U.S. Navy Is Removing Life Support For Shipbuilding Industry

Manufacturing News | July 8, 2005 Vol. 12, No. 13

[mr_hammer]

Manufacturing News July 8, 2005 Vol. 12, No. 13 812 Words Page 1

--------------------------------------------------------------------------------

U.S. Navy Is Removing Life Support For Shipbuilding Industry

The United States shipbuilding industry is on the verge of losing most of its component suppliers due to severe cuts in naval shipbuilding budgets and Department of Defense procurement rules that encourage acquisition managers to buy products from the lowest-cost commercial suppliers overseas, claims the American Shipbuilding Association.

Next year's proposed budget for naval ships is $3.2 billion less than the amount appropriated in 2005, says Cynthia Brown, president of the American Shipbuilding Association. Since 2001, defense spending has increased by 28 percent, which does not include supplemental appropriations, yet the naval ship procurement budget has declined by 33 percent. If present budgetary trends continue, the U.S. naval fleet will drop from 288 ships today to fewer than 200 ships by 2015.

The situation is becoming increasingly difficult for the six major shipyards, but it is even worse for U.S. equipment suppliers. "The Department of Defense has been working to repeal and weaken laws that require ships and certain ship components to be manufactured in the United States," said Brown in prepared testimony to the U.S.-China Economic and Security Review Commission. "The reliance on U.S. manufactured equipment is dissipating in response to pressure from DOD to open competition to foreign sources and to lower military specifications in an effort to reduce costs. DOD has been urging defense contractors to rely more on commercial off-the-shelf systems rather than systems built to military specifications. This emphasis on contracting with the lowest-cost producer is forcing all member companies of the defense shipbuilding industry base to source more of its material, components and systems foreign."

In most naval ship subsystem and component categories there is only one U.S. manufacturer remaining, Brown notes. Eighty-percent of the components manufactured for the Virginia Class submarine come from sole sources. "Production rates are not high enough to sustain more than one company and the companies left are struggling to stay in business," says Brown, whose membership includes the six major shipyards and 70 suppliers.

The U.S. industry, which employs 350,000 people, is producing six ships per year. (Market leader, Hyundai Heavy Industries of South Korea, produced 60 ships last year.) U.S. production is set to decline to four next year, due in part to the high cost of steel, a result of booming demand in China. The Navy says nine or 10 ships need to be built each year in order to have a 300-ship armada.

While the direction of the U.S. naval shipbuilding industry remains on a downward slope, the situation is the opposite in China. China is aggressively investing in its shipbuilding capacity. It is expected to have a submarine fleet that is twice the size of the U.S. fleet of 33 subs by 2010. It has started building a new class of destroyer that is "believed to match the air defense capability of the DDG-51 class," says Brown. "In 1989, China had essentially no shipbuilding industry or market share. In a little over a decade, China has invested in its shipbuilding industry to become the third largest builder of commercial ships behind South Korea and Japan."

China now has the capacity to produce 16-million deadweight tons a year. Its China State Shipbuilding Corporation recently announced a $3.6-billion shipyard construction project on Changxing Island. "Once completed, the shipyard is expected to have the capacity to produce more than 4.5-million deadweight tons a year, making it the largest shipyard in the world," says Brown.

China is also investing heavily in its component suppliers. It has stated that it wants 100 percent of all systems, components and materials to be produced in China.

"More and more manufacturing of ship components and systems will migrate to China as DOD encourages foreign sourcing in its efforts to find the cheapest sources," says Brown. "This has already begun with regard to materials for naval components. The manufacture of entire components and systems will migrate to China in the next several years under current DOD policy with respect to outsourcing."

The United States needs to address China's naval security challenge, Brown asserts. "If the industry is reduced further, the U.S. will have to reconstitute the industry if it is to counter the threat from China," she says. "Reconstitution of facilities and the skilled workforce, if possible, will be extremely costly and will take a decade."

She recommends that DOD's shipbuilding budget be sustained at between $15 billion and $16 billion a year, and that 12 combatant and logistics support vessels be built each year. At current rates, China will surpass the U.S. in naval vessels in 2015, based on the conservative estimate of China adding 12 ships per year. By 2024, China is projected to have more than 300 naval vessels, to about 180 for the United States.

The U.S. Congress should also require that naval ships and their components be manufactured in the United States, says Brown. "This action will ensure America's independence in determining its own destiny."

