The Outlook For U.S. Shipbuilding

Commercial shipbuilding in the U.S. is about to rebound in a big way. We see the U.S. industry emerging as a competitive force in world commercial shipbuilding, with the industry successfully competing for important orders over the next 12 to 24 months. That is the conclusion of a detailed study of the future U.S. marine industry recently published by IMA, highlights of which are provided in this article.

The business setting for shipbuilders and other companies in the U.S. marine sector is very promising. While the Navy market will be substantially below that of the past ten years, there are major growth opportunities in the export market for commercial ships. There are also some near term orders in the Jones Act market and revenues from future Navy work will continue to be substantial. There are several domestic and international forces which will shape the market.

Internationally, current forecasts call for worldwide ordering of new ships to increase 35 to 80 percent over the next five years, driven primarily by the need to replace aging tankers. Looking at individual situations, Japanese shipbuilders are being impacted by the strong Yen, Korea has a capacity problem, Northern European builders have been hurt by high labor costs, and Eastern European builders have been plagued by political unrest. All the while, U.S. builders have excess capacity and relatively low labor costs.

The U.S. government has also helped pave the way for a resurgence. Government policy has suddenly shifted in favor of shipbuilding, with the proposal to expand federal financing guarantees to ship export orders and provide significant seed money for commercial ship systems development. The increased shipbuilding demand, changes in the competitive picture and more supportive government policies will cause U.S. shipbuilding to evolve into a more balanced mixture of commercial and naval ship construction.

Market Assessment By Vessel Type The IMA report identifies eight business segments which offer the greatest near term export prospects for U.S. shipbuilders. The full report profiles the operating inventor in each segment, assesses underlying business drivers, examines technology developments likely to affect future ship design and forecasts the available ship construction market over the next five years. Here is a glimpse at how we see the opportunities for each of the segments.

• Product Tankers: growing demand for petroleum products and substitution of imports for domestic refined products will create a need for up to 350 product tankers to service U.S. import trade.

• Crude Carrier: OPA 90 regulations, concerns over aging tankers and physical obsolescence will produce significant requirements for double hull replacement ships. • Liquefied Gas Carriers: Newport News looks poised to take an LNG ship export order and growing demand for natural gas, propane, butane and other petroleum gases will produce further LNG/LPG ship construction opportunities.

• Parcel Tankers: owners have begun scrapping first generation parcel tankers and a continued flow of orders for expensive, stainless steel chemical carriers is forecast.

• Cruise Ships: major operators in the Caribbean and West Coast cruise trade will continue to upgrade their fleets with new ships, as well as modernize existing vessels.

• Containerships: increased trade and replacement requirements will generate orders for new ships, with U.S. owners being major players in f u t u r e orders for container megaships and feederships.

• Floating Power Plants: lots of export potential in developing countries and Wartsila has been aggressively pursuing this market in collaboration with McDermott.

• Floating Production Plants: there continues to be interest in bargemounted methanol and ethanol plants, but economics depend on future energy prices.

The report takes an equally extensive look at the Jones Act (domestic) market, and finds: OPA 90 will generate some product tanker replacement requirements, as 105 of 160 domestic tankers now in inventory are to be scrapped by 2005; several interesting ferry replacement and expansion projects are in the pipeline, notably Washington State and Alaska Highway, the most immediate prospects; and OPA 90 and local environmental rules requiring tanker escort will provide construction possibilities for tractor tugs with Z drive or cycloidal propulsion. In all, the IMA report analyzes nine domestic markets.

Navy And Government Market While the Navy is cutting plans for newbuilds, there are 19 surface combatants to be ordered over the next five years, which will generate revenues over $8 billion in construction contracts. Also, 12 new sealift ships and five conversions are currently in the pipeline, generating potential revenue of $3.6 billion over the next several years. Finally, survey and research ships will be significant, as the modernization of NOAA's fleet and construction of several Navy ocean research ships will provide business opportunities for builders and suppliers.

New Government Programs And Policies From a hands-off policy toward shipbuilding, the government has shifted to helping U.S. shipyards, and key systems suppliers remain viable entities. A major objective of the current administration is to attract new technology to the U.S.

marine sector. Programs to implement this proactive policy are detailed in the report, and suggestions given as to how to utilize the available assistance.

• Ship Financing Guarantees: the proposal to provide access to federal financing assistance on ship export sales could be a major boon to U.S. shipbuilders and suppliers, depending on the details of program implementation. • Shipbuilding Initiative: seed money totalling more than $200 million is to be thrown at the industry to encourage improvements in shipbuilding and ship design. • Assistance In Export Sales: the new policy calls for proactive government assistance to U.S. companies selling overseas.

• Eliminating Unnecessary Regulations: actions are planned to reduce regulatory burdens impeding U.S. shipbuilders and systems suppliers.

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