Looking beyond the blowout

America needs oil. So whatever the short-term impact of the Deepwater Horizon blowout, offshore drilling will continue, most likely with regulatory changes as sweeping as those brought about by OPA 90 after Exxon Valdez.

Delivered by Aker Philadelphia Shipyard and converted to a shuttle tanker by Detyens Shipyards in Charleston, S.C., Overseas Cascade (above) was brought in by BP after the Gulf blowout as tanker support for vessels taking oil from the scene. (Photo courtesy Aker Philadelphia Shipyard)

Builders of rigs and support vessels stand to benefit from tighter controls, particularly if build-American provisions are extended to deepwater drilling. “If you don’t want to pop a hole in a pipeline, build it to the highest standards,” said Matt Paxton, president of the Shipbuilders Council of America.

But the question for shipyards is how quickly these regulations will take effect and how to survive in the meantime. No one likes to build when the rules are up in the air, so the most likely scenario for the next 18 months is a dearth of orders while the regulators, the industry, the politicians and the inevitable army of consultants try to figure out what the new standards should be.

Above, Ross Candies, Otto Candies’ new 309-foot IMR, went into service just a month after the Deepwater Horizon blowout. The vessel, is American Ship Review’s Ship of the Year. (Brian Gauvin photo)

This year has already seen companies such as SkipperLiner forced to shutter their doors. Yards from Aker Philadelphia to Burger Boat Co. have announced layoffs, and Northrop Grumman’s Avondale, La., yard faces an uncertain future. In the near term, it’s hard to see this trend being reversed.

If there’s a bright spot, it’s in the continuing evolution of Navy shipbuilding toward vessels that mid-tier yards as well as large yards can build, a trend recognized this summer by Rear Adm. Bill Landay, then in charge of surface ship programs.

USNS Charles Drew, the 10th vessel in Nassco’s T-AKE class of underway replenishment vessels, clears Point Loma at the entrance to San Diego Bay during sea trials. (Photo courtesy General Dynamics Nassco)

“By the end of fiscal year 2015, two-thirds of the ships • will be able to be built in either a Tier-I or Tier-II yard,” Landay said in a speech reported by InsideDefense.com.

Some examples: By the end of the year, the Navy is expected to pick a design for the next 10 Littoral Combat Ships (LCS). And Austal USA has already laid the keel for the first Joint High Speed Vessel, part of an initial 10-ship program for the Army and the Navy that the yard says could be worth more than $1.6 billion.

Throw in U.S. Coast Guard work — Bollinger Shipyards expects to deliver the first of a long line of 154-foot Sentinel-class Fast Response Cutters next fall, and an award is expected next year for Offshore Patrol Cutters — and in a market where new commercial contracts are virtually non-existent, government work, for all its red tape, is looking good.

Taking the U.S. Navy into the future: Austal’s first littoral combat ship, USS Independence, on commissioning day in Mobile, Ala. (Photo courtesy U.S. Navy)

Even Foreign Military Sales work is strong right now (table, Page 6). One company, Westport Shipyard in Washington state, has developed two vessels on spec with an eye to this market, a 141-foot cutter and a 50-foot patrol boat. The big prize in this area is VT Halter Marine’s $807 million contract for four fast missile craft for the Egyptian Navy, but on a cautionary note, Halter had been chasing this deal for more than a decade before it started construction in April.

USS New Mexico, the 6th Virginia-class submarine, delivered four months ahead of schedule by Northrop Grumman’s yard in Newport News, Va. (Photo courtesy Northrop Grumman Shipbuilding)

The largest commercial vessels currently under construction are the last few double-hulled Jones Act product carriers being built as a result of OPA 90. The fate of the three unfinished 49,000-dwt carriers ordered by Shell from what was then Atlantic Marine is uncertain; a New Jersey shipbroker is looking for customers. General Dynamics Nassco is about to deliver its last product carrier in a series of five, and Aker is struggling to survive, with just two vessels still under construction out of 12 ordered for Overseas Shipholding Group. “Aker Philadelphia Shipyard has been unable to secure any new orders,” the company told its shareholders in August.

When Evergreen State sails away from Nassco, the nation’s Tier-I yards will be left with no commercial newbuilds. Some can turn to repair work, of course, but otherwise their future lies at the mercy of the Navy at a time when Defense Secretary Robert Gates plans to cut the defense budget, projected to top $700 billion next year.

