US Boatbuilding: Sink or Swim

Conducting commerce and forecasting the future for shipyards is akin to setting out in uncharted waters. For some, the voyage might prove to be easy sailing with favorable winds. Other times, it can be a rough ride, forcing long and unprogressive diversions. In the worst cases, one might run aground temporarily, hit rock bottom, capsize belly up, or be forced to turn around and give up.

 

Just as the most skilled sailors know how to watch for and navigate storms, America’s shipyards have also proven to remain fluid and adaptive to the winds of change and current trends. The disappointing pull back of drilling efforts in the Arctic and poor market conditions for the American Gulf of Mexico has collectively created a precarious environment for several of our nation’s yards. Fortunately, many of the most heavily impacted yards appear to be on the right tack to ride out the storm, many through diversification of their work portfolios.

 

The low oil prices that, in part, caused things in the Gulf to dry up are also among the factors of safety, environmental, and political concerns that have cast a dim shadow on any polar promise. West Coast shipyard giant, Vigor Industrial, built a large infrastructure in part to provide key support for the Arctic oil and gas offshore trade. Without any definite future plans for oil companies to make a go again in the northern circle, Vigor has nevertheless been able focus their efforts on their repair business and towards ferry construction projects, which has kept their many yard locations busy.

 

Vigor is currently constructing several car ferries for Washington State Ferries, two car daytrip ferries for Alaska Marine Highway System, and a couple of passenger ferries for California’s San Francisco Bay Ferry overseen by the Water Emergency Transportation Authority. Beyond that, key acquisitions of smaller yards have opened up markets in other sectors for this West Coast giant that have markedly diversified and brightened this builder’s portfolio.

 

Gulf builders have faced an even tougher obstacle in redirecting their capabilities to other unaffected and growing segments of the marine industry. The ferry market from coast-to-coast seems to be robust, providing opportunities for many yards nationwide, including those in the Gulf. Conrad Shipyard, for example, has been busy with the recent delivery of a 235’new car and passenger ferry for the Woods Hole Steamship Authority. Separately, Horizon Shipbuilding and Metal Shark have won awards to deliver up to 19 aluminum catamaran passenger ferries to support Hornblower’s new contract with Citywide Ferry Service in New York.

 

Beyond this, Metal Shark is venturing outside of their core market of smaller military craft and Horizon is shifting focus from the large steel offshore support vessels that they are most typically known for. This project will prove to be one of the most ambitious in recent years and if executed successfully could demonstrate a turning point for the industry. Diversification seems to be the key.

 

Those affected most by the slow running oil patch may soon see the idle period end. One place where relief may be waiting is in America’s new offshore wind farms. The first offshore wind farm is nearly complete and the very first turbine has been installed. While the initial farm of 5 turbines is relatively small, many other large scale farms are in the development stage. The obstacles mounted against the realization of domestic, marine-based wind have been substantial. One such issue involves the lack of domestic, Jones Act eligible support vessel infrastructure.

 

While many underutilized vessels from the Gulf could be redeployed to the coastal farms planned for the eastern seaboard, the move would only be interim and temporary. Barrel prices are sure to rise and the oil rigs will soon be back at work, beckoning high demands for crew boats, supply boats, barges, and tugs. While there is some overlap in required capabilities, the use of gulf-type crafts – not built-for-purpose hulls – should only fill in while purpose-built wind support vessels can be custom designed and constructed. And, that’s already happening.

 

Conventional wisdom holds that increased competition is good for the market. For example, when the offshore industry keeps industry in full production, domestic shipyards tend to remain segmented in their areas of market focus. The segmentation extends not only to applications but can also restrict shipyards to focus more regionally. And when many yards vie in for fewer projects, there also looms the possible downside of builders taking on projects that are fairly specialized and potentially beyond their capabilities or areas of expertise. 

 

There are there are deals to be had; both good and bad. Recent reviews of several competitive federal awards have shown a significant disparity and inconsistency in competitive pricing, with awards arguably trending lower than typical market value. Nationwide prices for materials remain highly competitive and transparant, hence any pricing disparity amongst shipyards should come only from variances in labor rates and assessed labor hours—most likely rendering an anticipated variance of 10 to 20 percent.

 

While the federal government is, in theory, on guard for those looking to buy their way into contracts, there is a lot of gray area and contract officers have been willing to award contracts to shipyards at or below cost. The purchase process tends to be circular and while lower prices may be offered on the front end, the builder and eventually the purchaser will arrive at a point of reconciliation whereas more money will need to be invested in the project in order for the full scope to be supplied.

 

More new construction opportunities are on the horizon, with the promise to bring good fortune to those who endeavor set sail on such a course. New segments in hybrid vessels and unmanned technology will require specialized expertise and the shipbuilding industry will need to find a way to meet the likely demand. Likewise, the new federal fiscal year will begin in October and regardless if spending bills are approved or if a continuing resolution exists, there will be new vessel needs. True, some uncertainty exists for the significance and fallout of the newly released U.S. Coast Guard Subchapter M regulations for inspected tow vessels. Those who are quick to chart a successful implementation plan are sure to find a steady stream of work.

 

Unfavorable tides will undoubtedly continue to shift sands and whirlpool our industry through unstable market conditions, restrictive regulations, and stringent environmental factors. Shipyards that triumph through rough weather eventually prove to be stronger and more sustainable in the long run. Thankfully, the industry as a whole is not in dire straits, but current conditions should prove sobering regarding the importance of keeping the Jones Act securely in place. Here’s hoping that all yards will soon be underway with fair winds and following seas.

 

 

 

(As published in the September 2016 edition of Marine News)