SIC 3731
SHIP BUILDING AND REPAIRING



This category covers establishments primarily engaged in building and repairing ships, barges, and lighters, whether self-propelled or towed by other craft. This industry also includes the conversion and alteration of ships, the manufacture of offshore oil and gas, well drilling and production platforms (whether or not self-propelled). Establishments primarily engaged in fabricating structural assemblies or components for ships, or subcontractors engaged in ship painting, joinery, carpentry work, and electrical wiring installation are classified in other industries. Boat building and repairing are excluded as they are in a separate category, SIC 3732: Boat Building and Repairing.

NAICS Code(s)

336611 (Ship Building and Repairing)

Industry Snapshot

Thanks in large part to President Clinton's five-point national shipbuilding initiative, the shipbuilding industry achieved a remarkable turnaround during the mid-1990s. However, in recent years virtually all merchant tonnage built in American shipyards was destined for domestic customers under a subsidy program or under the protection of the Merchant Marine Act of 1920 (the Jones Act), which specifies that all inter-coastal traffic must move in U.S.-built vessels. The U.S. Navy has been the largest customer of the industry. As a result, American yards have a greater capability to build one-of-a-kind sophisticated ships than to mass-produce less complex, large merchant vessels. Nonetheless, U.S. shipyards play a vital role in the nation's economy. In 2001 alone, the industry increased the U.S. gross domestic product by $11 billion, generated more than $3 billion in tax revenues, and provided direct employment for some 31,238 workers, according to the Shipbuilders Council of America.

U.S. shipyards have built about 1.1 percent of world commercial deadweight tonnage annually (deadweight tons is a measure of ship carrying capacity), which is well below that produced by Japan, Korea, China, and several other countries. In early 2002, JoC Week reported that South Korea and Japan held some 70 percent of the world shipbuilding market. The U.S. Department of Transportation, Maritime Administration, indicated that the United States produced 16 commercial ships greater than 1,000 gross tons in 2000, up from 10 in 1999 and the highest number since 1982 when 21 ships were built. In 2001, an estimated 15 ships were constructed. Production during the early 2000s was approximately one million gross tons (GT).

With the end of the cold war, the U.S. military industrial base began shrinking dramatically, as did the nation's shipbuilding industry, dependent as it was on defense orders. This situation made it all the more imperative that a means was found to get the U.S. industry moving in another direction. In January of 1990, an American shipbuilding concern received the first order for a commercial oceangoing vessel since 1984. Ship owners, including American companies, favored foreign shipyards because of cheaper prices and faster order turnaround time. Government subsidies in Japan, Korea, and Germany ranged from 20 percent to 30 percent of the cost of the ship, enabling these builders to capture almost all of the commercial shipbuilding business.

It became very clear that unless foreign shipbuilding and repair subsidies were eliminated, it would be difficult for U.S. shipbuilders to fully participate in the forecasted replacement of the world's aging merchant fleet during the 1990s and beyond. With the downsizing of the U.S. Naval fleet and the lockout of U.S. shipbuilders from the commercial market in the face of government-subsidized competition, the future of the U.S. shipbuilding and repair industry appeared bleak. The industry faced massive layoffs and yard closures in this noncompetitive market.

One of the biggest obstacles to U.S. shipbuilding competitiveness was high state-sponsored shipbuilding subsidies, which were enjoyed by shipyards in a number of other countries. Although legislation and international agreements to end such subsidies has been introduced in recent years, by the early 2000s subsidies remained a hot issue within the industry. Foreign subsidies not only affected the United States, but other countries as well.

Organization and Structure

The United States has four shipbuilding regions: the Atlantic Coast, Gulf Coast, Pacific Coast, and Great Lakes. All four have capabilities to construct commercial and military ships. The Great Lakes yards, however, can only export ships that fit within the constraints of the Welland Canal and the St. Lawrence Seaway. For this reason, Great Lakes shipbuilding employment is only a small percentage of the industry total in the United States. Peterson Builders Inc. was the last major shipbuilder in the area, with less than 5 percent of the shipbuilding industry's workforce. The Atlantic Coast has the largest percentage of total employment, followed by the Gulf Coast, with the Pacific Coast third.

In the United States, most major shipbuilding yards are owned by conglomerates or large corporations. One of the problems with this type of alignment is that it places the shipbuilding division in competition with other divisions of the corporation for investment dollars for expansion, modernization, or other purposes. With an average return on equity of 6 percent in the shipbuilding industry, shipbuilding divisions have been losing the fight for corporate resources. An argument on behalf of this structure is that the parent corporation may have more success in obtaining favorable financing than a relatively small subdivision would have if it operated independently.

