During my Plebe history class at the U.S. Naval Academy in 1978, I read Paul Kennedy's The Rise and Fall of British Naval Mastery. In this landmark work, Kennedy examines the reasons for the initial establishment and subsequent weakening of the United Kingdom as a dominant sea power. Nearly 30 years later, with service as a submariner and nearly 20 years at a shipyard under my belt, I think about Kennedy's book often as I look around at the current shipbuilding environment. None of us in the industry wants to have future generations of midshipmen reading a similar book about the rise and fall of American naval power. As a nation, we are not yet at the point of making the same fateful decisions the British made, but we must be careful and take steps to resolve some of our issues or we could find ourselves sailing through equally stormy seas. Even in the 21st century, our country's economic strength as well as our ability to defend our national interests depend in good measure on the success of our vital industry.
The shipbuilding industry is truly one of America's crown jewels. We should note, however, that most major U.S. shipyards today rely almost exclusively on the Navy as their customer. The sad reality is that our industry has all but withdrawn from the commercial shipbuilding market. The reasons for this are many and are similar to those that have driven much of America's manufacturing to offshore locations. As a nation we need to understand why this is happening and take steps to fix it. For the moment, however, I will leave that to others to address and focus on an industry dominated by the Navy as its primary customer.
What Shipbuilders Need to Be Successful
Shipbuilding is very complex. Yet at its foundations, what is required to build great ships successfully is simply bringing together the following elements in a coherent, planned way: a sound ship design (the product of engineering effort), necessary materials such as steel, pipe, and pumps (the product of a viable industrial base and second-tier suppliers), and a work force appropriately sized and with the right technical skills. The shipbuilding industry knows how to do all this, and the success of the U.S. Navy over the years is a testament to this fact.
But ships are not designed and manufactured overnight. They are long-term projects with significant engineering effort up front followed by years of construction-two or less for a littoral combat-type ship to six years or more for a nuclear-powered aircraft carrier. The longer the duration of a project, the more planning required to successfully execute it. When plans are disrupted by unexpected and often last-minute changes in order quantity or contract award dates, new plans have to be developed, material delivery schedules have to be altered or material orders canceled, and workers need to be moved to other projects or let go. Efficiency is impacted, and the cost of building the remaining ships under contract increases.
Shipbuilding also requires an extensive physical infrastructure-shops, steel production facilities and specialized equipment, dry docks-that take time to construct, require capital to build and maintain, and need qualified people to man. This need for capital investment runs counter to the interests of much of the investment community today. Investors prefer industries that don't require great capital outlays; they want to invest in people, not "things." Shipbuilders invest in their people, but the reality of this industry is that investment in "things" is essential as well. Sometimes a shipbuilder invests capital to be able to build the quantity of ships of a class specified in the Navy's shipbuilding plan only to have that class reduced in the next federal budget cycle to a mere handful of ships or, in the worst case, to zero. My own shipyard, for example, saw this happen in the late 1980s when we prepared to build half of the new 30-ship Seawolf-class submarines. After we had invested our hard-to-get capital, the class was reduced to just three ships-none of which were built here at Newport News.
The shipbuilding industry must be able to attract capital investment to survive. But investors are reluctant to put their money into an industry whose prospects may change dramatically with each new defense budget. Shipyards require continuous "throughput"-ships under construction-to generate a fair return on capital. It has become increasingly difficult for our industry to generate the returns necessary to attract capital given the current low rates of production of all ship classes. In the absence of volume, creative incentives, such as advanced appropriations or other innovative financing methods, are needed for shipyards. To its credit, the Navy has shown some understanding of this problem and has included facility improvement incentives in some recent ship contracts.
At the heart of the shipbuilding industry are skilled, dedicated workers who understand the science of modern shipbuilding as well as the art of building great ships. Downsizing and consolidations that have taken place in the industry have resulted in much smaller workforces. Given that seniority is generally used to determine which workers will be laid off when changes demand it, those workers who remain tend to be older. While it is beneficial to have seasoned shipbuilders, many of these workers are now approaching retirement age, and we will need to replace them. You can't replace 40 years of experience overnight. Most construction shipyards estimate that it takes about five years of training and experience to turn a new worker into a shipbuilder. During this time, workers learning the craft require more supervision and mentoring. As a result, labor costs tend to be higher on projects that, of necessity, use higher numbers of new workers. At my shipyard, we refer to this as the "green labor" issue.
