Comment on the Maritime News

August-December 2001

   INGALLS GETS A CURIOUS CONTRACT.  The Navy awarded one of the three FY-02 DDGs (DDG 102) to Ingalls Shipbuilding at the end of the day on Friday, December 21, but made no award to Bath Iron Works, although it has the money for two more ships for Bath.  Maybe next week.  Notable about the Ingalls contract is the price, which, at $370 million, is 9% higher than their price for the immediately preceding ship in the series.  Only in gray shipbuilding do we see reverse learning.  The contract delivery of September 2007 is also odd, because it's 21 months after the preceding ship in the series and Ingalls has previously been scheduling deliveries of DDGs at 5-month intervals.  Smells to me like Ingalls is planning, with the Navy's concurrence, to stick something else into production before this DDG.  That would at least partially explain the higher price, too.  What can it be?  An LPD or two perhaps?  Tim Colton, December 22, 2001.

   MORE LPD 17 PROBLEMS.  Scheduled deliveries of the first four ships of the LPD 17 class from Avondale and Bath have been moved to the right by 14 months, with delivery of the lead ship now planned for November 30, 2004.  When the contract was originally awarded, in December 1996, the delivery date for the first ship was July 15, 2002, 67 months after contract award.  So now the first ship will be delivered 28.5 months later than was originally planned, and that's assuming that this new date holds up.  Another fine mess.  Tim Colton, December 22, 2001.

   A BELATED SUGGESTION FOR A CHRISTMAS GIFT FOR YOUR FAVORITE SHIPBUILDER.  The Johns Hopkins University Press has performed a great service to our industry by reprinting "Ships for Victory: A History of Shipbuilding Under the U.S. Maritime Commission in World War II" by Frederic C. Lane.  First published in 1951 but out of print for 35 years and impossible to find in second-hand stores, this marvelous book, nearly 1000 pages long, describes in depth the amazing achievement of our industry in building almost 6000 oceangoing cargo ships and tankers in less than four years.  It should be compulsory reading for everyone, particularly anyone who thinks that the U.S. shipyards of today are doing OK.  It's only $30: order it direct from The JHU Press today .  Tim Colton, December 21, 2001.

   KVAERNER TO STAY IN SHIPBUILDING.  The new management at Kvaerner ASA has not only decided to keep Masa Yards in Finland and Warnow Werft in Germany, two of the best shipbuilding companies in Europe, but it's going to keep Philadelphia too.  This is excellent.  I like Mr. Rokke already: not only does he make decisions - it seems that he makes the right ones as well.  There's no doubt that the Philadelphia shipyard will be a major addition to the U.S. industry.  There's more than enough business in the pipeline for another major shipyard and the Philadelphia yard's superior efficiency will put pressure on the big yards to stop studying modern shipbuilding methods and start practicing them.  Tim Colton, December 13, 2001.

   INTERMARINE TO FLY THE U.S. FLAG.  Here's an interesting development.  New Orleans specialty operator Intermarine Inc. has announced that it is going to re-flag two of its heavy-lift ships under the Stars and Stripes, buying them out from their KG owners for this purpose.  The company's reasons for this unusual move appear to be both patriotism and business acumen: they anticipate that recent events will make US-flag ships preferred tonnage.  Well, good for you, Intermarine.  This is an excellent start.  Who's next?  Tim Colton, December 13, 2001.

   MARAD GETS $33MM FOR TITLE XI.  The Conference Committee reconciled the House's $30mm with the Senate's $100mm and came up with only $33mm.  What went wrong?  OK, $33mm is a lot better than OMB's figure of zero, but it's still not enough.  One fears that the disastrous AMCV, Petrodrill and SeaRex programs are casting a big shadow over the Title XI program.  And, of course, there's been no-one at MARAD who would march up the Hill and fight for the program.  $33mm, plus the $7mm in the kitty, buys about $800mm of shipbuilding.  MARAD has $5.6 billion in pending applications.  Even if you slash away the projects on MARAD's list that are either dead or unreal, it still has about $1 billion in sensible projects.  Title XI needs at least $50mm a year - enough to support $1 billion a year in projects - or the Jones Act fleet will never get renewed.  The whole industry needs to stand up and fight for that.  OK, I know the industry did fight for that, but we didn't get it, did we?  Tim Colton, November 27, 2001.

   DOD CANCELS THE DD-21 PROGRAM.  So the Department of Defense has decided that the Navy's much anticipated new generation of surface combatants is not what we need after all.  Well, duh.  Not only was it never what we needed, it was also ludicrously over-complicated and expensive.  The Navy keeps saying that it wants cheaper ships but it also keeps specifying progressively more complex and expensive ships - Norm Augustine's Law XVI at work.  Now the two design teams have been told to take a clean sheet of paper and design a wholly new family of ships, currently called DD(X), which will be producible in different variations for different missions.  Versatile and inexpensive.  OK, a good decision, but who's going to ensure that the design teams don't get carried away again and load this baby up with high-priced technology too?   Tim Colton, November 27, 2001.

