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THE PRESIDENT'S PLAN: President Clinton Proposes How The Maritime Industry Can Convert From Defense To Commercial Production

"Strengthening America's Shipyards : A Plan For Competing In The International Market" is the title of a report prepared by President Clinton's National Economic Council. The following is excerpted highlights from the report giving an assessment of the market, as well as specifics on the action needed to bring commercial business to U.S. yards.

The Outlook There are four possible markets for U.S. shipbuilders in the future: the commercial market (both domestic and international), U.S. naval vessels, foreign naval vessels and non-shipbuilding markets. Of these, the international commercial market offers the most significant prospect for expanding production. The Commercial Market The commercial market consists of both the domestic market (protected by the Jones Act) and the international market.

The Jones Act market is expected to remain small through this decade. Demand for new ocean-going vessels for the Jones Act fleet is estimated to be at most two to three vessels a year. These numbers reflect a decline in demand for tankers due to a projected reduction in Alaskan oil shipments and changes in trading patterns. They take into account the requirement in the Oil Pollution Act of 1990 (Public Law 101-380) that single-hulled tankers be phased out beginning in 1995 according to a schedule based on age and capacity so that all tankers will have double hulls by 2015. By contrast, the already-sizeable demand for new vessels in the international commercial market is expected to grow significantly in the coming decade. Drawing on a variety of analyses, the Maritime Administration (MarAd) estimates that 7,300 to 9,900 large ships (of which half will be tankers) will be built between 1992 and 2001. Threequarters of this new construction is expected to occur in the second half of this period. Most will result from the need to replace aging vessels, not to accommodate trade growth. U.S. Naval Vessels The U.S. Navy will continue to provide a market, albeit a much smaller one, for U.S. shipbuilders. The Navy has about 100 ships on order or under construction, three quarters of which will be delivered after 1994. Although the details of the defense program for FY '95-FY ' 99 still are under review, the Department of Defense (DoD) projects that it will order on average eight new ships a year (including sealift ships) in those years. In the following decade, replacement of aging military vessels may require some modest increase in construction. DoD does not now plan any additional sealift procurement, however.

Thus, while the total requirements remain uncertain, DoD does not believe that its annual need will increase significantly.

Foreign Military Vessels The market for foreign military vessels probably will remain relatively small. Most countries with significant blue water fleets purchase naval vessels from their own yards, although nations with predominantly coastal fleets are likely to continue to purchase certain classes of small vessels abroad. Non-Shipbuilding Markets In slack periods, shipyards have engaged in non-shipbuilding projects, including the construction of railroad cars, under-river tunnel sections, wind tunnels, prison barges, offshore oil rigs, and marine equipment. Quasi-shipwork projects including methanol plant barges and power plant barges (about 40 of which are now in operation) also present a potential source of business.

Competing Internationally: Leveling the Playing Field Two steps will have to be taken for U.S. shipyards to compete successfully in the international market.

• Step 1: Eliminate Subsidies: Many foreign yards have benefited from substantial shipbuilding subsidies. In July of 1993, MarAd published a "Report on Foreign Shipbuilding Subsidies" describing current government programs for assistance to shipyards in 31 nations and the European Community, as well as indirect support, as exemplified by Japan's home credit schemes. Subsidies must be eliminated if there is to be a truly competitive international market in which U.S. shipbuilders can compete.• Step 2: Adapt Naval Skills To Commercial Applications: U.S.

shipyards have invested heavily in modern facilities and technology. Additionally, labor rates in U.S. yards are competitive, and U.S. shipyard workers are highly skilled. However, U.S. yards have been building ships to order for the military requirements of the U.S. Navy and the sporadic demands of the Jones Act fleet. At the same time, foreign yards have been building ships in series from standard designs optimized for producibility as well as functionality, thereby benefiting from scale economies and learning efficiencies. Although the steps required to adapt to the demands of this commercial market vary among U.S. shipyards, in general yards must: • Shorten the time required to develop a ship design in response to a specific demand by adopting modern design procedures and developing designs in advance of need; • Strengthen relationships with suppliers to reduce the time required to procure materials and parts; and • Fully employ modern technologies in the construction of ships including construction techniques such as modular construction, manufacturing processes, and process flow. The lay-out of at least some facilities may have to be revised to adopt these tools.

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