Maritime News and Comment

November 2005

   DOD APPROVES LRIP OF DD(X).  The Wall Street Journal reports today that the Under Secretary of Defense for Acquisition, (reported to be a regular reader of this web site), has approved low-rate initial production (LRIP) of the DD(X), although the program's funding problems in the Congress have not yet been resolved.  This decision would allow the Navy to contract separately with both Northrop Grumman and General Dynamics for a prototype ship, presumably with options for additional ships.  The LRIP phase of the program is believed to cover eight ships in total.  Who gets to build how many and what happens after the first eight are questions for a later day.  And don't ask how much they will cost: you don't want to know.  Plenty.  Read the WSJ report here.  November 25, 2005.

   NEW CUTTERS TO BE "LEGENDS".  The Coast Guard has announced that its eight new 418-foot National Security Cutters will be known as the "Legend" class.  The first of the new class, designated WMSL 750, will be named USCGC "Bertholf", after the Coast Guard's first Commandant, Captain-Commandant Ellsworth P. Bertholf.  Good thinking.  Read the Coast Guard's announcement here.  November 25, 2005.

   NASSCO DELIVERS "ALASKAN NAVIGATOR".  NASSCO has delivered the third of four 185,000-dwt crude carriers to BP Oil Tanker Company, for service moving crude from Valdez AK to West Coast refineries.  Read NASSCO's announcement in the News Releases section of their web site, here.  Note the disparity of performance between NASSCO, building 185,000-dwt tankers, and Avondale, building 140,000-dwt tankers.  November 24, 2005.

   BAY GETS ANOTHER TANK BARGE.  Harley Marine Services, of Seattle WA, has ordered an 80,000-barrel tank barge from Manitowoc Marine's Bay Shipbuilding, in Sturgeon Bay WI.  The barge is scheduled for delivery in the fourth quarter of 2006.  Harley has an option for a second barge of the same capacity.  November 23, 2005.

   $2 BILLION?  SURELY THEY JEST.  The idea that $2 billion of tax money should be appropriated for the purpose of getting the shipbuilding programs at Northrop Grumman Ship Systems back on track is, on its face, outrageous. 

First, the whole concept boggles the mind.  Every business on the Gulf Coast, mine included, suffered a major disruption, if not total destruction.  Many of these businesses have government contracts, but I don't hear the Navy offering to help anyone other than NGSS.  Why should NGSS be any different?  Sure, some (though not all) of the ships being built by NGSS will be delayed, but so what?  Many of them were probably going to be delayed anyway, that being the way of things at the No Good Shipbuilding Company, and it's not as if naval operations will come to a screeching halt for lack of a destroyer.

Second, NGSS is insured, not only for property damage but also for business interruption.  Does this not, by definition, cover any cost of delay?  If not, NGSS must and should cover the difference, as it must and should cover the difference between its property insurance pay-out and its actual cost.  Don't forget that an uninsured casualty loss is deductible from taxes.  Parent company NGC paid $522 million in taxes last year, although that's not a lot on $20 billion in gross sales.

Third, the figure of $2 billion is out of all proportion, although about  $0.7 billion of this sum is to replace damaged or lost GFM and only $1.3 billion is to help the contractor.  NGSS' financial results are combined with those of Newport News in NGC's financial statements, but the two outfits together had gross revenues last year of $6.25 billion, on which they made $389 million in operating profit.  Since NGSS is larger than NNS, it probably accounted for about $3.5 billion of the gross revenues, and, proportionately, over $200 million in operating profit.  The proposed bail-out of $1.3 billion, therefore, represents close to 40% of annual sales.  But hold it a moment.  NGSS' annual payroll is probably around $900 million to $1 billion; the cost of direct material and subcontractors is probably about the same; and the remaining $1.3 billion plus in operating cost is the shipyards' amazing overhead.  So, if, say, all NGSS' programs were to be delayed by, say, six months, what exactly would the extra costs be?  The cost of direct labor shouldn't change much, although there would probably be some loss of productivity; the cost of direct material and subcontractors shouldn't change much either; the cost of overhead would certainly increase, but the whole overhead for the entire six months' of delay should not be more than about $650 million.  Where does this figure of $1.3 billion come from?

NGSS insists that this proposal is nothing to do with them.  It's all the Navy's idea and NGSS wants no part of it.  If the Navy gets the money, no doubt NGSS will turn it down.  Of course.  November 20/23, 2005.

   K-SEA BARGE CAPSIZES.  One of K-Sea Transportation's tank barges hit a submerged object in the Gulf of Mexico last week and capsized.  The barge is "DBL 152", which was built as "MM-2" by Galveston Shipbuilding for Marathon Oil in 1982 and acquired by K-Sea in 1993.  The barge, which was fully loaded, is currently still afloat.  It is interesting to note that this is a double-hulled barge, which draws attention to the fallibility of the congressional belief that a double hull is the best insurance against oil spills.  In addition, it will be interesting to know what caused a gash 35 feet long by 6 feet wide and deep enough to penetrate the inner hull.  November 19, 2005.

