DO RUSSIA/CHINA NAVAL CHALLENGES = NEW U.S. SHIPBUILDING?
BY STAS MARGARONIS, RBTUS
RUSSIA/CHINA CHALLENGE TO U.S.
Admiral John Richardson, chief of U.S. Naval Operations, has warned that Russia and China are posing growing challenges to the United States Navy from the Black Sea and Mediterranean to the Pacific.
Admiral Richardson told the Financial Times that Russian President Vladimir Putin was trying to propel Russia’s Navy back onto the global stage to “make sure that they’re being part of this whole conversation that’s emerging, that they’re seen as …serious players”, and that the phenomenon was “not a short-term thing.”
Admiral Richardson told the newspaper: “Their submarine force and their Navy are as active as they have been in a long time, 20 years or so,” and asked, “How are we going to posture our forces to make sure that we maintain the appropriate balance and are suitably engaged?”
U.S. officials are particularly alarmed by signs that Russian submarines are monitoring critical telecommunications cables on the Atlantic seabed, a development, Richardson said, that is “very concerning”.
Richardson told the newspaper: “It’s very hard to reconstitute that type of traffic in any other channel,” and added: “That would be a threat against the other global system, the information system… which is linked to prosperity, linked to security.”
The admiral said the “ambiguous motivations” of Russia and China raised fears about the health of a global system that ensures freedom of navigation and unfettered trade. “It again perturbs that global system,” he said. “The current model is equal access for all ….Has that been threatened?”
Richardson said the U.S. Navy was evaluating whether to boost its presence in Europe and the Pacific. “That’s the conversation we’re having right now,” he said.
The Russian activity comes as the U.S. conducts new operations in the South China Sea to counter Chinese behavior that many nations believe threatens freedom of navigation in waters that carry 30 per cent of global trade.
Admiral Mark Ferguson, commander of U.S. Naval Forces Europe and commander of the Allied Joint Force Command, has warned that Russia is building an “arc of steel” to challenge the United States and its NATO allies:
“Their Arctic bases and their $2.4 billion investment in the Black Sea fleet expansion by 2020 demonstrates their commitment to develop their military infrastructure on the flanks.”
Ferguson told Defense News that there has been a dramatic rise in new Russian submarine capabilities:
“They are also expanding the reach of assets to project power from this arc, specifically the proficiency and operational tempo of the Russian submarine force is increasing. According to Russian Navy Chief Admiral [Viktor] Chirkov, the intensity of Russian submarine patrols has risen by almost 50 percent over the last year. Russia has increased their operational tempo with this force to levels not seen in over a decade.”
Meanwhile there is also growing concern about China. In May 2015, the U.S. Naval War College held a conference evaluating the threat posed by China’s Peoples’ Liberation Army Navy (PLAN).
Defense News noted: “There was general agreement at the conference that the PLAN fleet now being created is heavily centered on anti-surface warfare, as evidenced by the construction of a growing number of destroyers, frigates and submarines armed with a wide variety of ship-killing missiles, many with ranges far in excess of similar missiles in service with the U.S. Navy.”
James Fanell, a retired U.S. Navy captain and former U.S. Navy Pacific Fleet director of intelligence told Defense News that “China is increasing shipbuilding capacity, along with continued improvements in modular construction, the use of robotics and virtual 3D manufacturing, along with the Navy’s growing preference for indigenous designs of improving quality.”
At the same time, China is on the way to becoming one of the leading shipbuilders in the world and is challenging Korea, the most advanced shipbuilder. The question is how quickly can China’s commercial capability be transferred to naval shipbuilding?
NEED FOR NEW U.S. SHIPBUILDING
The most cost-efficient answer that minimizes the expenditure of taxpayer dollars is for the United States to follow a similar pattern to China and build up its commercial shipbuilding. This may be the long-term answer to meeting the challenge from Russia and China.
Unfortunately, the U.S. shipbuilding capacity for naval and commercial ships suffers from a lack of investment, outdated shipyards and outdated shipbuilding methods. New global best practices established in Korea, China, Japan and elsewhere are not sufficiently incorporated into U.S. shipbuilding. The result is construction costs for new U.S. ships are very high compared to other shipbuilding countries. U.S. labor costs are not the cause, the lack of productivity is. Historically, the lack of productivity is partly based on cost-plus assumptions in which governmental agencies, including the U.S. Navy, accept high shipbuilding costs as the price of doing business.
Cost-plus government contracts first came into use in the United States during the World Wars to encourage wartime production by large American companies. They also supported research and development for defense contractors such as Hewlett-Packard. However, the system has also discouraged defense contractors from being efficient by passing on rather than reducing man-hours and production costs. In far too many cases, the cost-plus environment laid the foundation for contractors to pass on inefficient production costs to the taxpayer.
In the case of Navy shipbuilding, the situation has led to some cases of massive cost overruns and waste, such as the current controversy over the construction of three DDG 1000 destroyers being built at the General Dynamics Bath Iron Works shipyard in Maine.
In a November, 2015 story entitled “General Dynamics Can’t Be Trusted on Destroyer Data, Agency Says”, Bloomberg reported: ”The estimated procurement cost for all three vessels, not including development, has increased by 37 percent since 2009 to $12.3 billion, according to the Congressional Research Service.”
Bloomberg explained: “The Defense Contract Management Agency wrote in an assessment that it ‘has no confidence in’ the data because the unit, Bath Iron Works, hasn’t shown that it’s remedied 56 serious deficiencies the agency first cited in 2011. The flaws were in the shipbuilder’s ‘earned value management system,’ which tracks how effectively milestones for the destroyers are being met.” 