[Paul Ross]

Good post.

Pinging.

[jpsb]

Who needs a Navy anyway, certainly not the free traders that have destroyed US industries. Keep shooping at Wal-mart folks. Go Free Trade Go! And don't forget to keep voting GOP too.

[dsc]

"(The level of sarcasm contained in this comment would ordinarilly involve the use of language inappropriate to these forums)"

Sarcasm is the coolest thing ever.

Can you believe some people don't like it?

[G32]

Reminds of me of the Soviet Union's waining days. We're falling apart.

[rahbert]

How soon before someone suggests nuking China...?

[wideminded]

China is aggressively investing in its shipbuilding capacity. It is expected to have a submarine fleet that is twice the size of the U.S. fleet of 33 subs by 2010.

We only have 33 submarines?

[em2vn]

".....due to corruption and union thugs."
Anything to back this up?

[Blue Scourge]

Hey...lets nuke China...lol

[HereInTheHeartland]

It starts in 5 minutes.

[cinives]

I still don't understand why we're so afraid of China. So what if they build up their military ? So did the Soviet Union, and look what happened to them. Let them waste their money.

So long as China has a communist government, they will forever experience internal difficulties and never be able to focus totally on external issues. China will never attack us, because they could never sustain their supply lines. History tells us that.

Don't you think the threat of not being able to sell us stuff will shape their foreign policy ? We've lived a long time without Chinese goods. We can live without them in the future if we want. Without our trade they have major problems (as do we, but that's another discussion). Why should we build up our military to match them ? Does anyone here ever think we'd go to war with a nuclear China (thank you bill clinton) ?

[defenderSD]

There is some pork involved in defense contracting, which is one reason military hardward is so expensive. In many cases, off-the-shelf hardware is plenty good for military applications. For example, computers on a Navy ship can usually be commerical machines purchased from Dell or HP. Usually you don't need a high-spec machine made in low volumes at high cost by a company like IBM. It's a matter of using good sense: the most critical components on the ship, such as the AEGIS system components, generally need to be built to military specs. But the PC's that sailors use to send email to shore can be bought off the shelf. Remember, there's a trade-off between quantity and cost. When you build everything on a ship to military specs, it may perform better in certain situations but it's so expensive that the Navy doesn't have enough of these ships. Sometimes too, it take longer to procure spare parts for mil-spec components, resulting in lower readiness and more ships stuck in port for maintenance.

I trust that Rumsfeld is just working to implement a sensible policy that uses off the shelf components where they can be used reliably and with a major cost reduction. I would bet that we're generally avoiding Chinese sources and buying overseas from suppliers in Japan, Singapore, Malaysia, Taiwan, etc. (Obvious reason is that the Chinese would cut off supplies in the event of a military conflict with them.)

[Meldrim]

Somebody find Milton Friedman and have him explain why this is a good idea. He did so well with the volunteer army...

[Meldrim]

You are correct. Off the shelf works fine for field rations and oil filters. The more technical/capability specific, the fewer suppliers. It will be interesting to see the cost that foriegners will be charging us to move military freight oversease once the vessels are getting attacked.

[montomike]

I've been a sarcastic SOB all my life. I even throw in a dollop of cynicism!

I also like to tell outlandish lies to gullible people.

[Meldrim]

"I trust that Rumsfeld"

I trust that his judgement has not improved much since he supported Ford over Reagan in 1976. He's done nothing to clean out the Clinton era bureaucrats that were installed in the Pentagon. Apparently, he is sold on send/sailing the gals into combat as well. The US will pay a price for this someday, but likely it will be nobody in his family paying the price.

[johnb838]

We don't need a navy when we can fly 60 year old Buffalos out of Kansas. Right?

[JoanneSD]

I think out sourcing out military to china is a thought, china could fight the war on terror, and we could have our troops here patrolling our borders...

[ALOHA RONNIE]

.

MATSON:

Last American Flag Steamship Line

Purchases American Built Container Ships

http://www.Matson.com

.

[RightWhale]

Perhaps ships and the shipbuilding industry are going the way of horse-drawn carts and buggy-whip manufacturers.

[Graymatter]

http://www.manufacturingnews.com/

This site hangs black crepe. Most articles are pessimistic, sky-is-falling stories.
Which may be true. But it's very depressing.