By Michael A. Moore
U.S. shipbuilders are riding a wave of new-build orders for everything from nuclear submarines and aircraft carriers to Jones Act container and ro-ro ships, tankers, tugs, barges and offshore service vessels – a wave that started gradually building around 2005, gained momentum in 2011 and is still going strong.
Fifteen years ago the U.S. shipbuilding industry was in the doldrums – the private shipbuilding workforce was cut in half, nearly 100,000 workers from the early 1980’s to 2000, according to the U.S. Department of Commerce Bureau of Export Administration (BXA) Office of Strategic Industries and Economic Security.
Many things have changed since 2000, which marked the nadir of the industry’s downward slide from its days of Cold War frenzy and seemingly unlimited budgets for the U.S. Navy and Coast Guard. Those changes include tectonic shifts in global political, economic, and military dynamics, combined with new shipbuilding techniques and technologies, and topped off by the flood of U.S. oil and gas released by fracking and increased offshore drilling.
Today, U.S. shipyards are growing – actively seeking and training a new generation of workers and investing in state-of-the-art technology as they prepare for the challenges of building future U.S. military and civilian fleets. Direct U.S. shipbuilding employment grew from 83,500 in 2000 to over 127,000 in 2011 according to a 2013 U.S. Maritime Administration (MARAD) report, The Economic Importance of the U.S. Shipbuilding and Repairing Industry.
The forward thrust in U.S. shipbuilders’ fortunes is driven by a mix of factors, some constant, and others that could not have been imagined a decade ago. Those drivers include the U.S. Navy’s fleet adaptation to geopolitical factors and changes in naval warfare, the unexpected boom in U.S. gas and oil production, emissions reductions requirements, upgrade of U.S. Jones Act container and tanker fleets, and MARAD Title XI loan guarantees.
Building a new Navy
The U.S. Navy is the largest customer for the U.S. shipbuilding industry. The Navy has ambitious plans for the coming decades, plans that are undergoing drastic changes as the Navy is forced to rethink its post-ColdWar downsized, small-local-conflicts strategy and shift into Cold War II mode.
“The U.S. surface fleet must restructure itself around a new central idea of how it will fight. The surface fleet—whose missions expandt ed over the last three decades to include everything from counter-piracy to ballistic missile defense – will need to get “back to basics” and focus on sea control to sustain the ability of U.S. forces to project power across increasingly contested waters,” wrote Bryan Clark in a report for the Center for Strategic and Budgetary Assessments (CSBA). Mr. Clark, a senior fellow at CSBA, was Special Assistant to the Chief of Naval Operations until 2013.
The impacts of this mid-course reversal in the Navy’s shipbuilding strategy are already being felt by U.S. shipbuilders, especially in the ambitious and troubled Littoral Combat Ship (LCS) program, which was cut 40 per cent in the FY2015 budget, from 52 down to 40 ships.
“The LCS was designed to perform certain missions – such as mine-sweeping and anti-submarine warfare – in a relatively permissive environment,” said U.S. Defense Secretary Chuck Hagel when he announced the cuts last February. “But we need to closely examine whether the LCS has the independent protection and firepower to operate and survive against a more advanced military adversary and emerging new technologies, especially in the Asia Pacific.”
The Navy’s original vision for the Littoral combat Ships was a fleet of the fast vessels for operation in waters as shallow as 20 feet and useful for a variety of missions, including fighting piracy off the African coast, clearing harbors of underwater mines and hunting for submarines.
The Navy’s five-year strategic shipbuilding plan calls for building 44 battle force ships between FY 2015 and FY 2019 –8.8 ships per year, according to a Congressional Research Service report dated August 2014.
Those ships reflect the new geopolitical and technical realities of naval conflicts the U.S. Navy is likely to face in the coming years. The build plans include 10 DDG-51 destroyers and 10 Virginia-class submarines. The Navy plans also include one new aircraft carrier, 14 small surface combat ships, 3 amphibious warfare ships and one combat logistics force ship.
