Comment on the Maritime News

January-March 2002

   FRIEDE GOLDMAN HALTER FILES ITS REORGANIZATION PLAN.  The reorganization plan was filed with the U.S. Bankruptcy Court on Friday, March 22, 2002.  

To read our position paper on this subject, click on: FGH PlanTim Colton, March 26, 2002.

   NOBLE DRILLING LENDS OCEAN RIG $45 MILLION @ 25% INTEREST.  This is an interesting deal.  Ocean Rig owns two bare-deck semi-submersible drilling rigs, dubbed Bingo 9000-3 and Bingo 9000-4,  that were built by Dalian Shipyard in China and have been laid up there for about three years.  ("Bare-deck" is a strange offshore industry euphemism for "bare everything": there isn't a gram of outfit material anywhere on these hulls.)  Ocean Rig was planning to do with these hulls what it did with the first two of the same design, that is, bring them back to a U.S. shipyard for completion.  Unfortunately, completion of the first two cost about twice what had been anticipated, making them the world's most expensive drilling rigs and effectively putting Friede Goldman International into bankruptcy.  Of course, it's hard to imagine how anyone in their right mind could ever have thought that such an approach to building a drilling rig made sense.  It's axiomatic that outfitting gets progressively more expensive the later in the process that you do it: what takes one hour when done in the shop takes three when done on the building ways and what takes one hour when done on the building ways takes three when done afloat.

But, now Ocean Rig needs money (again) and along comes Noble Drilling with an offer.  Noble will give Ocean Rig $45 million for the two bare hulls, but Ocean Rig can buy them back at any time in the next 12 months for $56 million.  Sounds good to me, speaking as one of Noble Drilling's stockholders.  If Ocean Rig buys them back a year from now, we made about 25% on our money.  If they don't, we've got two bare hulls for a price that's less than half of cost.  Of course, we've still got to outfit them, but we should be able to find a competent shipyard, one that understands radical concepts like planning and material control, somewhere.   Tim Colton, March 22, 2002.

   SEAAMERICA DROPS ITS CRUISE SHIP PROJECT.  No surprise, really, that SeaAmerica Cruises has publicly announced that its project is dead: I think that we all knew that.  It's a shame, however, because David Turner's idea of two modestly sized ships squarely aimed at an underserved market, the convention business, made a lot of sense, a good deal more sense than American Classic Voyages, which presumed to compete with Carnival and the other biggies.   Tim Colton, March 22, 2002.

   MORISON'S CLASSIC HISTORY REPUBLISHED.  The University of Illinois Press has published a paperback edition of the 15-volume classic "History of United States Naval Operations in World War II", by the great Samuel Eliot Morison, originally published between 1947 and 1962.  If you don't already have it, buy it.  It's brilliant.  Only $24.95 per volume from  http://www.press.uillinois.edu/s01/morison.html  Tim Colton, March 21, 2002.

   ALSTOM'S PROBLEMS DEMONSTRATE WHY SHIPBUILDING IS NOT FOR SHORT-TERMISTS.  French industrial giant Alstom, the parent company of Chantiers de l'Atlantique, has announced a plan to restructure its debt, sell assets, cut costs and raise cash.  The need for this plan was largely brought about by Atlantique's ill-advised provision of long-term financing for $1.14 billion worth of cruise ships.  The details of the plan are complex - you can find them on Alstom's web site, but watch out that you don't violate the ludicrously restrictive legal language that is attached.  The point that I want to make here is that Alstom not only hasn't fired anyone at Atlantique, they have set recovery goals for the shipyard that are quite amazingly relaxed.  Get this: Atlantique has to achieve a 3% operating margin in 2005 and a whopping 5% in 2006.  Based on Alstom's actual results over the past three years, an operating margin of 5% for the company as a whole would result in a net of about 2.5%.  Talk about unambitious!  Wouldn't it be great to have a parent company like this?  What can Alstom's stockholders think?  Why would anyone ever buy Alstom's stock?  Tim Colton, March 14, 2002.

   GENERAL DYNAMICS CONSISTENTLY OUTPERFORMS LARGER COMPETITORS.  There is an excellent article in the Wall Street Journal today (March 13, 2002) about General Dynamics.  You should be able to find it with this link:  http://online.wsj.com/article/0,4286,SB1015972986864104200,00.html?mod=COMPANY    It's so good that it requires no further comment from me (for once).    Tim Colton, March 13, 2002.

