Monday, July 9, 2018

Government Run Shipyards

During various post discussions, we’ve occasionally kicked around the idea of government run ship building yards as an alternative to the high costs and low quality seen of late from the commercial yards.  The proffered theory has been that the government couldn’t do any worse and might be better.  Of course, the evidence is overwhelming that the government wouldn’t do a better job as demonstrated by the government’s failings at running the Post Office, Social Security, various welfare programs, Medicare/Medicaid, Obamacare, and so forth.  We now have a report from the GAO (1) regarding the material condition and state of the four existing government owned and operated shipyards (Puget Sound, Norfolk, Pearl Harbor, and Portsmouth) and it puts to rest any forlorn hope that the government could successfully run a shipbuilding yard.

To put it in a nutshell, the four shipyards are barely functional, ancient, decrepit, neglected, horribly maintained, and woefully underfunded.  This is the most direct evidence that the government would be incapable of successfully running a shipbuilding yard.

Let’s look a bit closer.

Why do we even have government owned shipyards?  From the GAO report,

“The naval shipyards are essential to national defense and fulfill the legal requirement for the Department of Defense to maintain a critical logistics capability that is government owned and operated to support an effective and timely response for mobilization, national defense contingency situations, and other emergency requirements.”

“The naval shipyards provide depot-level maintenance, which involves the most comprehensive and time-consuming maintenance work, including ship overhauls, alterations, refits, restorations, nuclear refuelings, and deactivations—activities crucial to supporting Navy readiness.”

These shipyards perform all the Navy’s nuclear maintenance activities.

Unfortunately, the yards are physically crumbling due to lack of care and concern on the part of the Navy.

“The Navy acknowledges that there has been a history of under-investment in shipyard restoration and modernization needs.”

Really?  The Navy recognizes that they have failed to maintain the material condition of the yards and yet has consistently opted not to remedy the situation.  That’s incompetence, gross negligence, and, given the critical nature of the services the yards provide to our national security, approaching treason.

Given the Navy’s failure, Congress has attempted to step in.

“Recognizing this issue, Congress passed a law in fiscal year 2007 that requires the Secretary of the Navy to invest in the capital budgets of the Navy depots a total amount equal to not less than 6 percent of the average total combined maintenance, repair, and overhaul workload funded at all the Navy depots for the preceding three fiscal years.”

I have no idea what dollar amount that works out to be but I doubt it’s anywhere near sufficient.

I trust this ends the argument that the government should operate naval construction shipyards?

(1)Government Accounting Office, “Naval Shipyards – Actions Needed To Improve Poor Conditions That Affect Operations”, Sep 2017, GAO-17-548


  1. "Millions for Defence, not one cent for tribute"
    USN version
    "Billions for Acquisition, a pittance for Maintenance"

  2. Which then makes me wonder when the US started using defense rather than defence. Another evening wandering around the interweb.

  3. What is needed is needed is more competition with new shipyards/companies, at moment there is in effect a duopoly of GD and HII e.g April 6, 2018, the Navy announced that it intends to issue a solicitation on a sole source basis to HII/Ingalls for the detail design and construction (DD&C) of LPD-30.

    As a start Navy should have used HII to design based on their experiance and then put the construction contract out for competitive bids.

    1. It's difficult to develop new shipyards. The designs every ship to be a win-the-war-singlehanded vessel. Those tend to be big and complex - not something a smaller yard can cut their teeth on while they learn and scale up. We need smaller patrol and corvette size ships to develop smaller companies. A dedicated MCM vessel would be a good example for a smaller yard.

      We also need to look at some of the commercial yards (we have a few) that build massive tankers and the like. With some encouragement and support they might be able to transition to military contracts. Whether they would want to is another question!

      You make a very good point about separating design from construction.

  4. The US Navy appears to operate the shipyards directly.
    A possible solution would be to have the shipyards managed by a private corporation similar to other national security programs. The Bettis and Knolls atomic power laboratory, Y-12 national security complex, the Pantex plant and Los Alamos are all managed to some degree by Bechtel corporation.
    The upgrading and maintenance of the shipyards could be part of the management contract. The compensation to the managing company should be dependent upon the condition of the shipyard and its readiness level for surge shipbuilding and repair.
    The contract needs to align the interest (profit) of the managing company and the needs of the Nation (effective shipbuilding and repair).
    The US Navy has competing interests and will continue to defer needed upgrades to purchase defective ships and aircraft. It may be time to get the Navy out of the shipyard business.

