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New Pentagon Report Points to Problems in the U.S. Shipbuilding Industrial Base

A unit for the future aircraft carrier John F. Kennedy (CVN-79) rests on the assembly platen at Newport News Shipbuilding, Va. US Navy Photo

The U.S. shipbuilding industry has contracted during the past two decades and is indicative of the financial pressures squeezing the entire defense industrial base, according to an unclassified version of a new Pentagon report released on Friday.

Since 2000, the report said the entire defense industrial base lost more than 20,500 U.S.-based manufacturing firms. As these firms closed, the work they once performed was sent overseas, creating a situation where “A surprising level of foreign dependence on competitor nations exists.”

Companies involved in manufacturing shipbuilding components were among the hardest hit by a shifting global marketplace during the past 20 years, the report states. Across the shipbuilding sector, manufacturers and suppliers have left the industry, limiting competition. In some cases, the Navy is forced to rely on a single and sole source supplier for critical components.

“These companies struggle to survive and lack the resources needed to invest in innovative technology,” the report states. “Expanding the number of companies involved in Navy shipbuilding is important to maintaining a healthy industrial base that can fulfill the 355-ship fleet and support the Navy’s long-range shipbuilding plan.”

The Navy currently has only one firm manufacturing and refurbishing shafts used by both surface ships and submarines. Having only one source for shafts hampers the Navy’s ability to both build and refurbish ships. Meanwhile, the report said because only one employer exists, technical schools have stopped training students to operate the type of aged equipment used by the firm.

“If the forge is not modernized, the facility may exit the market, causing disruptions to multiple Navy programs,” the report states.

The total number of shipbuilding workers has also decreased, and the report predicts will continue shrinking. This contraction will become direr because as the number of jobs decreases, fewer new workers will enter fields critical to shipbuilding, such as ship-fitting, welding, and casting.

“While we have not had time to study the administration’s industrial base report in detail, what we have seen of the report validates many of our own concerns about the health of the base. We will continue to study the report and we look forward to working closely with the Department of Defense to address critical areas of risk,” Beci Brenton, a spokeswoman for Huntington Ingalls Industries, said in a statement to USNI News.

“Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States, ”was created by an interagency task force led by the Department of Defense Office of Industrial Policy. An unclassified version of the report released Friday lists several factors facing the defense industrial base, including uncertain government spending, foreign competition, a shrinking domestic industrial workforce and a decline in critical markets and suppliers.

“The shipbuilding sector illustrates how a decline in U.S. manufacturing, coupled with budget sequestration, impacts the industrial base,” the report states.

Overall, manufacturing jobs in the U.S. have steadily disappeared. On January 1, 1980, there were about 19.3 million manufacturing workers in the U.S., According to the Bureau of Labor and Statistics. By January 1, 2018, the number of manufacturing workers in the U.S. had shrunk by 35 percent to 12.6 million.

Investing in machine tools, which are power-driven machines that shape and form metal, are cited by the report as an example of where U.S. firms have lagged behind international competitors in reinvesting in their plants.

“Critical to creating modern defense and non-defense products, machine tools impact the entire supply chain and multiple sectors,” the report states.

But today, the machine tool production in the U.S. is worth $4.6 billion, far less than the $24.7 billion spent by Chinese firms.

The problems facing the defense industrial base today, though, are hardly new.

  • A 1985 GAO report stated, “Concerns about the ability of the industrial base to meet defense requirements is not new but has been exacerbated by the prospects of defense-spending increases totaling some $1.9 trillion over the next five years and possible perturbations caused by an improving economy. Adding to the concern is the transition from short-duration scenarios of war to those in which probable conflicts are of indefinite duration, anywhere in the world.”
  • A 1988 GAO report warned a dependence on foreign-made component-parts in the short term could provide cheaper high-quality parts, overtime relying on overseas contracts could weaken U.S. companies and evolve into a vulnerability. Citing a Pentagon study, this report stated, “The Under Secretary’s report stated that (1) DOD does not know the extent to which foreign sourced parts and components are incorporated in the systems it acquires and (2) in a national emergency, the consequences of extensive dependence on foreign sources could be extreme.”
  • A 1993 GAO report took a dim view of the Pentagon’s plan to rely on the defense industrial base to adjust to what was then an anticipated period of declining defense spending. “DOD has taken the position that free market forces generally will guide the restructuring of the defense industrial base. We believe that this is not a realistic strategy for ensuring that government decisions and industry adjustments will result in the industrial and technological capabilities needed to meet future national security requirements,” the 1993 GAO report states.