Austal’s new modular manufacturing facility will allow it to build three 300-foot-plus vessels a year. (Photo courtesy Austal USA)

Among these yards, Nassco will benefit immediately from a $115 million award to design and buy long-lead items for the first of three vessels in the Navy’s new Mobile Landing Platform program, which will create offshore transfer points for offloading supply ships — a key concern in areas where port facilities are stretched or nonexistent (the Haitian relief operation would have been a perfect example).

The Navy expects the first ship to be delivered in fiscal 2013. The design is based on the Alaska-class tankers that Nassco built for BP, and the work is a welcome boost for the yard. Despite a contract for T-AKE at-sea replenishment vessels for the Military Sealift Command that still has four ships to go, the San Diego shipbuilder shed 290 jobs in July.

John Knight, a crane rigger, signs his name to a banner before the keel laying for the aircraft carrier USS Gerald R. Ford at Newport News. (Photo courtesy Northrop Grumman Shipbuilding)

Nassco is also one of 10 yards identified by the Coast Guard as showing interest in building Offshore Patrol Cutters. The list includes two more Big Six yards, Bath Iron Works and Northrop Grumman’s facility in Pascagoula, Miss.

But the future of Northrop’s whole shipbuilding division is in doubt as the parent corporation redefines its objectives. The company says shipbuilding “lacks synergy” with the other parts of its business; speaking at an industrial conference at the end of August, Northrop’s new CEO, Wes Bush, explained that in the last four or five years the Navy’s practice has been to acquire ship hulls separately from the weapons systems, the electronic systems and the information systems, making it impossible for the company to sell a complete package.

With about 5,000 workers, Avondale is the most visible shipyard casualty so far in the current economic recession, although the state of Louisiana is trying to find a buyer; Northrop’s Pascagoula yard is also laying off workers. It is uncertain whether Northrop will keep its yards, sell them or spin them off; one logical move would be for BAE Systems, which completed its $352 million acquisition of Atlantic Marine’s yards in Florida, Mississippi and Alabama in July, to bid for Pascagoula.

Because BAE is foreign-owned, such an acquisition would raise eyebrows, particularly regarding Navy work. It would be another step in the increasing globalization of the U.S. shipbuilding industry, which has seen recent incursions from multinationals based in Singapore (VT Systems), Norway (Aker), Australia (Austal) and Italy (Fincantieri).

Burrard Pacific Breeze (left), the new Vancouver SeaBus from Victoria Shipyards, went into service in Vancouver Harbor in time for the Winter Olympics. (Alan Haig-Brown Photo)

Paxton, of the Shipbuilders Council, thinks such investment is inevitable — especially since U.S. companies such as Raytheon have invested heavily overseas. “I see it as healthy in terms of the global economy,” he said. “It’s an economic driver.”

The Tier-I yards that build large combatants — Northrop and its main competitor, General Dynamics, which owns Bath Iron Works and Electric Boat as well as Nassco — may come under increasing pressure as the Pentagon looks to save money. “Fiscal 2011 is a stable year, fiscal 2012 is uncertain,” said Cynthia Brown, president of the American Shipbuilding Association.

One bright spot is the decision to restart the Arleigh Burke-class destroyer program at Bath Iron Works, with nine ships expected in the latest series. It’s worth remembering that behind every shipyard contract is a vast network of suppliers: GM just announced an order for LM2500 gas turbines for the first three of these ships.

A series of Navy contracts also offer hope for Tier-I and Tier-II shipyards beyond aircraft carriers and submarines, which can only be built in a couple of locations. The Navy is advancing plans to replace its single-hulled fleet oilers, and Nassco and Aker both have suitable commercial tanker designs. Further out are sub tenders, tugs, salvage ships and surveillance vessels.

A number of minor contracts have been awarded recently, such as $1.5 million each to Marinette Marine and Dakota Creek Industries for design work on oceanographic research ships. Boats under 150 feet, in fact, are keeping several smaller yards busy. Marine Group Boat Works in Chula Vista, Calif., for example, delivered the first of three 114-foot range training support craft this summer, part of a $30 million contract.

