Wednesday, April 5, 2017

Government Owned Shipbuilding Yards

Discussions of naval shipbuilding have noted the scarcity of active shipbuilding yards in the US.   Up to, and during, WWII, the US operated dozens of shipbuilding yards.  Now, US shipbuilding has shrunk to a very few.  The reasons are many and include increased safety, environmental, and labor laws and regulations that have put US shipbuilders at a disadvantage relative to foreign shipyards.  Naval shipbuilding demand has also steadily decreased over the last few decades which has increased the cost of what new construction there is which, in turn, has further lowered the numbers of new construction – a classic death spiral.

The lack of shipyard competitors has created a semi-monopoly with all the attendant problems such as elevated prices, limited selection, stagnant designs, corruption, etc.  One of the common suggestions is for the government to operate its own shipyards.  If nothing else, the elimination of profit would lower costs, according to proponents.  With that background, let’s take a deeper look at the concept of government operated shipbuilding yards.

Once upon a time, the Navy did own and operate shipbuilding yards.  These yards were required to competitively bid on construction projects just like private yards.

“Since the nation's earliest days, the U.S. Navy has operated its own shipyards.  There were 13 in total, four of which are still active.   In addition, eight naval stations - one in the U.S., seven overseas - had some shipbuilding capability.  At the end of WWII, the Navy terminated or cancelled almost all new ship construction contracts and only a few new ships were built in the Naval Shipyards thereafter.  Then, in 1972, a report was published that demonstrated that ships built in Naval Shipyards cost, on average, about 30% more than ships built by private-sector shipbuilders: as a result, all new ship construction in the Naval Shipyards ceased and five of the nine remaining yards were closed.” (1) [emphasis added]


“In 1972, Booz-Allen compared the costs of comparable ship work, including new construction, conversions, and overhauls In public and private yards for the fiscal years 1966-71. They found that the cost of new construction was, on average, about 35 percent higher in naval shipyards.” (2)


There are now only four shipyards and none engage in shipbuilding.  They are limited to repairs and upgrades.  The surviving yards are listed below.

  • Portsmouth Naval Shipyard - overhauls, repairs, and modernizes Los Angeles-class submarines

  • Norfolk Naval Shipyard - specializes in repairs, overhauls, and modernization of ships and submarines

  • Pearl Harbor Naval Shipyard - repairs, maintains and modernizes the U.S. Pacific Fleet

  • Puget Sound Naval Shipyard - Maintains, modernizes, and retires ships

We see, then, that while the supposition that government owned and operated shipbuilding yards would be cheaper seems reasonable on the surface, the historical data indicates otherwise.  This is in line with almost all other large government programs.  For example, the US Post Office is far more expensive than private firms such as FedEx or UPS.  Similarly, Social Security, which is a form of insurance/annuity, is inefficient, costly, and failing compared to private sector insurance and annuity financial firms.  In fact, if the Social Security program were private, it would not be allowed to operate as it fails to meet private sector laws and regulations.  One final example, the Veteran’s Administration hospital service is a complete failure compared to private sector hospitals.  Thus, there is overwhelming current and historical data that indicates that government owned and operated shipbuilding yards would not provide cheaper ships but would, instead, provide more expensive ones.  

Government shipbuilding yards are not the solution to our out of control shipbuilding costs.



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(2)“Overhaul Costs In Public And Private Shipyards: A Case Study”, Marianne Bowes, The Public Research Institute, Oct. 1981, CRC 442

43 comments:

  1. There may be hope to bring in meaningful competition if the Navy love-in of the duopoly of GD and HII in the non-nuclear build can be broken. A hopeful sign of what might be possible, if there was a will by the Navy, was the win by Eastern Shipbuilding of the USCG OPC, possible total $10+ billion contract.

    The GAO report June 2014 on rejecting to protests by HII & VT Halter over award of contracts for OPC preliminary design to Bollinger Shipyards Lockport LLC, Eastern Shipbuilding Group Inc., and General Dynamics, Bath Iron Works . Ratings by the GAO on past performance, Bollinger and Bath Iron Works were rated "Satisfactory," Eastern was rated "Superior," but both Huntington Ingalls and VT Halter got ratings of "Marginal."

    Nick

    https:/www.youtube.com/watch?v=cqQiyiior40 @6:25

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    1. The idea of having the LCS be built at smaller yards isn't a bad one per se, I don't think.

      We just need better designs. GD and HII can keep building the uber stuff. But a class of DE's or minesweepers etc. dont' have to be built there. And they could be build in numbers.

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  2. One factor that has helped to reduce demand has been the gold plated nature of navy warships.

    The 'Burkes are nice, but as we've said before, not every ship needs to be a 'Burke. The Knox's had limited air defense. The Perry's had more, but nothing major. LCS was an attempt, in part, I think to fix this. But it went too low and our acquisition environmen mucked it up, so we ended up with a not very capable ship that costs too much for what you get anyway.

    in part we've created a self fulfilling prophecy by eliminating decently competent attrition units focused on one area of warfare.

