Insights: Matthew Paxton, SCA President

Joseph Keefe, Contributor

Joseph Keefe contributes to New Wave Media titles as needed....

October 13, 2015

Matthew Paxton is President of the Shipbuilders Council of America (SCA), and a partner at the law firm of Adams and Reese. SCA is the national trade association representing 41 companies that own and operate more than 120 shipyard facilities on all three U.S. coasts, the Great Lakes, inland waterways system, Alaska and Hawaii. SCA also represents 97 partner members that provide goods and services to the shipyard industry. Paxton, who has been practicing law since 2001, focuses his practice on maritime law and policy, fisheries law, natural resources development, and environmental policy issues. In addition to the SCA presidency in which Paxton works with member CEOs to develop and implement the organization’s policy goals through legislation in Congress and advocacy before the Executive branch, he also serves as the federal lobbyist for the Coastal Conservation Association, the nation’s largest marine conservation group dedicated to promoting the availability of coastal resources for the benefit of the general public. Paxton earned his J.D., in 2001, from Willamette University College of Law, and he received his B.A., in 1997, in political science from the University of Washington. Listen in as he weighs in on all things shipbuilding – especially where it impacts our domestic, Jones Act audience.

Describe the state of U.S. shipbuilding today. Give us a SITREP, if you will.
Overall the state of U.S. shipbuilding and ship repair industry is strong. Commercial markets vary, however. Yards building and repairing for the offshore oil and gas markets are feeling the impacts of the declining price of oil in the world market. Yet other markets continue to build; large vessel construction for vessels moving oil product as well as the recapitalization of the non-contiguous container fleets, are delivering vessels. The movement of energy in particular has inspired investment in cutting edge, environmentally friendly vessels that are leading the world in innovation and technology. On the military side, the effects of sequestration continue to be a challenge, but SCA is working diligently to protect the industry from potential future cuts in defense spending. The safety and security of our nation and those who risk their lives to protect our homeland is our upmost priority. As national security threats continue to arise globally, we need to ensure that our men and women in uniform have access to the equipment they need to do their jobs safely and effectively. Sen. John McCain and Congressman Mac Thornberry – co-chairman of the Senate and House Armed Services Committees – memorialized this sentiment recently in the Wall Street Journal writing, “Continuing to slash defense invites greater danger to national security while shamefully asking the country’s military men and women to do their jobs with shrinking resources.”

Two organizations from one – it has been more than 15 years: The consolidation of NSA and SCA brought together the most successful and innovative shipyards in the U.S. under one national trade association. Boysie Bollinger, at the time said, “There should be no confusion, SCA is now the voice of the small and mid-sized shipyard industry in the U.S. that serves the commercial and governmental marketplace.” How do you balance the concerns of both large and small yards under one roof?
SCA represents the entire shipbuilding and ship repair industry – large and small shipyards, commercial and government construction, repair and new construction. In fact, many yards are diversified, falling into several categories. SCA supports building more ships and growing the shipyard industrial base – both are paramount to our nation’s economic and national security. At a time when the industry is facing attacks on the Jones Act and increased uncertainty over the federal budget, it is more important than ever that the industry stand together. Another benefit the association offers to all shipyards, regardless of product line or size, is the important regulatory work the association performs. This includes tracking and engaging the rulemaking process, specifically, EPA and OSHA rule promulgation, to ensure the industry’s collective voice is heard.

Beyond big and large – the needs and concerns of dedicated ship repair facilities diverge with that of those yards primarily or purely involved in new build activities. And, where does SCA get involved to further the agenda of the ship repair industry?
While some of the trade skills are common, the process by which one maintains and modernizes a ship is completely different than the process to build it. Repair requires taking a ship apart and putting it back together. Getting equipment off a completed ship is often more difficult than installing it in a module that ultimately becomes part of the ship. Just as SCA supports the shipbuilding accounts of the Navy and Coast Guard without advocating for individual programs, SCA supports the ship depot maintenance and various modernization accounts. In addition, as mentioned earlier, several of our members are building and repairing vessels, either commercially and/or for the military, and in some instances, in all of these categories. So, ship repair is equally as important as shipbuilding for the SCA and we advocate for the strength and health of both segments of the shipyard industrial base.