Looking further ahead, the U.S. Navy plans to spend about US$17.2 billion every year until 2044 to reach its goal of a 306 ship battle-ready fleet. That yearly spending will increase to US$19.7 billion per year between 2015 and 2034 when the Navy builds replacements for its Ohio Class nuclear submarines at a cost of approximately US$6 billion each. If the thirty-year plan stays its course, the Navy will have built a total of 264 new ships by 2044.
Navy shipbuilding is a market segment most dominated by two large corporations: General Dynamics (GD) and Huntington Ingalls Industries (HII), according to the Shipbuilders Council of America (SCA). When the builders of the Littoral Combat Ship (LCS) are added to the six shipyards of these two corporations, there are eight shipyards building the large majority of the Fleet.
These principal Navy shipbuilders construct aircraft carriers, submarines, complex surface combatants and the large auxiliary ships of the Fleet. Huntington Ingalls Industries’ (HII) Newport News Shipbuilding and GD’s Electric Boat build nuclear class vessels. HII’s Ingalls Shipyard and GD’s Bath Iron Works build the destroyer class ships, and HII’s Ingalls and Avondale build the amphibious warships that transport the U.S. Marine Corps. LCS ships are built by Lockheed Martin in partnership with Fincantieri Marinette and by General Dynamics in partnership with Austal USA. Finally, GD’s National Steel and Shipbuilding Company (NASSCO) on the west coast, specializes in the larger, complex auxiliary and support ships as well as large commercial vessel construction.
Mid-tier shipyards build various Coast Guard vessels, a variety of auxiliary ships for the U.S. Navy, National Oceanographic and Atmospheric Administration (NOAA) research ships and U.S. Army inter-theater transport vessels. These mid-tier shipyards are also engaged in building a wide variety of commercial vessels.
In spite of its real and perceived problems, the Navy’s Littoral Combat Ship is considered it best candidate for export to approved foreign navies.
“We have created several ship designs for international navies. We’ve offered our multi-mission combat ship, which can be built in various lengths – 85, 118 and 150 meters – by partner Marinette Marine,” said Joe North, Vice-President of Littoral Ship Systems at Lockheed Martin. Lockheed Martin sees as many as 14 potential sales of international versions of the LCS platform to customers in the Middle East in the short term, a number that could reach 50 ships in the longer term.
VT Halter Marine of Pascagoula, Mississippi is also benefitting from export sales of military vessels. The company delivered its first fast missile craft to the Egyptian Navy in 2013, and is scheduled to deliver the rest of the order for the 60-metre craft under the US$1.29 billion contract this year.
Another military export opportunity for U.S. military shipbuilder, even small ones, is a request by Saudi Arabia for 30 Mark V patrol boats. The 27-metre Mark V boats are also used as special operations high speed insertion/extraction craft. The request was made in July of 2013 and included 27mm guns, spare and repair parts, support equipment, personnel training and training equipment, publications and technical documentation, U.S. Government and contractor engineering, technical, and logistics support services, and other related elements of logistics support. The estimated cost is $1.2 billion.
Aker modernizes Philadelphia Navy yard
One large and very busy shipyard that is not building any Navy ships is the Aker Philadelphia Shipyard (APSI), which rose phoenix-like from the ashes of the Philadelphia Naval Shipyard – also known as the Navy Yard and dating back to 1871 – which closed in 1995.
Two years later, the shipbuilding division of Norwegian engineering and construction giant Kværner bought the yard, in cooperation with the City of Philadelphia, the Commonwealth of Pennsylvania, and the United States Government. Kvaerner immediately started to invest in the modernization of the giant shipyard. The shipyard was designed with the specific intent of reducing materials handling operations and is based on experience from state-of-the-art Aker Yards shipyards in Europe. Facilities construction was completed in 2000, at which point the shipyard began construction of two container vessels based on a proven design that Aker Yards was building in an affiliated shipyard in Germany.