    1. That's an interesting concept. How successful have these management companies been, in general?

      Do you have a company in mind that would be qualified to manage a shipyard?

      What would prevent the Navy from interfering?

    2. They seem to be successful to the extent their contracts are renewed. I don't work at a national lab, so I don't think I can comment if they have been good for the nation. The management contracts are competitive and are for a limited time. I don't know how often they are awarded to competitors so the competition may be in name only. The atomic power labs have changed management which is why the reactors for the the Ford are A1B (Aircraft carrier 1 Bechtel) the first Bechtel reactor rather than A5W (Aircraft carrier 5 Westinghouse)
      I did not have a company in mind but a general engineering firm with a strong history of industrial plant design and construction would be needed to rehabilitate the shipyards. Bechtel, Fluor, Black and Vetch, Jacobs and Chicago Bridge and Iron would likely all be able to handle the rehab.
      The shipyard physical plant could be turned over to the General Services Administration and the upgrades could be part of the GSA budget to keep the US Navy from using the funds for other needs. The US Navy could lease the yards but be unable to stop any upgrade or rehabilitation.

    3. Okay, an engineering company could manage the facilities. I can see that. Who, in your concept, would manage the actual construction of ships? Who would provide the shipbuilding/repair/upgrade expertise?

    4. Wartime shipbuilding/repair needs should also be considered in an overall plan for upgrades and rehabilitation of the National shipyards.
      1. Strategic reserve of steel plate for shipbuilding at or near each shipyard.
      2. Components (gas turbines, reduction gears etc) should be pulled from all retired vessels and placed in storage for possible future wartime construction. The components may not be the most current but being able to put a new vessel around a refurbished drive line could make the difference if the shooting starts. Anything that has a manufacturing lead time of greater than three months should be in strategic stores at a level assuming 30-40% fleet attrition.
      3. Shipyard facilities (heavy cranes, size of the dry docks, location to labor pool.) Every shipyard should be able to handle every ship in the Fleet. The cranes and dry docks need to be sized for all the vessels that might need repair.
      Not directly applicable to the shipyards but not sinking serviceable ships should be a given. Placing ships in the reserve fleet in prime condition and maintaining them would seem to make a lot of sense. (Spruance class, Perry class) You don't have to build it if you already have it.

    5. I would seriously consider any of the big South Korean shipbuilders. The operational knowledge that could be transferred would transform shipbuilding in the United States. Think of the Supertanker Frigates that could be built.
      If there are national security concerns with sensitive technology we could have the local subsidiary be fire walled to the parent company to prevent information leakage, but we sell to the South Koreans already so not a huge concern except maybe for the nuclear ships.
      Honda and Toyota make cars that have the most USA made components. I see no reason not to go after the best shipbuilders in the world and make them a deal to build/repair ships in the USA.

    6. The strategic petroleum reserve could serve to increase the economy of scale in domestic ship building. The strategic petroleum reserve holds 727 million barrels of oil. Storing 2 million barrels per ship with a operational life of 10 years would result in 20 builds per year while increasing the strategic reserve to 927 million barrels.
      Since the strategic reserve fleet would be floating storage and could be positioned in benign environments, the ships retired from the fleet would have little wear and tear. A design that foresaw future utility in the reserve fleet or active navy would make conversion easier.
      Peer warfare would likely strike the strategic petroleum reserve and most large fuel depots. Mobile strategic petroleum reserve would hopefully help to achieve the goal of the reserve to provide emergency supplies to the nation.
      Interestingly, in 2005 Congress authorized the expansion of the reserve to 1 billion barrels which would have fit nicely with the above assumption but the expansion was terminated in 2011.

    7. Sorry, My math was wrong, 200 million barrels, 2 million barrels per ship, 10 year operational life would be 10 builds per year not 20. 1 million barrels per ship would result in 20 builds per year.

    8. "Wartime shipbuilding/repair needs should also be considered in an overall plan for upgrades and rehabilitation of the National shipyards."

      Excellent comment!

    9. "200 million barrels, 2 million barrels per ship, 10 year operational life would be 10 builds per year not 20."

      I'm completely missing your point. Are you suggesting that we build ships solely for the purpose of storing oil? We have tankers, as you know. I'm failing to grasp your basic concept. Try again?