The shipbuilding and repair industry is a capital-intensive business requiring extensive initial capital to enter the industry and meet subsequent outfitting and technological requirements. These factors provide substantial barriers to entry, especially since the industry is not very profitable. The protection of the Shipping Act of 1916 is important to the survival of industry members because it helps them consistently attract sufficient cargo to cover initial outlays and fixed costs. The conference system was created to help protect this act. Through agreements enforced among the member groups, the conference system stabilized freight rates and the production of new commercial vessels. The stability of this system is necessary for individual shipbuilders to establish a cost structure and pricing policy.

As compared with the shipbuilding industry overseas, there has been relatively little cooperation among the yards in the United States. In Norway and Sweden, for example, research is sponsored jointly by the major shipyards. Other shipbuilding and shipping organizations abroad jointly sponsor computer programming and economic studies for the common benefit. U.S. shipyards operate independently as they seek contracts competitively. Limited though these exchanges may be, they have stimulated programs of research, ship computer programming, and ship construction techniques.

Despite the strong government ties to the industry of the Maritime Administration and Navy-supported programs, until very recently there was little government intervention in industry-wide planning, quotas, and other programs. This restraint reflects policies of antitrust legislation as well as the traditions of free, competitive enterprise. Unfortunately, U.S. shipyards have been denied many benefits they could acquire from cooperation, such as the use of standard parts and components (as employed profitably by Japanese shipbuilders). Benefits could also be gained from exchanges of engineering and other technical information.

MARITECH was a key component of the Clinton administration's program to strengthen U.S. shipyards by assisting efforts to make the transition from the military to the commercial market. This program intended to keep the industrial defense base healthy by helping U.S. shipyards become commercially competitive in the international market.

The MARITECH program was a five-year, industry-led campaign funded and managed by the Department of Defense's Advanced Research Projects Agency in consultation with the Maritime Administration. In addition, MARITECH was executed in full partnership with the Navy through the Office of Naval Research. Total government funding for the 1994 to 1999 MARITECH program was $220 million. The MARITECH program awarded matching federal funds to develop and implement technologies and advanced processes for the competitive design, marketing, production, and support of commercial ships.

The basic production facilities of the industry are the shipbuilding positions, either shipways or docks, along with work areas, essential supporting shops, and engineering and design capability. Heavy-duty equipment is used for bending, rolling, forming, cutting, and welding plates and shapes; for forming pipe and sheet metal; and for performing a wide range of machining operations. In addition, shipyards require storage facilities—open areas for steel, piping, subassemblies, and other items requiring minimal protection; and shelters for machinery, equipment, stores, outfits, and other items requiring protection from rain, sun, or pilferage. Facilities for the assembly of heavy steel include large cranes and handling and conveying equipment. The shipyard must also have piers where the ships can be outfitted after launching. These piers are equipped completely with service facilities such as fire mains, electrical power supply, compressed air, and fresh water.

Ship Repair. Ship repair is a sustaining element in the maritime industry. It has enabled many shipbuilders to ride the storm in a capital-intensive and cyclical industry. Selection of a repair facility depends upon the magnitude and type of work, the preference of the ship or boat owners, and the proximity of the repair facility to the ship or boat. Periodic and emergency maintenance and repair work are essential to keep vessels operable. During the 1990s, a report by Ocean Shipping Consultants, an industry trade group, predicted a positive outlook for the repair industry. This trend can be attributed to the aging fleet of operational ships and the decision by ship owners to extend their useful life.

Repair crews are also called into action when it becomes necessary to use merchant and naval ships from the reserve fleets located strategically on Atlantic, Gulf, and Pacific coasts. All vessels must also undergo special surveys every five years in addition to regular repairs for them to remain seaworthy. Economically, many ship owners have found it more profitable to increase the life of their existing fleet due to the high building costs of a new vessel. The results are increased surveys and repair work for the yards. Finally, environmental issues arising as a result of accidents and oil spills put pressure on ship owners to improve maintenance standards.

A critical requirement for a successful repair yard is its ability to meet schedules and complete work rapidly and satisfactorily. Many shipbuilding facilities have repair yards capable of dry-docking vessels of 400 feet or more. These firms handle a majority of the repair dollar volume, with the rest going to smaller docks or pier facilities. The remaining shops do special or limited repairs, transporting labor or material to the work site. Repair firms without dry docking facilities do not work on such underwater parts as the hull and the propeller. An integrated repair yard uses extensive waterfront acreage with facilities capable of dry-docking and berthing large ships. These integrated yards, as well as smaller repair facilities, cluster around active ports.

