Building a new shipyard from the Ground Up

Kvaerner’s Philadelphia shipyard has come a long way since 1997, when Kvaerner ASA, based in Norway, decided to build a modern commercial shipyard on the site of the former Philadelphia Naval Shipyard.

Manulani, the third of the containerships the yard has built for Matson Navigation, was delivered in May 2005.
   Image Credit: Courtesy Aker Philadelphia Shipyard Inc.

The goal was simple but risky: Build ships for the U.S.-flag Jones Act market and focus on containerships and tankers.

Taking those risks has paid off, as the yard has developed into one of the busiest commercial yards in the United States.

Aker Philadelphia Shipyard Inc. opened officially in June 2001, as Kvaerner Philadelphia Shipyard Inc. Today the yard is fully booked into 2010, with a $1 billion order for 10 double-hull tankers. In addition, APSI has delivered three containerships to Matson Navigation Co. and has one more to complete for Matson. The prospects for doing more business with Matson are good. The West Coast container carrier has the right of first refusal for up to four additional containerships for delivery before June 2010.

“In this business you are only as good as the next ship you build, so we strive for continuous improvement in every area from productivity to profitability,” said David Meehan, president and chief executive of APSI.

The company’s success rests on a two-part strategy: First, keep prices under control and try to reduce the cost of shipbuilding in the United States; second, create a state-of-the-art shipyard with well trained employees.

To implement the plans, Kvaerner redeveloped 114 acres of the former Navy shipyard with new construction halls and the kinds of cranes, equipment, and technology the company used at its European shipyards. Putting the shipyard deal together involved a creative but complex public-private financial partnership involving Kvaerner ASA, the city of Philadelphia, the state of Pennsylvania and the Delaware River Port Authority. The U.S. Maritime Administration’s Title XI loan guarantee program also played an important role with loan guarantees for construction of the first Philadelphia-class CV2600 containerships Matson ended up buying.

The actual shipyard reconstruction began in August 1998. The new facilities include approximately 35 million cubic feet of modern workshops for indoor fabrication and assembly. The two fully equipped paint shops for surface preparation and coating total 3 million cubic feet. The grand block shop is designed for the assembly of 600-ton units. The shop cranes have lifting capacities of 220 tons, and the gantry crane serving the graving dock and adjacent areas has a lifting capacity of 660 tons. The graving dock is 1,100 feet long by 300 feet wide and can be divided into two parts by an intermediate gate. A protected outfitting basin is near the graving dock. That phase of the shipyard construction was completed in November 2000. APSI’s official opening was on June 20, 2001.

Staffing the shipyard was a priority for APSI and the public entities in the partnership. The agreement was for APSI to hire between 800 and 900 workers, train them in shipyard skills and ensure work for several years by building up to four ships, even though no buyer had been identified for them. APSI’s training teams included experienced former shipyard personnel (the company rehired and retrained 140 former Philadelphia Naval Shipyard workers), instructors from local community colleges and technical staff from Kvaerner’s European shipyards. In addition, some of the U.S. workers were sent to Europe for training at Kvaerner’s European shipyards.

Bumpy start-up

APSI’s entry into the domestic tanker market almost occurred early in the start-up period. In June 2001, the company received a letter of intent from Keystone Shipping Co. for the construction of four handysize (40,000-dwt) clean-product tankers. The total value of the order at that time was approximately $240 million, but the deal was not completed.

Image Credit: Courtesy Aker Philadelphia Shipyard Inc.

Aerial view of the yard on the site of the former Philadelphia Naval Shipyard. Almost five years after it opened, the yard is fully booked until 2010.

While the shipyard was still under construction, APSI began work on spec ship NB001, the yard’s first Philadelphia-class containership. The keel of the 712-foot-long containership was laid in June 2000. Work on the second spec ship, NB002, began in February 2002. In July 2001, Matson sent out a request for proposals for the construction of two 2,500-TEU (20-foot-equivalent unit) containerships as the first step in modernizing its 11-ship fleet. In May 2002, Matson and APSI signed a contract for the two containerships under construction. The timing of the contract provided APSI the opportunity to make minor equipment changes in NB002 that Matson preferred. NB001, which became Matson’s MV Manukai, was christened on July 12, 2003; NB002, named MV Maunawili, was christened on July 17, 2004.

