by Mike Hansen, Hawaii Shippers Council

Reports from Reuters news agency of a billion dollars in cost overruns on construction of the USS Gerald Ford aircraft carrier at Huntington Ingalls Industries Inc. (HII) demonstrates how uncompetitive major U.S. shipbuilding yards have become under the protectionist shield of the Jones Act. Noncontiguous domestic jurisdictions of the United States – Alaska, Guam, Hawaii and Puerto Rico – depend upon these yards for large commercial ship construction.

HII was formerly Northrop Grumman Shipbuilding, a division of Northrop Grumman Corporation, a major U.S. defense contractor. Grumman spun-off their shipbuilding division and it became an independent company on 03/04/2011 and is listed on the NYSE (HII.N).

HII owns and operates three of the eight major U.S. shipbuilding yards as follows:

• Newport News Shipbuilding, Newport News, Virginia, specialize in aircraft carriers known as CVNs (carrier vessel nuclear) and attack submarines – last commercial ship delivered 06/21/1999.
• Avondale Shipyards, New Orleans, Louisiana, specialize in building large naval amphibian warships known as LPDs (landing platform dock) – last commercial ship delivered 06/29/2006.
• Ingalls Shipyards, Pascagoula, Mississippi, specialize in building large naval amphibian warships known as LPDs (landing platform dock) – last commercial ship delivered 03/04/1974.

HII is scheduled to close their Avondale Shipyards in 2013 due to a lack of naval work and poor performance at the yard including missing delivery dates, cost overruns and faulty work. In fact, the LPD program building amphibious assault ships for the Navy at Avondale and Ingalls has been fraught with problems. Their Newport News yard builds nuclear aircraft carriers and has also encountered problems, but they have not been nearly as serious as with the other two yards and Newport News remains profitable. Although all three HII yards have built large commercial ships in the past, they only build naval ships today.

Closure of the HII Avondale yard will reduce the number of major U.S. shipbuilding yards capable of building large deep draft self-propelled ships from 8 to 7 shipyards. Of the 7 remaining major shipbuilding yards, only three are accepting orders for large commercial ships and of the three only two are currently building commercial ships.

Problems include missed delivery dates and cost overruns that even the U.S. Navy can no longer accept. These problems lead to the HII shipyards to exit the commercial shipbuilding market, because private ship owners do not have the resources to withstand these conditions as does the U.S. Government.

This situation has made it very difficult for shipping operators in the noncontiguous trades of the United States to replace their ageing and inefficient ships with U.S.-built ships as required by the Jones Act because of very high costs and cumbersome contracting practices of the major U.S. shipbuilding yards.

Currently the average age of deep draft ships operating in the noncontiguous trades is over 28 years. Operating older ships is inherently more expensive due to higher fuel consumption, larger crews, and significantly higher maintenance costs -- all of which lead to higher freight costs including higher bunker (fuel) surcharges.

The major common carriers in the noncontiguous trades have all put off new ship purchases due to the costs of building in the U.S., in some cases the ocean carriers simply do not have the financial resources to build new ships in the U.S., and the others have simply chosen not to. If these carriers do ultimately build new ships in the U.S. it would inevitably mean much higher freight costs for the business and residents of the noncontiguous jurisdictions.

---30---

LINK: Navy Wants More Cost-Cutting from Huntington Ingalls