"Ships are indispensable. They are essential for commerce. They are essential for peace. They are essential for defense. They are essential to the public good. And these ships must be built within our own borders, at our own facilities, by our own people and under our control." -- Quarterly report, Todd Shipyards Corp.
That message from Todd is the gospel according to the shipbuilders, but the only true believer is the U.S. Navy.
Deprived of commercial markets by tough foreign competition, the worldwide tanker glut and the decline of the U.S. merchant marine, the shipbuilders are left with the Navy as their only high-volume customer. With even U.S. shipping companies and oil refiners buying vessels abroad, the Reagan administration's commitment to a dramatic expansion of the Navy is the one real ray of hope on the shipbuilding industry's gloomy horizon.
U.S. shipbuilders, once the dominant force in the world of merchant seafaring, are already heavily dependent on the Navy for survival. Two-thirds of the 99,000 shipyard production workers are employed on naval projects, and the shipyards are doing $9 in Navy work for every $1 in commercial work.
Now the industry appears destined to become a virtual appendage of the military, with some yards building combat vessels and others the tankers and cargo vessels required to supply the combat fleet and Rapid Deployment Force. "The decline in commercial orders leaves us creatures of the Navy," said M. Lee Rice, president of the Ogden Corp.'s shipbuilding subsidiary, "looking to them for maintenance of our shipbuilding capability. That means only our naval capability will remain."
In the long run, shipbuilders, maritime union leaders and trade groups talk of new commercial markets created by technological advances or government action: seagoing power plants producing thermal energy, perhaps, or seabed mining, or cargo-preference formulas requiring more than the current 5 percent of U.S. international trade to be carried in U.S.-flag ships.
But in the near future, maritime sources agree, the Navy is where the action is. Tens of billions of dollars in contracts will be awarded in the next five years, and jockeying among potential bidders has already begun.
A few yards, notably Tenneco's Newport News Shipbuilding Co., Todd Shipyards and the Bath (Maine) Iron Works division of Congoleum Corp., seem assured of cashing in on the Navy bonanza. But maritime analysts say that even if the Navy gets everything it is asking for, the work will not be enough to keep all U.S. shipyards busy or avert the layoffs of approximately 30,000 workers during the next three years.
The uncertainty facing the shipyards is compounded by the fact that no one knows exactly what the Navy is going to order, which makes it difficult to plan capital investment and personnel levels, or whether the network of suppliers and subcontractors can meet the demands likely to be placed on it. Furthermore, the Navy can be a difficult customer, and new contracting procedures imposed by Navy Secretary John Lehman require shipbuilders to share any losses caused by cost overruns.
As soon as Reagan took office, the Navy raised its ship construction and acquisition budget for the 1982 fiscal year from the $6.6 billion proposed by Jimmy Carter to $10.3 billion. Vice Admiral Robert L. Walters, the deputy chief of naval operations, and other top admirals told Congress that the Navy intends to build itself up from the current 461 ships to 600 over the next five years, adding submarines, aircraft carriers, frigates and Aegis missile cruisers to the fleet and developing a new class of destroyer.
That program would require the construction of about 30 Navy ships a year, up from the average of 16 in recent years. But Secretary of Defense Caspar Weinberger has not yet endorsed the full program, and it may well be scaled back in the current review of projected federal budget deficits.
"Our five-year program is not yet a fact," George A. Sawyer, assistant secretary of the Navy for shipbuilding, said in an interview. "It has to be approved by the secretary of Defense and the president," and then submitted to Congress. "The Navy Department has signed off on a program that roughly approximates a 600-ship Navy, but what's important is the mix to make an effective Navy. We are talking about a greater number and also a higher mix of more complex and more expensive vessels."
Not even immediate approval of the entire program would keep all the shipyards supplied with work. Edwin M. Hood, president of the Shipbuilders Council of America, has calculated that it would occupy 15 of the 24 shipyards capable of building ocean-going vessels. "Additional commercial ship-construction work will clearly be required" to sustain the other nine, he said, but he did not suggest where that work might come from.
One possible answer, not surprisingly, is the Navy, which may require an expanded fleet of privately owned commercial ships to operate supply lines for the military vessels. Sawyer said the Navy is considering long-term charters of privately owned ships manned by union crews for some of its logistical needs.
Maritime unions and the merchant marine industry have long sought such arrangements, but the Navy has resisted them on the grounds that its ships and supply vessels, and their crews, must be under military control.
Frank Drozak, president of the Seafarers International Union, has promised that his union would give a no-strike pledge and accept any level of manning dictated by the Navy on cargo ships sailing under Navy contract.
Sawyer said the Navy envisions a multitiered support fleet. The "high end," engaged in direct support of combat vessels, would be Navy-owned ships with military crews. A second level would consist, as it does now, of cargo ships and tankers owned by the Military Sealift Command and crewed by Navy Department civilians. The "low end," supply ships hauling cargo on fixed schedules, might consist of chartered private vessels with civilian crews.
