Comment on the Maritime News

July-September 2004

   IS NORTHROP GRUMMAN BETTER AT P.R. THAN AT BUILDING SHIPS?  An hilarious article in the New Orleans Times-Picayune recently trumpets alleged improvements in performance at Northrop Grumman's once-great but now pitiful Avondale operation.  I can't give you a link to the article because the Times-Picayune is one of the few newspapers that won't let you read it on-line.  Not that you're missing much.

The headline is "TROUBLES PASSED" and yes they are talking about Avondale.  Its most startling claim is that they built the fourth Polar tanker in half the time they took to build the third one.  Needless to say, this is not true.  Most of the remainder of the article concerns improvements in safety and housekeeping, with no explanation of how the yard's "troubles" might have been "passed".

The table below tells the Polar Tankers story.  The first of the five ships was delivered 15 months late, requiring about 50% more time than had been planned.  The second ship was 21 months late, also requiring about 50% more time than was originally planned and about four times as much time as would be needed in a Korean shipyard.  The second ship was 21 months late, the third ship was "only" 13 months late, and the fourth ship was a positive triumph, being only 12 months late.  A startling improvement in performance on the third and fourth ships, you say?  Not really, considering that they were both delivered with huge deficiency lists and taken to Grand Bahama Shipyard for their pre-delivery dry-docking and bottom painting.  The Polar Adventure, which was "delivered" on August 13, is now out of dry-dock but still has several weeks of shipyard work to do before she can make the long voyage round Cape Horn and go to work.

Avondale's LPD story is no more inspiring.  The first of the four ships under contract at Avondale is now expected to be delivered this December, (don't bet on it), an astonishing 8 years after it was contracted and two-and-a-half years late.  The second ship is expected to be a mere 22 months late and the third only 20 months late.

Depressing stuff.  Tim Colton, September 3, 2004.

   IS THE HIGH COST OF NAVAL SHIPBUILDING FINALLY CATCHING UP WITH THE NAVY LEADERSHIP?  The authoritative Washington newsletter "Inside the Navy" reports that the Navy's budget request for FY06 will include only four new ships and will still cost $6 billion.  The four ships are: one SSN at a budget-busting $2.5 billion; one DD(X) at a mind-boggling $1.5 billion; one LPD at a ludicrous $1.0 billion; and one T-AKE at a relatively modest $0.4 billion.

This is no real surprise.  Naval shipbuilding costs have  been out of control for about 15 years now and the Navy has brought it on itself.  First, it essentially eliminated competition by forcing more than half the shipbuilding industrial base, including critical suppliers, out of business.  Then it created a contracting environment in which the few remaining shipbuilders not only have no incentive to reduce costs but are actively encouraged to increase costs.  Finally, it has driven per-ship costs up even further by specifying ever more complex ship designs: there is no bell or whistle that the Navy doesn't want to have at least three of on every one of its new ships.  There are other factors at play here but these are the most significant ones.  The net result is that we now have a big-ship shipbuilding industry that is the most expensive and the most incompetently managed in the world and we have now, not coincidentally, almost completely lost our ability to build deep-draft merchant ships. 

I have to keep reinforcing this broad allegation with a fundamental fact: in the 1970s, productivity in U.S. big-ship shipbuilding was measured to be about half that in Japanese shipbuilding; today it is around a quarter.  (So much for the National Shipbuilding Research Program.) 

I also have to keep pointing out that the problem isn't with U.S. shipyard workers: our successful small yards demonstrate that.  The problem also isn't with U.S. shipyard facilities: they are all just as good as the older European and Japanese yards.  The problem in the yards is with U.S. shipyard management.  There's way too much of it and it doesn't seem to have a clue what it's doing.

But the real problem is the Navy itself.  The Navy dug this hole and can't find its way out.  It talks about "acquisition reform" but what it means by this is spreading the appropriation of funds for individual ships over multiple years.  This would not, of course, have any impact whatever on the high cost of ships: it would merely obfuscate the accounting of that high cost.  We do, indeed, need acquisition reform: we need rigorous cost-benefit analysis of every new ship system; we need elimination of all but the most critical change orders; we need firm-fixed-price contracts, with incentives for cost reduction and schedule acceleration and penalties for cost over-runs and delays; we need to reintroduce competition by requiring prime contractors to competitively procure x% of each contract from the second-tier shipbuilders; we need detailed audits of indirect costs and non-allowance of about half of them.  And much more besides.

Will it happen?  Not a chance.  It's only the taxpayers' money.  Tim Colton, August 20, 2004.