Repair yards also require a heavy financial investment. Dry docks are expensive, and most integrated yards have two or more piers, about 1,000 feet long and 40 feet wide. These features are in addition to the electrical and mechanical facilities and cranes. All such yards have warehouses for stock and shops for processing raw materials. In addition, each must have a wider variety of tools than shipbuilders require, since each repair job can be unique. Ship repair yards do not need to invest as heavily in capital as shipbuilding yards. Most of the investments are directly connected with the prospect of using these facilities for ship construction. This long-range planning helps the shipbuilder manage the business when shipbuilding demands abate.

The Shipbuilders Council of America, the one industry body that functions for private yards as a group, is the basic source of industry planning. This organization's membership covers most but not all of the major shipbuilding and repair yards and major segments of allied industries that supply materials and equipment. As a trade association, the council informs and appropriately presents the views of its members concerning pertinent legislative, executive, and judicial government actions and worldwide industrial and economic trends as they affect the private shipbuilding industry.

Background and Development

The colonists came to North America with strong maritime backgrounds. Shipping and shipbuilding, since colonial days, have exerted a powerful influence on the development of the United States. The transport of people and commodities until late in the nineteenth century was accomplished most easily and expeditiously by water, and with few exceptions, populations clustered at seaports or river ports. During its early history, moreover, the country imported many of its finished goods and industrial products from Europe and exported raw materials and agricultural products. The coastal forests provided an apparently inexhaustible supply of inexpensive virgin timber for the construction of the many ships the colonists needed.

Legislation by the first Congress of the United States was similar in intent to modern maritime subsidies. The first tariff, enacted in 1789, stipulated a 10 percent reduction in custom duties for goods imported in American vessels and a tonnage tax in favor of American shipping. The first literal subsidy by the government was paid in 1845, when Congress authorized the postmaster general to award mail subsidies, with preference to steamships that could be converted into vessels of war. These subsidies were discontinued in 1858 as an unnecessary drain on the U.S. Treasury.

Infant maritime industries continued to flourish. By 1850, American clipper ships were showing the flag in most ports of the world and were widely considered to be the world's best sailing vessels at that time. The American merchant marine was second in size only to England's. Although coastwise shipping was protected from foreign flag competition by the Navigation Act of 1817, the American merchant fleet received little more in the way of government assistance before 1845 than discriminatory duties or taxes and periodic contracts for mail. Essentially, throughout this successful era, the maritime industries of the United States were strictly private enterprises.

The Civil War began the decline of the American foreign-trade merchant fleet. As vessels were lost as prizes, American vessels shifted to foreign registry to lessen the risk of capture and to avoid exorbitant insurance rates. Vessels so transferred were not permitted to return to the U.S. registry. Even more far-reaching in its effects than the war itself was the development of steel-hull, steam-propelled ships. The advanced technology in England and other European countries gave foreign builders a considerable advantage in the cost of building iron vessels. Since it was prohibited by law to register foreign-built ships under U.S. documentation, the high cost of domestically built ships demanded a heavier capital investment for American-flag ships than for ships built abroad. The capital costs reduced potential earnings in foreign trade to a point where investment in American transoceanic shipping was unattractive. Under these conditions, private capital was not attracted to the highly competitive field of shipping. The American merchant marine declined from its once prominent position to a level in 1914 where only 9 percent of the value of foreign commerce, imports and exports, was carried in American bottoms.

Awareness of the inadequacy of the U.S. merchant fleet led to attempts to reduce shipbuilding costs by removing tariffs from imported materials, but these measures were ineffective. Between 1900 and 1914 Congress made several attempts to expand and strengthen the U.S. merchant marine fleet by enacting various subsidy programs and establishing a Merchant Marine Commission in 1904. All of these efforts failed while U.S. merchant tonnage fell to an historic low as a percentage of foreign-flag tonnage.

The outbreak of war in Europe in 1914 finally aroused the country to correct this imbalance in its merchant fleet as American ports were glutted with cargo for export with nowhere to go. That year emergency legislation permitted foreign-built vessels of any age to be documented by the United States for use in foreign trade. The Shipping Act of 1916 was enacted, which established a Shipping Board of Commissioners to oversee the acquisition of vessels by purchase, to regulate the use of these vessels through liner and conference agreements, and to provide general instructions for the sale or disposal of vessels to U.S. citizens. The act was modified in 1918 to prohibit the sale or lease of ships, shipyards, or dry docks to a foreigner in time of national emergency. It provided further that no U.S. shipyard could build for a foreign account. This first piece of comprehensive maritime legislation of the twentieth century remained law in the U.S. shipping industry into the twenty-first century.