The Philadelphia Class CV2600 was modified to meet the unique needs of the U.S. domestic markets. Matson Navigation Company agreed to purchase these first two vessels in 2002. During early 2005, Matson agreed to purchase two more containerships, an additional CV2600 Class vessel and a CV2500 containership.
In 2005, Aker took control of the yard from Kvaerner, and completed a US$125 million share issue and was listed on the Oslo stock exchange. The proceeds from this offering were used to fund an innovative ten product tanker program that was begun in April 2005. This product tanker project involved Aker Philadelphia Shipyard (APSI) to construct the vessels, Aker American Shipping (now American Shipping Company “AMSC”) to own and lease out the vessels, and Overseas Shipholding Group to bareboat charter the vessels.
Aker Philadelphia enjoys a significant advantage in its materials handling capabilities, which include a Goliath Crane with a maximum lift capability of 660 tonnes; specialized vehicles to transport grand blocks weighing more than 600 tonnes; and numerous other high-capacity and automated cranes.
APSI has a steel through-put capacity of about 25,000 tonnes per year. A continuous improvement program utilizing global resources and knowledge from similar types of yards in Germany together with the well proven Hyundai Mipo Dockyards (HMD) design has been implemented to ensure progress and through-put as the German yard has already proven possible.
Aker continues to invest in state-of-the-art equipment as it seeks to improve efficiency and increased productivity. A new micro panel line from Pemamek Oy Ltd was commissioned in early 2013. The new line replaced an existing one that Pemamek had installed in the early 1990’s. The micro panel line utilizes high-tech Lincoln Electric Power Wave welding power sources and is based on Pemamek’s patented Vision programming system, in this case equipped with two Motoman robots. The line is equipped also with a special welding floor type conveyor solution to make working on the line safer and to transport welded web plates smoothly.
“Aker Philadelphia Shipyard decided to invest in PEMA for achieving better productivity and improved schedule at the shipyard with new and modern technology,” said Sanjay Deshmuk, Vice President of Aker Philadelphia Shipyard.
Aker’s investment is paying off. Aker Philadelphia currently has 11 large ships in various stages of construction, with delivery dates through 2017. Those ships range from product carriers, tankers and container ships for clients Sea River, Crowley Marine, Matson and Philly Tankers. The combined value of those projects is over US$1.4 billion.
Federal financial aid helps
Other U.S. shipyards are following Aker’s course of modernization and increasing efficiency and productivity. They are helped along by federally guaranteed loans under MARAD’s Title XI Federal Ship Financing Program, which provides for full faith and credit guarantees by the United States Government to promote the growth and modernization of the U.S. merchant marine and U.S. shipyards.
The program provides U.S. Government guaranteed debt issued by (1) U.S. or foreign shipowners for the purpose of financing or refinancing either U.S. flag vessels or eligible export vessels constructed, reconstructed or reconditioned in U.S. shipyards and (2) U.S. shipyards for the purpose of financing advanced shipbuilding technology and modern shipbuilding technology of a privately-owned, general shipyard facility located in the U.S. One of the most notable uses of MARAD Title XI loans to advance shipbuilding technology is the approval of US$324.6 million to TOTE Shipholdings in September of this year to finance the construction of two container ships that will utilize liquefied natural gas (LNG) as propulsion fuel, and which will be constructed at National Steel and Shipbuilding Company (NASSCO) in San Diego, California. Expected to be delivered in 2015 and 2016, TOTE will operate the vessels in Jones Act trade between the Port of Jacksonville and Puerto Rico, transporting containers, automobiles and other cargoes.
Another way MARAD aids U.S. shipyards is through MARAD Small Shipyard Grants. Eastern Shipbuilding Group, a medium size shipbuilder that operates two shipyards in Panama City, Florida is one of many U.S. shipbuilders benefitting from the perfect convergence of the need for specialized ships, a protected market and federal aid to finance vessels and modernize shipyards. “We’ve grown tenfold over the last decade, and the MARAD programs have helped,” said Stephen Berthold, Eastern’s Vice-President Marketing. “Our plant modernization was jump-started by a little more than three million dollars in MARAD Small Shipyards Grants, which helped us build our panel line and make other upgrades to our facilities.” Those upgrades and MARAD’s Title XI ship financing loan guarantees helped Eastern Shipbuilding enter the export shipbuilding market – the company bid on the construction of five Platform Supply Vessels for Boldini S.A., a Brazilian company. A US$241 million Title XI loan guarantee helped Eastern win the contract.