   ANOTHER OVERSEAS INVESTOR IN U.S. FACILITIES.  Only two months after Singaporean rigbuilder PPL bought a shipyard in Sabine Pass TX, "Upstream" reports that UK-based but Nigerian-owned fabricator KYE has bought the Red Fox shipyard at Michoud in New Orleans and is negotiating to buy its property on the Industrial Canal as well.  Why aren't U.S. investors interested in this business?  Does anyone seriously believe that the U.S. demand for oil and gas is going to decrease, or that we are not going to try to reduce our accelerating dependence on Saudi oil?   Tim Colton, October 28, 2001.

   DoD BLESSES NORTHROP GRUMMAN'S ACQUISITION OF NEWPORT NEWS, WHILE DoJ BLOCKS GD's EFFORT AS ANTI-COMPETITIVE.  Well of course.  This is what I've been saying all along.  Obviously, the sensible folks in OSD read this web site.  Go to the Positions page of this web site to read my analysis Tim Colton, October 24, 2001.

   NASSCO WINS THE T-AKE COMPETITION  -  ARE THE BIG SIX NOW ESSENTIALLY FULLY LOADED WITH WORK?  The Navy has awarded a contract for the first two of the planned class of 12 combat fleet support ships to NASSCO.  No real surprise there: NASSCO was always the best qualified shipbuilder for this program and in recent years they have shown themselves to be by far the most efficient of the so-called "Big Six" shipbuilders.  With this huge ($3.75 billion) program plugged into its workload, the interesting question now concerns whether the "Big Six" are now essentially fully loaded, leaving the market for Jones Act product carriers, containerships and shuttle tankers to be fought over by the "Midsize Three" - Alabama, Halter and Kvaerner.  Consider the facts.  Including all the option ships, all six yards have a backlog that lasts at least through 2006.  Go to the Positions page of this web site to read an analysis  Tim Colton, October 20, 2001.

   END OF ANOTHER GREAT SHIPBUILDING NAME?  Bethlehem Steel doesn't build ships any more and it doesn't even sell all that much steel any more either, but its filing for Chapter 11 bankruptcy protection is still cause for sadness in the shipbuilding world.  Bethlehem was once the world's greatest shipbuilder.  Nobody else has ever come close.  It got into shipbuilding in 1913, when it bought the famous Fore River Shipyard, in Quincy MA, and it finally got out in 1997, when it sold its equally famous Sparrows Point shipyard.  In the intervening 84 years it owned, by my count, 21 different shipyards, but I may have missed a couple.  World War II was, of course, the pinnacle of its achievement: its 15 shipyards operated 75 building berths, employed 180,000 people and built 1121 ships.  For your amazement, pay a visit to and take a look at the two wonderful Bethlehem Shipbuilding brochures, from 1943 and 1969, that are posted there  Tim Colton, October 15, 2001.

   WILL $19 MILLION BE ENOUGH?  Ingalls Shipbuilding, American Classic Voyages and the Maritime Administration have agreed on a contract price increase of $19 million per ship and an extension of both ships' delivery dates of one year.  In addition, Ingalls and AMCV are jointly putting in an additional $43 million per ship in equity.  Since this is equity that wasn't deemed to be necessary at the outset, we can assume that it reflects additional construction costs.  So the admitted over-run is at least $62 million per ship.  But is that all?  How much more is Ingalls being forced to suck up?  It can be presumed that Ingalls thought it had some profit in its original contract price, if not a lot, and that it has none now.  If it's given up $20 million per ship (say) in anticipated profit, the apparent cost overrun is over $80 million per ship.  And is that really all?  We probably won't read all about it in Northrop Grumman's SEC filings, because it will be buried in the purchase price for NOC's acquisition of LIT, but don't  be surprised if there are at least two more contract renegotiations between now and February 2005.  And don't expect AMCV to exercise any of its options.  And don't expect Ingalls to build any more cruise ships.   Tim Colton, September 21, 2001.

  AUSTRALIA A PARIAH NATION?  It's hard to think of Australia as belonging in the same category as Afghanistan, for example, but the actions of the Australian government in the "TAMPA" incident certainly come close to putting it there.  The Norwegian containership "TAMPA" did what ships of all nations have done since time began.  It rescued several hundred people - ironically, refugees from Afghanistan - from imminent drowning.  It did this at the specific request of and in cooperation with the Australian Coast Guard.  But the Australian government won't let the TAMPA put these people ashore on Australian territory, sending commandos to seize the ship.  All this apparently because the Australian Prime Minister, John Howard, has an election coming up and, of course, pandering to the extremists in the electorate takes precedence over humanitarian concerns, not to mention international law, any day.  Despicable.  The Norwegian government should not just have lectured the Australian Ambassador, they should have escorted him to the airport.  Wilhelmsen Lines should go after the Australian government for piracy: what's the difference between guys in ragged shorts with knives coming over the side and guys in clean, pressed shorts with guns?  And sensible Australians will throw Mr. Howard out ASAP.   Tim Colton, August 30, 2001.