Under the act, the United States embarked upon its largest shipbuilding program up to that time to yield 2,300 vessels. The American merchant fleet grew from 6.8 percent of the world total in gross tons in 1914 to 22.2 percent in 1920. The Merchant Marine Act of 1920 was established after the Shipping Act to facilitate the disposal of surplus government-owned vessels, to settle claims among carriers, to provide assistance to the U.S. merchant marine, and to regulate foreign commerce. The goal of the United States was to establish a merchant marine fleet that could meet all of the country's commerce and military needs. Congress ultimately wanted this fleet to be owned and operated privately by U.S. citizens and enacted provisions such as tax savings and subsidy assistance to stimulate the transfer of the government-owned fleet to private firms. Disposal of the ships to private citizens under the 1916 act and later under the Act of 1920 progressed slowly, and most of the fleet operated under the direction of the Shipping Board.

The disposal of ships to the private sector fluctuated from year to year, with most of the surplus ships sold at prices below cost. At the same time, the opening of the Panama Canal expanded the development of inter-coastal shipping. Availability of ships at low prices, fluctuations in the volume of foreign commerce, and the inability of the U.S. ships built under wartime conditions to compete with swift, modern foreign-flag tonnage resulted in a decline in foreign trade for the United States. This backdrop, combined with congressional dissatisfaction with mail-contract payments to the industry, resulted in the passage of the Merchant Marine Act of 1936. This act set the congressional foundation on which modern-day maritime policy rests and was the first attempt to set down a comprehensive maritime policy in the post-1916 act period.

The Merchant Marine Act of 1936 provided subsidies to private U.S. ship owners on essential foreign trade routes. It also provided for the payment of subsidies to cover differentials in construction costs of foreign and domestic builders of vessels ordered for private operators for use on these routes. In addition, the act authorized the government to build and charter vessels for operation on trade routes when private enterprise was unwilling to fill this role. Other provisions of the act required subsidized lines to establish special funds for replacing older vessels and for providing loans and mortgage insurance; it established citizen requirement for crews, required the establishment of manning scales and conditions for living and working on subsidized vessels, and authorized the establishment of a training program.

Under this act, a building program of 50 ships a year over a 10-year period was planned in order to rehabilitate the dry-cargo tonnage of the merchant marine. This program turned out to be of inestimable value. At the outbreak of World War II, a substantial number of ships under construction provided an impetus to the required expansion of the shipbuilding industry with high-quality ships of proven design and performance for wartime service. The U.S. shipbuilding industry reached a peak of ship production by the end of World War II, having built 5,700 vessels during the war. Fifty-seven major private shipyards were in operation—23 on the Atlantic Coast, 22 on the Pacific Coast, and 12 on the Gulf Coast. In addition to achieving high production levels, these yards were innovative and brought new concepts to the industry, including multiple production of standardized designs, a switch from riveted to welded shipbuilding, and techniques for fabricating large subassemblies.

When it became apparent that World War II was drawing to a close in March of 1946, the Ship Sales Act was passed. The objective of the Ship Sales Act was to dispose of surplus tonnage of ocean vessels while promoting the national policy of maintaining a merchant marine owned and operated by private citizens of the United States and to avoid some past mistakes. It provided for the sale, over a limited period of time, of war-built vessels to citizens and foreigners alike on a fixed-price basis. Charter of war-built vessels to foreigners was not permitted, but U.S. citizens could charter vessels on a short-term basis.

The postwar period began the decline of the U.S. shipbuilding industry. The downturn was interrupted by four spurts of orders. The first program began in the late 1940s and carried into 1950. It grew primarily out of the need for replacement tonnage that could not be met sufficiently by foreign yards, in part because the German and Japanese yards and component manufacturers could not operate on or near capacity. The second program was sparked by the Korean conflict and continued into 1954. The third program began in 1956 with the Suez crisis, and the fourth began in 1961 with the beginning of deliveries under the Maritime Administration cargo vessel replacement program. Wide fluctuation in demand over the postwar period, coupled with ambitious spending plans by U.S. shipyards to increase automation and an increasingly competitive environment, resulted in the decline of the U.S. shipbuilding industry.

In an effort to maintain the operation of a certain number of shipyards, the U.S. government parceled out orders among several yards, rather then giving a single yard the run of a specific ship. In effect, this action put shipbuilders in the position of contractors, building small numbers of ships to individual specifications, rather than that of manufacturers producing large quantities of identical items. Shipbuilders were unable to profit from learning curve benefits that accrue with long runs, and although the government's intentions were good, its actions killed the incentive of shipbuilders to diversify, and they lost their competitive edge. Government subsidies that supported the industry and paid for a small number of expensive vessels discouraged capital investment among the shipbuilders and expansion of their yards. The resulting shipyards had a high ratio of labor to capital, making the industry labor-intensive and cost prohibitive. The industry became dependent on government subsidies and Naval construction for its survival.