    As to the government owned shipyards; you make very valid points. I can totally see how they'd be more expensive, especially in this political environment. But I wonder if you ran that same study today if the price advantage would still be there. 1972 was a long time ago; and alot of environmental and labor laws have been passed since then, and shipbuilding is a unique industry that has had many foreign competitors pop up.

    I'm not saying those laws are de facto bad. But I am saying that they've made shipbuilding by western nations something that is likely only going to happen with some sort of subsidy. It's relatively easy for FedEx to beat the pants off the post office; they work in the same economic environment for the most part and with a level playing field and a captive customer base. They can take advantage of being more efficient.

    This isn't the case with ship building. We compete with other nations. South Korea has large shipyards building many things, but their chaebol/government relationship is able to soak up the overhead, and they don't yet have the same labor laws we do. The fact of the matter is a company here, even with relatively low wages and benefits, is going to struggle to compete with a government subsidized yard from Korea; or a yard in a country where economics and lack of labor laws mean workers get paid a small fraction of what they get paid here. Fedex doesn't have that option. I guess they could ship their US processing to Mexico, but the added costs of transportation would nullify the advantage.

    Add all that up, and we have what we have now. A few private yards that exist primarily on government contracts. They are practically have a defacto government yard; and I'd bet that many of the competitive advantages that existed in '72 that made things cheaper aren't around any more.

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    1. As a general statement (that seems to be 100% true), nothing the government does operates efficiently or economically, and certainly nowhere near what private industry does, so to believe that shipbuilding would be the one, somehow magical, exception to that rule is to exercise blind faith that flies in the face of all evidence and data. Remember, the issue is not whether we can compete, privately or govt, with foreign shipyards - the issue is whether a govt owned shipyard could build cheaper ships than private yards. The answer seems completely clear.

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    2. Fair point. I think that I'm trying to say that we essentially have that now due to small demand and businesses that are reliant on major government contracts. We might be more efficient with the non government yards, but with the state of acquisition, lobbying, low demand, general officers working for contractors after retirement, etc. I think we aren't all that much more efficient. But yes, it could be worse.

      I think that the theory behind a government shipyard doing business cheaper is that they'll not have a profit motive. What people are missing is that the labor, oversight, etc. will skyrocket. And if demand doesn't change it might actually make ships more expensive as the congressman Virginia makes sure Newport News gets a percentage of ships and the congressmen from Pennsylvania makes sure Philly gets some ships, thereby decreasing economies of scale at each shipyard.

      I really believe that if we want a shipbuilding industry in the United States nowadays, we have to subsidize it, or gut alot of the rules behind labor and environmental controls.

      That's not going to happen. And honestly, I'm not in favor of it happening. (Reform, sure, but no labor reform will ever get a pipefitter here to be as cheap as one in Malaysia. When I was in China the exchange rate was 7:1. You could make a good living on 1/7th of what I make here. US workers can't compete with that.)

      We might actually get more efficiency by subsidizing local builders here to compete with Korea so we can get a larger industrial base to make ships. Would it be cheaper overall? Maybe, maybe not.

      The most savings will likely result in acquisition reform. A general board to keep a lid on design. A ban on post retirement vendor careers. things like that.
      But even then it still won't be *cheap*.

      End result is we have a choice to make. We either make ships here, and accept the cost with the benefits of having a strategic industry here, and having control of the electronics, or we start buying from foreign shipyards that are subsidized or super cheap.

      Delete
    3. In terms of economic theory, it's not always the case that privatized industry is inherently cheaper and more efficient than government funded industry.
      There are things like captive markets that influence that.
      e.g. Healthcare - the US, with the most privatized system of health in the developed world, pays more than twice as much per person for health cover than the next country, and achieves lower health outcomes than almost every major, developed country on earth. This is precisely because healthcare is a captive market that doesn't lend itself to Friedman's free market theory (a point he himself acknowledged).

      In terms of privatization of naval shipbuilding, like all military expenditure, this is an industry that is ultimately always going to be a complicated mix of public/private partnership. While it might be the case also that private industry delivers on the surface cheaper builds, with the lack of oversight provided by the Navy, it can actually result in spiraling concurrency costs and inferior products being produced.

      So while I'm in favor of private entities being in place to handle the shipbuilding required, that is only viable if the navy is providing extensive governmental oversight on standards, requirements and delivery.

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    4. U.S. healthcare is not privatized, a series of laws at the state and federal level conspire greatly against competition.

      The term crony capitalism applies.

      GAB

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    5. "US, with the most privatized system of health in the developed world, pays more than twice as much per person for health cover than the next country"

      This is an utterly misleading statement bordering on being a lie. The reasons are many. For example, free health care is mandated by the govt for those who have no health insurance or means to pay. Illegal immigrants are entitled to free emergency care, if you can believe that! Thus, the apparent cost of health care is increased. Another example is the tort system which encourages lawsuits, mostly frivolous or marginal, which drives up costs due to gigantic malpractice insurance premiums for medical personnel which the consumer must pay for and the cost of unnecessary "CYA" tests. One final example, health insurance cannot be shopped across state lines, by law, which prevents competition and artificially increases costs. I could go on but the idea is that US health care is anything but a private industry. Quite the opposite, almost. It is almost a govt organization!