As for reversing declines in defense industrial base production, stable funding tops the list of suggestions. Increasing the amount of U.S.-manufactured military equipment sold overseas will help expand the demand for products made by many of the smaller manufacturers.

  • airider

    The core reason for this issue is that U.S. shipbuilding/manufacturing has priced itself out of the commercial sector, so it has no additional means to support an “industrial base” without government contracts. Part of this may be tied to “unfair trade”, but there is a need to take a look at the workforce setup, from the little companies all the way up to the shipyards themselves if they’re serious about turning it around. If you can’t fix the workforce costs, or making those costs look “better” to other than DoD customers, then nothing is going to change, since the broad base customer revenue stream is not there to support broad hiring and retention of skilled labor.

    If the final answer is that the U.S. government is going to “prop up” the industry, then it’s a subsidized situation like Europe. We’ve already seen what that looks like with ULA in the space launch business.

    If we can’t find some “internet billionaires” to take up the challenge of re-introducing competition and aggressively creating products that drive increased commercial interest in shipbuilding/manufacturing, then the Navy might as well re-open the old Navy shipyards and own the whole process since commercial industry simply won’t be there.

    • Rocco

      So it seems !, but the ship building industry of building Cruise ships seems to be flourishing!! We have stupid ships with amusement parks on the top of them displacing more tons & length than the Stupid Ford class carriers. Talk about top heavy.

    • Curtis Conway

      It is not all ‘cost of labor’. The Cruise Ships show us that. The primary elements (steel & aluminum) in the construction are already addressed, and the Industry is a National Defense designated interest. Now it’s up to industry to Turn-To and the government to buy in sufficient quantities to keep costs down, and make it worthwhile for supplies and manufacturers.

    • James Bowen

      I am very skeptical of claims that expensive labor is somehow to blame. Germany and Japan are both nations with relatively high wages for workers, and their shipbuilding industries are very healthy.

  • PolicyWonk

    Since 2000, the report said the entire defense industrial base lost more than 20,500 U.S.-based manufacturing firms. As these firms closed, the work they once performed was sent overseas, creating a situation where “A surprising level of foreign dependence on competitor nations exists.”
    =======================================================
    No, this is NOT a surprise to ANYONE who bothered to pay attention during the administration of George W Bush. That administration permitted the wholesale transfer of 10’s of thousands of dual-use technologies, the hard-won manufacturing techniques, and 30% of the strategic manufacturing base to Communist China (not to mention 8M+ US jobs, and the tax base that went with it), solely in return for short-term profits of GOP party donors.

    They ignored the pleas of the DoD, US intelligence agencies, and Patrick Buchanan (who authored many editorials imploring them to cease and desist). The 2008 US National Intelligence Estimate classified the exodus of technologies as a massive national security disaster, not only for the USA, but also for every nation in the Asian-Pacific region. They further described it as dwarfing every previous technology transfer in history – combined.

    The GOP loves to talk about US national security – but their actions dictate they’ve been thoroughly bought and paid for by corporate donors and the ultra wealthy: regardless of the impact to US national security, US economic health, or the welfare of our fellow citizens.

    They’ll point out all the awful things the democrats (etc.) are doing, which are comparatively puny (if not pathetic), while they massively undercut the very nation they claim to love. They can talk all they want – its ACTIONS that count.

    And that’s why I left the GOP and became independent.

    • vetww2

      Your allegations are SHOCKING, to say the least. I did not see any corporate control during W’s administration, but I don’t doubt your sincerity. Do you have a solution?