Given the reduced volume of work and the increasing gap between ship starts, the amount of green labor that is currently working on construction of USS George H. W. Bush (CVN-77) at Newport News is double what we experienced on USS Ronald Reagan (CVN-76). The first ship of the next class of carriers, the as yet unnamed CVN-78, will have three times as much green labor as Ronald Reagan. Every shipyard in America can cite similar examples. All shipyards are investing heavily in their people. When shipyards are confronted by delays in funding, contract awards, or ship start dates, the new workers we've just invested training dollars in often have to be laid off-only to be rehired again, if they are still available, when the new scheduled start arrives. This is hardly an efficient or cost-effective way to do business, but it is the environment shipyards operate in today.
Stability Is Key
All of the elements I have described as being needed for success in the shipbuilding industry can be summed up in the word stability. If there were a shipbuilding plan in place that was based on realistic funding expectations and provided sufficient throughput to make investors willing to invest, the industry would have a far better chance of building ships more efficiently by hiring and training the right number of people, planning the use of facilities, and keeping subcontractor and supplier bases warm. But today's environment is anything but stable.
We have not truly had a national consensus on the "right" size of the Navy since the Reagan-era vision of building a 600-ship Navy. Without some consensus among Navy leaders, the Secretary of Defense, the White House, Capitol Hill, and taxpayers, shipbuilding plans become wish lists, not guideposts for industry. While theoretically following a six-year plan (the DoD's Future Years Defense Plan or FYDP), the focus tends to be on this year's budget crisis-how to pay for deficit reduction or hurricane relief costs or the war in Iraq, for example-and the shipbuilding picture stabilizes only in the out years of the budget cycle. Yet when the out years arrive, there are always similar or new fiscal challenges resulting in stability moving further to the right and ship quantities contracted for in the near-term remaining well below what is needed for economic and efficient production. Too often it seems that the question being answered today is "What can we afford?" not "What do we need to ensure America's security and freedom of movement on the seas?" And too seldom is the question asked, "How do we ensure that American shipbuilding will be sound 20 years from now?"
Lack of consensus, coupled with a chaotic budget process, results in shipbuilding plans that change frequently. Industry has no solid benchmarks as it makes critical decisions on people and facilities and attempts to procure needed capital. Much of what is "needed for success" by the industry doesn't happen, and shipbuilders find themselves buffeted by one funding crisis after another.
A Call for National Action
The story of the shipbuilding industry today does not have villains in black capes consciously seeking to do harm to the industry or the country. Quite the opposite. This is a story of good, dedicated, and hard-working people-in government and industry, in government offices, and in dry docks. All are trying to do the best they can for the nation and the Navy in uncertain times with fewer resources available to fund more needs. So what can be done?
Because stability is key to so much of what the industry must do, steps should be taken to achieve it. The Quadrennial Defense Review may offer some hope. With the release of this congressionally-mandated report in early 2006, perhaps we will begin to see a consensus form around an appropriate size for the Fleet. As 2005 was drawing to a close, Navy leadership stated their belief that the Fleet needed to consist of 313 ships to meet the Navy's requirements, and they promised to pursue funding to build the ships needed to get to that number. Moreover, they indicated that they were going to "stick with the number" and not continuously revise the shipbuilding plan. This is a good start.
Ultimately, the nation needs to decide whether the United States will yield its dominance of the sea in the coming century or if we will retain it. Political leadership must work with Navy leadership and industry to determine what is needed to achieve this and find the way to pay for it. Some will argue that Ronald Reagan's vision of a 600-ship Navy was too much, too expensive, not sustainable. Perhaps. But the American people and industry rallied to the call and built a Fleet unmatched in history. Whatever the right number of ships may be, we need to decide on our goal and rally the country behind it. We also need to think outside the box to find ways to finance ship construction. Some possibilities have been suggested, such as advanced appropriations or taking the peaks out of the Ship Construction Navy (SCN) budget by funding nuclear aircraft carrier construction outside of the SCN budget, perhaps in a national shipbuilding account. We are limited only by our ability to work together to find innovative solutions that preserve the oversight responsibilities of our political leaders while getting the Fleet built.
