Shipbuilders should worry about second-hand ship supply, study says.

• Author: Erwin, Sandra I.
• Position: Up Front

Countries seeking inexpensive warships are finding that second-hand ships for a viable alternative to pricey new vessels. As more nations continue to downsize their navies, experts predict that surplus ships will inundate the world market, likely at the expense of new ship construction.

Chile's decision last year to cancel a $900 million new ship procurement program--in favor of buying used ships from the Dutch Navy--alarmed shipbuilding firms that had been competing fiercely for that award. By opting for second-hand ships, the Chilean government saved several hundred million dollars.

What makes the used-ship market attractive is that many surplus vessels are in relatively good condition, and cost a fraction of the price of new ones. "There has been a steady flow of very capable warships of all types made available since 1991," notes a study by AMI International, a naval market research firm in Bremerton, Wash. The report is titled, "Naval Ship Transfer Assessment: A 10-Year Perspective."

Today, a "new wave of ships are being retired early and being offered on the world used ship market," says AMI. The Ukraine, for instance, built its entire navy in 1996 with used ships from other countries.

More than 100 used ships were transferred in 1996. Through 2001, countries gave away or sold between 20 and 40 used ships a year.

AMI predicts that at least 10 to 15 percent of new ship requirements during the next decade will be filled by decommissioned ships.

The implications of this trend could be significant for die U.S. and European shipbuilding industry, which not only must compete with the used-ship market, but also is losing ground to Asian competitors.

At the end of 1996 there were approximately 17,500 ships afloat in the 151 navies around the world, according to AMI. It is anticipated that the number will become smaller as more ships are decommissioned than are built. Modern warships, additionally, are more complex, and therefore more expensive, than those they are replacing. "As a result, new construction programs today seldom replace existing classes on a one-for-one basis," the study says.

Worldwide, about 70 navies actively are planning naval re-capitalization projects for the next 20 yeas. That would amount to a market for approximately 140 new vessels heavier than 100 tons, worth about $30 billion a year.

Competitions for new-ship programs will see emerging international players battling the traditional European and...