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Friday, September 18, 2015
US Navy, Coast Guard Sinking Under Weight of US Shipbuilders
By Michael Hansen @ 4:59 AM :: 2835 Views :: Jones Act, Military

by Michael Hansen, Hawaii Shippers Council, September 17, 2015

Reuters in a news article, “Sanctioned shipyard hopes for icebreaker zeal in Arctic,” published September 15, 2015, reported that a Russian-owned shipyard in Finland that specializes in constructing icebreakers would be barred from bidding on the new six (6) U.S. icebreaker fleet President Obama called for in Alaska two weeks ago.

The managing director of the Finish shipyard, Arctech, blames the Jones Act requirement for domestic ship construction for denying his and other foreign yards the opportunity to bid on the expansion of the U.S. icebreaking fleet. Actually that is not true. The Jones Act applies to vessels transporting cargo by water from one domestic point to another, which icebreakers don’t do. While none of the other specific cabotage law apply to icebreaking. What actually prevents foreign shipbuilding yards from bidding on icebreakers for the U.S. Government are the defense procurement laws that require domestic construction.

Although it is the defense procurement laws that require the federal Government to purchase vessels from domestic shipyards, the results are the same as for the Jones Act cabotage laws. The cost of new construction for the U.S. Government is extraordinarily high and delivery times are extremely long.

The managing director of Arctech said his Finnish yard can build a heavy icebreaker for approximately U.S. 139 million each with reasonable delivery time of a couple of years.

In contrast, a Congressional Research Service (CRS) report issued in 2012 found that it would cost approximately U.S. $1.0 billion to build a new heavy icebreaker at a major U.S. shipbuilding yard with an estimated delivery time of between five and ten years.  The CRS report recommended three heavy and three medium icebreakers and mentioned the U.S. defense contractor Huntington Ingalls Industries Inc. (HIII) and their Ingalls Shipbuilding yard in Pascagoula, Mississippi, as a prominent candidate for construction of the proposed icebreakers. 
 
A subsequent CRS report issued in September 2, 2015 cited a U.S. Navy Institute report noting the U.S. Coast Guard (USCG) is consulting with experienced Canadian and Finish shipyards on future icebreaking technology and "Some observers believe the procurement cost of polar icebreakers could be reduced, perhaps substantially, by building the ships in a foreign shipyard, such as a yard in one of the Nordic countries that is experienced in building icebreakers."

That is Arctech could construct in its Finish yard the proposed six (6) U.S. heavy icebreaker fleet for about the some cost of a single U.S. built icebreaker.

This demonstrates the problem the U.S. Department of defense has attempting to maintain an adequate naval fleet with the extraordinarily high cost U.S. shipbuilding industry. The inflated cost of each ship consumes the U.S. Navy’s new construction budget and makes it impossible to build a sufficient number of ships adequate for national defense.

Key excerpts quote:

On a sunny day on the Helsinki seafront, sparks fly from steel welding at the bustling Arctech shipyard, which seems insulated from Finland's economic recession as it strives to meet an order book that stretches into 2017.

The world's biggest manufacturer of icebreakers, or ships that can navigate ice-covered waters, Arctech is poised to benefit from an expected flurry of activity in the Arctic, which is being reinforced by U.S. President Barack Obama's Arctic push.

"We are getting inquiries from several countries who have Arctic regions, or companies from such countries," said Esko Mustamaki, Arctech's managing director, sitting in his office at the vast shipyard as workers nearby still wearing helmets cycle off for lunch breaks on the compound.

The yard is currently building six vessels, four for Russian state-owned shipping company Sovcomflot and one each for the Russian and Finnish transport ministries. One will be for Arctic use and Mustamaki expects demand to grow.

That should be good for business, but there is a cloud on the horizon: the yard is now owned by Russia's state-owned United Shipbuilding Corporation (USC), which was added to a list of U.S. sanctions against Russia last year in the wake of the conflict in Ukraine.

While Russia has 40 icebreakers and another 11 planned or under construction, the U.S. Coast Guard has three, only one of which is a heavy duty vessel, the White House has said.

For Arctech, sanctions alone would rule out any business with the U.S. government, putting potentially some of the industry's most lucrative contracts in the next few years out of reach.

Mustamaki, however, is sanguine, arguing that even without sanctions, his company probably wouldn't win any U.S. orders because the U.S. Jones Act requires that basically all American vessels must be built in local shipyards - a law which he says will force the United States to pay sky high prices for icebreakers. A Congressional research service report has put the cost of a new U.S. icebreaker at about $1 billion.

"That sounds like quite a lot. We are currently building an icebreaker for the state of Finland for 123 million euros ($139 million)," said Mustamaki.

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