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  3. We have to be sure that we are making an apples to apples comparison - one factor that dramatically affects ship cost is design stability. The Navy is now notorious for approving immature designs and making substantial revisions *after work has started* prompting shipyards to rip out and re-do work. As you can imagine, this is prohibitively expensive and at odds with construction quality.
    Commercial yards overseas lock down designs *before* construction starts – schedules are met, quality expectations are met. The USN does not operate that way, at least not now.
    See GAO-09-322: High Levels of Knowledge at Key Points Differentiate Commercial Shipbuilding from Navy Shipbuilding http://www.gao.gov/products/GAO-09-322 .
    With no evidence, I bet that, when they existed, the Navy sent work to its own yards instead of commercial yards just so it could revise the designs on the fly.
    RAND also has a couple of good studies out there on U.S. ship yards.

    GAB

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    1. "We have to be sure that we are making an apples to apples comparison - one factor that dramatically affects ship cost is design stability."

      I believe our discussion is, reasonably, apples to apples. The Navy currently doesn't hesitate to design and build via concurrency or to implement design changes during construction, as you point out. If they have no hesitation to do that now, one can only imagine how much more of that they'll do if they owned the yard! At least now, the private yard imposes "penalties" in the form of additional costs when changes are made. Without "penalties", I shudder to think how many more changes would be implemented and what that would do to the resulting cost.

      Your point is appropriate but only serves to reinforce the conclusion that govt owned shipbuilding yards would be more expensive, not less.

      Remember, we're not comparing US yards to foreign yards, only private US yards to US govt yards.

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    2. With the caveat that the private entity is only as good as the governmental oversight (both navy and congress) provided, I think it's reasonable to believe that private shipyards will provide, on average, cheaper ships.

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    3. CNO,

      Agree, but WRT to my "apples to apples" argument I suspect that the Government shipyards performed a lot of what now would be "cost plus" contracts, so the Booz Allen study *may* have been biased.

      Also, contrary to popular opinion, the Government contracting standard is "best value", not "lowest cost" - check GSA, DAU, and FAIS. It is entirely relevant to compare defect rates between the private an Government owned yards - I have no sense of how they would compare.

      GAB

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    4. CNO,

      I would also love to see Government shipyards versus private shipyards compared over time (e.g. in the 1930s, the 1940s, 1950s, and 1960s).

      I bet that capital investment in USG shipyards tailed off in the 1960s driving down efficiency and driving up costs.

      I also raise (without answer) at what point does a monopoly (shipyards for warship production) become a defacto government responsibility?

      GAB

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  4. remember that a publically traded company has to make AT LEAST 18% ROI to attract capital in the Markets. This gives a Government owned shipyard or factory a HUGE cost advantage right off the start. Couple that with workers getting a trade off of stable jobs vs cutting edge pay and you can really have a cost savings.

    Of course the challenge is how to keep the stable workforce from becoming a do nothing workforce that resists all new PROVEN manufacturing ideas.

    The other is capital investment, the Government is terrible that investing even when the need is shown.

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    1. One can come up with a very reasonable and logical argument why a govt owned shipbuilding yard OUGHT to be cheaper. The entire body of evidence and history, however, conclusively proves otherwise!

      I would also suggest that your point about ROI is only one-sided. While the need to impose an 18% profit (to use your number for sake of discussion, and equating ROI with profit which is not strictly true but we'll use it for discussion purposes) does offer the govt yard a "HUGE" cost advantage, as you point out, you fail to note the corollary which is that the same need to generate an 18% ROI also imposes a "HUGE" motivation on the private company to decrease costs and improve efficiency - something that a govt owned yard would be completely lacking.

      I like your point but be sure to complete the analysis fairly and completely! You pointed out only the one side and failed to note the other.

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    2. After the "Last Supper" that SecDef Aspin had with Defense Contractors at the end of the Cold War we have seen an decrease in incentive to reduce costs by Defense Contractors.

      I would dare say that right now there is NO incentive to decrease costs at all and therefore increase Profit. There are a number of reasons for this.

      1. The consolidation of Contractors, this made the remaining ones so big they have limited competition and have lobbying resources that are unstoppable.

      2. Acquisition strategy selected by Government. The rush to filed before ready and stay with the originating vendor (again due to size and lobbying) limits competition. What happened to leader follower, competition on alternating lots, etc.?

      3. Defense Contractors now mostly or ONLY do defense work. Before companies had some large percentage of commercial work and initial DoD project work was for new R&D ideas that could have commercial application. So companies took that work and if they didn't keep the production lots they made it up by applying the new technologies to commercial products. This only focuses DoD Contractors more on Cost type contracts or fixed price with constant change orders for faulty work.

