Since the 1960s, 14 U.S. shipyards that construct ships for the Navy have closed, and three have left the defense industry. Only one new shipyard has opened. As a result, just seven shipyards, owned by four prime contractors, build large Navy warships today.
By comparison, China has more than 20 shipyards supporting its naval surface ship expansion, with dozens of commercial shipyards that dwarf the largest U.S. shipyards in size and throughput. All Chinese naval construction shipyards also build commercial ships, which provide additional revenue and support shipyard design, workforce, and infrastructure development while reducing overhead costs for naval construction. The Chinese Navy is growing at an annual rate of 10 ships and is expected to reach 460 ships in 2030, compared with the U.S. Navy which has roughly 300 ships and is struggling to replace decommissioning ships to avoid shrinking.
That was chair and ranking member of the Senate Armed Services Committee Jack Reed and Jim Inhofe over at USNI. Here’s a good sentence:
With competition limited because of low volumes, specialized construction needs, and high barriers to enter the market, Navy shipbuilding often fails to realize the benefits of being a monopsony.
I think that they identified the right problems, but I’m not so sure on the recommendations which focus on “the importance of predictability and stability.” I get that shipbuilding is a large, capital-intensive enterprise, but it’s hard for me to believe that the bureaucracy has any juice to squeeze from the prediction lemon.
After all, the Navy already has a 30-year shipbuilding plan it submits to Congress. It has a five-year Future Years Defense Program is submits annually in the budget that was estimated three years prior. The shipbuilding appropriation takes up to ten years to fully expend due to long-lead times. (In other words, when Congress appropriates FY22 dollars estimated by the Navy back in FY20, they have five years to obligate the dollars and the contractor might be executing that obligation up through the tenth year.)
Somehow, all these processes which require connecting long-range plans with budgets still encounters the unexpected which leads to course changes. I think this article is related to the Navy’s budget request for FY22 which reduced the DDG-51 procurement from two to one ships. This would lead to the Navy having to pay BIW $33 million for breaching the multi-year contract, and the company would still have to lay off workers and delay investments. A new multi-year contract for the DDG-51s is in the works.
A question not often asked is the other side of the equation — what effort will the Navy give up if it had to buy the second DDG-51 in FY22, and which companies would have to lay off their workers?
A focus on stability also means a neglect of opportunities and innovation. And so it is likely that focusing on predictability and stability will make the Navy even less compatible with the commercial industry which relies on speed and agility. What keeps the supplier base dynamic and innovative? Here’s Reed and Inhofe again:
As former Ingalls Shipbuilding President Brian Cuccias testified, “Qualifying to be a supplier is a difficult process. Depending on the commodity, it may take up to 36 months. That is a big burden on some of these small businesses. This is why creating sufficient volume and exercising early contractual authorization and advance procurement funding is necessary to grow the supplier base.”
This is indicative of my gripes with this article. The fact it takes 36 months to qualify a vendor and there’s zero incentive for the prime to do so is not recognized as the problem. The problem is getting getting more money faster (“sufficient volume” and “advance procurement funding”). The connection between this and a real improvement in outcomes is not clear. Getting a couple extra ships a year will do little to stem the tide of high and growing costs in a stagnating supplier base. Focusing on the artificial barriers to entry into the defense market would be much more effective.
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