SCA Weekly Report | May 16-20, 2022

Shipbuilders Council of America

20 F Street NW, Suite 500

Washington, DC 20001

www.shipbuildersusa.org

SCA Weekly Report | May 16-20, 2022

ANNOUNCEMENTS

2022 SCA Spring Meeting Review:

Thank you again to everyone that attended the 2022 SCA Spring meeting last week. 

• The SCA staff reports can be accessed HERE.
• The SCA Public Relations report can be accessed HERE.
• Eric Labs' presentation can be accessed HERE.

We ask that you please complete the meeting survey below. We always strive to improve on our membership events and your feedback helps us as we look to enhance our meetings in the future. The following survey should take less than five minutes to complete.

2022 SCA Spring Meeting Survey

Thank you again for your participation. 

SCA Industry Impacts Survey

At the SCA 2022 Winter Meeting, the Industry Partners Committee recommended, and the SCA Board of Directors approved, a survey to solicit input from SCA members on the various impacts on the shipyard industrial base including resulting lingering COVID issues, supply chain disruptions, inflationary costs and federal budget uncertainty, among other industry concerns. 

Member participation in this survey is critical to conveying these adverse impacts on shipbuilding, ship repairing, and the businesses that support and supply the shipyard industry. The results of the survey will be aggregated industry data points to assist SCA's efforts to advocate for the shipyard industrial base to the Pentagon, Administration, and Congress.

The survey should not take any longer than 5-10 minutes to complete, and all results will be blinded and aggregated. This means that all company information will remain anonymous and only viewed by the SCA team.

CONGRESSIONAL NEWS

General Warns Amphib Cut Heightens Risk in Europe and Mideast

The Marine Corps will take on greater risk in operations in Europe and elsewhere if the number of amphibious ships shrinks to the lower end of the Navy's fleet plans, a top general predicted Wednesday.

Lt. Gen. Karsten Heckl, the deputy commandant for combat development and integration, told the House Armed Services Seapower subcommittee that dipping below the 31 amphibs the Corps has endorsed would mean sacrificing capabilities elsewhere to prioritize operations in the Pacific.

The latest ship plan from the Navy could see the amphibious fleet drop to 24 hulls as the service proposes halting production of the San Antonio-class ships.

"Our absolute bare minimum requirement for traditional L-class amphibious warships is 31," Heckl said in an exchange with Seapower ranking Republican Rob Wittman. "And that's composed of 10 larger deck LHA, LHD class and 21 smaller LPD, LSD-type class of ships."

"The fact, sir, that ships are being decommissioned faster than they're being procured and delivered and employed, the simple fact is that under this plan, we will go to a number of 24 amphibs in the next three to five years," he added. "What that translates to for us is risk."

The Hill's take: Democrats and Republicans on the top defense panels have been frustrated by the administration's shipbuilding plan as well as a fiscal 2023 budget request that aims to scrap two dozen ships.

Among the tweaks to the budget, Courtney has indicated the panel will examine overturning the Navy's push to end production of the San Antonio-class ships when it takes up annual defense legislation next month.

"The subcommittee has heard that message loud and clear," Rep. Joe Courtney (D-CT) said Wednesday of the risks of the ship plan. "And I think we're going to move out with our Article 1, Section 8 authorities under the Constitution to address that when we get closer to the mark."

NAVY NEWS

GAO Study: Ongoing Challenges Could Jeopardize Navy’s Ability to Improve Shipyards

Navy’s Cancellation of Littoral Combat Ship ASW Mission Package Triggers Nunn-McCurdy Breach

The Navy’s decision to cancel the anti-submarine warfare mission package for the Littoral Combat Ship has sparked a Nunn-McCurdy breach, the service told lawmakers on Friday.

In a statement, the Navy said it told Congress today that the LCS Mission Module program now “exceeds the original baseline estimate by at least 30 percent and the current baseline by at least 15 percent, breaching the Nunn-McCurdy significant cost growth threshold.”

The breach comes after the Navy, in its Fiscal Year 2023 budget proposal, decided to eliminate the anti-submarine warfare package from the LCS mission module program, instead opting to focus the ASW capability on the Constellation-class frigate program.

The Navy’s LCS Mission Module program was slated to include three mission packages – one for anti-submarine warfare, one for surface warfare and one for mine-countermeasures. But the service has only fielded the surface warfare mission package, and the other packages have experienced delays. The Nunn-McCurdy provision mandates the Pentagon tell lawmakers when the cost of its top-tier acquisition programs surpasses specific baselines.