      4. Flag and Contractor Retirement Complex. The increased movement of former uniformed decision makers into industry completes the problem. Before when a Company had a large commercial portion of work, Flag Officers seldom could make the jump and land top jobs. Now you see them everywhere on boards out the whazzooo. This further decreases any competitive incentive on programs.

      In summary, the ONLY cost incentive is to drive the cost of a DoD product up, not down. Use lobbying to get Cost Plus contracts and protect the company from unfunded change orders. Likewise the complete neglect of the DoD workforce to protect the taxpayer has created a perverse environment.

      I am not in favor of Nationalizing things in general but that looks like the only way to reset the system so we get SOME kind of value.

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    3. "I am not in favor of Nationalizing things in general but that looks like the only way to reset the system so we get SOME kind of value."

      Okay, but if you see the private defense industry as having little incentive to cut costs, what incentive will the govt, which does not have any requirement to turn a profit, have? We've seen in every large govt organization that there is no incentive to be efficient and every organization attempts to maximize its budget which is the opposite of cutting costs. How do you see govt yards succeeding?

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    4. I am not saying this is a cure all, or risk free, note my first post on keeping the workforce from being a do nothing force.

      Obviously the check on the yard becoming bloated will be the Congress and the purse. I know they are currently not doing oversight or helping. However I think breaking up the "in every district" approach will provide some incentive for oversight. I also would prohibit Flags from going to work at the Yards.

      I just know the current system broke starting in the 1990s and can't produce anything that I would let any of my kids serve on - so we have to try something.

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    5. There's no good, or at least not viable, solution is there? I'm certain that a govt owned yard would be a dismal failure but so is the current system. Perhaps a govt yard, as bad as it would be, would provide a degree of competition that might make the private yards improve a bit? As I said, no good solution.

      Delete
  5. Something that might contribute to difference to ship costs between private and government owned shipyards is the subsystems and equipment that is installed on the ship. The private shipyard might have a controlling share of the supplier and can get the required subsystems and equipment at discounted prices, something the government owned one can't do.

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  6. The Navy also operated it's own aircraft factory (the Naval Aircraft Factory) from 1917-45.

    It was not viewed as particularly successful or efficient. Few of it's designed were used in WW2.

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    1. I was not aware of that facility. Thanks.

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    2. Not surprising! The NAFs impact was negligible and it turned out mediocre products that you've likely never heard of.

      It also led (eventually) to NAVAIR... so there's that.

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  7. You do know my thoughts about this one, but briefly to repeat:

    All I will say is that there are however successful state owned companies that have managed to out-compete private owned ones, so I think it is worth experimenting on. It

    Keep in mind in the case of USPS:

    - FedEx and UPS can cancel service to areas that are money losing, which the USPS cannot do. The USPS is mandated by the US Congress to provide operations where Congress dictates.

    - If the USPS were to be allowed by Congress to do as it sees fit to run a profit, a lot of USPS offices would be closed, and a lot of people would have no mail service or extremely expensive service. Rural areas would probably be the worst hit, as would remote areas.


    As far as the government, as I've discussed, if the rest of the world has state owned or state backed industries out-competing the US, that's a serious problem.

    If the US can't close the gap, it will lose its superpower status ... and very fast. That seems to be happening right now with alarming speed against China right now. China's PPP overtook the US in 2014:

    http://www.businessinsider.com/china-overtakes-us-as-worlds-largest-economy-2014-10

    It won't be long before it takes over in real GDP as well ... probably within the next 10 years.

    The big problem is, if it does come to a conflict with China, keep in mind what that means. It means the US may be the poorer nation this time. That's the first time that has happened since perhaps the War of 1812. Only this time China will have 100% of its attention on beating the US, unlike the British at the time who saw the North American war as a skirmish versus their war with France. That must heavily impact American military strategy.

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    1. "As far as the government, as I've discussed, if the rest of the world has state owned or state backed industries out-competing the US, that's a serious problem. "

      That may or may not be a problem but it is completely irrelevant as regards the topic of the post. We're talking about US private vs US govt yards.

      Delete
    2. "The USPS is mandated by the US Congress to provide operations where Congress dictates."

      While you listed a couple of potential disadvantages the USPS operates under, you failed to note the advantages that it has.

      1. It operates with monopoly and exclusivity status regarding the delivery of first and third class mail.

      2. It receives multiple govt subsidies in addition to the revenue it generates from its delivery services.

      3. It offers a lower quality of service than its "competitors" at UPS/FedEx with longer delivery times, non-guaranteed guarantees, etc.

      4. It is authorized to place mail collection sites anywhere (mailboxes).

      5. It has eliminated door-to-door service in many areas in favor of cluster box deliveries.

      6. Has eminent domain powers.

      7. Has sovereign immunity.

      8. Operates its own law enforcement agency, the USPIS.

      While UPS/FedEx are not required to operate in all areas of the US, I have traveled extensively throughout the country and have yet to find any are not serviced. There probably is some location but not many.