   GD BUYING NNS WILL SAVE BILLIONS?  Go on, pull the other one.  According to a report in the Wall Street Journal, the Navy favors General Dynamics' bid to buy Newport News Shipbuilding because it reckons that the merger will result in savings of between $3 billion and $4 billion over the next 10 years and that this outweighs any concern over the almost complete elimination of competition for naval shipbuilding contracts.  Delusion is still rampant at the Navy Department, I see.  Will they never learn?  Newpy News had over $2,072 million in revenues last year, 98% of it from the Navy: $959 million (45%) was from ship construction and $1,113 million (55%) from fleet maintenance, engineering services, etc.  EBITDA was a healthy $261 million.  Their core markets are not going to grow in the next 10 years and may, in fact, decline, especially if this Administration kills the CVN(X).  Where does the Navy think that savings of $300 to $400 million a year are going to come from?  Wages are going to go down?  Get out of here!  Productivity is going to improve?  Yeah, right!  Production overhead can be cut?  Well certainly, but what's this got to do with GD taking over?  Material is going to cost less?  Why would it?  So any savings have got to be in the G&A.  Newport News' G&A last year was $271 million (13% of sales): that's ludicrously high, but even if you were to halve it, you would only save $135 million.  There must be something in the water at the Pentagon.  Tim Colton, August 30, 2001.

   PPL TO ENTER THE U.S. RIG MARKET?  The news that Singaporean rig builder PPL has bought 50% of a small rig repair operation in Sabine Pass is much more significant than the almost non-existent press coverage would indicate.  PPL is the relatively small Singaporean company that, earlier this year, won both Santa Fe International's competitions for new drilling rigs: it now has a workload in its Singapore yard of 2-option-4 new jack-ups and 2-option-2 new semis, a total value of maybe $2 billion, that will keep it busy for about five years.  With these contracts under his belt, the owner of PPL, Benaty Chang, (whose brother, Brian Chang, is the owner of Yantai Shipyard in China), walked down the road and sold half the business to SembCorp.  Now, with SembCorp's managerial depth and financial strength, Dr. Chang can broaden his horizons, and lo, here he is in Texas, moving in to a 200-acre deep-water property that's not only right in the middle of the orl patch but that's also right close to home for about 3,000 highly talented and experienced but currently unemployed rig builders.  Watch the new company, Sabine Shipyard, go after the contract for completion of the Amethyst rigs for the unfortunate Petrodrill and their reluctant partners, the terminally confused Fireman's Fund.  Watch it grow.  Watch it make money.  Tim Colton, August 30, 2001.

  WILL SOMEONE PLEASE EXPLAIN THE "QUEEN MARY 2" TO ME?  This ship has a price tag of $780 million and it will have 2600 passenger berths.  That's precisely $300,000 per berth.  The next largest cruise ships under construction, the "Voyager" class ships being built by Kvaerner for Royal Caribbean, have a per-berth cost of $160,000, only slightly more than half the QM2's cost.  Cunard is paying a premium of $140,000 per berth.  For what?  $140,000 at 8% over 8 years, (OECD terms), is about $25,000 per berth per year, or roughly $75 extra per berth per night.  Or $150 extra per cabin per night.  Whooee!  Would you pay that premium, for a cabin without a balcony?  What makes Cunard think that they can fill this ship, when they can't fill the QE2's 1800 berths?  The QE2 is, of course, beginning to look pretty old, with her poky cabins and antique plumbing, but the QM2 appears to be designed to look old from the start.  All very strange.  Hey, Carnival, are you watching what Cunard's doing here?  It's not too late to cancel the contract, you know.   Tim Colton, August 30, 2001.

  QE2/QM2 TRIVIA SECTION  It appears to be widely believed, even in the technical press, that the large passenger liner popularly known as the QE2 is named after the present British sovereign, because she is referred to as the QEII as often as the QE2.  Incorrect.  The QUEEN ELIZABETH 2 is named after her predecessor, the QUEEN ELIZABETH, which was launched in 1938 and christened by the Queen Elizabeth who was the consort of King George VI and who is now the 102-year-old Queen Mother.  Similarly, the QM2 is named after her predecessor, the QUEEN MARY, which was launched in 1934 and christened by the Queen Mary who was the consort of King George V.  The old QUEEN MARY is now a hotel in Long Beach, California, sitting in her own dry-dock: a reasonably respectable fate for such a grand old lady.  The old QUEEN ELIZABETH, on the other hand, was sold by Cunard to the leading Hong Kong shipowner, C.Y. Tung, (father of the current First Minister of Hong Kong, C.H. Tung), for conversion to a floating university (which was to have had the punning name Seawise University), but she burnt and sank at her mooring in Hong Kong harbor in 1972.  So now you know.   Tim Colton, August 30, 2001.

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