      • PolicyWonk

        Rule #1 w/r/t politics and elected representatives: you can listen to what they say all you want – but its ACTIONS and RESULTS that count.

        The results of Obama’s predecessor’s administration, by any measure, was disastrous for the United States. The nation suffered a massive defeat to Al Qaida in the GWOT; we had the worst string of national security and foreign policy disasters in history; the economy was the worst since the Great Depression; and our national debt skyrocketed.

        This was after inheriting a sound economy, a balanced budget, and the national debt being paid down.

        For an easy comparison, just look at the state of the union inherited by GWB, and compare that to the state of the union inherited by Obama. Then look at the state of the union inherited by Obama, and compare to the one inherited by Mr. Trump.

        If people cannot figure this out – then we have a LOT of very stupid people in this nation, and no matter what we do this late in the game, we’ll very shortly be lagging far behind the ChiComs.

        I seek to fix this, as much as I can, by voting with my ballot and dollars; writing my elected representatives; and seeing to it that the children in my family are as educated as possible, have an understanding of how the government was designed/intended to work, and understand the necessity of critical thinking.

        These skills are evidently missing in today’s electorate.

    • Zorcon, Fidei Defensor

      My business did great under Bush. I was Obama where the decline was steep. Then again, your left wing proclivities are well documented here. Obama was deeply hostile to small business. To the point of insanity.

      • PolicyWonk

        Right – if I’m left-wing to you, you’re so right of center that your opinion isn’t based on reality and is rendered meaningless.

        The US military was at its worst state of readiness since Vietnam in the Spring of 2009 according to the US JCS, after 8 years of clear GOP incompetence (grossly mismanaging 2 wars). Add to that, causing the worst economic disaster since the Great Depression. Yet, somehow, those who lack the capability to do basic addition and subtraction love to blame Obama for the destruction of the US military, when the GOP beat him to it.

        Being incapable of accepting responsibility for their actions, means lying about what Obama did (while they tied his hands at every possible opportunity) was the only option the GOP had. Anyone who thought business was going to be unaffected by the Great (Republican) Recession had expectations that were far out of whack with reality.

        Go and review your recent history – clearly – you need a basic refresher, and need to be educated on the simple notion of “cause and effect”, because its clearly lacking. We’re going to be living with the effects of GOP incompetence during that period for the rest of our lives.

        Cheers.

        • Paladin

          Do you have experience running a business during the same period or are you just a “wonk”?

          • PolicyWonk

            I do have experience running a business – do you?

          • Paladin

            Oh yeah, more than one and I also know what green tracers are.

  • Curtis Conway

    Steel manufacturing is returning to us (US) and hopefully a few firms develop and field shaft manufacture/refurbishment capability. Good high quality US Steel will be available for ship manufacture with homogeneous sheets instead of welded sheets. Ships hulls experience huge stresses during the ships life and the homogeneous steel sheet construct withstands those stresses much better. New larger format laser peening facilities should improve and speed up that portion of the operation in manufacture/refurbishment of steel sheets and shafts.

    Manufacturing trades and engineering disciplines are on the increase and marching in a direction of improvement in an ever advanced way. Machine tools and industry are following this trend, and what a time in HiStory for this activity to take full advantage of modern science and technology. I look forward to seeing the products coming out of these new plants.

    It would be a huge benefit if the public would embrace domestic nuclear power. Common reactors and training (Defense/domestic) could increase the availability and surety of electrical power generation across the country, while ensuring a career path for our surface/subsurface nuclear sailors. More nuclear vessels in the future would result.

    One of the obvious truths ignored by those who think otherwise is that Defense Industry in manufacturing follows domestic manufacturing capability. When the jobs all go overseas, there are fewer entities left to compete over the diminishing workload that is required by law to be domestically manufactured. THAT equation is now heading in the opposite direction, and policies should deal with that truth. Competition is good, quality can increase in that construct, and costs should come down with time.

    Government can assist industry while guaranteeing future necessities/ requirements. An example would be subsidizing the construction of dry-docks capable of handling super carriers. The United States Navy should have sufficient carrier capable dry-docks to perform maintenance on both coasts with redundancy.