      Please try to keep comments fair, balanced, and objective.

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    3. 1. Number 1 is actually a disadvantage assuming that the situation is like here in Canada. Letter mail especially is in rapid decline in this day and age. Letter mail loses money for Canada Post. I would not be surprised if the same were true for the USPS.

      Right now they are using parcels to subsidize for letter mail. I would imagine that letter mail prices would have to go up a lot if privatized or halted altogether.

      2. Actually it's a bit more complicated than that. The US Congress has put a pre-funding mandate for the USPS, which they did not do for any other organization.

      http://www.newsweek.com/post-office-aint-broken-its-profit-so-why-fix-it-397788

      "In fact, the USPS annual report detailed not only challenges but also several highly positive trends. It illustrated that the past fiscal year yielded a $1.2 billion operating profit—the second consecutive year that revenue earned delivering the mail exceeded the costs of delivering the mail by more than $1 billion. And it’s the third straight year that postal operations have been in the black—with $2.9 billion in total operating profits over that period.

      All this, mind you, without a dime of taxpayer money. For decades the USPS has by law relied on the revenue it earns."

      Granted the organization faces challenges, but it has not been heavily subsidized the way you imply.

      http://juneauempire.com/opinion/2014-09-16/my-turn-postal-service-really-losing-money

      Keep in mind too the USPS is also paying higher wages and benefits than the private sector.

      Oh, and I checked the 10k filing. He's right. The USPS is actually making money, apart from the pension requirements:

      https://www.prc.gov/sites/default/files/reports/FY%202015%20Financial%20Analysis%20Report.pdf

      Now there are other points of concern - I'd love to look deeply into the liability payments to worker's comp especially.

      3. At least from my experience shipping in the US, I have had better experiences with USPS ordering from Canada (cheaper packages than FedEx and UPS). I don't know about overall though.

      I don't know about overall satisfaction, but it seems to do reasonably well overall:

      https://www.creditdonkey.com/best-shipping.html

      At least for small business.

      4. That's a disadvantage because most rural routes will probably lose money. IF the Congressional mandate were lifted, the USPS would probably close the routes or raise rates dramatically. FedEx and UPS would likely follow, knowing they don't have that competition.

      5. Agree

      6-8. Agree, but whether or not USPIS is a competitive disadvantage though, I would have to look at their financial statements. How often though have 6 and 7 been exercised (ex: are large sections of public or private property being expropriated)? If not, then it really isn't an advantage.

      In regards to coverage, typically it's the remote locations that are not covered. All major cities, all medium and small sized towns, all military bases will be covered. It's the small rural areas that are either very expensive or altogether not covered.

      Actually there is a case study: The UK's Royal Mail which was privatized.

      There was a noticeable decline in service:

      Lots of postal workers got their pensions cut:
      https://www.theguardian.com/money/2016/aug/10/royal-mail-pension-post-office-hit-brexit-defined-benefit

      Labor relations worsened, while postage stamps increased.
      https://www.theguardian.com/commentisfree/2016/sep/06/royal-mail-500th-birthday-prince-charles-postbox

      Worse, the taxpayers in the UK didn't even get a good deal:
      http://www.bbc.com/news/business-28250963

      I'd imagine the same would happen with the USPS if it were privatized. Americans would pay more for worse service, while the employees would get shafted.

      Not saying the USPS is perfect (Far from it), but that keeping it publicly owned is a lesser evil.

      Delete
    4. Come on, now. You need to be much more objective.

      1. A monopoly is an advantage. No one else can delivery first and third class mail. Whether that volume is in decline or not does not change the fact that no one else can deliver it. The USPS gets a "free" market that it doesn't have to compete for. There is no other option. It's an advantage.

      2. The Post Office lost money. You can't exclude legally required expenditures. You can debate whether they should have to pay certain items but the legal fact is that they do. This is EXACTLY part of the entire argument against govt owned and operated organizations - govt entities tend to do stupid things. The Post Office 10K statement shows a net loss of over $5B in 2016 and similar losses in every year prior. Also, if you're going to attempt to explain away losses and "unfair" expenses, be sure to note that FedEx/UPS have expenses like health care, social security, workers comp, retirement benefits, etc. that they, too, must pay. From now on, make sure you note that the Post Office operated at a loss. That's a fact.

      3. Surveys in the US consistently show dissatisfaction with the USPS compared to FedEx/UPS. Again, feel free to offer an opinion but do not attempt to present it as fact. The fact is that the USPS has far more "failure to delivers" than FedEx/UPS and much greater dissatisfaction.

      4. Did you read this? The ability to place collection sites wherever they want is an advantage. They are not mandated to place them anywhere, they simply have the opportunity to place them. That's an advantage, pure and simple.