   U.S. MARINE REPAIR PLANNING A $160 MILLION IPO.  U.S. Marine Repair (USMR) is currently owned by the Carlyle Group.  It was created by Carlyle's acquisition of Southwest Marine in October 1997 and Norshipco in July 1998, with the subsequent addition of Pacific Ship Repair (San Diego CA) in December 1998 and Marisco (Honolulu HI) in June 2001.  No details of the terms of any of these acquisitions have ever been revealed publicly: if anyone can tell me any of the details, please do so.  This gives USMR the following six operations:

Shipyard Name Location Area (acres) Dry-Dock Type Clear Width Lift Capacity
SWM San Diego San Diego CA 34 #1 Floating 106' 22,300
#2 Floating 66' 4,000
SWM San Pedro San Pedro CA 31 #1 Floating 100' 6,000
San Francisco Dry-Dock San Francisco CA 56 #1 Floating 98' 21,000
#2 Floating 148' 65,000
SWM Ingleside Ingleside TX 29        
SWM Pearl Harbor Honolulu HI   #4 Graving 139' n/a
Norshipco Norfolk VA 110 Titan Floating 160' 52,500
Virginian Floating 99' 11,000

More to follow on this topic.    Tim Colton, March 13, 2002.

   CSX CORP TO SELL ITS JONES ACT LINER COMPANY, CSX LINES LLC.  Integrated intermodal transportation apparently no longer includes shipping.  Will CSX Lines be split up?  Who would buy it, or pieces of it?  Who would want to be a Jones Act operator?

To put this opportunity in perspective, the CSX Lines fleet is shown below.  A total of 16 ships, with an average age of 25 years.  And 13 of the 16 have steam-turbine propulsion plants: it's getting harder every year to find experienced marine engineers licensed for steam.  The 13 steam-powered ships have an average age of 28 years: they should all be razor-blades.

So here's an opportunity for someone with access to all those CCF funds that are just sitting there earning a miserably low level of interest.  Buy CSX Lines and start building a series of fast, modern, efficient containerships for the Puerto Rico and Hawaii trades.  Captain Schubert wants to revitalize the US-flag fleet: let's start here.  Tim Colton, March 12, 2002.

Vessel Name

Year Built

Built By

Built As

L

B

D

Prop'n.