The industry has been hurt by over-capacity since the 1970s, which was driven by the lack of linkage between supply and demand. Shipping companies, which were not forced to suspend operations, moved to U.S. trades to attract high-value cargo. As a result of the influx of carriers, U.S.-flag shipping was hit especially hard. A subsequent threat posed by open conferences was the entry of state-controlled carriers in world trade. These carriers do not operate in pursuit of profit. Rather, they exist to promote their country's national shipping policies and to earn foreign exchange. The subsidies provided in many of these countries created an artificially high supply of ships that were later sold at low prices. In addition, the rates charged by these carriers were substantially lower than conference rates and resulted in foreign carriers siphoning off high-rated freight. The U.S. shipbuilding industry had not made the conversion from the military to civilian markets and was effectively shut out of this area because of the foreign subsidies. Even if there were a curb on foreign subsidies, U.S. shipyards might still be unable to make the transition to the civilian markets. The industry structured shipyards around the complexity of the Navy projects, and they were not prepared for the simplicity of design, speed of delivery, and low-cost requirements of the commercial sector.

In the early 1980s, the Reagan administration eliminated the direct federal subsidies of about $200 million each year that made U.S. shipyards competitive with foreign manufacturers. Almost all commercial shipbuilding moved overseas. At the same time, however, the president called for a 25 percent expansion in the Navy to increase the fleet to 600 ships. The defense buildup was enough to insulate the shipbuilding industry for the time being, but the industry was working from a much smaller base. In 1979, U.S. shipyards employed 150,000 workers and had 166 oceangoing vessels under construction, 67 of which were commercial ships. In the 1990s, employment dropped to 72,000 workers and 45 yards had closed, leaving only 17 yards capable of building oceangoing vessels. In 1990, 96 Navy ships and one commercial vessel were under construction at American shipyards. The shipbuilders that survived relied on the Naval building program, which increased its fleet from roughly 450 ships in 1980 to more than 580. In 1990, 95 percent of the business in the shipbuilding industry was Navy construction, overhaul, and repair, with ship repairs accounting for the remaining 5 percent.

After the cold war, the U.S. military-industrial base began shrinking dramatically, as did the nation's shipbuilding industry. In January of 1990, an American shipbuilding concern received the first order for a commercial oceangoing vessel since 1984. This was despite the fact that cabotage laws remain in effect that require that containerships serving only U.S. ports must be manufactured in a domestic yard. Shippers, including American companies, have favored foreign shipyards because of cheaper prices and faster order turnaround time. Government subsidies in Japan, Korea, and Germany range from 20 to 30 percent of the cost of the ship, enabling those builders to capture almost all of the business. In 1989 the Bush administration failed in a year-long effort to persuade foreigners to end their subsidies. As of early 1997, an international accord to phase out shipbuilding subsidies worldwide was pending before Congress. Giving additional hope for the U.S. shipbuilding industry was the Clinton administration's plan to help shipyards become competitive in the international market. However, as of 2003, its success remained to be seen.

The shipbuilding down cycle of the 1980s was unusually severe because it was preceded by a period of massive speculative overbuilding. During the early part of that decade, governments of most shipbuilding countries made decisions to pour money into commercial shipyards. The lone exception was the United States, which terminated its shipbuilding subsidies instead. This decision by the Reagan administration, coupled with the "Section 615" waivers that encouraged American shipbuilders to buy overseas, devastated commercial shipbuilding in the United States. These yards then became dependent on the U.S. defense budget for survival. Because of cuts in the defense budget and reduced requirements for Navy ships for the remainder of the 1990s, the Shipbuilders Council of America estimated that most of the private shipyards in the United States would have to close. The transition to competitive commercial shipbuilding by U.S. shipbuilders was the goal of the Clinton administration's five-point national shipbuilding initiative. The fate of the U.S. shipbuilding industry rested in large measure upon the success of this and similar programs that could follow, as well as on the elimination of shipbuilding subsidies worldwide.

Although the world shipbuilding market began to turn around in 1988, foreign yards continued to depend on government support to capture contracts and build ships. They received government payments to modernize facilities through restructuring and investment aid, indirectly benefited from government-supported ship financing provided to domestic customers from export and home credits, and realized special tax benefits. In addition, many of these foreign yards were awarded government grants to capture shipbuilding and repair contracts, and benefited from government-aided research and development of advanced manufacturing technology. During this same period, U.S. shipyards received none of these advantages.

Throughout most of the 1980s, the justification for foreign shipbuilding subsidies was low demand. In the 1990s, however, the reluctance of many foreign shipbuilders to let go of government subsidies was caused by the desire to capture as many contracts as possible while demand was high and while denying market access to U.S. shipyards. The U.S. shipyards had been losing the battle with the international commercial shipbuilding market during the 1990s as measured in the number of new merchant vessels under construction or on order at U.S. private shipyards.