      6-8. Clear advantages. How often they are exercised, I have no idea but that doesn't change the fact that they are advantages. The USPIS has raided multiple companies to protect the monopolistic advantage listed in item 1. - look it up in Wiki.

      If you're going to analyze something, attempt to do so fairly and objectively.

      Now, for opinion. The USPS is a failure. If they weren't, FedEx and UPS would never have been able to rise to the degree they have. Pure and simple.

      Delete
    5. 1. Having many colleagues who work for the CPC (the Canadian equal of the USPS), they tell me that it is a big money losing proposition. Actually the CPC would be in a far better position competitively if they dropped letter mail and purely competed on parcels.

      They are required to do so by law. The problem with letter mail is that it has very high fixed costs (due to labor) and low variable costs. As mail volume drops, the moderate increases in postage have no covered the rising expenses. It is kind of like a hotel where traffic is dropping by 5% per year, but you still have the same number of hotel rooms. Even though you are the only hotel, you still lose money because you have huge fixed costs.

      A monopoly by no means assures profit. Actually even if you were to open it to FedEx and UPS, they would very quickly find themselves unable to compete at current postage rates unless they used it as a loss leader for their other services, which is what the CPC is doing.


      2. NO other department in the US government has to set aside money for future operations. If the military had to do that for example, we'd be facing a far higher deficit.

      If you look at operating revenues though, before the pensions, they made money. I suspect that with the same pension adjustment as other departments, the USPS would be much smaller.

      UPS and FedEx certainly do not have to set aside money for pensions in that manner.

      Actually in the case of UPS they are slowly getting rid of pensions, and stories like this abound:

      https://www.reddit.com/r/personalfinance/comments/55ue9i/update_left_ups_after_25_years_not_old_enough_for/

      Similarly:

      http://www.prnewswire.com/news-releases/fedex-cuts-workers-retirement-compensation-while-ceo-rakes-in-multimillion-dollar-pension-65447312.html

      http://www.changefedextowin.org/2012/03/my-annual-disappoint-letter-from-fedex.html

      I personally have felt that compensation in the private sector needs to go up, as do benefits.

      One of the reasons why the US Establishment is losing legitimacy with the American people is because things have gotten so bad for Americans for so long.

      3. From what I've seen there's no single winner in cost:

      http://www.neighborhoodparcel.com/best-carrier-fedex-ups-dhl-usps/

      I don't know about satisfaction surveys, but the fact that the USPS has a decent share of the parcel market (Ex: where they don't have a monopoly) suggests that enough people think that they are a viable or superior option that people use the USPS.

      4., 6-8: Depends on how often the exercise the advantages. I'm more familiar with CPC than USPS, but I know here in Canada, the postal service cannot just expropriate land. IF they cannot do so, then it's not really an advantage.

      If they have to pay market rates when they do so to compensate owners, then it is not an advantage.

      Subjectively, at least here in Canada.

      - FedEx has been decent, but expensive (high brokerage fees). Very friendly driver.
      - UPS has been awful for me (expensive and very rude drivers)
      - Canada Post has been pretty good for me (decently priced, although sometimes a bit slower)
      - DHL used to be very good, but has been bought out by FedEx. Friendly drivers.

      I can't speak for the US in every region. However, considering that if the savings

      To be honest, I'd rather have the status quo. Have a public company and private competition. In the small business links I've given, it's clear that for small parcels, in some cases, USPS is the better option.

      The other reason why I would like the public option is not for packages, but for labor. The USPS has mostly pensioned employees rather than contractors. That's good because they are far more likely to collect benefits and a decent pension.

      I personally prefer to go to places where employees are well treated (Ex: I prefer Costco over Wal-Mart where possible for similar reasons). If more people did that, the US middle class would be in better shape, just like if more people really chose to "buy American".

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    6. This is not a blog about postal delivery services. Addressing the point, it's indisputable that the USPS is a failing proposition and private companies are succeeding. Since you seem to have forgotten what we're discussing, I'll recap. The proposition is that govt organizations (US) inherently are inefficient and expensive compared to private. The fact that the govt postal service has to pay pensions in a non-sensical fashion proves the point that govt management is inefficient.

      That's about enough discussion of this.

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  8. Both pearl harbor and Portsmouth are the only ones who can work on nuclear reactors. That makes them valuable

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    1. Who, besides you, said they weren't valuable? Give me a name so I can publicly shame them.

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  9. The answer isn't government shipyards but government owned designs. A new ship design is bought then given to multiple shipyards. The winning ship designer gets a royalty production hulls. Then other yards can get the plans and compete to see who turns out the best hulls in the best time. If one turns out garbage, no contract anymore and a good yard will take up the slack.

    The Navy (hopefully with better management) solicits for designs and specifies:
    * Primary Ship Role--ASW, AAW, etc
    * overal size, weight, and living requirements
    * EXISTING and tested armament fit according the role.

    The hull design, engines, etc. are the designers choice with the top 3 building a protoype on a fixed contract. After 6 months REALISTIC testing, the winning design is chosen by a panel of Officers and enlisted who will be forbidden by law from not only working for contractors but working for "think tanks" that do the contractor's bidding as well.