Eastern’s shipyards continue to hum with activity. “We’re now building Z-drive tugs, push boats, and specialized PSV’s with 250 ton cranes and helipads as well as a multi-purpose field support vessel for Harvey Marine that was designed by Robert Allan of Canada,” said Mr. Berthold. “We were selected as a Phase 1 finalist for the Coast Guard’s Offshore Patrol Cutter, which is a ten billion dollar contract. Meanwhile, we are building up our commercial work and our workforce.”
Private sector invests
High tide for MARAD’s Small Shipyard Grants was 2009, when US$100 million was made available as part of the Obama administration’s economic stimulus package. The next year funding for the grants was US$14.7 million, and 2011 saw grant funding slashed even further to US$10 million. However, when the flood tide of MARAD grants started to recede, private capital flowed into many of the rejuvenated and updated shipyards to meet the challenges of building the new fleets of tankers, tugs, offshore service vessels and container ships needed to service the needs of U.S. industry and commerce.
Bay Shipbuilding Company (BSC) of Sturgeon Bay, Wisconsin, is one of those companies. Since receiving its 2009 grant of $2.9 million, BSC’s corporate parent Fincantieri has invested more than US$30 million into its highly progressive division which specializes in large ship construction projects and builds OPA 90-compliant vessels, dredges and dredging support equipment, along with bulk cargo self-unloading solutions.
BSC recently entered into several contracts with Moran Towing Corporation to build three oil/chemical barges and two tugs. “Our schedules are full, our backlog runs through 2017,” said Todd Thayse, BSC’s Vice-President and General Manager. “That includes nine new boats, tugs and tank barges as well as conversion work and repair jobs. We do a lot of re-powering work with Canadian shipowners as well.”
Vigor Industrial in the U.S. Pacific Northwest is another example of private capital building on stimulus grant money ($1.6 million) to modernize. “We are true believers in new technology and modern materials handling,” said Bryan Nichols, Vigor Fab’s Director of Sales. ‘Shipbuilding today is all about new processes and upgraded build methodology every step of the way from engineering and planning to the shop floor.
“We make extensive use of modular fabrication and assembly in everything we build. That’s how we built the new ferries for Washington State Ferries,” said Mr. Nichols. “Every vessel breaks down differently, but you can count on building engine room and pilot house and superstructure modules. It allows us to spread our workforce out and not stack different trades one on top of the other. It’s a lot more efficient.”
Vigor Industrial owns or operates nine facilities in the Pacific Northwest with large shipyards in Seattle, Washington, and Portland, Oregon, and over 2600 employees. The privately held company’s annual revenues are more than $US600 million.
Vigor’s assets include a new 960-foot drydock, Vigorous – the largest floating drydock in North America. “The new drydock is a strategic investment for Vigor and will allow us to meet future demand, grow our business and put more people to work across the Pacific Northwest,” said Vigor CEO Frank Foti of the $50 million dollars of private investment for Vigorous.
Vigorous was immediately put into use upon its arrival at Vigor’s Portland Swan Island yard, with the drydocking of the SS Algol, 936-foot vehicle cargo ship built in the Netherlands in 1971. Algol is the first vessel to be loaded onto Vigorous. Algol’s sister ship, SS Capella, is also at the Swan Island yard awaiting repairs.
Algol and Capella are large Fast Sealift Ships operated by MARAD for Military Sealift Command. Large ships like Algo and Capella, as well as post-Panamax vessels, are the types of vessels that Vigor will be able to repair with the arrival of Vigorous. Work on the two MARAD vessels will bring significant revenues to Portland and the surrounding areas.