Has U.S. Shipbuilding Reached an ‘Atlas Shrugged’ Moment?
Each year, as we prepare for the largest U.S. based maritime industry conference in New Orleans, we tend to look back on the state of the industry and initiatives that were announced from the conference that took place the year before. 2023 provided us with plenty to talk about. In September of 2023, while the International Maritime Organization (IMO) and the global shipbuilding industry were fixated on “emissions” and alternative fuels, U.S. Secretary of the Navy Carlos Del Toro held the opening meeting of the Government Shipbuilders Council.
Announced with a new tag line of “Maritime Statecraft”, the GSC was created to address American ship acquisition, fleet maintenance, government spending and strategic development as a response to a recognized reduction in the nation’s maritime power. There is confusion, however, about whether the action was developed to propel military or commercial vessel construction.
U.S. warship builders are not suffering. At naval shipbuilder Ingalls, an award for six Arleigh Burke-class guided-missile destroyers was confirmed in 2023. With the Navy’s decision to continue with the destroyer class, the yard’s long-term order book is full into 2030. The Navy has also provided a $9.6 billion deal with Ingalls to keep the San Antonio amphibious fleet program alive despite previous contract cancelations. With 24 ships currently on order, the Mississippi yard has invested in large facility improvements and entered 600 trainees into its “shipbuilding training facility”.
Let’s look at Austal, the latest entry into U.S. Naval shipbuilding.
Passing on comments about the LCS class construction, Austal USA is now busier than any time in its history with 23 vessels on order and a roughly $450 million dollar facility upgrade. National Steel and Shipbuilding Company (NASSCO) in San Diego—a U.S. yard no longer completing commercial construction—recently won a $6.7 billion contract to build eight T-AO205 fleet replenishment oilers. Considering the Newport News and Electric Boat “niche” we will stop the short list here. Our shipyard capacity for naval construction can be counted on one hand, and it’s booked.
The mainstream media reports indicate a Rip Van Winkle wake up call. China has contracted more than 2,000 new buildings in 2024 alone, including both commercial and military vessels. Most of the tonnage coming out of China is large containerships and liquefied natural gas (LNG) carriers, and at levels never before experienced. More importantly, much of this tonnage is capable of dual use to support military activity and increase a country’s energy potential. The numbers for the U.S. orderbook (both military and commercial) fall well behind that claim. We are well short of commercial capability and significantly below “war capacity”.
With the maritime statecraft initiative, SECNAV Del Toro has considered partnerships with key foreign shipbuilders, yet none of the Navy contracts above involve a foreign entity or equipment. A recent visit and photo opportunity at Hyundai, South Korea praised the technology and ability of the largest shipyard in the world. Following that report and SECNAV’s foreign shipyard investment request, we read Hanwha agreed to purchase Philly Shipyard in a $100 million offer.
The foreign technologies and precision processes discussed in the SECNAV attendance reports have been available in South Korea for over 30 years, and more importantly, have been used to develop commercial shipbuilding, not military. Rarely do we hear reports of South Korea’s military deliveries or contracts. Global capacity concerns are not limited to the U.S industry. South Korea is also concerned with the rise of Chinese commercial shipbuilding to levels never before witnessed. With that, they are looking at opportunities outside of Korea, and the level of contract price of both domestic and military construction in the United States is a target.
With all the Navy fanfare, understand that foreign “ownership”, collaboration and partnership has been available in U.S. shipyards for decades. Hyundai, DSME, Keppel, Samsung, Austal and Fincantieri all operate within the existing commercial yards in some fashion of purchase or legal collaboration. Our inability to compete globally reaches far beyond a foreign partner, and truth be told their involvement has not worked to lower the cost of U.S. building to date. In fact, it continues to rise to levels that are becoming unhealthy and will affect domestic markets from energy to household goods.
The problem is not the cost of labor. It is our inability to build infrastructure that supports ship manufacturing. And with that, the path forward needs to be a fresh start with greenfield locations and new technology in commercial shipyards surrounded by a manufacturing base that supports the effort. Importing equipment and material needed to complete the “build” is one of the simplest issues of “cost”. If you analyze the South Korean model and have attended their major shipyards, you will understand they are surrounded by a manufacturing base from propulsion engine to pipe, nuts and bolts. This unlocks a logistical cost savings that works toward their competitiveness. China has multiplied that model by 10. And make no mistake, the Maersks and COSCOs of the world build 23,000 TEU containerships with the understanding that U.S. manufacturing has not recovered and imports will grow.
We are seeing interest from American technology and investment capital as we address questions from investors asking if we can move ship manufacturing to a “Space X” model. Is it possible to 3D print a vessel or provide new technology to redefine “ship manufacturing”? Can we move toward a full production line similar to the auto industry? Can this manufacturing process be operated by robotics to ease the reported labor shortages and train a new shipbuilding work force. The labor problems reported in U.S. shipyards also exist elsewhere. Korea, Japan and Europe are experiencing the same labor shortages. It is a generational problem and can only be solved by offering new job descriptions to meet the new generational digital and AI interests.
The pandemic and current geopolitical events of the past three years are driving many of these conversations. It ranges from terrorism in the Red Sea to military activity in the Far East. Similar geopolitical events influenced our shipbuilding base decades ago in Europe. We are writing this piece prior to the National elections, and the results of that election will affect many of these future decisions. That said, SECNAV needs to look at history. I big part of our success in supporting Europe in World War II was building commercial tonnage to deliver fuel, supplies and troops.
We now recognize the U.S. flag no longer has that capability, and that is where the change must begin in a rebirth of commercial shipbuilding. Our success will be providing tonnage that is competitive in global markets, and it can begin along our coasts. Supporting the Navy with supplies is a market. Understanding the commodity requirements to rebuild our infrastructure and reestablish the manufacturing base is a market. The movement to alternative fuels, chemicals and energy is a market. To engage the Flag in those markets will require years and enormous private capital to reach global competitive levels. It is an investment that must be made now.
U.S. domestic shipping cannot be compared to global operations at this point in time. Our U.S. flag domestic container fleet has selected LNG propulsion as a transition fuel for the next 25 years. The latest Matson dual fuel LNG containership contract supports that decision. The LNG transition will continue with propulsion upgrades to existing tonnage, cargo authority modifications and a continued use of fossil fuels with energy savings devices employed to reduce emissions. The investment cost comparison at this time is simple: new construction cost, or cost to achieve life extension and remain competitive when entering those new markets until such a time when shipyard capacity and technology can be developed. Meanwhile, the foreign builders and fleets are chasing alternative fuels, and with that, new construction costs will climb as we understand that global fuel infrastructure is years away from support. Ask not if the Hyundais of the world will look to U.S. investment. Provide a future plan and U.S. technology base that will demand their involvement to maintain their global position and give us a position of strength at the negotiating table.
It is called “Yankee Ingenuity”, and it is time for our “Atlas Shrugged” moment.
