2007 - Turning Point in Shipbuilding
By Cynthia L. Brown, President, American Shipbuilding Association (ASA). he shipbuilding industry of the United States has been struggling to survive the longest period of rock bottom rates of naval ship production in our Nation’s history. Since 2001, the Fleet of the U.S. Navy has shrunk from a force of 341 ships to just 280 today. While the Defense Budget has grown by more than 51 percent, excluding war supplementals, the Navy‘s ship procurement budget has been cut by almost 17% over this time period. These anemic shipbuilding budgets, and the corresponding decline in battle force ships, have persisted in the face of dramatically increased operating tempos in waging wars in Afghanistan
and Iraq, and in humanitarian relief missions in the wake of the Tsunami, Hurricane Katrina, and the evacuation of Americans from Lebanon. The stress on our Sailors and Marines and the risk to American security as a result of a much diminished Fleet has spurred the leadership of the Navy to declare "enough."
Increased Naval Shipbuilding Budgets:
Last year, Admiral Mike Mullen, the Chief of Naval Operations (CNO), announced that the Nation could not allow the Fleet to shrink any further, and undertook an extensive study to determine the annual budgets that would be required to rebuild the Navy to no fewer than 313 ships. To recapitalize to a 313-ship Navy, the CNO outlined a 30-year shipbuilding plan calling for an average annual ship procurement budget of $14.4 billion in 2007 dollars for roughly 12 new ships a year. In fiscal year 2008, the CNO’s plan calls a new ship procurement budget of $14.1 billion – an increase of more than $5 billion over the FY07 budget request.
The challenge for the Navy as it puts together its FY08 budget is whether the leadership of the Department of Defense (DOD) and White House will provide additional budget authority to the Navy so that the $14.1 billion in ship procurement can be reached. To this end, ASA has been working with the Administration and Congress in support of Navy requirements. In June, 69 Members of the Congressional Shipbuilding Caucus, chaired by Representatives Jo Ann Davis (R-VA) and Gene Taylor (D-MS), and 16 Senators, led by Susan Collins (R-ME) and Jack Reed (D-RI), sent letters to the Secretary of Defense urging him to support a larger budget for the Navy for the express purpose of increasing the ship procurement budget to $14.1 billion.
Maintaining the Integrity of DOD U.S.-Build Laws:
Apart from industry’s drive to increase Navy shipbuilding budgets, ASA continues to support congressional efforts to close loopholes in U.S. acquisition laws and regulations Cynthia L. Brown that allow America’s national security to be outsourced to Asian shipyards to the detriment of the U.S. defense shipbuilding industrial base. The House Armed Services Committee, at the urging of Representatives Jo Ann Davis and Gene Taylor, included a provision in the FY07 National Defense Authorization Bill (Section 1016) to put an end to the de facto purchase of foreign-built defense auxiliary ships through long-term leases. Section 1016 would limit lease contracts of foreign-built ships from the current five years to a period of two years. By limiting lease contracts to two-years, the financing necessary to convert used commercial ships to military ships would not be available as the return on such an investment would not be recoverable in a contract that could only be guaranteed for two years. DOD is clearly purchasing, via long-term leases, foreign-built ships in circumvention of U.S. law that states that ships purchased by the Department of Defense must be built in the United States, and Office of Management and Budget regulations intended to preclude the lease/purchase of capital assets to meet longterm military requirements. Congress established the National Defense Sealift Fund in 1990 for the express purpose of every service to budget in the Fund the construction of auxiliary ships needed to meet long-term dedicated sealift and other special purpose requirements.
Facilitating Increased Commercial Shipbuilding:
Commercial shipbuilding is vital to sustaining the defense shipbuilding industry of the United tates.”
Commercial shipbuilding is vital to sustaining the defense shipbuilding industry of the United States. Commercial orders are needed to augment Navy orders to sustain the companies engaged in ship construction (shipyards and the manufacturing supplier base); to retain the highly skilled base of engineers and production workers; and to reduce the unit cost of every ship built in the United States through increased volume production.
The Jones Act Fleet of oceangoing dry and liquid cargo ships is old and in need of replacement. It is imperative that small and medium sized ship operating companies have access to affordable financing to make the investment in new ships possible. Affordable financing and loan terms and conditions are provided by the Title XI Ship Loan Guarantee Program of the Maritime Administration. While this Administration has not supported in its budget any funds
to guarantee loans for the construction of commercial ships in the United States, Congress has been a strong proponent of the program. Funding for Title XI is a high priority of the ASA.
The Senate Appropriations Committee recommended $30 million for new loan guarantees in its mark of the FY07 Department of Transportation Appropriations Bill. This funding was provided by Subcommittee Chairman and Ranking Member, Chris Bond (R-MO) and Patty Murray (D-WA), respectively, and Full Committee Chairman Thad Cochran (R-MS) at the urging of 20 Senators, led by Trent Lott (R-MS) and Mary Landrieu (D-LA). While the House Transportation Appropriations Committee recommended no funding for the program in FY07, the House is expected to be supportive in conference because of the strong bipartisan support for Title XI among House Members. Representatives Susan Davis (D-CA) and Jo Ann Davis (RVA) sponsored a letter with 39 of their colleagues to the House Appropriations Committee in support of $30 million for the program.
On August 7, National Steel and Shipbuilding Company (NASSCO) received a $1 billion contract from U.S. Shipping Partners L.P. for the construction of nine clean product tankers for the Jones Act trade. The contract includes options for up to five additional tankers. The Title XI Loan Guarantee program will be needed to finance the option ships in this contract as well as many other pending construction contracts.
Conclusion:
The naval turnaround will begin when the White House sends a Navy budget to Congress next year asking for $14.1 billion in new ship procurement. The Jones Act tanker construction contract at NASSCO, and congressional support for Title XI financing are very positive developments on the commercial front. ASA remains confident that Congress will act soon to demand that ships for our military be built in the United States. These are all encouraging indicators to a renewed commitment to strengthening the health of the defense shipbuilding industry and in making America safer. For these reasons, 2007 is expected to be the year in which increased ship production will be realized.