In late 2002, as NB001 was nearing completion in the building dock and block construction for 002 was underway, Gunnar Skjelbred, then APSI’s president and CEO, congratulated workers for “the considerable progress” they made to date and told them the next “important challenge is to get the productivity for NB002 on the right level.”

Later, as NB002 neared completion, John Graykowski, then an APSI vice president, noted, “We’ve made great improvements in productivity, probably in the neighborhood of 25 to 30 percent from NB001 to NB002. The quality gains were measured by the lack of rework necessary. The progress was remarkable.”

APSI once again took the financial risk and moved ahead on NB003 and NB004, two more Philadelphia-class containerships that were begun on spec. At the time, Graykowski explained the risk of not continuing construction, citing “the simple fact if you stop production, you lose the experience you gained up to that point and your good people.”

The risk was rewarded when Matson, pleased with the first two APSI containerships, contracted to buy two more. “We started NB003 with no owner and great uncertainties as to where she would sail. But what was not uncertain was our commitment to build the finest ship possible, on schedule and on budget,” Meehan said.

APSI’s MT46 product tanker is the current reason for the yard’s order backlog. The 46,000-dwt double-hull ships will be 600 feet long, 105.6 feet wide and have a cargo capacity of 330,000 barrels. The new tankers are expected to help fill a growing demand for U.S.-trade double-hull product tankers to replace single-hull ships being phased out under the deadlines established by the Oil Pollution Act of 1990. The tankers’ design is being provided through an exclusive five-year agreement with Hyundai Mipo Dockyard. The first of the tankers is scheduled for delivery in 2006.

Image Credit: Courtesy Aker Philadelphia Shipyard Inc.

A bottom section from one of the 10 double-hull tankers the yard expects to build. A company controlled by Kvaerner will retain ownership of the completed tankers, which will then be chartered to oil and chemical companies engaged in U.S. coastal shipping.

This time around, Kvaerner is not building on spec. Instead it expects to retain an ownership stake in the tankers through a newly created company in which Kvaerner has a controlling interest. In June 2005, the Kvaerner group in Norway established Aker American Shipping ASA to acquire Kvaerner ASA’s Philadelphia shipyard. When the tankers are completed, the new company will offer the tankers for bareboat charter to major U.S. oil and chemical producers and suppliers.

Funding shipyard expansion and ship construction in the United States remains a major challenge. At the ceremony in 2005 marking the $1 billion program for 10 double-hull Jones Act tankers, Kvaerner ASA noted that the 1993 National Shipbuilding Initiative signed into law by then President Clinton “helped a struggling American maritime industry … and set the stage for the shipyard revitalization.”

The MarAd Title XI loan guarantee program that helped finance APSI’s first ships is now dormant because of a lack of funding by the Bush administration. To build the tankers, Kvaerner ASA is using overseas financing sources. Aker American Shipping ASA’s acquisition of the Philadelphia shipyard and construction of the product tankers will be financed by a private placement of $100 million from institutional and other professional investors. Kvaerner ASA has said it will retain more than a 50 percent interest in the shipyard. The company also said it has received a binding commitment from a Norwegian bank for long-term financing for the first five product tankers.

Kvaerner ASA’s management resolution wavered in 2001 when it seriously planned on shutting down APSI. Under a change of management with a new team headed by Kjell Inge Rokke, the prospects improved dramatically. In June 2005, the company said, “Mr. Rokke, the self-made industrialist, believed from the outset that the Philadelphia yard could aggressively compete in the Jones Act market. He praised the shipyard’s tireless supporters and the dedication and determination of shipyard workers, and the job they are doing to make Kvaerner Philadelphia a more efficient — and profitable — business.” APSI reported its first annual profit for calendar year 2004.

Said Meehan, “Kvaerner Philadelphia has made a successful transition to become a highly efficient Jones Act shipbuilder.”

By Professional Mariner Staff