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    1. That requires that the government have the expertise.

      BuShips would have to come back.

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    2. I'm not quite following you. Are you suggesting that the Dept of Defense (DoD) pay companies to design a ship and then bid out the construction? If so, that's essentially what happens now. The DoD solicits proposals, has the company generate a design, and then builds it - sometimes all by one company, sometimes with production split among multiple companies. I'm missing what you're suggesting should be done differently. Try again?

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  10. The other big part I have addressed needs to be discussed.

    What is the US strategy when the US is at a disadvantage in terms of economic output versus China? That will happen, perhaps in the next few years.

    In 2010 China became the largest manufacturing economy:
    https://fas.org/sgp/crs/misc/R42135.pdf

    In 2014, it beat the US at PPP. Soon it will overtake the US in GDP.

    That means the US needs to develop tactics around the idea that it is the less wealthy nation and perhaps so even counting allies (ex: Japan).

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    1. I am not an economic expert so take this with a grain of salt. The US has exported a large chunk of its manufacturing to other countries which makes other countries seem artificially "better". China has a significant chunk of US manufacturing, for example. Is the US manufacturing 1% of the Chinese economy? 50%? I have no idea. However, if the US brought all its manufacturing back to US soil, the economic balance (not to mention balance of trade) would change. How significantly, again, I have no idea.

      I suspect, with absolutely no data, that the impact of US manufacturing in China is immense and that the Chinese economy is built on US manufacturing both directly and indirectly. China may surpass the US in various measures, on paper, but not in reality. *presented to you without a shred of proof - and no interest in obtaining any, given the focus of this blog!*

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    2. Serious question, but in a shooting war, would the US be able to pick up manufacturing on such a short notice?

      When the factories close, the problem is that workers skills atrophy. There are few jobs that mostly pay minimum wage. Factory jobs could pay middle class wages if they were open. The rest who cannot find jobs see their potential wasted and often, the life expectancies decline.

      An example, the US has virtually no civilian ship manufacturing abilities any more. China is now the largest civilian shipping manufacturer in the world.

      Interestingly, FInland, a small nation with high labor costs, regulations, and a strongly interventionalist state has managed to save a decent share. They have a big part of the cruise ship industry.

      The US certainly has nothing on the scale of what is at Ulsan in South Korea:

      http://www.ship-technology.com/projects/hyundai-heavy-industries-ulsan-korea/

      http://www.bbc.com/news/world-asia-32811866

      China does (it actually has a larger share than Korea).

      Outside of that there is very little. The problem is that in a shooting war, civilian manufacturing lines would be converted into military shipbuilding.

      It's not that easy to scale up. You need to already have the infrastructure available and ready to go. It takes years to build a decent plant and then you have to train workers or they won't be productive. Maybe that could happen in a WW2 like situation where the conflict went on for years, but in the opening months, not having manufacturing would be a problem.

      To do that you need civilians with enough manufacturing experience or to train them up. That was my experience at least working for the big 3 automotive companies. A new hire needed quite a bit of time to get up to speed with the rest. Manufacturing is a capital intensive, high skill labor industry. It is not uneducated guys on an assembly line. Not anymore.

      Plus other drawbacks. China has the world's largest civilian car manufacturing. Right now they are not an export superpower like Germany or Japan in this field, but they are rapidly heading this way. Most of it is for internal consumption, which means the capacity is available for any war.

      It's a very serious problem.

      There are a few advantages. China for example has struggled to make high temperature turbines for jets. Let me put it this way: it is a very, very difficult thing to do successfully.

      http://www.scmp.com/news/china/article/2053741/china-powers-military-jet-engine-tech-wean-itself-russian-imports

      But if they throw enough money at it, how long will that stop them for? Keep in mind, it's not what "ism" - it's all about investing resources into it.

      Alarmingly the US has sold away its crown jewels to Japan:
      http://www.theamericanconservative.com/articles/boeing-goes-to-pieces/

      All for short term profit.

      Right now China too is focusing increasingly on domestic consumption:

      http://asiahouse.org/chinas-shift-export-led-domestic-consumption-driven-economy-will-see-6-5-growth/

      Which means that in a shooting war, they will still have that capacity.

      I'm saying the US needs to plan around the fact that it is facing an opponent with a larger economy. While China has other drawbacks (especially geography), the economy and productive output will not be one of them. Any strategy must revolve around nullifying that.

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    3. I agree completely. The caveat that I tried to point out is that China's "gain" is not permanent and well founded. It is based on US export of manufacturing. That's a shaky foundation. If the US opts to pull back its manufacturing, as Trump has alluded to in campaign speeches, China could find itself in serious trouble (or not, depending on the degree of dependence on US manufacturing - which I have no idea about, he said, honestly and forthrightly!).

