Not since the heady days of the late 1970s has the outlook for shipbuilding in U.S. yards looked brighter, but that outlook is tempered somewhat by the threat of federal budget cuts that could jeopardize many present and future shipbuilding projects. The U.S.'s decision to unilaterally eliminate construction differential subsidies and end tax credits for vessel construction in the early 1980s resulted in 15 years of stagnation, retrenchment and consolidation for the domestic shipbuilding industry. Today the domestic shipyard industrial base in terms of employment, active facilities and building berths/dry docks is approximately half as large as it was in 1981. Despite the dramatic decline in shipbuilding opportunities in the 1980s and early 1990s, the industry spent more than $3.5 billion for capital improvements during that period to modernize facilities and ready itself for what is expected to be an extended period of significant construction activity.
Vessel Construction: The Outlook
Energy-related vessel construction is perhaps the most certain and strongest market for U.S. shipbuilders in the short term. The Oil Pollution Act of 1990 (OPA 90) requires that all single-hull tank vessels carrying petroleum products be replaced with double-hull vessels by 2015. Larger vessels, those over 5,000 gt must be replaced by 2005. With the first major phase-out milestone looming, many operators have begun their replacement building and conversion programs. Today, shipyards have signed contracts with options to build at least 20 articulated tug barges (ATBs) and tank barges greater than 5,000 gt. This is; however, less than one-half the number that must be built to replace the tonnage being phased out under OPA 90 by 2005. In addition, there are currently seven self-propelled tankers under construction in U.S. yards, a contract for an additional tanker on which construction has yet to begin and options for two additional vessels. Tank vessel construction is expected to remain strong for the next five to seven years.
Another market sector that has seen some activity in recent months, but which is expected to increase significantly over the next year is offshore supply vessel (OSV) and crew boat construction. The average age of vessels in the current fleet is well past its projected useful life. In addition, with oil and gas exploration moving into the deepwater Gulf of Mexico (GOM), larger vessels are needed to service rigs and platforms. For years, the standard workhorse in the GOM has been the 180 ft. (54.8 m) OSV. Today operators are looking at OSVs in the range of 240 ft. (73.1 m) to 350 ft. (106.6 m)
The issuance on February 20, 2001 of the Mineral Management Service's (MMS) final Environmental Impact Statement (EIS) gave the green light to develop Floating Production, Storage and Offloading Systems
(FPSOs) in the deepwater GOM. The U.S. Coast Guard predicts that as many as five FPSOs will be operating in the GOM by 2005. In all likelihood, FPSOs will not require a Jones Act endorsement to operate in the GOM; however, shuttle tankers needed to service FPSOs, like OSVs, must be built in U.S. shipyards. At least two and possibly as many as four shuttle tankers will be needed to service each FPSO. Operators are looking at ATB and self-propelled tanker designs to service this need. Capacity for each vessel is expected to be in the 350,000 to 500,000 barrel range. Operators have already pre-approved six shipyards to build shuttle tankers and asked those yards to provide preliminary estimates for construction of ATBs and self-propelled tankers.
Today, there are approximately 40 containerships in the Jones Act trades. The average age of these vessels is over 25 years old. The majority of these vessels must be replaced over the next 10-15 years. Currently, NASSCO has contracts to build three containerships for the Alaska Trades and the Kvaerner Philadelphia Shipyard has begun construction of the first of two 2,500 TEU containerships.
Cruise & Passenger Vessels
For the first time in 40 years, two large cruise ships (with an option for a third) are being constructed in a U.S. shipyard — 1,900 passenger vessels being built at Ingalls. In addition, Atlantic Marine in Jacksonville, Florida recently delivered the first of two 224 passenger coastal steamers. The company also has an option for a third vessel. All of these vessels are being constructed for American Classic Voyages, Inc. Two other cruise ships were recently delivered for the U.S. market. Today, construction projects are pending for at least nine cruise ships.
Another market sector that is expected to experience significant construction activity over the next decade is passenger ferry construction. In fact, this market looks so bright that Australian ferry builder giants Austal and Incat have established operations in the U.S. to take advantage of strong market demands for ferry construction. Local and state transportation planners are increasingly looking at water options to alleviate overcrowded urban roads and transportation systems. There are currently projects pending to build at least 13 passenger ferries in U.S. shipyards for local, state and private entities. These vessels would carry both passengers and vehicles.
U.S. shipyards also expect a steady stream of barge and tug construction over the next several years to replace vessels built during the huge building boom of the late 1970s. Not only is the U.S. tug fleet aging, new technological developments are forcing older, less sophisticated vessels out of service. Although, construction of double-hull tank barges for the inland fleet has been going on for some time and a majority of inland tank barges in operation today are double-hulled, shipyards believe that approximately 400 double-hull tank barges for the inland market will be built over the next five to seven years.
The need to develop a vibrant domestic coastal shipping industry is perhaps the brightest spot for U.S. shipbuilding in the mid-term. U.S. international trade is expected to double or triple in the coming years. More than 16 million more TEUs are expected to arrive at U.S. ports from overseas each year for the next 10 years. An additional 16 million TEUs equates to 11,000 FEU more arriving everyday on each coast. The Conrail acquisition will enable CSX (CSX)
/NS to move 11,000 more containers per day. It would take 10,000 trucks on the I-95 corridor every day to move the remainder — that is one more truck every 270 yards between Boston and Miami. And, these statistics do not consider increased need for domestic shipping. Movement by water is the only solution to projected shipping demands and substantial vessel construction will be needed to meet the demands of this new market sector.
There are already a few container barges operating on the east coast. It is expected that more will enter the trade, which will require new construction. With larger containerships becoming the norm and fewer of our ports having the infrastructure to handle them, feeder containerships will have to be built. In addition, shipyards are looking at innovative new designs for cargo-carrying fast ferries that can move large quantities more quickly than traditional barge movements. A group of shipyards, operators, ports and maritime labor has formed the Coastwise Coalition to promote government policies aimed at increasing our domestic coastal shipping capabilities.
Title XI: An Uncertain Future
Unfortunately, just when prospects for new building opportunities look brightest, the Bush Administration has proposed elimination of the Title XI Loan Guarantee Program. Title XI has been the engine of growth for the maritime industry since it was revitalized in 1993. More than $5 billion worth of loan guarantees for vessel construction and shipyard modernizations have been approved since 1993 and the program has proved to be a revenue generator for the government. From FY 93 to the end of FY 2000, MarAd collected over $160 million in application, investigation and one-time guarantee fees and interest. When that figure is offset by the cost of administering the program and two loan defaults, the government has realized net revenue from the program of over $80 million.
Today, MarAd has more than $5 billion worth of pending applications for Title XI loan guarantees and only enough money remaining in the Title XI account to fund less than 20 percent of those applications. Without a significant appropriation in FY 2002, many pending and future projects will not come to fruition. The industry is working with Congress to fund the Title XI program. Recently, 61 House members and 38 senators sent letters to the Chairman of the House and Senate Commerce, State, Justice and the Judiciary Appropriations Subcommittees requesting $100 million for new Title XI loan guarantees next year. Funding this program at a level adequate to meet vessel construction demand will not be easy in this time of budget cuts; however, the industry understands full well that without the availability of Title XI loan guarantees, much of the hard work and sacrifice that our shipyards have endured over the last decade will be for naught.
U.S. shipbuilders have learned that nothing is certain in the marketplace until contracts are signed and financing is secured, but if current building projections prove anything close to being accurate the industry can look forward to good times ahead.