The most recent attack on the Jones Act from Senator McCain was particularly troubling in that it reached the stage of a bill rider. Industry and all sector stakeholders responded strongly. But, what’s the status of the Jones Act today and how safe is its position, really?
The Jones Act supports a domestic fleet of 40,000 commercial vessels, nearly 500,000 American jobs, and roughly $100 billion in annual revenue to the economy. In addition to the tremendous impact our industry has on the U.S. economy, we play a critical role in our nation’s national security. To outsource our fleet – the eyes and ears of our waterfront, waterways and ports – would be to outsource our national security, something that our nation cannot afford to do in these trying times abroad, in which the threats to our country and our allies continues to grow each and every day. That’s why the Jones Act has broad bipartisan support in both chambers in congress, as well as the backing from every modern day U.S. president. Maintaining a strong commercial shipbuilding and ship repair base under the Jones Act, is also critical for Navy and Coast Guard shipbuilding. Without that strong commercial shipyard industry, there would be far less supplier companies, less heavy machinery capability, less Naval architects, and so on, and that would fundamentally impact the cost of Navy and Coast Guard ships, as well as, reduce severely the available pool of a skilled workforce that can build and repair the most advanced and complex Navy and Coast Guard in the world. This is why there has always been steadfast support for the Jones Act from the Navy. When the commandant for the Coast Guard, Adm. Paul Zukunft, warns that any changes to the Jones Act would “put our entire U.S. fleet in jeopardy,” I think it’s prudent for all of us, including Sen. McCain, to listen.

As President of the Shipbuilders Council of America (SCA), what is your primary advocacy today in terms of shipyard issues?
As a shipbuilding and repair industry, we touch all 50 states and 435 Congressional districts with the nearly 500,000 American jobs we create. For every direct maritime job we create, five more are generated. It’s those hardworking men and women our industry provides jobs to, as well as the substantial investments the shipbuilding and repair companies have made to grow our fleet to reach the market demands of the next century, that guide the work of SCA. To that end, it’s imperative that we work to maintain the integrity of the Jones Act, which serves as a strong backbone for our nation’s economic and national security. The Jones Act provides certainty for the jobs our industry creates, as well as the strength of our Navy fleet. But in order to provide that stability, we need stable funding for government ship construction and repair. While we understand the driving forces behind funding restrictions like those proposed in sequestration, we cannot and should not do it on the backs of our armed forces. Time and again, the leaders of all branches of the military – Navy, Air Force, Army, Marine Corps and Coast Guard – have advised that drastic spending cuts to our defense programs not only put lives at risk but also impede on their ability to execute the National Military Strategy. As our equipment provides the tools that our military men and women need, we will continue our fight to ensure that our military has the proper funding it needs to keep those in harm’s way as safe as they can be.

What would you tell those who may say that U.S. yards exist only because they are also protected?
To say that U.S. yards exist because they are protected is completely false. In fact, quite the opposite is true. U.S. shipyards don’t receive one dollar in the way of subsidies or preferential treatment as many other foreign shipyards do. This fact is in stark comparison to the way shipyards in places like China and Korea are treated. In some cases, the entire shipbuilding industry in countries like Japan are supported and controlled at the highest levels of government. I will share this one concrete example with you: In January, China’s COSCO group received a $1.75Bn financial agreement with Export-Import Bank of China (China Exim Bank) for its new shipbuilding program. The loan will be used to fund the construction of 53 new ships at Chinese shipyards, replacing over 100 ships scrapped by COSCO within the past two years, according to the agreement. Since its foundation in 1994, China Exim has funded 9,637 ships with a total contract value of $197.7Bn. That is what U.S. shipyards are up against.

What one thing would propel U.S. shipbuilding to a new high, even from the heady levels and backlogs that we have seen recently?
Certain markets are strong right now, but you are correct to think that the industry is concerned with the future. Some opportunities on the horizon include opening new areas of the Exclusive Economic Zone (EEZ) to offshore oil and gas exploration. Congress is currently considering opening portions of the Atlantic coast, east Gulf coast and the Arctic. Jones Act vessels would support those activities, as the fruits of those activities would directly and positively impact U.S. shipbuilders and repairers. Farther out on the horizon, but definitely coming, is offshore wind. Plagued by regulatory hurdles and complexities, we do expect the first farms to come online in the coming years. In addition, the non-contiguous fleets will still have needs to recapitalize long-term and we will service that market. On the government side, again, I would return to the theme of predictability and stability surrounding the budget and procurement processes. Those government programs in series production, such as the Navy’s Virginia-class submarine, the Coast Guard’s Fast Response Cutter, allow the shipyards to take advantage of economic order quantities, plan hires, train workers for the right positions, and pursue overall efficient business practices. We need these programmatic and budgetary assurances Congress can provide to further future investments in our Navy and Coast Guard.

What are Shipyards excelling at in today’s economy, as well as preparing for the future markets?
U.S. shipyards are building the most complex and sophisticated Navy and Coast Guard vessels in the world. In addition, we continue to deliver approximately 1,300 commercial vessels each year, as well as innovate to become world leaders in building vessels powered by LNG. This is a very exciting time in that regard. Additionally, shipyards are diversifying product lines, investing in new technologies, and partnering with foreign engineering and shipyard firms. All of this is evidence that the U.S. shipyard industry is positioning itself well to weather the peaks and valleys inherent to the business. Shipyards participating in government programs are always incorporating the latest research into ship procurement and making generational leaps in capabilities. The ships that enter our naval fleet are unrivaled in the world. And in today’s economy, America’s shipyards keep these assets performing by repairing, overhauling, converting, and modernizing ships and submarines in order to maximize their service lives and provide the greatest return on investment.