The U.S. commercial shipbuilding and repair industry entered the last half of the 1990s with the brightest prospects it has had in decades. The dramatic turnaround, according to former Maritime administrator Admiral Albert Herberger, is due in large part to President Clinton's five-point national shipbuilding initiative.

Speaking in the spring of 1996 at the first American International Shipping Exposition (AISE) in New Orleans, Admiral Herberger credited the recovery to determination by shipbuilders and the president's support of the industry. Clinton's five-point plan called for his administration to negotiate for the elimination of foreign shipbuilding subsidies, improve competitiveness, deregulate existing programs, enhance private sector financing of shipbuilding with federal loan guarantees, and expand international marketing activities. In April 1996, Admiral Herberger said, 15 oceangoing ships were under construction in American shipyards, the largest number in more than a decade. Even more encouraging were the first U.S. exports of commercial vessels in 30 years.

The National Shipbuilding and Conversion Act of 1993 continued to help the U.S. shipbuilding industry re-emerge in the commercial marketplace. In a report issued by the U.S. Major Shipbuilding Base (MSB) dated January 1, 1998, there were 18 major shipbuilding facilities in the United States.

Through federal assistance programs such as MARAD and MARITECH, the U.S. government continued to assist the shipbuilding industry with both short- and long-term objectives throughout the 1990s. MARITECH, for example, had 27 ongoing projects ranging from design to research technology including nine projected projects totaling $79.8 million with government funding of $36.6 million for fiscal year 1997. Additional orders for shuttle tankers were also expected in that time period. American shipbuilders had no construction or conversions projects for major commercial cruise ships scheduled.

The shipbuilding industry received orders for eight tankers and three ferries by April 1, 1998, with original contract values of approximately $777.9 million. Six of these 11 vessels were covered by Title XI, with values of $239.3 million—MARAD providing $209.9 million.

The Navy's orders in the same time period had declined significantly, dropping from 88 vessels in 1988 to 51 in 1998. Fiscal years 1998-2003 of the Navy's budget included new construction totaling 32 vessels, 13 conversion or major overhaul projects, and work on three T-AKR military sea-lift vessels. Going into the new millennium all major full-service shipyards continued to depend on the Navy as their primary source of employment.

The last decade of the century also saw the U.S. Navy closing four of its eight shipyards. Several commercial ventures acquired these properties for redevelopment. Braswell Services Group, Inc. and Detyens Shipyard, Inc. leased facilities at Charleston Naval Shipyards for the purpose of repairing ships. Another company, Kvaerner Philadelphia Shipyard USA owned by Kvaerner Masa, a Norwegian shipbuilder, acquired a portion of the former Philadelphia Naval Shipyard. Kvaerner received an estimated $480 million in local, state, and federal funding for design, improvement, and retraining 1,000 local employees. In return, the company agreed to purchase the first three containerships it constructed, the first to be completed in 2001.

By the beginning of the century, approximately 40 percent of the world's tanker fleet would have been in service for 25 years or more. Because of this situation, both U.S. and foreign shipyards were beginning to see new orders for double-hulled tankers in the late 1990s. New orders for commercial vessels were also expected because of the rise in sea-borne trade for oil and dry bulk cargo.

Current Conditions

Shipment values for the shipbuilding and repair industry increased each year during the late 1990s and peaked at $11.4 billion in 2000. By value, companies engaged in shipbuilding and repairing were responsible for generating about 58 percent of shipments for the larger ship and boat building industry. According to the U.S. Department of Transportation, Maritime Administration, a total of eight facilities were engaged in the manufacture of oceangoing vessels in 2001. However, in 2002 some 51 companies belonged to the Shipbuilders Council of America (SCA), the industry's main trade organization. According to the SCA, these firms operated more than 120 shipyards in 25 states.

The defense industry remained the bread and butter of the U.S. shipbuilding industry in the early 2000s. As of March 2003, one major initiative of the American Shipbuilding Association (ASA) was to "Increase the Navy's annual ship procurement rate to begin to rebuild the Navy to a fleet of 360 ships." The association was concerned about the shrinking size of the U.S. naval fleet, which was approaching about 244 ships, below the 300 ships recommended by the 2001 Quadrennial Defense Review (QDR). The ASA indicated that the Navy needed to build approximately 10 ships per year over a 30-year period in order to maintain the recommended fleet size of 300 ships. However, in February 2002 Navy News & Undersea Technology reported that President George W. Bush supported the construction of only five new ships in fiscal 2003. Later that year, Defense Daily revealed that the House Appropriations Committee advocated $9 billion in annual support for shipbuilding, while Chief of Naval Operations Admiral Vern Clark had hoped for about $12 billion.