HP

GT

DWT

TEU

Service

CSX Challenger

1968

Sun

American Legion

701

90

32

Steam

20,100

19,200

22,500

1314

USGC-Puerto Rico

CSX Discovery

1968

Sun

American Liberty

701

90

32

Steam

20,100

19,200

22,500

1314

Laid Up

CSX Crusader

1969

Sun

American Lark

701

90

32

Steam

20,100

19,200

22,500

1314

USEC-Puerto Rico

CSX Navigator

1972

Ingalls

Austral Envoy

813

90

36

Steam

21,000

21,700

30,900

2282

USWC-Hawaii

CSX Trader

1973

Ingalls

Austral Entente

813

90

36

Steam

21,000

21,700

30,900

2282

USWC-Hawaii

CSX Expedition

1973

Ingalls

Austral Ensign

813

90

36

Steam

21,000

21,700

30,900

2282

USEC-Puerto Rico

CSX Hawaii

1973

Ingalls

Austral Endurance

813

90

36

Steam

21,000

21,700

30,900

2282

USEC-Puerto Rico

CSX Consumer

1974

Bethlehem

Australia Bear

721

95

34

Steam

23,500

23,800

25,700

1488

USWC-Hawaii

CSX Producer

1974

Bethlehem

New Zealand Bear

721

95

34

Steam

23,500

23,800

25,700

1488

Laid Up

CSX Pacific

1979

Bethlehem

Austral Pioneer

813

90

36

Steam

21,000

21,700

30,900

2302

USWC-Hawaii

CSX Enterprise

1980

Bethlehem

Austral Puritan

813

90

36

Steam

21,000

21,700

30,900

2302

USWC-Hawaii

CSX Reliance

1980

Avondale

Edward Rutledge

893

100

41

Steam

23,500

34,100

46,000

2438

USWC-Hawaii

CSX Spirit

1980

Avondale

Benjamin Harrison

893

100

41

Steam

23,500

34,100

46,000

2438

USWC-Hawaii

CSX Anchorage

1987

Bay

Sea-Land Anchorage

710

78

33

Diesel

14,900

20,100

20,700

1668

USWC-Alaska

CSX Kodiak

1987

Bay

Sea-Land Kodiak

710

78

33

Diesel

14,900

20,100

20,700

1668

USWC-Alaska

CSX Tacoma

1987

Bay

Sea-Land Tacoma

710

78

33

Diesel

14,900

20,100

20,700

1668

USWC-Alaska

   TITLE XI: LET'S APPROVE THE LOW-RISK, NOT THE HIGH-RISK PROJECTS.  Is that a radical suggestion, or what?  You might think that MARAD, after demonstrating with the AMCV, SeaRex and Ham Marine projects that it has learned nothing about risk assessment over the years, would now be focusing exclusively on the low-risk projects on its application list.  After all, if they get themselves into another disaster like AMCV, the Administration is going to pull the plug not only on the whole Title XI program but probably also on MARAD itself.  And the shipbuilding industry's friends on Capitol Hill, already seriously embarrassed, will not be able to rescue them.

To read our position paper on this subject, click on: Title XI AgainTim Colton, March 7, 2002.

   THE ASA IS RIGHT ABOUT NAVAL SHIPBUILDING.  The attack by Cindy Brown, President of the American Shipbuilding Association, on the Bush budget for naval shipbuilding is right on target, if a little intemperate in tone.  What is the matter with you guys in the Navy?  Can't you count?  If you don't stand up and insist on more ships, nobody's going to make you a gift of them.  Or are you expecting Senator Lott to do your work for you?

To read our position paper on this subject, click on: Naval ShipbuildingTim Colton, March 3, 2002.

   HITACHI ZOSEN TO EXIT SHIPBUILDING. Hitachi Zosen, one of Japan's "Big Seven", will spin off its shipbuilding division in October and will sell its 28% stake in Singapore's Keppel Hitachi Zosen to Keppel this March.  Hitachi's Ariake, Maizuru and Kanagawa shipyards will be merged with NKK's Tsu and Tsurumi shipyards in a new stand-alone public company.  The move continues a trend.  Sumitomo Heavy Industries announced in December that it would spin off its merchant shipbuilding yard at Yokosuka as a stand-alone company and would merge its naval shipbuilding yard at Uraga into a joint venture with IHI, to which IHI would contribute its Kure and Yokohama shipyards.  Kawasaki Heavy Industries has also said that it wants to spin off its Kobe and Sakaide shipyards, given a suitable partner, but talks with IHI broke down in November.  Only Mitsubishi Heavy Industries and Mitsui Shipbuilding & Engineering (which was itself spun off from the Mitsui Group decades ago) are apparently happy to stay in the shipbuilding business.  Tim Colton, February 6, 2002.

   AKER AND KVAERNER WILL COMBINE THEIR SHIPYARDS. Effective February 15, 2002, Aker's and Kvaerner's shipyards will come under common management, Aker Kvaerner Yards AS, which will be owned 50/50 by Aker RGI Holding ASA and Kvaerner ASA.  The yards involved are:

Shipyard Location Employees Current Orderbook
Aker Brattvaag AS Norway      450 9 OSVs
Soviknes Verft AS Norway      450 8 OSVs
Brevik Construction AS Norway      600

8 OSVs

Aukra Industrier AS Norway      200 1 chemical tanker, 3 OSVs
Langsten Verft Norway      400 1 fishing vessel, 2 OSVs, 1 patrol boat
Aker Finnyards Finland   1,000 4 deep-sea ferries
Aker MTW Werft Germany   1,400 2 cruise ships, 8 containerships
Aker Tulcea Romania   2,250 2 general cargo ships and a lot of bare hulls for the Norwegian shipyards
Estaleiro Promar Brazil      250 5 OSVs
Subtotal, Aker     7,000 56 vessels

Kvaerner Masa Yards Helsinki

Finland

  2,000 4 cruise ships

Kvaerner Masa Yards Turku

Finland

  2,200 4 cruise ships
Pikkio Works Oy Finland      300 accommodation modules

Kvaerner Warnow Werft

Germany

  1,200 5 containerships

Kvaerner Philadelphia Shipyards

USA

     800 2 containerships
Sub-Total, Kvaerner     6,500 15 vessels
Total, Aker + Kvaerner   13,500 71 vessels

The Aker/Kvaerner press release says that they have a combined backlog of 80 vessels and I can only count 71, but details, details, it's still a lot of business. 