    10. You got the point it is just unorthodox. The tankers would have a strategic purpose. Store oil in a non-stationary mode. Similar to the strategic difference between land based nuclear missile silos and missile submarines. Stationary is easy to target. A few cruise missiles to take out the pipelines and pumps and the strategic petroleum reserve is neutralized.
      If something is strategic to the nation it should not be subject to single point failures. It should be dispersed and defensible. The enemy should have to expend treasure to take strategic assets off the field.
      If National shipyards are strategic assets then have the shipyards on continual build of another strategic asset (tankers for the petroleum reserve). Is it more expensive to store oil in a tanker than a hole in the ground? Yep! Would 100 VLCC tankers prove useful in war time? Yep!

    11. Well, that's an interesting concept. I have a couple of questions.

      1. Can oil be stored long term in tankers without degrading?

      2. How would we conduct the normal maintenance that any ship needs? Where would the manpower come from?

      3. Would these tankers be continually sailing to be mobile or would they be "parked" like the pre-positioning ships are - in which case, they're not really mobile?

    12. The VLCC tankers would likely have high residual value considering the minimal wear that would occur during their strategic petroleum reserve usage. They could be sold, placed in the reserve fleet or converted to other uses for the Navy.
      Solar panels with battery storage could be used for hotel loads for the ships. With that much deck space solar panels could provide power for station keeping via electric drives.

    13. 1. Oil can be stored long term on tankers some of the ULCC are being used for storage only (floating storage and offloading (FSO). The major problem is heat causing the lower boiling point components of the crude oil to evaporate which results in a heavier grade of oil and loss of product. The current transport companies accept this and either vent the gases or try to burn them in the engine. It would make sense to store the oil for a limited duration and off load a portion of the fleet every year. Purpose built ships could mitigate this with chillers to condense the vapor.
      2. I haven't given it as much thought as I should. The current crew size for a VLCC is around 24 to 26. Could the petroleum reserve fleet be optionally manned? Not likely with the current designs of VLCC tankers (very little redundancy). A dedicated design with twin or quad screws, Voith cycloidal rudders and retractable bow thrusters, maybe. Since it would be a strategic asset I would think it should be under the US Military or US Coast Guard.
      3. Not continually sailing. Random movements with random periods of rest. Mostly resting with just enough movement to make an enemy expend time and energy tracking.

    14. Well, I can foresee some practical issues that would need to be worked out but nothing jumps out that says it couldn't work. Good idea!

  5. This comment has been removed by a blog administrator.

    1. You're welcome to repost without the healthcare reference. We're not going there.

    2. I wouldn't have referenced it if you had not used it as an example in your article. Was merely using it as an example, as you did. Happy to leave it aside.
      The point is that many countries are able to operate major, government run and funded shipyards succesfully, just as many governments operate other major services or infrastructure projects successfully.
      There are pros and cons to both governmental operated yards and also to private yards.
      Context is everything.
      When faced with the prospect of a captive market, it's almost always cheaper and more efficient to avoid private enterprise.
      In most countries, navies are a captive market in terms of shipbuilding.
      The US has traditionally been an exception, but with fewer and fewer major defense contracters and yards, the attractiveness of government run yards increases.
      In addition, the relative decline of major commercial shipbuilding in the US means that in a wartime situation it's important for the US to be able to get those government yards up and running as quickly as possible.
      So the conclusion i would draw is simply that the navy is prioritizing short term priorities over the longer term priority of maintaining their yards. I would not assume that government run yards are inherently more ecpensive or harder to operate. Government yards are common in many naval shipbuilding countries.

    3. I'm highly skeptical of any foreign (non-US) government claim about shipbuilding. For example, every foreign construction cost claim that I've looked into has turned out to be "fraudulent" in that they neglect to cite subsidies, reused equipment, partial constructions (fitted for but not with), government supplied equipment that isn't counted in costs, etc.

      So, who are one or two examples of foreign government owned shipyards that you think are efficient, cost effective, and well run? Maybe we can learn something from them.

    4. Unfortunately the first image of a well run ship building program by the state is Chinese.

    5. "the first image of a well run ship building program by the state is Chinese."

      I can't argue with that!

    6. So the Chinese are an obvious example, as is Spain's Navantia, or Australia's Osbourne yard.

      But again, context is everything. What works for China, Spain or Australia might not work for the US and vice versa. in addition, it's not like there's much alternative for those three countries. Without government funding, there wouldn't be the industrial capacity for major warship construction in Spain or Australia. In China, most major corporations are essentially government entities of course.

