Executive Summary

Background

After decades of outstanding contributions to the nation's naval capability, the U.S. shipbuilding industry is in crisis. During the 1980s, at the behest of the Reagan administration, U.S. shipbuilders turned to constructing many new naval vessels. Following these achievements and with the ensuing defense builddown, U.S. shipbuilders lost significant parts of their business and work force, having become increasingly isolated from world commercial shipbuilding markets. In the mid-1970s, a combined total of about 20 large, oceangoing commercial ships were built every year in all private U.S. yards; since 1984, that number has been 10 or fewer ships every year, with no vessels on order between 1989 and 1991. In the meantime, other shipbuilding nations, aided by generous government support, learned to build ships in series and to capitalize on economies of scale and learning efficiencies.

All of these trends have prompted concern on the part of the U.S. government and others about the potential of the nation's shipbuilding industry to contribute to both military and commercial objectives. The National Defense Authorization Act of 1993 and a following Clinton administration plan, Strengthening America's Shipyards (1993), established the goal of a national commercial shipbuilding industry that provides a technology base and research and development infrastructure for achieving both sets of objectives.

In keeping with these developments, the U.S. Department of Defense Advanced Research Projects Agency and the Office of Naval Research asked the National Research Council, through the NRC's Marine Board, to assess:



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--> Executive Summary Background After decades of outstanding contributions to the nation's naval capability, the U.S. shipbuilding industry is in crisis. During the 1980s, at the behest of the Reagan administration, U.S. shipbuilders turned to constructing many new naval vessels. Following these achievements and with the ensuing defense builddown, U.S. shipbuilders lost significant parts of their business and work force, having become increasingly isolated from world commercial shipbuilding markets. In the mid-1970s, a combined total of about 20 large, oceangoing commercial ships were built every year in all private U.S. yards; since 1984, that number has been 10 or fewer ships every year, with no vessels on order between 1989 and 1991. In the meantime, other shipbuilding nations, aided by generous government support, learned to build ships in series and to capitalize on economies of scale and learning efficiencies. All of these trends have prompted concern on the part of the U.S. government and others about the potential of the nation's shipbuilding industry to contribute to both military and commercial objectives. The National Defense Authorization Act of 1993 and a following Clinton administration plan, Strengthening America's Shipyards (1993), established the goal of a national commercial shipbuilding industry that provides a technology base and research and development infrastructure for achieving both sets of objectives. In keeping with these developments, the U.S. Department of Defense Advanced Research Projects Agency and the Office of Naval Research asked the National Research Council, through the NRC's Marine Board, to assess:

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--> the current state of research and technology application in the U.S. shipbuilding industry; current and proposed programs that invest in ship design and production-related research; and the current state of U.S. education in naval architecture and marine engineering. This report presents the results of the Marine Board study. The study was conducted by a specially appointed committee of experts with extensive expertise in a broad array of relevant disciplines. This committee, the National Research Council Committee on National Needs in Maritime Technology, based its conclusions and recommendations on committee members' first-hand knowledge of international shipyards, ship acquisition, and technical exchange agreements between U.S. and international yards and on information obtained through workshops, briefings, and a literature review. Results of the Study Improved technology is critical if the United States is to regain a place in world commercial shipbuilding markets. For the industry to be profitable, it is necessary—although not sufficient—for U.S. shipbuilders to be at least on a par technically with competing international yards. However, U.S. shipbuilders now lag behind in the four major technology categories the committee examined: business-process technologies—the principal ''up-front" management processes and other management activities, notably technologies for preliminary design, bidding, estimating, and sourcing, that are linked to the marketing capabilities of shipbuilders; system technologies—the engineering systems, such as process engineering and computer-aided design and manufacturing, that support shipyard operations; shipyard production processes technology—the methods used in fabricating, assembling, erecting, and outfitting vessels; and new materials and product technologies—the innovations, including new designs and new components, that meet particular market needs. Relative to these four categories of technology as they are commercially applied, U.S. builders are somewhat behind in shipyard production technologies, are further behind in system technologies, and are quite far behind in business-process and new product and new materials technologies. Government involvement in solving what appear to be primarily strategic and operating management problems must be limited. Government agencies should not be involved in the resolution of day-to-day management problems.