Marinette in Wisconsin and Kvichak Marine Industries in Seattle added more orders for 45-foot response boats for the Coast Guard, a program that is occupying an entire Kvichak facility in Kent, Wash.

Marinette also contracted to build a 250-foot research vessel for the University of Alaska for $123 million. The yard has a healthy order book should the Navy award the LCS contract elsewhere; it benefited from a $73.6 million contract thanks to a decision by the National Oceanic and Atmospheric Administration (NOAA) to switch its latest Oscar Dyson-class fisheries survey vessel away from Halter, which ran into problems this year with a 127-foot SWATH vessel that NOAA complained was late and overweight.

Halter does have several large barge contracts and is completing work on the 534-foot missile range instrumentation ship Howard O. Lorenzen.

The Maritime Administration (MarAd) again came through with a number of small shipyard grants in 2010, a program enthusiastically supported by the Shipbuilders Council. “The value of the program is the way it was structured,” said the SCA’s Paxton. “It isn’t just about expansion; the grant has to increase the efficiency and capabilities of a yard.” A 2008 MarAd grant helped Colonna’s Shipyard in Norfolk, Va., install a 1,000-metric-ton Marine Travelift this year with the world’s largest mobile hoist.

As for other commercial opportunities, some perennial questions remain. Every year the U.S.-flag Jones Act container fleet gets older and older; every year there’s talk of recapitalizing it, but the money isn’t there. The Obama administration supports two priorities of interest to shipbuilders, making the Marine Highway System a reality (Aker, for one, is eager to build new feeder ships for it) and increasing the amount of energy generated by wind power.

Transportation Secretary Ray LaHood did agree in August to add $7 million to the marine highways program, but it is a long way from generating orders.

And yards would love to build support vessels for offshore wind turbines. While the U.S. market has not yet developed, companies such as Semco are turning out monster lift boats that are working for wind farms overseas.

Beyond that, yards from Seattle to Florida report little interest in new commercial work, and the ripple effect is spreading to suppliers; hit by both the economic slowdown and the Deepwater Horizon blowout, Delta Steel in Houma, La., which supplied shipyards and local fabrication shops, closed its doors in July.

And Peter Duclos, who has steered Gladding-Hearn Shipbuilding in Somerset, Mass., through ups and downs by knowing his market and sticking to what his yard does best — pilot boats, ferries, government contracts and the occasional tugboat — sounds a cautionary note about not getting carried away by buyers who are just kicking the tires.

“I did see a few projects come along that quite frankly really stink,” he said. “If the contract’s lousy and there’s a lot issues with it, I don’t need that. I can’t afford to have a bad one.”

North of the border

Canada’s navy turned 100 this year. Its ships aren’t quite that old, but at 38 the destroyer HMCS Iroquois will soon be the oldest frontline warship in the western world. “We need to cut steel on new ships,” Gen. Walter Natynczyk, Canada’s chief of defense staff, declared in June.

The occasion was the announcement of a 30-year, C$35 billion shipbuilding strategy under which Canada plans to sign agreements with two yards within the next two years to build dozens of vessels for the navy and coast guard. Irving Shipbuilding in Halifax, N.S. is building nine 141-foot coast guard patrol vessels for delivery through 2013, but contracts for combatants, supply ships and arctic patrol vessels remain to be awarded.

The supply ship project, expected to produce two or three ships similar to the U.S. Navy’s T-AKE-class vessels, is a particular plum.

Among Canada’s larger yards, Irving is also building an offshore supply vessel for Atlantic Towing. On the West Coast, Washington Marine Group formed a partnership with Thales Canada to go after the arctic patrol vessels; and a subsidiary, Victoria Shipyards, sent the first of five 47-foot motor lifeboats for the coast guard to sea trials this summer. In Quebec, Davie Yards was looking for yet another savior to rescue it from bankruptcy.

As for smaller yards, ABCO Industries of Lunenburg, N.S., delivered the second of two 61-foot research vessels to the coast guard. CCGS Viola M. Davidson is powered by twin Volvo D-12s with a bow thruster assist.

And with a steady stream of designs from Robert Allan Ltd. in Vancouver, B.C., Canada remains the go-to supplier of fireboats for U.S. customers. A.F. Theriault & Son in Nova Scotia is building a boat for Massport and Hike Metal Products on Lake Erie for Chicago.

By Professional Mariner Staff