mid-1980s, but at the end of the decade the Soviet Union collapsed and naval shipbuilding went into its own tailspin.

By the beginning of the second Clinton Administration, some observers were beginning to wonder whether the U.S. Navy could afford to maintain a fleet even half the size of the Reagan-era fleet at its peak. Modern warships typically have a service life of thirty years, so the Navy needs to build about ten ships annually to maintain a 300-vessel fleet. The Clinton Administration’s shipbuilding program didn’t begin to do that: the 1998-2003 naval construction program proposed to Congress in early 1997 envisioned an annual production rate of six vessels, a pace that if sustained over the long term would have yielded an active fleet of about 180 ships.

Heavy Dependence on Navy

Such plans are hugely important to the shipbuilding industry, because for all its plans to rationalize and diversify, it remains heavily dependent on Navy funding for its survival. Although the U.S. Maritime Administration describes the domestic industry as consisting of 18 “major shipbuilding facilities” and 550 lesser establishments, most of what matters is concentrated in the so-called “big six” shipyards. Those six yards – – now controlled by three companies – – employ more than 90% of all the U.S. workers engaged in construction of oceangoing vessels.

With the near-demise of domestic construction of large commercial vessels and rampant protectionism in foreign naval markets, the big six yards have come to rely on the U.S. Navy for about nine out of every ten revenue dollars. Most of this money comes from a handful of big warship-construction programs, but the first-tier yards also build auxiliary and sealift vessels, and participate in the Navy’s $2 billion annual ship repair and maintenance effort (about a third of which goes to private industry, the rest to the four surviving public shipyards).

The big six have seen their workforce decline by nearly a third since the collapse of the Soviet Union, from 82,000 employees in 1990 to 54,000 today. Had the Clinton Administration stuck with its original 1998-2003 shipbuilding plan, that number probably would have been destined to continue drifting downward in the years ahead. But it reversed course in response to a burgeoning budget surplus and Republican criticism of depressed military-procurement spending.

New Shipbuilding Plan

The proposed 2000-2005 naval shipbuilding plan unveiled in February raises the annual rate of construction to about eight vessels, still short of the number needed to sustain a 300-ship fleet but a big improvement over what had been expected. If the plan is implemented as proposed, six ships would be built in fiscal year 2000 (one more than the previous plan), and then eight would be built in each of the following years until 2005, when nine would be built. In addition to funding a new class of ACDX dry-cargo auxiliary ships – – construction of twelve is scheduled through 2005 – – the new plan also adds one more New Attack Submarine (NSSN), allowing for continuous production at the rate of one per year after 2000.

The plan envisions construction of two LPD-17 San Antonio-class amphibious assault ships per year through 2004 and three Arleigh Burke-class guided-missile destroyers per year through 2003. The latter program would then give way to production of the next-generation DD-21 land-attack destroyer, one of which is funded in 2004 and three in 2005. The final Nimitz-class aircraft carrier is also scheduled to commence production in 2001, after which the Navy begins transitioning to the next-generation CVX carrier.

Counting two command ships scheduled for construction later in the plan, the entire 2000-2005 shipbuilding program adds up to 47 vessels. That isn’t a lot for the world’s premier naval power, but each of the warships in the plan is the most complex and capable vessel of its type ever produced anywhere. The NSSN , for example, has nine times as many individual parts as a Boeing 777 wide-body airliner and requires fourteen times the digital disk capacity (10 gigabytes versus 145) to store its design – – notwithstanding the new sub’s extensive use of commercial products, processes and standards.

Paradoxical Nature

Such statistics underscore the paradoxical nature of the U.S. shipbuilding industry. Although it claims barely one percent of the global market for oceangoing commercial vessels, it is none the less the most technologically proficient in the world. No other nation has demonstrated the capacity to build warships comparable in versatility or sophistication to a Nimitz-class carrier or an Aegis guided-missile destroyer.

Indeed, it is precisely the complexity and uniqueness of these ships that helps explain why the U.S. industry has not fared well in the international rivalry to produce big, empty commercial vessels like tankers. According to former Bath Iron Works president Duane (Buzz) Fitzgerald, “The business of building complex surface combatants is very different from any commercial shipbuilding enterprise. As long as the government customer drives the domestic industry, it will probably never be competitive in the global commercial market.”

Thus, while construction of modern warships is likely to remain a labor-intensive activity, it is wildly inaccurate to view the shipbuilding industry as a throwback to an earlier age. Not only in terms of the integrated systems it produces but also in terms of the processes and skills it employs, few other sectors of the American industrial economy are as technologically demanding.

Within the context of the domestic defense industry, there is another paradoxical quality to the shipbuilding sector. The U.S. defense industry today is dominated by big aerospace and electronics firms that view themselves as global technology leaders. The managers of those enterprises tend to be unimpressed with the common practice of allocating ship construction programs among states as a way of satisfying contending political constituencies. They see the . . .