NDIA POLICY POINTS SHIPBUILDING

Improving the Shipbuilding Industrial Base

1/21/2022
By Heberto Limas-Villers

Navy photo

In the 2022 National Defense Authorization Act, Congress authorized $4.9 billion in funding for Arleigh Burke-class destroyers and an additional $4.7 billion for shipbuilding to include two destroyers, two expeditionary transports and a fleet oiler.

The increased attention to U.S. naval capabilities comes after increasing competition with China, as well as discussions around changes to the current force structure. Currently, the Navy is required by law to have at least 355 ships, though plans are in place for expanding the fleet to between 398 and 512 vessels, which includes both manned and unmanned platforms.

This objective is largely aspirational as the number of both private and public shipyards has significantly declined with gaps in experienced personnel, rising costs and a boom-bust cycle in naval acquisitions.

The United States became a global power through its power-projection capabilities, including its naval prowess. To maintain its edge, it must build those capabilities once again.

Since 1993, the number of public shipyards the Navy used fell from eight to four — two on the West Coast and two on the East Coast — due to the “peace dividend” of the 1990s. However, these four shipyards have limited functional dry docks, old equipment, and regularly delay maintenance for the submarine and aircraft carrier fleets.

The U.S. shipbuilding industry is bolstered by 22 private shipyards. Three shipbuilders have left the industry and only one shipyard has opened since the 1960s. Both Huntington Ingalls Industries and General Dynamics, the two largest U.S. shipbuilders, reported a record new construction backlog for 2020 competing for drydock space with essential ship maintenance.

What is left is a diminished industrial base incapable of even maintaining the Navy’s current presence. Worse, U.S. shipbuilding is significantly behind China, which has dozens of shipyards capable of building and maintaining a fleet that can project naval power beyond the First Island Chain. Because of the nation’s investments, the Chinese navy grew to approximately 350 ships by 2020, and Beijing now has the largest navy in the world by ship numbers albeit not by tonnage.

Efforts are being made by the U.S. Navy to renovate its public shipyards through a 20-year, $21 billion Shipyard Infrastructure Optimization Plan. However, more attention needs to be given to the private shipyards that already construct and maintain most of the fleet from fleet oilers to destroyers.

Private shipyards remained largely profitable during the COVID-19 pandemic, though their margins have been negatively impacted. The main issues that limit private shipbuilders in the long term lies in personnel, rising costs of materials, and inconsistent acquisition priorities that threaten to consolidate the industry further if not properly addressed.

Having enough skilled technicians to construct and maintain these ships is a considerable problem for industry. Since the 1990s, the workforce has aged, leaving shipyards with an increasingly fragile workforce with a dearth of skilled younger workers in the pipeline. While shipbuilders like Huntington Ingalls have some form of an apprenticeship program, demand for a skilled workforce during COVID remains considerable.

This lack of skilled technicians causes delays in construction and maintenance, compromising the Navy in a possible future engagement.

Fortunately, there is a growing recognition of this employment gap by the Defense Department. In June 2020, it announced a pilot program to train new welders and other specialized roles for public shipyards. While it is starting small, programs like these will help eventually bridge the gap with proper funding and training provided.

Another issue shipbuilders face is the rising costs of materials. This is a problem throughout the entire economy, though the Congressional Budget Office found that the Navy shipbuilding cost index was 1.2 percent higher than overall inflation between 1986 to 2009. This is partly due to specialized construction needs in contrast to the general economy, low competition among shipyards and low-volume orders.

In the long term, encouraging more contractors to provide shipbuilding capabilities will lower the cost index, though this will require an increased budget for the Navy.

Lastly, the main issue inhibiting private shipbuilding is the inconsistency in demand from the Navy. Currently, there is a bipartisan consensus on increasing the service’s size, though this follows decades of boom-and-bust cycles in procurements reducing the industrial base as seen with the closure of Huntington Ingalls’ Avondale Shipyard in 2014.

The Navy’s shipbuilding plan has also been unhelpful, given a vacillating post-Cold War period with halting efforts to modernize and properly adapt to the era, as seen with the Littoral Combat Ship program and Zumwalt-class destroyers. Shipyards are harmed as each program requires significant investment to properly construct and maintain new ships, only for it to be squandered when the Navy cancels orders and moves to develop other systems.

Further, this encourages consolidation that limits the competition needed for a robust naval acquisition strategy. To ensure that the shipbuilding industrial base doesn’t deteriorate further, it is important that there is a consistent procurement of ships and a clear commitment toward new systems as needed.