   OSG TALKING 25 PRODUCT CARRIERS.  OSG's Chairman, Morton Arntzen, was quoted last week as saying that not only was OSG going to exercise its options with APSI for ships 11 and 12 in the series of Jones Act product carriers, but that he thought the series could go to 25 ships.  Granted that OSG has a great deal with APSI's parent company, Aker American Shipping, with all those poor ignorant Norwegian investors carrying all the risk, but 25 ships?  In OSG's world, two plus two apparently equal eight.  November 19, 2005.

   TANK BARGE LOSES U.S. FLAG.  The Maritime Administration has kicked a tank barge out of the U.S. flag because its owners converted it for the carriage of grain in a foreign shipyard.  The barge, "Connor", is owned by Moby Marine, of Fort Pierce FL: it was built by Avondale in 1967 for Spentonbush Tanker Service as "Hygrade 95" but was, until recently, Hornbeck's "Energy 9801".  It was OPA 90ed out last year and sold to Moby Marine for service in the U.S. government-impelled grain trade.  Moby sent the barge to Astilleros Vikingos, in Colombia, for conversion.  What were they thinking?  November 19, 2005.

   MATSON JACKS UP RATES AGAIN.  Matson Navigation will increase its rate for moving containers to and from Hawaii by an average of 3.9%, effective the beginning of the year.  Read the company's announcement here.  This move comes only a week after it reported a 12% increase in operating profits.  The company attempts to justify this increase by pleading the need to invest in new equipment, in order to improve efficiency.  There's no doubt that Matson needs to invest in new equipment, but if this investment results in improved efficiency, shouldn't its rates be coming down, not going up?  Oh, sorry, I forgot, we're talking about Matson.  Rates come down?  Some chance.  Pay up, Hawaiians, and smile while you're doing so.  November 12, 2005.

   SENESCO ATB PROJECT COLLAPSES.  The deal between U.S. Shipping Partners and SENESCO to build four 20,000-dwt ATBs has collapsed.  SENESCO has admitted to U.S. Shipping that it cannot perform, something which we doubted at the outset, drawing upon ourselves torrents of wrath from everyone involved.  The first barge will be finished at an unnamed yard (rumored to be Sparrows Point): its price has been revised from $45 million to $53 million and its delivery from early 2006 to end-2006.  The three option barges are history.  It will be interesting to watch U.S. Shipping Partners attempting to build these other three ATBs at some other shipyard, considering that last time around they managed to antagonize just about every shipbuilder in the business before they did their predictably ill-fated deal with Senesco.  And if they don't try to build them elsewhere, doesn't that raise questions about their judgment in initiating the project in the first place?  November 9/12, 2005.

   SEACOR/SEABULK NEWBUILD PROJECT DEAD.  The deal between Seacor/Seabulk and Bollinger Shipyards to build a series of product carriers at Bollinger's shipyard in Amelia LA, (the former McDermott Shipbuilding yard), has apparently been terminated, without ever getting to the contract stage.  This decision is blamed on Katrina but maybe they just did the arithmetic.  November 9, 2005.

   U.S. SHIPPING BUYS 33-YEAR-OLD SHIP.  The elderly 19,000-dwt parcel tanker, "Sea Venture", built by Hellenic Shipyards in Scaramanga in 1972 and rebuilt under the Wrecks Act by Tidewater Equipment in Norfolk VA in 1983, has been sold by Intrepid Ship Mgmt. to U.S. Shipping Partners.  The total cost to U.S. Shipping, including a dry-docking, is said to be about $12 million.  Intrepid only bought "Sea Venture" from Atlantic Tankships this past summer: is there a back story there?   November 9, 2005.

   FOUR MORE TANKERS OPA OUT.  OSG's four 90,000-dwt crude carriers have all now been withdrawn from service, courtesy of the Oil Pollution Act of 1990, (OPA 90).  "Overseas Chicago" was sold for scrap in China last month; "Overseas New York" and "Overseas Washington" were sold for scrap in Bangladesh this month; and "S/R Hinchinbrook", (ex-"Overseas Ohio"), is laid up in Portland OR, awaiting a sale.  The four ships were built by NASSCO in 1977-78 (hull #s 398-401).  There are now only five single-hull crude carriers left in the US-flag fleet and two of those OPA out next year.  November 2, 2005.

   MATSON PROFITS UP.  The poor people of Hawaii continue to pay more than they should for just about everything, as Matson Navigation reports another startling increase in its operating profit.  In its third quarter, total revenues grew by 6% compared to 2004 but operating profit grew by 12%.  For the first nine months of the year, total revenues were up 6% on 2004 but operating profit was up 27%.  What a great business!  Just think how much money Matson might make if it were efficient!  November 1, 2005.

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