      During WW2, when the US military industrial complex really got going, and when the US amazed the world with her ability to produce enormous numbers of ships of all kinds, quickly and efficiently, she had the benefit of a much larger, more diverse, existing commercial shipbuilding industry.
      Because of that, it made perfect sense for the US to simply outsource the bulk of shipbuilding to private enterprise. That enterprise existed, there were many competing shipbuilding companies striving to outdo each other. It was the perfect environment for a free market solution.

      Now the situation has changed. The US no longer has the benefit of dozens of shipbuilding companies and yards.
      She no longer has as many defense contractors. In the event of a war, she can't simply switch production on dozens of existing shipyards to warships.

      In that context it makes sense to maintain government yards as a contingency. It might also make sense to allow them to do more than maintenance, and to start actually producing ships.
      That's because with the growing lack of competition, the appeal of private enterprise decreases - shipbuilding becomes a captive market, where the power lies not with the consumer (in this case the US Navy and by extension government), but with the producer. In that environment it's usually less efficient and more expensive to use private enterprise.

      There are alternatives - to somehow recreate America's heyday as a major commercial shipbuilder.
      Failing that, it probably makes sense to explore ways for the government to increase it's role. It would provide an alternative method of supply, which at the very least might prompt private enterprise to increase their own efficiency and keep down their costs. It would work to keep them honest.

    7. "Spain's Navantia, or Australia's Osbourne yard."

      You're kind of illustrating my skepticism. I'm nowhere near an expert on these yards and their performance but I've read about many problems with the Australian yard and at least some problems with the Spanish one.

      Those yards may be producing ships but so are our yards. The question is, are they well run? In Australia's case, it appears not. In Spain's case, it may not.

      The Chinese yards are a completely different story. For starters, we have absolutely no idea how well run the yards are. To hear the Chinese tell it, everything they do is the epitome of achievement, the likes of which have never before been seen in the world. I completely discount them until we can see actual performance data.

    8. "to somehow recreate America's heyday as a major commercial shipbuilder.
      Failing that, it probably makes sense to explore ways for the government to increase it's role. "

      The best solution is to DECREASE the govt's role in shipbuilding by throttling back onerous regulations, environmental restrictions, run amok lawsuits, taxes, etc. and allow the shipbuilding industry to grow.

      It would also help if the Navy would stop designing ever larger, more complex ships of which there are fewer and fewer. Instead, we need to get back to smaller, simpler, single function ships that smaller shipyards could take on and grow with.

    9. "In the event of a war, she can't simply switch production on dozens of existing shipyards to warships."

      Well, switching from civilian to warship is exactly what Austal's Mobile shipyard did with the LCS. Lockheed's Marinette shipyard was almost completely rebuilt and redesigned to build LCS. Now, admittedly, the LCS is not exactly a major warship but it demonstrates that we can switch to war production, at least to some extent.

      Bollinger is a good example of a relatively shipbuilder that produces smaller patrol and missile boats but could be grown into a larger shipyard without too much trouble.

      Some of the larger shipyards that build tankers should also be able to switch to warship production, if needed. It would be a good idea to give them some steady warship work to learn on, though.

  6. Be careful of confusing poorly run instances with the good of the concept. If the Gov shipyards are not efficient fire the managers, don't always look to outsourcing. God knows ship costs are skyrocketing with only 2 major private shipbuilders.

    There is a common misconception that the free-market will always do what you want. That is not true, they 9only do what is rewarded and will do things that maximize their rewards. Hence you have only 1 yard that can build a $14B carrier.

    Gov has a place where the business is inherently inefficient. Maintaining a Fleet, building a small class of different types of ships, etc is inherently inefficient and therefore is at odds wit the forces of the free-market.

    So before you condemn the idea of goc shipyards consider that if we were to get rid of all Corporations based on poor performance of say Bear Sterns, Lehman, GM, GE, Wells Fargo, etc. where would we be?

    1. "where would we be?"

      Better off?

    2. Well we wouldn't have any free market commercial shipyards.

      And given the breaking news that DDG-1001 needs new engines after breaking turbine blades during sea trials, maybe you are right we MIGHT be better off.

      Never use poor implementation due to lacking leadership as a reason to get rid of something.


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