Sea worthy: government action needed to fix troubled shipbuilding sector.

• Author: Gropman, Alan L.
• Position: Industry Study

Shipbuilding is critical to both national security and global stability. This industry, however, is not globally competitive in the production of large oceangoing vessels and depends on government procurement and a protected domestic market to remain viable.

The limited commercial market, combined with a decline in Navy orders, has resulted in excess production capacity, underused larger shipyards and high vessel costs. The combination of high costs and limited budgets, in turn, threatens the Navy's ability to meet its stated goal of a 313-ship fleet by 2020.

There are no easy solutions to the dilemma, but there are a number of steps the U.S. government can take to bolster this critical component of the defense industrial base, concluded a team of military and civilians students at the Industrial College of the Armed Forces.

The group visited 15 U.S. shipyards, as well as several shipbuilders in Taiwan and Hong Kong.

U.S. shipbuilders make up less than 1 percent of the international market. Because they are not able to compete globally, they rely on domestic military and commercial markets which are protected from international competition by law and regulation. About 80 percent of the U.S. shipbuilding and repair market focuses on military vessels, and the remaining 20 percent concentrates on commercial vessels.

Six major U.S. shipbuilders are owned by two large defense suppliers, General Dynamics and Northrop Grumman. Five of the six shipyards make strictly military vessels. Only General Dynamics' National Steel and Shipbuilding Co. in San Diego, has contracts to build Daewoo designed commercial ships.

Besides the "Big Six," there are numerous small and medium sized shipyards which focus on manufacturing commercial vessels and compete for government contracts to repair warships. There are also five public shipyards in the United States, four of which are operated by the U.S. Navy--one is run by the Coast Guard--which repair or upgrade existing ships. This industry also relies on thousands of subcontractors and suppliers.

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Shipbuilding is a heavily regulated business. Laws affecting this industry date from the earliest sessions of Congress. The Jones Act is probably the most significant legislation. It requires ships that engage in domestic U.S. trade be built and flagged in the United States, and crewed by U.S. citizens.

The market for smaller vessels is at a peak. Several small and medium shipyards have extensive...