Maritime Reporter, July 1985

<BODY> <div> GUEST EDITORIAL West Coast Shipyards By J. T. Gilbride, Chairman Todd Shipyards Corporation John T. Gilbride The following is excerpted from remarks made by John T. Gil- bride, chairman of Todd Ship- yards Corporation, before the Puget Sound Marine Economy Critical Issues Conference in Seattle, Washington. In our world of rapid and contin- uous change, we have come to ac- cept many situations and events which, just a few years ago, we would have thought "could never happen": the first man on the moon; Japan's technological ascendancy over many major U.S. industries; $33 per barrel oil; the breakup of the world's best telephone system, Ma Bell; and a trillion dollar national debt, to name just a few. Most of us would not have conceived of such developments very long before they occurred, and I don't believe our foresight is greatly improved now. Today, I'm going to discuss a future possibility you probably haven't thought about because it is in that "it could never happen" cat- egory. What would happen if, by the year 2000, there were no longer any privately-owned, full-service ship- yards, that is, shipyards capable of doing both naval and commercial work, operating on the West Coast? What economic, social and military impact would such a development have on our nation, and on the Pacific region? Your immediate response will, understandably, be that such a de- velopment is highly unlikely and could easily be avoided by common sense government and public sup- port. As a person who has been inti- mately involved with shipbuilding for over 40 years, I must reply that, no, this possibility is not unlikely but, yes, it can be avoided with pub- lic support. Let me review some of the reasons why I don't think this scenario can be easily dismissed. As you well know, the U.S. ship- building industry is currently un- dergoing a drastic shakeout caused by a variety of factors: First, commercial ship construc- tion and repair work is at an all-time low. Shipyards solely dependent on this sector are desperately short of work and many have closed. Todd has not been exempt; we closed our Brooklyn and Houston Divisions in 1983. Second, current government poli- cy through the Maritime Adminis- tration has eliminated construction differential subsidies and will use operating differential subsidies to actually promote the construction of ships for the U.S. Merchant fleet in foreign shipyards. Jones Act pro- tection is in jeopardy and, in my opinion, is very likely to disappear, I regret to say. Third, the few healthy yards re- maining are engaged in naval con- struction and repair but, as Vice Admiral Joseph Metcalf, Deputy Chief of Naval Operations (Surface Warfare), recently said, "The Navy simply cannot generate the work required either in repair, new con- struction or conversion to maintain the existing industrial base in any condition of profitability. We are almost the only game in town but we are by no means a large enough game to support so many players." Which facilities are likely to suc- cumb? The industrial base to which Admiral Metcalf referred is cur- rently comprised of 23 shipyards, not all of which have work today and only 5 of which are located on the West Coast, three in this area (Todd, Lockheed and Tacoma). Ob- viously, any further shakeout here on the West Coast would be a severe blow to the national security inter- est, and to the Pacific region. Last summer, the local ship su- pervisor of shipbuilding for the Navy who was also in charge of Navy repair contracts in the North- west—was quoted by the press as saying that unless shipyards out here got their wage costs more in line with Eastern competitors, they could not expect to get any more work. This apparently reflected the Navy's "low-bid" procurement poli- cy, which has ignored the need to maintain shipbuilding resources on all coasts and has resulted in the overwhelming majority of new con- struction contracts being awarded to East and Gulf Coast operations. Todd's two major competitors for frigate/destroyer/cruiser type ships, for instance, one of which is on the East Coast, the other on the Gulf, will share an estimated $11 billion of ongoing work during the next five years, including 27 Aegis cruisers (CG 47) and several Aegis de- stroyers (DDG 51), whereas the op- portunities available to all five West Coast mobilization base shipyards are a small fraction of that amount during the same period. This lack of work has impacted employment unfavorably in the Seattle area. In the past three years, 6,000 jobs have been lost and about 3,000 of these layoffs