Stability, indeed, is essential, but discipline is also required. There is an inherent tension between incorporating technologies that are still being developed on a ship under construction and actually getting the ship to sea. Disrupting or delaying production while the bugs are worked out of a new technology is, at the current low rates of production, a prescription for cost increases and even fewer ships. We need to be delivering real ships to the Navy, not continuously developing prototypes. Every major American shipyard has demonstrated what it can do when given the opportunity for series production of Navy ships. The Navy and industry must work together to balance our appetite for late-breaking technologies against negative impacts on cost and stability.
Industry and the Navy can also work together more closely to define and understand the costs of shipbuilding. It serves no one's interests to assess blame over cost increases without understanding why those increases came about. In an industry that is so dependent on one customer, as is true of American shipbuilding today, the customer plays a more significant role in costs than they might want to believe. At the same time, industry must work harder at explaining costs and finding ways to reduce them. The industry is actively pursuing a variety of approaches to process improvements, and these must continue in earnest. Hard-nosed assessment of processes must be pursued within each shipyard, but the Industry-Navy team must also look for innovative solutions that cut across the industry, including the naval shipyards. Teaming arrangements, work sharing, and pooled resources are some possibilities.
If we are to be a successful maritime power for the remainder of this century, we must develop a true partnership of industry and government. Industry has much to offer its customer and has every reason to want to do so. Our government customer also brings perspectives and visibility to best practices that the industry doesn't have. Partnerships require a willingness to listen and a desire to understand before taking actions or making hasty assertions that can never really be retracted. Both sides should dial down the rhetoric and stop seeing the other as a villain or an opponent. The words of Benjamin Franklin as he signed the Declaration of Independence are as applicable today as they were in 1776: "We must all hang together, or assuredly we shall all hang separately."
Looking to the Next Century
I return now to the case of our staunch ally, the United Kingdom. The Royal Navy ruled the seas for hundreds of years, but in the 1970s the need to find savings in its defense budget led to a decision to take a break from shipbuilding for a while. That hiatus lasted nearly 30 years. During that time, the British shipbuilding industry and its vital supplier base atrophied, critical facilities fell into disrepair, and skilled workers moved to other work. When the British decided to rebuild their fleet in the last several years, they found that industry consolidations, bankruptcies, and lack of capital investment had left their shipbuilding industry incapable of doing what was needed. Construction of the Astute-class of submarines fell years behind, resulting in the Royal Navy turning to General Dynamics for assistance with design and construction issues. The UK carrier program, CVF, is being built in pieces in multiple shipyards, with all the implications this has for costs and efficiency, because no one shipyard has the people or infrastructure to do it alone. The resulting need for more extensive coordination across shipyards has proven difficult, and the British have again sought the advice of American shipbuilders.
In their hour of need, the British turned to their friend and ally, the United States, and the American shipbuilding industry responded to the call as we always have. But if the United States, either by design or as an unintended consequence of budget or policy decisions, allows our shipbuilding industry to continue to flounder with instability and uncertainty, to whom will we turn for help when a hostile force has firmly entrenched itself on the world's oceans? Some people may be prepared to accept that risk. I am not. Resolving the issues that confront Navy shipbuilding and the shipbuilding industry will not be easy, but we must act before we reach the point of no return.
Working together, industry and the Navy can ensure that the book assigned for reading in Plebe history in 2078 is American Sea Power in the 21st Century-Ready When Needed to Defend Freedom.
Mr. Petters is president of Northrop Grumman Newport News, the nation's only builder of nuclear-powered aircraft carriers and one of the two shipbuilders capable of building nuclear-powered submarines. A 1982 Naval Academy graduate, he is a former submarine officer. He currently serves as vice chairman for the American Shipbuilding Association.