Keeping up with the Joneses

Times are changing. For the American shipbuilding industry the 1980s were rough. Despite the Cold War defence spending of the Reagan years, many famous names went to the wall. But for those that survived the US shipping industry is now in a replacement phase so pickings are currently good for productive and efficient shipyards. And, turning conventional wisdom at least somewhat on its head, the US industry is showing that experience gathered building military ships can feed through into civilian jobs, and vice versa.

National Steel and Shipbuilding Company (Nassco), operating in the sunshine of California?s self-called finest city, San Diego, is a prime example. Once on the verge of bankruptcy, Nassco today is buzzing with enough work in hand to secure the future of the shipyard for the next decade.

“We now have the largest backlog in our history. Nine ships are under contract, three of those are government and six are commercial,” says Steve Clarey, business development and corporate relations manager at Nassco.

Says Clarey: “Our industry since the 1970s and 80s has continued to consolidate in the USA. There are only six major shipbuilding companies left and only three of those are engaged in commercial work, only two actively. All of us participate in the military market as well as the commercial market because neither is sufficient to sustain our business.

“We build only for the US domestic market, and because of our dual product area we?re unique in that our same workforce, our same management team build for the US government and commercial customers.”

To keep prices competitive, Nassco has concentrated on ways of satisfying all its customers with a limited range of ship types. “We operate at the low end of the military market, auxiliaries and support ships,” he says. “In the commercial sector we build container ships and rebuild traders, we?ve built ferries, but we don?t service the offshore industry. For the US Navy, unsurprisingly, we build similar ships ? commercial roro ships for the Navy.”

Nassco, he explains, is proud of its ability to adapt one process from commercial to naval vessels and vice versa. “What sets us apart is this cross pollination that occurs because we use the same facilities and the same workers for both customers.”

This policy also extends to sourcing materials. “We go offshore to the leading international marine suppliers for all the material and technology and then we bring that same world class commercial technology to our Navy programme. We also bring Navy-funded research projects to our commercial shipbuilding.

“For example, we?re embarked in this country on adapting some of the things from the aerospace industry about lean design, designing work concepts using integrated product development and 3D product models. A lot of that work was developed in the US to support the military. We bring that technical capability and processes to our commercial product. It makes them more affordable. Because we do both of them it makes us fairly efficient because our commercial customers won?t come to us unless they can get a ship on schedule and on time and at a price and our military ships benefit from the same process.”

San Diego is without a doubt a Navy town, and being surrounded by one of the US Navy?s primary bases has meant that Nassco has picked up a great deal of fleet repair and refit work. “We?re a $550 million a year company and about 20% comes from the US Navy repair and maintenance contracts. We?re in the centre of the largest naval complex in the US, and the Navy relies on us to provide a lot of their routine maintenance. Almost all the heavy industrial work in San Diego for the ships, whether they be aircraft carriers or other surface ships, is done by private industry. There are three companies principally and a fourth smaller one that provide the bulk of that work.”

But, remarkably, Clarey describes Nassco as principally a newbuilding company, even though it builds just two or three ships a year while yards in Asia may build 10 times that many or more. This pressure, while felt, is not seen as a threat by the management at Nassco. “We don?t feel pressure because we?re purely not competitive in the international market place. The reason is that we don?t build enough ships to be productive. Our wages are lower than many of the major shipbuilding nations in the world. They?re lower than Japan, Korea and Italy but because they produce 30 or 40 ships a year they?re much more efficient.

“Technically our ships are as good as theirs and we draw on exactly the same supplies and marine concepts and systems. We build to international standards. And, we have to constantly benchmark ourselves against their processes and costs and that?s a great benefit to us. It always tells us how much better we can become in order to be more efficient but again we don?t feel the pressure because we don?t compete. In fact, our US and international market areas are a little out of sequence. The US domestic market is actually quite busy because we?re in a replacement period. Jones Act dry cargo vessel operators who had ships built in the 1970s and 1980s are replacing those vessels.”

Clarey describes the yard as having “re-engineered” itself: “In the early 1990s we looked at the market and realised that if we were going to stay in business we had to improve our competitiveness, our position in our industry and in our productivity to make ships more affordable. We set very specific goals in the mid 1990s for where we wanted to be in the 2000s. Specific goals in reducing our costs, reducing the production man hours in every ship we build and the material costs and work content of our ships. In many cases we exceeded the goals we set and in the year 2000 we re-set the benchmark for the year 2005 with new goals for reducing our costs and improving our productivity. So we?re on that journey, it?s very exciting and it?s one of the reasons why we have the largest backlog of orders in our history.

“People now realise that we are the most efficient yard in the US. Every ship of the eight (US Navy order) has been delivered ahead of schedule, under budget and with an ever increasing quality. The last five ships have been delivered within two weeks of their trials and with zero deficiencies. An almost unheard of accomplishment.”

Parent company General Dynamics has introduced a three-year facilities upgrade program amounting to almost $85 million over three years. “The thrust has been to increase our steel capacity by 50% and if we can improve our steel capacity and throughput we?ll build more ships, become more profitable, lower overhead costs and you spread them over more ships and they become more affordable,” says Clarey.

The most visible evidence is two 300t heavy lift cranes. They will allow Nassco to erect blocks to a maximum of 700-800t lift. Nassco has also invested millions of dollars in a new block assembly line that will make the double skin blocks for BP?s new crude oil carrier for Alaska to West Coast trade. Clarey is confident that these changes will see productivity improve as a result of being able to do larger and larger steel modules: “They have less fit up time, less welding and we do that in much less time.”

Nassco, when bought by General Dynamics became part of a much larger three shipyard operation, each yard specialising in certain types of ship construction. Each does, however, contribute towards the success of the other two. “One reason why General Dynamics is a good parent to Nassco is because they give us access to technology principally because we operate in different sectors of the market ? Electric Boat in submarines, Bath Iron Works in surface combatants and ourselves in auxiliaries and commercial. We don?t share a lot of common product but what we do share is technology of design and we do bring the companies together for common purchasing of non-spec materials, such as pipes, steel and cables to bring the costs down. We meet regularly with our counterparts to exchange ideas of production processes.”

Looking outside the company has become part of Nassco culture, he says: “Because we build so few commercial ships in America, every time we have undertaken a commercial shipbuilding project we?ve gone to international leaders in that particular product area for technical assistance or technology transfer.” Partners have included IHI and Kawasaki Heavy Industries in Japan and Odense in Denmark.

Recently Nassco secured a US Navy contract for the supply of up to 10 Lewis and Clarke supply ships for the US Navy. This contract alone will secure the jobs of the shipyard workers for the next 10 years in San Diego. Says Clarey: “We?re very optimistic about the future and if you combine the market conditions with our own continuing efforts to improve our processes and reduce our man hour content in our ships. We?ll be busy for years to come.”