A big problem for U.S. shipbuilders of large vessels is a lack of investment in new commercial ships by U.S. carriers operating domestically between U.S. ports where ships must be built in the United States as per the Jones Act. The lack of replacement of old U.S. ships, such as the El Faro which recently sank in a hurricane off the Bahamas, reflects limited investment practices by U.S carriers. U.S. builders of tugs, barges, oil field support vessels and platforms are much more productive because there is more competition and therefore more cost efficiency. Otherwise, the lack of investment in new shipyards, global best practices and cost-plus tolerance in government contracts provides ammunition for critics, such as Senator John McCain. McCain says high U.S. shipbuilding costs hurt shippers and consumers and proposes to eliminate provisions that protect U.S. shipbuilders under the Jones Act. McCain’s proposal would open up the U.S. market to foreign shipbuilders who promise to enhance competition and lower costs.
MARAD URGES MODERNIZATION
Paul Jaenichen, Administrator of the U.S. Maritime Administration (MARAD), has been warning that the United States is facing a growing national security threat because of a shortfall in new ships to carry military cargoes in a war time emergency. For example, he noted that the U.S. flag privately owned fleet has declined from 352 ships in 1991 to 179 ships in 2011. This means that the United States might not be able to transport war material if they must rely on foreign carriers and the governments of those carriers object to U.S. actions.
Speaking to the Northern California Propeller Club in Oakland, California on October 21st, Jaenichen noted that the United States has not built a new shipyard since the Aker Philadelphia Shipyard nearly twenty years ago.
He said that new shipbuilding and new methods are needed to support U.S. Navy and military sealift ships with U.S.-owned and U.S.-built ships.
During his Propeller Club speech, Jaenichen showed the picture of a U.S. shipyard worker welding a ship’s block section with his hands stretched above his head. Jaenichen noted that modern methods always position block sections so that welders can weld downwards for better efficiency and less fatigue. Many U.S. shipyards incorporate such methods but more need to, he said.
A new MARAD report describes the importance of U.S. shipbuilding: “In 2013, the U.S. private shipbuilding and repairing industry directly provided 110,390 jobs, $9.2 billion in labor income, and $10.7 billion in gross domestic product, or GDP, to the national economy. Including direct, indirect, and induced impacts, on a nationwide basis, total economic activity associated with the industry reached 399,420 jobs, $25.1 billion of labor income, and $37.3 billion in GDP in 2013.”
The MARAD report describes the relationship between commercial and military shipbuilding: “The Federal government, including the U.S. Navy, U.S. Army, and U.S. Coast Guard, is an important source of demand for U.S. shipbuilders. While just one percent of the vessels delivered in 2014 (11 of 1,067) were delivered to U.S. government agencies, 10 of the 12 large deep-draft vessels delivered were delivered to the U.S. government: five to the U.S. Navy, four to the U.S. Coast Guard, and one to the National Science Foundation.“
JONES ACT KEY TO NATIONAL SECURITY?
Jaenichen noted that the Jones Act, the Merchant Marine Act of 1920, was enacted to support U.S shipbuilding requirements that would allow the United States to transport goods in coastal waters by ships built in the United States, manned by U.S. crews and owned by U.S. citizens.
The protectionism afforded by the Jones Act also supports a commercial shipbuilding industry intended to provide shipbuilding technology and skill transfers for the construction of vessels for the U.S. Navy and other branches of the armed forces that require modern sea-going vessels.
This is the argument of American vessel operators and builders represented by the Washington, D.C.-based American Maritime Partnership:
“The Jones Act is critical to the military strategy of the United States, which relies on the use of U.S. flag ships and crews and the availability of a shipyard industrial base to support national defense needs.
The domestic American maritime industry strengthens U.S. national security at zero cost to the federal government. The domestic maritime fleet provides capacity and manpower that the armed forces can draw upon to support U.S. military operations. American ships, crews to man them, ship construction and repair yards, intermodal equipment, terminals, cargo tracking systems, and other infrastructure are available to the U.S. military at a moment’s notice in times of war, national emergency, or even in peacetime.”
On the other hand, Senator John McCain (R-Arizona) has sought to repeal the Jones Act and allow foreign builders to compete with U.S. builders because of the high cost of U.S. shipbuilding.
In a January, 2015 speech proposing Jones Act repeal in the United States Senate, McCain said: “This is an amendment to modify the Jones Act, an archaic 1920s-era law that hinders free trade, stifles the economy and hurts consumers – largely for the benefit of labor unions. Specifically, my amendment would effectively repeal a law that prevents U.S. shippers from purchasing, or otherwise affordably procuring the services of, vessels built outside the United States for use in American waters.”
McCain cited the example of Matson Navigation which transports goods from California to Hawaii:
“Just recently, U.S. container-line Matson placed a $418 million order for two 3,600 twenty-foot equivalent unit (T.E.U.) containerships in a U.S. shipyard. The high price of $209 million per vessel reflects that the ships will be carrying goods within the U.S. and, therefore, governed by the protectionist Jones Act.
The fact is that Matson’s order at $209 million per ship is more than five times more expensive than those same ships that were procured outside the United States. Ships of that size built outside the U.S. would cost closer to $40 million each. For comparison, even Maersk Line’s far larger 18,270 T.E.U. ships cost millions less, at an average of $185 million apiece.
Further, the U.S. Maritime Administration (MARAD) has found that the cost to operate U.S. flag vessels – at $22,000 per day – is about 2.7 times higher than foreign-flag vessels – just $6,000 per day. A significant factor in these increased costs is obviously the Jones Act.”
 “The Economic Importance of the U.S. Shipbuilding and Repairing Industry” U.S. Maritime Administration (MARAD) November, 2015 http://www.marad.dot.gov/wp-content/uploads/pdf/MARAD_Econ_Study_Final_Report_2015.pdf