   MPS TANKER PROGRAM DEVELOPMENTS.  MARAD's August 9 letter to participants reveals that there are eight, not seven, proposals on the table.  The eighth is from NASSCO.  In case this surprises you, remember that NASSCO has owned ships before, has a Capital Construction Fund, (CCF), and has a sister company within General Dynamics' Marine Systems group, AMSEA, that operates ships for M.S.C.  This does not, however, mean that they have a hope in hell of winning this contract.  The line-up appears, therefore to be:

The real surprises in MARAD's letter is that they questioned Seabulk's citizenship, presumably because of Credit Suisse First Boston's heavy ownership position.  But if the Coast Guard thinks Seabulk is American, who is MARAD to disagree?  I must be missing something here: would someone please enlighten me?  Tim Colton, August 20, 2004.

   IS THE JUDGMENT AGAINST HYUNDAI IN THE MSC CARLA CASE FAIR?  I assume that everyone has read the report of the recent case in the U.S. District Court for the Southern District of New York, in which Hyundai was found liable for the containership "MSC Carla" breaking in two and sinking in the North Atlantic 13 years (and presumably at least two special surveys) after Hyundai Mipo Dockyard (HMD) had inserted a new mid-body in her.  If you haven't, you can catch up by reading the court's ruling here.  The court found, among other things, that many of the welds connecting the new mid-body to the existing structure were bad and that the shipyard knew of the bad welds when the ship was redelivered to the owner.  (That's a gross simplification: read the judgment.)  My question, however, is not "Did HMD do a shoddy job?"  The answer to that is obvious.  My question is "Where on earth were the owner's representatives and the Lloyd's Register surveyors while all this was going on?"  Tim Colton, August 15, 2004.

   DEFENSE APPROPRIATION FOR FY-05 TOTALS $ 13 BILLION FOR ONLY 9 NEW SHIPS.  It's still much too much per ship.  Tim Colton, August 6, 2004.

   SENESCO'S INTERESTING PROJECT.  The Rhode Island shipbuilder, SENESCO, is reported to be close to signing a contract to build a 150,000-barrel ATB for US Shipping, LLC.  This project is interesting for four reasons.  First, SENESCO can't build a 150,000-barrel barge in one piece in its own shipyard: the barge will have to be built in two parts and the two parts will then have to be joined together either in the water or in a graving dock.  Second, SENESCO will subcontract the tug to C. & G. Boatworks, in Mobile, Alabama.  Third, the tug, which, like the barge, was designed by tug-and-barge wizards Guarino & Cox, will be powered by a Wartsila heavy-fuel engine: this departure from standard practice is believed to result in significant cost savings.  And finally, SENESCO apparently beat out only one other bidder - Alabama Shipyard: the other established builders of tank barges were mysteriously not invited to bid.  Tim Colton, July 30, 2004.

   HALTER WELL POSITIONED FOR MPS TANKERS.  The line-up for MARAD's still unfunded MSP tanker program reveals Halter Marine to be the shipyard of choice:

The only real surprises here are the absence of Keystone Shipping and the presence of Northern Marine Management, which is not, to my knowledge, a US-flag shipping company.  (Later News: It's not Northern Marine Management, it's a new outfit called Northern Marine, formed by some guys in the Pacific Northwest who used to run Lasco Shipping.)  Tim Colton, July 23, 2004.

   IS THE WMSL TOO BIG AND TOO EXPENSIVE?  Ingalls Shipbuilding has announced that it has received $250mm in advanced funding for the first of the Coast Guard's new generation of high-endurance cutters, which are not designated WHECs, as would be traditional, but WMSLs, for Maritime Security Cutter, Large.  Large is the right word: at 4,200 tons, this vessel is about 60% larger than the "Hamilton" class of WHECs and about 13% larger than it was supposed to be.  In addition, the $250mm is only for advance production and procurement, i.e., the total contract value will be substantially more than this.  This sort of thing is, I suppose, what we have come to expect from the world's most expensive shipbuilder, but how is the Deep Water Project's budget going to be able to afford this kind of inflation, especially given Northrop Grumman's long track record of ever-growing costs and ever-slipping delivery dates?  Tim Colton, July 5, 2004.

For comment on maritime news reported in earlier quarters, click on one of the following links:

Second Quarter of 2004

First Quarter of 2004

Fourth Quarter of 2003

Third Quarter of 2003

Second Quarter of 2003

First Quarter of 2003

Fourth Quarter of 2002

Third Quarter of 2002

Second Quarter of 2002

First Quarter of 2002

Fourth Quarter of  2001

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