The plan is to allow the individual shipyards a good deal of autonomy, with a lean-and-mean corporate staff to coordinate and provide direction.  A good move.  Tim Colton, February 4, 2002.

   PRESIDENT'S BUDGET SUBMISSION SINGLES OUT LPD 17 AND TITLE XI PROGRAMS FOR CRITICISM.  The 13-page summary of the President's proposed FY03 budget for DoD highlights only two problem programs and one of them is the LPD 17 program.  This is what it says:

Controlling Costs of Constructing Navy Ships

The costs associated with constructing new Navy ships have increased dramatically over the past few years.  More funding will be required to complete construction of several types of ships.  One ship in particular, the LPD-17 amphibious ship has experienced excessive cost increases.  In 2001, DoD estimated that to build 12 ships it would need a total of $10.6 billion.  Now DoD believes that it will require $15.1 billion to build these same ships, a 42% increase.  DoD has begun a number of initiatives to enhance its ability to monitor and take action on cost growth and schedule delays in the ship construction program.

The 12-page summary of the President's proposed FY03 budget for DoT also highlights only two problem programs and one of them is the Title XI program.  This is what it says:

Elimination of Unnecessary Corporate Subsidies

The Department's Maritime Administration provides federally guaranteed loans to U.S. shipyards and shipbuilding companies.  In many cases, these loan guarantees expose taxpayers to substantial risk.  For example, a recent bankruptcy risks defaults on federally guaranteed loans of over $350 million in 2002.  The Administration believes that this program represents an unnecessary federal subsidy.  The budget requests no funding for this program in 2003.  Shipbuilders and shipyards could and should seek to improve their competitiveness without relying on federal subsidies or exposing taxpayers to the costs of their failures.

Pretty discouraging.  Tim Colton, February 5, 2002.

   NORTHROP GRUMMAN SHIP SYSTEMS REPORTS AN OPERATING PROFIT OF ONLY 1% IN 2001. Northrop Grumman Corporation (NYSE:NOC) made a net profit of $427 million on total sales of $13.6 billion in 2001 (3.1%).  Operating profit was $1,006 million (7.4%).  NOC's Ship Systems Division, which is made up of Newport News, Ingalls and Avondale, achieved an operating profit of only $19 million on total sales of $1.9 billion (just 1.0%).  Pretty uninspiring.  More analysis here in March, after we see the full 10-K.  Tim Colton, January 30, 2002.

   DAEWOO REPORTS A 5% NET PROFIT FOR 2001.  Daewoo Shipbuilding & Marine Engineering, which was spun off from Daewoo Heavy Industries at the end of 2000, made a net profit of KRW 158 billion (about USD 118 million) on total sales of KRW 3.156 trillion (about USD 2.367 billion) in 2001.  Only just over 5%, but pretty good for a company that was allegedly only winning contracts with the aid of enormous subsidies.  In addition, DSME has halved its debt, from the truly amazing level of KRW 1.19 trillion (about USD 892 million) to the still daunting level of KRW 623 billion (about USD 467 million).  Pretty impressive.  Tim Colton, January 28, 2002.

   GENERAL DYNAMICS REPORTS AN 8% NET PROFIT FOR 2001.  General Dynamics Corporation (NYSE:GD) made a net profit of $943 million on total sales of $12.2 billion in 2001 (7.7%).  Operating profit was $1,485 million (12.2%).  GD's Marine Systems Division, which is made up of Electric Boat, Bath Iron Works, NASSCO and AMSEA, achieved an operating profit of $310 million on total sales of $3.6 billion (8.5%).  More analysis here in March, after we see the full 10-K.  Tim Colton, January 28, 2002.

   THE END OF THE U.S. LINER SHIPPING INDUSTRY.  International Shipholding Corporation, of New Orleans, announcing a loss of $64 million in 2001, has confirmed what it had previously indicated, that it has reclassified its three US-flag LASH ships as "assets held for disposal" and written down their values accordingly.  The ships involved are operated by Waterman Lines and are the only remaining US-flag ships in liner service, the ownership of which is genuinely American.  In case you hadn't noticed, the others aren't:

U.S.-Flag Operator  

Parent Company  

Nationality

Sea-Land Service  

Maersk  

Denmark

American President Lines  

Neptune Orient Lines  

Singapore

Farrell Lines  

P. & O. NedLloyd  

U.K./Netherlands

Lykes Lines  

Canadian Pacific  

Canada

Another watershed point in the decline of the U.S. maritime industry.  Tim Colton, January 18, 2002.