have been at Todd's Seattle Division. What is the cost differential be- tween East and West Coast private shipyards that has led to such a harsh procurement policy towards Pacific Coast shipyards? An Octo- ber 1984 Maritime Administration report estimated West Coast ship- building costs to be 4.6% higher than in the East and 9.2% higher than in the Gulf. Is this such a con- siderable difference that our nation can risk losing its West Coast pri- vate shipyard capability to build and support the Pacific Fleet, plus the U.S. merchant fleet and ships owned by nations of the Pacific Basin, our number one trading area? Further, what will the real defense costs be after the initial sav- ings by low-bid, or "low balling" procurement have been realized? For the Navy, follow-on cost in- creases would be unavoidable for normal peacetime operations and would be greatly increased under emergency conditions. Why? Let me describe a few "could never hap- pen" scenarios based on a series of interrelated events which are pure fiction today but have enough plau- sibility to be seriously considered for contingency planning. Scenario number one: • The Panama Canal is blocked by terrorist action. As a result, submarines, cruisers and other ships built in the East and assigned to Pacific fleet duty, which normally travel an average of 6,000 miles to West Coast ports, must now travel around the tip of South America, adding over 10,000 miles to the voyage. Clearly, this compro- mises fleet readiness, increases operating costs, exposes the ships to unnecessary risk and involves the crew and ship in weeks of non- productive activity. Scenario num- ber two: • Government-owned ship- yards replace the private sec- tor on the West Coast. Since naval yards had not been building naval vessels, they will not be able to overhaul and repair them as cost- effectively as the experienced pri- vate builder. Furthermore, in my judgment, having dealt with relative private and government shipyards' costs since before World War II, the cost of doing work in Government non-taxpaying yards in terms of dol- lars, time and bottom line results are 30% higher than private yards and this cost variance would be fur- ther increased by West Coast Navy yards' wage rates which are 18.7% higher than their East Coast coun- terparts, as reported in the 1984 Maritime Administration report. Over the 30-year life expectancy of the ships, therefore, the added cost of life-cycle support services re- quired to keep a ship in state of readiness would far exceed any sav- ings realized from initial low-bid purchase. Scenario number three: • The national shipbuilding industrial base is reduced to eight East and Gulf Coast yards because West Coast yards, forced to bid for new business at a 4.6% to 9.2% loss by Navy procure- ment policy, are eventually closed down. New construction and repair competitions fail to reduce prices since fewer competitors exist—the inevitable economic result of creat- ing near monopolistic conditions— and government yards are over- loaded. "Surge" capacity is non- existent, labor strikes for less over- time, and crew morale sinks because of overhaul delays and prolonged separations from families at home ports. The problem is particularly acute for the nine Pacific Fleet air- craft carriers and their escort ships, some of which must return to the East for major overhaul. The fleet is put at greater risk when a South American country, denied further credit by the U.S., gives the USSR rights to establish a naval base in return for economic aid. As these scenarios so clearly point out, the loss of future naval work and industrial capacity would have a severely unfavorable impact on the nation, and the Pacific region. Implausible as some of these fic- tional occurrences may seem today, present government maritime policy and procurement actions are head- ing this nation towards an era of maritime insufficiency that could bring them about. By allowing our U.S.-flag merchant fleet to de- cline—as of January 1, 1985, our active fleet totaled only 393 ships, down 50 units from 1984—by con- centrating the overwhelming major- ity of our nation's fleet construction and repair resources in the Eastern half of the country and by allowing Total Navy Repair Work —FY '84 67%—East Coast 29%—West Coast 3%—Gulf Coast 1%—Great Lakes Total Navy New Construction—FY '84 74%—East Coast 4%—West Coast 21%—South 1%—Great Lakes 36 Maritime Reporter/Engineering News </div> <span id="lblContents"></span> <br /> <br /> <a href="http://www.digitalwavepublishing.com/" title="Digital Magazine">Digital Wave Publishing</a> </BODY>