      So, yes, we need to plan accordingly, as you note, but we do have a fairly short term ready which is to pull back from China. Honestly, allowing an avowed enemy to "have" a large chunk of our manufacturing seems insane.

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    4. Right now the Chinese just have to wait.

      Why? Time is on their side. They have made relative gains compared to the US. They continue to do so. Whether that's through the loss of American manufacturing, transfer of technology, or reverse engineering, they've done a lot to close the gap. Their economy grows at a faster rate than the US.

      The longer they wait, the more likely they will be able to make the gains permanent. Plus they will have technology we don't have. Let me explain:

      An example of an advanced technology that has gone overseas. LCD screens, like the ones we are looking at. Who makes them?

      - Japan (Sony, Panasonic, and a few others)
      - Korea (LG and Samsung)
      - Taiwan (AUO Optronics)

      The monitors made by companies like Dell and HP, although supposedly American branded are made in those nations, assembled by the Chinese (Foxconn especially), and then sold here.

      The problem is very simple. In a shooting war, we would not have the capacity to build these in North America, simply because they have decades of expertise in building LCD screens. Could we assure the stable flow from East Asia to North America of our needs?

      We're not even in the game of making LCD screens these days. That's a serious problem because we don't have the decades of expertise to draw upon.

      For sure, China doesn't right now, but they are heading in that direction. Likewise, computer chip manufacturing is an American advantage (Intel and AMD for now), but the Chinese have been making very aggressive attempts to close the gap.

      Even if it runs losses, it may be worth looking into getting some expertise, even if the government has to run its own LCD plants. We need the expertise of all "critical" technologies.

      It won't be long before China moves up the value chain the way Japan, South Korea, and Taiwan did. Another example: Toyota - their cars used to suck and be cheap. With Lexus and their cars today, they got better. China will too. Hyundai seems to be following that. I think that in a shooting war, many of the plants would remain in Aichi in Japan, Ulsan in Korea, and throughout China. They could be used to make tanks (Detroit did that in WW2 after all).

      We still have automotive sectors, but 40-50 years ago if you told someone what Toyota would be like they would laugh.

      I think it's very dangerous to underestimate China's growth. While it has slowed down as of late to "only" 6.5%, in a war, they would retain that capacity and quickly convert it for military use.

      The question then becomes, can if it becomes a long war, can the US (and Allies) replace losses? How quickly could workers scale up to produce what is needed? Can they do so faster than China? What about good quality trained sailors, pilots? What about their support? Maintenance crews for example, logistics, etc?

      If not, that is going to have to affect the US battle strategy. I think at this point it is better to overestimate than underestimate and learn the hard way.

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    5. You appear to be looking at the larger picture re a conflict with China. That's good. However, you're only looking at an almost isolated facet of the overall picture - understandable given that this is a blog/comment as opposed to a multi-volume book which is what the subject would require to do it justice. I'll offer a couple of thoughts to amplify what you've discussed.

      It's not as simple as counting the number of manufacturing plants or semi-skilled workers. Raw materials, especially rare earths and other critical materials are needed and China has to import many of those, as does the US. A Chinese war will be fought near China which makes the imposition of a blockade a practical possibility. Lack of critical raw materials will greatly negate the manufacturing plant deficit. Of course, with Russia sharing a border, no blockade can be 100% effective but China would face critical shortages.

      This is just one more aspect of a huge topic - bigger than this blog can address.

      Yes, the US is foolish to "house" its manufacturing in China. Yes, the US is foolish to have abandoned strategic manufacturing niches.

      China is already engaged in a war with the US but we don't seem to want to acknowledge it. We need to get in the fight and start by bringing back our maufacturing via taxes, tax incentives, tariffs, labor law and regulatory reform, tort reform, etc. - in other words, reverse all the things that drove our manufacturing overseas to begin with. Bringing all our manufacturing back home would be an enormous blow to China in our current war and then we can begin to think offensively!

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    6. China has the world's largest supply of rare earths.

      https://www.statista.com/statistics/277268/rare-earth-reserves-by-country/

      Far more debilitating for China is the oil. That's a huge problem.

      It is also a big reason why China is aggressively trying to get lots of oil pipelines with Russia.

      It's more an economic competition than anything else, a build-up before a possible war. Actually China itself sees too much military spending as responsible for the demise of the Soviet Union.

      Delete
  11. For the US navy shipyards after WW2, Portsmouth and Mare island continued the construction of submarines, launching 19 and 22 respectively. Bremerton, which specialised in the big carrier rebuilds in the 1950s also built some Destroyer/frigates and the large supply ships but I havent come across the numbers.
    Brooklyn Yard, after the war,did the big carriers Saratoga, Independence, Constellation and 6 amphibous Docks of Raleigh class.
    Philadelphia and Hunters Pt did some new builds as well, eg Leahy, Belnap class, with LCC Blue Ridge coming from Philadelphia
    Mare Is ( along with Portsmouth) did a small number of nuclear subs including SSBN

    Norfolk, Charleston, Long Beach didnt seem to build any new ships

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