In early 2003, another ASA initiative focused on the Oil Pollution Act of 1990 (OPA 90). The ASA advocated the replacement of single-hulled oil tankers with new double-hulled vessels, per OPA 90's phase-out schedule. The SCA also noted this as a major industry concern. In October 2001, the SCA announced that "Under OPA 90, the U.S. will lose as much as 28 percent of its total existing tank vessel capacity, including 45 percent of all large, ocean-going tank barges, by the end of 2004." According to the association, amid these conditions demand for double-hulled vessels was expected to outpace supply by about 24 percent at the end of 2006. In 2009, this percentage was projected to reach 34 percent by the year's end.

Industry Leaders

By the early 2000s, the leading U.S. shipbuilders were mainly subsidiaries of leading defense contactors. Subsidiaries Northrop Grumman Newport News, Avondale Operations, and Ship Systems made Northrop Grumman Corp. the world's number one shipbuilder in the early 2000s. In 2002, Northrop Grumman earned 27.4 percent ($4.7 billion) of its total revenues from shipbuilding. General Dynamics also was a leading contender, with subsidiaries Bath Iron Works Corp., National Steel and Shipbuilding Co., and Electric Boat Corp. The remaining major U.S. shipyards were clustered on the Atlantic, Pacific, and Gulf coasts.

Formerly known as Newport News Shipbuilding, Northrop Grumman Newport News is strategically located in Newport News, Virginia, with deepwater access to major shipping lines served by all major airlines and rail transportation. It has the resources to accommodate major overhaul and repair work, new construction, conversion, and routine maintenance work. Newport News Shipbuilding is the only shipbuilder that can build Nimitz-class nuclear powered aircraft carriers and only one of two manufacturing nuclear-powered submarines. In February 2003, Defense Daily reported that the U.S. Justice Department had filed a lawsuit against Northrop Grumman Newport News, claiming it "billed the Navy for $72 million in research and development work the company did under commercial contracts."

Formerly a division of Litton Industries, Ingalls Shipbuilding became part of Northrop Grumman when the company acquired Litton Industries in December of 2000. Now the Ship Systems sector of Northrop, the company remains located in Pascagoula, on the Gulf Coast of Mississippi. Ship Systems employed 16,700 workers in 2003.

Northrop Grumman subsidiary Avondale Operations, formerly known as Avondale Industries, Inc., is located on the Gulf Coast in Avondale, Louisiana. The company's shipyard uses computer-aided design and modern series and modular construction methods to build a variety of military and complex commercial vessels.

General Dynamics' Bath Iron Works Corporation is located in Bath, Maine. Situated on the Kennebec River, 15 miles from the Gulf of Maine, its fabrication facility is located eight miles west in Brunswick. Bath Iron Works is renowned for its design and construction of the Arleigh Burke Class guided missile destroyer but is also capable of building high technology commercial vessels. In 2003, the company also was engaged in the manufacture of the DD-21 land attack destroyer for the U.S. military.

With roots stretching all the way back to 1899, Electric Boat Corp. also is a subsidiary of General Dynamics. The company's 9,800 employees design and build attack submarines for the U.S. Navy, including those in the Ohio and Seawolf classes. Electric Boat is based in Groton, Connecticut, where its shipyard is located. In addition, the company has automated hull-fabrication and outfitting operations in Quonset Point, Rhode Island.

Founded in 1960, San Diego, California-based National Steel and Shipbuilding Company (NASSCO) is another General Dynamics subsidiary. The shipbuilder concentrates on producing auxiliary and support ships for the U.S. Navy and is the only major shipyard on the West Coast. In addition, it makes commercial vessels, including cargo carriers and oil tankers. According to the company, in concert with General Dynamics' other shipbuilding subsidiaries, "NASSCO is participating in the Marine System group's modernization of the Navy's fleet of attack submarines, surface combatants, amphibious assault ships and auxiliaries."

Workforce

The shipbuilding and repair industry employed 87,829 workers in 2000, down from 97,065 in 1997 and 118,300 in 1992. Many of these workers have special skills such as welding, cutting, assembling and fabricating, blue collar supervising, ship fitting, and a host of other important trades necessary for the completion of shipbuilding tasks. Most of the major yards are also active in repair and conversion. The balance of the industry is engaged in the construction or repair of small ships, drill rigs, and small, specialized commercial craft.

Basic skill requirements for the repair industry are generally higher than those required for shipbuilding. In yards that do both construction and repair, it is common practice to assign the same workers either to building or repair as the workload shifts. These floating assignments help maintain the continuity of employment at a stable level. Other workers may migrate between shipbuilding yards and repair yards. Although supervisory and planning skills for repair and construction differ distinctly, both sets of skills may be learned and used by the same person.