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--> Nonetheless, U.S. government agencies can assist U.S. shipbuilders in reestablishing themselves technically in international markets in several ways. Government can provide better support for "front-end" technologies in product design, product modeling, process modeling, simulation, and costing, all of which are useful to shipbuilders in marketing. These technologies represent the areas of greatest lag between U.S. shipbuilders and their international competitors. Providing help in these areas is the thrust of the Maritime Systems Technology program in Advanced Research Projects Agency. With increased emphasis on the areas of greatest need—for example, by requiring viable business plans for all Maritime Systems Technology projects—the Maritime Systems Technology program should run its course. Continued support for shipyard production and design technology improvements is also needed for parity with foreign shipbuilders. Although such improvements will likely have only a modest effect in gaining market share, they are still needed for U.S. production costs to be competitive. The Maritime Administration should continue to serve and should even expand its role as an informed commentator on the industry's effort to become an international player. The Maritime Administration can collect and combine the information gathered by other U.S. government agencies to provide the industry with a better perspective on its competitive position. More useful still, the Maritime Administration could provide a technical assessment of international yards to give the U.S. shipbuilding industry a better picture of the gaps it must overcome. Most important, the Maritime Administration could monitor as accurately as possible the many ways—both direct and indirect—foreign governments subsidize their shipbuilding industries. Perhaps the most important assistance the U.S. government as a whole could provide would be the procurement of noncombatant ships to commercial specifications using commercial acquisition methods. Although this approach may not be practical for all noncombat ships, their procurement represents the largest single U.S. shipbuilding budget and has the greatest potential for improving overall U.S. shipbuilding performance. The naval architecture and marine engineering educational system plays an essential but longer-term role in supporting U.S. reentry into the international market by contributing to basic understanding of design, materials, and new production processes. The Office of Naval Research has been a major supporter of the educational structure at the graduate level for many years. This support continues to be necessary for the funding of faculty, Navy projects, and fellowships; however, the educational establishment must become more concerned about the economics of the shipbuilding industry. Little study has been done on the economics of various technologies, even as U.S. shipbuilders are now seriously pressed to reduce labor hours, shorten delivery times, and improve precision to compete in worldwide commercial shipbuilding. For its part, the shipbuilding industry should support the naval architecture and marine engineering

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--> educational infrastructure by becoming involved with research that can support the industries. Shipbuilders should also develop detailed plans to reenter targeted world markets. This is a lesson that management in many other threatened U.S. industries learned quite late. Moreover, all of the ships recently constructed by U.S. yards were for U.S. owners and were competitively priced only among U.S. shipbuilders. The committee must make the sober observation that no industry in a position similar to that of U.S. shipbuilding has become internationally competitive in fewer than 10 years—if at all. Given U.S. industry's current position and the fact that labor hours are twice the international level in some market segments, the industry confronts an enormous task. No other substantial industry with such a low market share has achieved a turnaround in similar circumstances. This committee urges a broader examination—focused on more than technology—to determine what is required for the industry's success. The charge to the committee limited the scope of the present study to technology; therefore, the committee did not address some issues that could be more important than technology for becoming competitive in shipbuilding. In particular, the proposed examination should cover financing of all kinds, with a close look at U.S. government regulations and subventions by other governments through training programs, port and area development subsidies, and the like, which are not directly tied to shipbuilding but clearly influence its economics. In the past, financing has been far more important than technology in determining the competitive position of shipbuilders, and this will very likely be the rule in the future. The broader examination proposed by the committee could be led by the industry in cooperation with the federal government. The examination should cover the need to meet established goals and to formulate a U.S. public policy approach that creates organizational, structural, and financial incentives. This range of incentives may be essential for building a viable U.S. shipbuilding industry. Policy Recommendations For the present, a number of the measures discussed above could provide valuable support in reestablishing U.S. commercial shipbuilding: The Department of Defense should acquire all noncombatant ships, including the ships for the Sealift Program, using totally commercial specifications and commercial procurement practices. The Advanced Research Projects Agency should continue its current effort in Maritime Systems Technology, concentrating on the "front end" of the process, including business-process and simulation technologies, in addition to those related to product design.

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--> The Maritime Administration should expand its role in assisting U.S. shipyards to enter the international commercial market by organizing and presenting information collected from other government agencies; by providing technical assessments of technology gaps U.S. industry must overcome; and, especially, by determining as accurately as possible the direct and indirect subventions and subsidies of foreign governments to their shipbuilding industries. The Office of Naval Research should continue to support faculty members through fellowships; through research projects directed at Navy objectives; and, to the extent possible, through projects that have economic impacts. Naval architecture and marine engineering schools should become more involved with the U.S. shipbuilding industry through research in business-process, system, and ship-production technologies, as well as by soliciting support for these and other kinds of research. The schools should continue concentrating on subjects traditionally taught but should also pay much greater attention to the economic health of the industry. Universities, with their multiple disciplines, led by the naval architects and marine engineers who justifiably lay claim to being good systems thinkers, should be able to seize the problem that U.S. shipbuilders face; understand what it will take to create a healthy industry; and reach as far afield as needed to understand the cultures, political motivations, and economic infrastructures of international competitors. Shipbuilders and shipowners should better support the naval architecture and marine engineering educational infrastructure. Shipbuilders and shipowners should develop detailed plans for entry into international commercial markets.