In the long term, more shipyard capacity must be built — both by the government and private sector — to meet the demands of a larger U.S. Navy. However, significant changes to training and acquisitions need to take place to ensure sustainability for the longer term.

Heberto Limas-Villers is a junior fellow at NDIA.


Topics: Shipbuilding

Comments (5)

Re: Improving the Shipbuilding Industrial Base

Lived and worked in China Shipyards many years. The US is not capable of and never will be capable of producing commercial or naval vessels other than the few low quality they currently produce.

Bob Irving at 2:37 PM
Re: Improving the Shipbuilding Industrial Base

To revitalize the Navy you need shipyards that are capable of building both Naval and Commercial ocean going ships. You need a consistent build program for the navy and you need to require US built, manned and flagged commercial ships carry US import and export cargoes at a significantly higher rate than they do currently. China has graving docks over 1500' long capable of 500000 DWT ships being constructed, thats over 2 times the biggest ships we have in the US Navy. They currently build hundreds of oceangoing commercial ships each year . We are lucky to build a single commercial ship. With robust commercial shipyards your supply chain specialty manufacturing comes back and you have a large trained workforce to build and repair all types of vessels.

Captain William S. Harrison, United States Merchant Marine at 10:41 AM
Re: Improving the Shipbuilding Industrial Base

What happened to the world's formerly #1 industrial power -- the USA? Two fatal mistakes GLOBALISM and FREE TRADE. Reviving US shipbuilding is very simple. We need to utterly reject globalism and free trade. (1) Cargo carried by foreign flagged and/or build ships will be subjected to a 50% in additional tariffs and shall pay for fuel at twice the price as is sold to US vessels. Practically, it means that all exports to the USA will be carried by US built and flagged ships. (2) Uncle Sam will spend $10 billion a year on FREE INFRASTRUCTURE gifted to US shipyards for the next 25 years. (3) All US shipbuilders and Shipyard workers are exempt from Income Taxes. (4) For the first 5 years, Uncle Sam will pay for half the price of every commercial ship build by US shipyards, reducing to 40% in the next five and decreasing by 10% every five years. (5) Uncle Sam will spend $10 billion a year of R&D of new gas turbines, diesel engines and podded propulsors by US firms which they are free to sell commercially. (6) Mercantilist trade policy will be focused on reducing deficits and generating surpluses, with trade volume and free movement of goods being totally ignored. We'll tariff goods from individual countries based on our trade deficits with them. If you want tariff free trade with the USA you must buy from us as much as you sell to us, period. Otherwise, we'll ratchet up tariffs with no limits until the deficit goes away even if it means zero trade with you. If the WTO doesn't like it, well, it's past time we withdraw from that suicide pact anyway!

Dwight Looi at 12:22 AM
Re: Improving the Shipbuilding Industrial Base

Can't do it without money. The economy needs to be a top priority.

Lepke Buchalter at 11:10 PM
Re: Improving the Shipbuilding Industrial Base

While the author has succinctly addressed the shipbuilding industrial base issues being faced by the public and private shipyards, he fails to recognize that the shipbuilding supplier base is facing its own issues that also impact the ability of the US Navy to get its ships built. The increased use of foreign suppliers, despite significant interest by Congress to strengthen existing Buy America requirements, has depleted the domestic supply chain to a point where companies continue to exit this market.

Industries involved in the manufacturing of shipbuilding components were among the hardest hit by the global shift in the industrial base over the past 20 years due to a lack of a clear and consistent policy. Since 2000, these industries experienced a combined decline of over 25,000 establishments in the United States. Expanding the number of companies involved in Navy shipbuilding is important to maintaining a healthy industrial base. The pandemic exacerbated the challenge to sustain and expand the shipbuilding supplier base, focusing the spotlight on a serious national security threat due to lack of transparency in the second, third and fourth tier of the supply chain across all DOD programs.

The bottom line here is that most shipbuilding components are procured by shipyards, not the government. Buy American (BA) requirements apply to systems, not components. Current Buy American policies do very little for the domestic shipbuilding design and supplier base. We need clear policy direction that BA clauses in contracts specifically apply to shipbuilding design and component manufacture.
The national security justification for building ships in the US is clear—whether it relates to sensitive nuclear technology, to security of the supply chain, or to maintenance of critical capabilities and skills in our industrial base. That same national security justification should apply to our U.S. base of vessel component suppliers and vessel designers as well.

We need specific policies and laws that will ensure the shipbuilding supplier base and its skilled workforce can deliver and sustain the larger fleet the Navy needs in a manner that provides a highly-skilled workforce, transparency and security of the supply chain.

Tish Williams, American Shipbuilding Suppliers Association at 5:12 PM
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