Industry Problems. The first and foremost problem of a shipbuilder is that of using the resources at his command to produce a reasonable return on investment. Within this context, as with any commercial enterprise, the shipbuilder has the problem of maintaining an adequate order book, obtaining necessary financing, obtaining and retaining competent personnel, establishing and maintaining suitable facilities, obtaining and utilizing the proper materials, and maintaining an organization that will use these resources properly and efficiently.

A difficult and important problem is the maintenance of a stable order book. All of the foregoing considerations, from finance through organization, are strongly supported by stability in the order book and suffer severely from instability. The beneficial effects and the efficiency of the enterprise are materially enhanced if the orders are repetitive, to permit series production. The need for an assured market, of course, is implicit throughout all considerations.

In the United States, the problem of obtaining series production has been more difficult than in countries where the government, consortia, and individual yards by mutual agreement can allocate particular types of construction to specific yards. Antitrust provisions prevent this type of rationalization in the United States. U.S. yards therefore have to compete with each other for series production and attempt to obtain series production and develop special capabilities for the types of vessels they prefer to build. The industry's reliance on Naval orders has put the industry at a competitive disadvantage because it is building smaller numbers of ships to individual specifications, rather than producing large quantities of identical items.

Finance for needed expansion has not been difficult to obtain in the past. However, massive demands on the capital markets for other needs of the industry during the 1990s might pose future restrictive problems. This factor, coupled with past overbuilding trends in the industry and the early 2000s competitive climate facing U.S. shipbuilders, resulted in a lack of capital available to shipbuilders.

The matter of obtaining and retaining competent personnel has also been a difficult problem for most shipyards. This problem is chiefly due to the cyclic nature of the order books and the workflow. Compounding the problem is the work availability in the construction industry at higher levels of pay. A workload with a reasonable promise of continuing stability is the most significant factor in the attraction and retention of competent personnel.

The establishment and the upgrading of facilities to improve operating efficiency are always under consideration by a shipbuilder. Again, such commitments are only practical with reasonable assurance or high expectation of a market sufficient to produce an adequate return on investment. The cost and availability of material similarly is always important to a shipbuilder, since material constitutes about half the cost of the usual commercial vessel. The small demand for material and equipment from the shipbuilding industry leaves the shipbuilder with little bargaining power to improve prices and delivery.

America and the World

The building of oceangoing ships is practiced throughout the world. All nations engaged in major shipbuilding participate heavily in world trade. Many build ships as a significant export commodity and their economies are closely tied to the success of this industry. The areas responsible for most of ship production are grouped broadly into three sectors: the United States, the Far East, and Europe. European membership is represented by the Association of Western European Shipbuilders and includes Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, and the United Kingdom. The industry has been dominated by the Far East sector with Japan and South Korea historically controlling more than 50 percent of commercial vessel tonnage orders. By 2002, these two countries represented about 70 percent of the world market. Although American shipyards were once again beginning to build for foreign customers, U.S. yards were not a significant factor in international competition, with roughly 1 percent of the commercial tonnage under construction at U.S. shipyards in recent years.

Globally, the military market was expected to demand more ships throughout the first 15 to 20 years of the twenty-first century, with the Asian military expected to have the highest demand. Western Europe, the Middle East, Eastern Europe, and Latin America were expected to follow, with a forecasted total amounting to 180 destroyers, frigates, and corvettes.

Further Reading

American Shipbuilding Association. "ASA Initiatives," 11 March 2003. Available from http://www.americanshipbuilding.com .

——. "Naval Fleet Requirements/Shipbuilding Policy," 11 March 2003. Available from http://www.americanshipbuilding.com .

Donnelly, John M. "Navy Is Building Enough Ships, Secretary Says." Navy News & Undersea Technology, 19 February 2002.

"EU/South Korea: Seoul to be Challenged in WTO over Shipbuilding." European Report, 28 September 2002.

"Justice Department Charges Newport News Shipbuilding with Fraud." Defense Daily, 4 February 2003.

"Record Year for Korean Shipyards." JoC Week, 28 January 2002.

Shipbuilders Council of America. "U.S. Commercial Shipyard Industry Adds $11 Billion to Economy," 1 April 2002. Available from http://www.shipbuilders.org .

——. "U.S. Facing Severe Tank Vessel Shortage, According to New Analysis," 1 October 2002. Available from http://www.shipbuilders.org .

"Shipbuilding Association Generally Pleased with Congressional Action." Defense Daily, 11 October 2002.

U.S. Census Bureau. Annual Survey of Manufactures. Washington, DC: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, February 2002. Available from http://www.census.gov .

U.S. Department of Transportation, Maritime Administration. "Commercial Shipbuilding Orderbook History," 31 December 2001. Available from http://www.marad.dot.gov .

——. "Shipbuilding Facilities Currently Constructing Oceangoing Vessels in the United States," 2001. Available from http://www.marad.dot.gov .



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