   INGALLS AND AVONDALE TO MERGE.  Northrop Grumman has announced that it is going to "align" its shipbuilding operations at Ingalls and Avondale.  This novel use of the verb appears to be a euphemism for "merge" or "consolidate".  Under this so-called "alignment", all bidding, contracting, program management, engineering, procurement and operations management will be centrally managed by Northrop Grumman Ship Systems.  If this isn't a merger, what is?  There is logic to this decision, but only if Northrop Grumman has decided to abandon all pretense of being a commercial shipbuilder, because this move absolutely guarantees that Avondale will never again be able to bid competitively for a commercial contract.  (Of course, we know that Ingalls achieved that dubious distinction many years ago.)  This is great news for the competition, especially with all the Jones Act shipbuilding opportunities coming down the track.

The Northrop Grumman press release is just packed with muddled thinking.  It describes the two shipyards as "complimentary": even if it means "complementary", they aren't going to be complementary any more.  They might have been complementary, if Northrop Grumman had followed a strategy of making Ingalls the premier naval shipbuilder, which it could be, and Avondale the premier commercial shipbuilder, which it might once have been.  The press release also describes the company's immediate imperatives as being to "outperform customer expectations on the LPD 17 amphibious assault ship, in terms of cost, schedule and quality" and to "win a leading role in the development of the Navy's future generations of surface combatants ....".  Ambitious goals, I don't think.  Considering that the LPD 17 program is at least 30% over budget and more than two years behind schedule - the Congress has had to appropriate over $4 billion (so far) for only four ships - the customer might be forgiven for having abandoned its original expectations and being more interested now in just getting some ships built.  And they already have a leading role in the development of the Navy's surface combatants - they have had for decades.

Isn't it depressing to watch the continued destruction of the U.S. shipbuilding industry?  Tim Colton, January 15, 2002.

   MINERALS MANAGEMENT SERVICE OKS FPSOS IN THE GULF.  The Minerals Management Service (MMS) finally announced its long-anticipated decision on December 31.  Floating Production Storage and Offloading systems (FPSOs) are now allowed in the Gulf of Mexico, at least outside the Coast Guard's Lightering Prohibited Areas.  Who will announce the first project?  How big?  Where will the FPSO be built and/or converted?  Remember that the Coast Guard has already ruled that FPSOs are NOT Jones Act vessels, although the shuttle tankers that will bring the oil ashore from the FPSOs are.  You could read the MMS decision on the MMS website, if it wasn't for the fact that the entire Department of the Interior has been cut off from the Internet as a result of a District Court order relating to Indian Trusts.  Tim Colton, January 3, 2002.

   $9.5 BILLION FOR NAVAL SHIPBUILDING IN FY-02.  The final version of this year's Defense Appropriations bill contains funds for naval shipbuilding programs as shown below:

Program

# of New Ships

Amount

Prior-Year Costs

Principal Beneficiaries

CVN(X)

 

$138,890,000   

$169,364,000   

Newport News

CVN refuelings

 

$1,221,831,000   

  Newport News

SSGN

 

$365,440,000   

 

Electric Boat

NSSN

1

$2,263,202,000   

$226,990,000   

Electric Boat and Newport News

Submarine refuelings

 

$460,015,000   

$16,248,000   

EB, NN, PNSY, PSNSY

CG conversions (AP)

 

$75,000,000   

 

Bath and Ingalls

DDG 51

3

$3,091,036,000   

$143,657,000   

Bath and Ingalls

LHD 8

1

$267,238,000   

  Ingalls

LPD 17

 

$155,000,000   

$172,989,000   

Avondale and Bath

LCAC upgrades

 

$46,091,000   

 

Textron

T-AKE

1

$370,818,000   

  NASSCO and Bath

Minehunter SWATH

 

$1,000,000   

   

Yard oilers

 

$3,000,000   

   

Other

 

$302,230,000   

 

 

Prior-year costs

 

$729,248,000   

 

 

In all

6

$9,490,039,000   

$729,248,000   

 

The prior-year costs are pretty startling: it seems that both the Navy and the big two continue to have difficulty managing costs.  Tim Colton, January 3, 2002.

For comment on maritime news reported in 2001, click here.

If you have comments or questions, suggestions or complaints, please e-mail me.