"We plan, to the maximum extent possible, to rely on the industry," he said. "We can be helpful to the industry without underwriting the entire merchant marine." He said the Navy recognizes that commercial maritime operators and unions know "how to convert ships to our needs and get them manned" and foresees an auxiliary force "procured to the maximum extent possible through the maritime industry."
That could mean lucrative contracts for conversion and modification of existing vessels, even in shipyards cut out of the new construction business.
The biggest uncertainty hanging over the naval expansion program, aside from the amount of funding, is whether the shipyards and their suppliers are fully capable of responding to the demand. Shipbuilding executives and other maritime experts have warned that as the workload in the yards declined over the past decade, the network of suppliers of key parts -- pipes, forgings, tubes, instruments, propulsion equipment -- dwindled with it.
That concern affects not only the Navy, but the entire defense system. Last December, a special panel of the House Armed Services Committee reported that "the general condition of the defense industrial base has deteriorated and is in danger of further deterioration in the coming years."
The panel, headed by former representative Richard Ichord (D-Mo.), said the nation's "industrial base is not capable of surging production rates in a timely fashion to meet the increased demands that could be brought on by a national emergency."
Short of an emergency, however, shipbuilding executives say they can provide whatever the Navy orders.
"I think very definitely the yards could do far more than what the Navy is talking about," said Edward Campbell, president of Newport News Shipbuilding, the largest private employer in Virginia, with 24,000 workers and a yard capable of building any kind of ship in the fleet. "Without any kind of stretching, I believe 14 yards are capable of doing the 600-ship Navy. Going to 650 or 700 would take seven more, and the capacity is there. Especially when you consider the great decline in commercial work, the capacity is there."
John T. Kilbride, chairman of Todd Shipyards, said the yards can meet the Navy demand as long as they have continuous work over the next few years. Since it takes about three years from the time the Navy receives the appropriation for a ship to the time work actually starts, he said, there is a danger that skilled workers could drift away into other occupations in the interim.
"It will require a mammoth effort on the part of the U.S. shipbuilding industry to train the work forces and upgrade the facilities required to build this volume of ships within the time prescribed," he told Todd stockholders, but Todd would make the effort to compete for its share of orders, whose value he said could reach $120 billion in 1982 dollars.
Navy Secretary Lehman has bluntly warned the yards that the Navy's need for ships does not give them carte blanche to charge what the market will bear.
In a recent speech at the National Press Club -- in which he referred to the United States as an "island nation dependent upon the seas" -- Lehman praised Bath Iron Works, Lockheed Shipbuilding of Seattle and Litton Shipyards of Pascagoula, Miss., for delivering ships under budget and ahead of schedule.
But he blasted other defense contractors -- especially the Electric Boat division of General Dynamics Corp., sole builder of Trident nuclear submarines -- and said that in a new era of "accountability" they will have to accept new contracts that commit them to absorb half of any cost overruns.
The model, he said, will be the $675 million contract for three nuclear attack submarines awarded earlier this month to Newport News Shipbuilding -- a contract Lehman negotiated with Newport News after he excluded Electric Boat from bidding to punish that firm for its alleged past mismanagement.
The "new type" of contract, Lehman said, "sets a negotiated target price, based on close evaluation and projection of costs and past performance, and then sets a 30 percent margin to allow for the market business and design uncertainties inherent in a five-year period of construction. If costs exceed the target price, the contractor must bear 50 percent of the cost overrun up to the ceiling price, which is 30 percent above the target price. Beyond that ceiling price, he must bear all costs."
He said "the so-called McNamara revolution" of centralized defense management installed in the 1960s by former secretary of defense Robert S. McNamara "has been responsible for more inefficiencies, particularly in procurement and contract management, than any other single factor. That era is over."
To reinforce his comments, he renewed his threat to resume the construction of submarines in one of the Navy-owned shipyards, which since 1968 have been used only for overhauls and refittings, not for new construction.
That proposal, strongly supported by Adm. Hyman Rickover, the czar of the nuclear Navy, has sent alarm bells ringing throughout the maritime industry, but the Navy is a long way from being able to carry it out.
It is "eminently feasible technically," said Sawyer, "but whether it's possible politically, or desirable, is another question."
Campbell of Newport News Shipbuilding said, "We would do everything in our power to fight" the reopening of a naval yard for new construction. The other yards and the unions would presumably take the same position, making it doubtful that Congress would appropriate the necessary funds, of which estimates run as high as $350 million.
Thomas W. Schaaf, a retired Navy officer who was maritime adviser to the Reagan-Bush campaign, wrote recently that "to build 30 Navy ships a year, Navy yards may have to be used." But, he said, when Budget Director David Stockman "sees the cost of using government shipyards, all his hair will turn gray."