    • Centaurus

      Embrace Nuclear Power ? ‘Just have to ask, “Where do you take the garbage out, to ?”
      With no satisfactory de-nuking strategies, it’s a tough nut to crack. No we won’t be putting solar panels or sails on CVN’s, but I think power sources of High Power Density are in reach if not available already and advanced thinking has to prevail. Yesterday. How about really big wind-up rubber-bands ? We should be making Treaties with the space people who have been raping and abducting your women so we can get ahead of the C&R’s. Thinkey thinkey

    • Rocco

      The only shaft we’ll get is when we bend over!!! This BS should of never been aloud to happen!!

      • Curtis Conway

        Water under the bridge. Got to look to the future on this one, and plan for success.

        • Rocco

          Yeah tell the Poobahs that!! Pretty soon there’ll be no bridges for water to flow underneath!!

  • marc6850

    With a shortage of shipyards in the U.S. and the Navy’s new order book, why has the government allowed the closing and now the non-shipbuilding use of Avondale Shipyards? This yard should be open and operational.

    • PolicyWonk

      You’re probably correct. But lousy economic management of the nations affairs, and giving whopping tax breaks to the ultra-wealthy and corporate party donors, have only served to weaken the US economy at its very foundation. The national deficit and debt are growing rapidly, and started doing so the second the HoR “leadership” realized they had a patsy in the White House that couldn’t be bothered to read the summary of the budget he signed.

      Now they’re spending enough to make a drunken Kennedy blush with embarrassment. As is typical, everything goes great for a while, and then it starts to die out once the thrill is gone and the hangover begins.

      Consistent revenues and budgetary schemes have a way of bringing consistency to USN and its shipbuilding plans. But our federal government is simply incompetent when it comes to managing this nations finances, even at the expense of US national security. They’ve been bought and paid for, and could care less about the long-term welfare of the nation.

      Sad…

  • RobM1981

    Wow. A gloomy pentagon report. I Am Shocked.

    What do they recommend? We’re already building two completely separate LCS classes, specifically to make jobs. This is as close to the “broken window theory of economics” as you will ever see in action.

    So, what now? Do they recommend that we build hulls that we don’t need? Launch them, tow them out of the harbor, and scuttle them? That will keep the workers busy, at least.

    Sorry about those robotics, gang. The demand is being met. If automation means that it can be met with just one yard, then that is what it is. Is the pentagon saying that we should force yards to be inefficient by employing manual labor where it’s not needed?

    You already have a fighter plane that took eighteen years to semi-deploy, after its first flight. How much more tax money do you want to throw at the Industrial Military Complex, again?

  • Zorcon, Fidei Defensor

    The ship building industry needs to build commercial shipping primarily with naval contacts as a backup. Most commercial ships are built overseas like cruise liners in Italy. Why is that? Part of it is the stupid prevailing wage laws, etc.

    Naval ship building is a vertical market and there is little margin for investment.

  • James Bowen

    You reap what you sew. When the Navy closes more than half of its shipyards in several BRAC rounds, when the Executive and Legislative branches of government aggressively pursue trade policies that put our manufacturing at a disadvantage compared to other nations, and when those same branches of government allow contractors who are dependent upon the taxpayers for all their business and profits to set the agenda, the only thing surprising about this report is that anyone is surprised.

  • GrievousAngel

    In figure 18, showing economic dependence on China by % of Chinese exports, I’d like to see how those %s translate into % of imports for each of those nations. For example, while the Philippines accounts for only “<2%" of all Chinese exports and they only export 11% to China, how much of the Philippines overall imports are sourced from China? I suspect that "<2%" of Chinese exports translates into a very high overall percent of the Philippines' imports, suggesting another layer of dependence. Additionally, I'd like to see an industrial sector breakdown of those nations' imports sourced from China to see which industries are more vulnerable.

  • Ed L

    Time to start with the public education system. College isn’t for everyone. Vocational training at the high school level is paramount to the training of skilled American workers. There is a shortage of builders, plumbers, bricklayers, electricians, HVAC, etc. in United States