Navy Says It Will Lose Millions by Not Committing to 10 Destroyers in Upcoming Contract

The U.S. Navy doesn’t want to promise to buy too many ships in the next five years, in case it can’t follow through due to budget or supply chain constraints. The Navy needs more Flight III Arleigh Burke-class destroyers, as the cruisers begin to exit the fleet and the Flight I DDGs near the end of their planned service lives. A number of lawmakers have said they’re open to funding three new destroyers a year compared to the expected two a year, something industry would welcome.

But the Navy only has two a year in its near-term shipbuilding plans.

Moreover, it only plans to ask for nine guaranteed ships in its upcoming five-year procurement contract, which, if executed to that minimum level, would be a decrease in workload for the shipbuilders.

The legislative proposal the Navy will soon send Congress will ask for authority to buy nine ships, plus an option for a 10th ship to continue the two-a-year pace as well as additional options to buy a third ship each year if Congress appropriates additional funds, Jay Stefany, the principal civilian deputy to the assistant secretary of the Navy for research, development and acquisition, told House Armed Services seapower and projection forces subcommittee members in a May 18 hearing.

This request, he said, gives flexibility to scale up to the three-a-year procurement rate industry and some lawmakers want. It also allows the Navy to stay at nine ships if funding levels are lower than expected, if inflation crowds out the shipbuilding budget, if labor and supply challenges drive up the cost of ships or another contingency arises.

But Stefany said this flexibility comes at a cost. The savings in multi-ship contracts come from guaranteeing work. They’d get a better price if they asked for a quote for 10 ship sets and an even better price if they asked for 15 ship sets upfront. 

OFFSHORE WIND NEWS

Edison Chouest to Build Plug-In SOV for Empire Wind

Empire Offshore Wind, a joint venture between Equinor and BP, has awarded a long-term service operations vessel charter agreement to Edison Chouest Offshore (ECO). The plug-in hybrid service operations vessel (SOV) will be the first in the U.S. offshore wind sector capable of sailing partly on battery power.

The vessel will accommodate up to 60 wind turbine technicians and will be utilized for the safe and efficient operations and maintenance of the Empire Wind 1 and Empire Wind 2 offshore wind farms. The U.S.-flagged vessel will be Jones Act compliant and have its home port at the South Brooklyn Marine Terminal (SBMT) in New York. The SOV will be constructed with components from ECO’s extensive supplier base across 34 U.S. states.

Vineyard Wind Signs CTV Charter with Patriot Offshore

Orders for Jones Act offshore wind crew transfer vessels are starting to tick upwards. Last week, Vineyard Wind, a joint venture between Avangrid Renewables and Copenhagen Infrastructure Partners reported it had signed a charter for a CTV with Patriot Offshore Maritime Services. Like Vineyard Wind, Patriot is based in New Bedford, MA, and the CTV will be built by another Massachusetts company, Gladding-Hearn Shipbuilding in Somerset. The CTV will be based on a proven catamaran design by Incat Crowther and will be capable of carrying up to 24 technicians and personnel.

IN THE NEWS

Congress Bestows its Highest Honor on WWII Merchant Marines

Congress has bestowed its highest honor on merchant mariners who fought in World War II, almost eight decades after the conflict in which more than 8,000 of them were killed.

More than two years after Congress voted to approve the award, leaders on Capitol Hill on Wednesday awarded the Congressional Gold Medal to surviving merchant mariners who provided equipment, food, fuel and other materials to military troops around the world during World War II. While they suffered what was thought to be the highest per capita casualty rate in the war, they did not receive veteran status until 1988 because they are not a branch of the military.

The U.S. Merchant Marine provided goods in many different arenas during the war, including at the invasion of Normandy. The legislation passed by Congress in March 2020 awarding the medal cites a 1944 New York Times article that said the Normandy invasion “would not have been possible without the Merchant Marine.″ Congressional leaders thanked the mariners for their service and said it was long overdue.

Gas Prices Reach New Record High

Average gas prices in the U.S. reached a new record high Thursday, according to AAA's gas price calculator, after Republican senators slammed the Biden administration for a "de facto ban on new drilling." The national average cost of a regular gallon of gasoline hit $4.589 early Thursday morning. This price topped Wednesday's previous record of $4.567, which had beat Tuesday's record of $4.523, which in turn had beat Monday's record of $4.470. The price comes as the European Union edges toward oil sanctions on Russia amid the Kremlin's invasion of Ukraine. It also comes amid record-high inflation, with the consumer price index reaching 8.3% in April, hovering near March's 40-year high. 

Thyssenkrupp Eyes German Shipyard Industry Consolidation

 Germany’s second-largest defense group Thyssenkrupp Marine Systems (TKMS) TKAG.DE wants to play a leading role in consolidating the German and European shipyard industry, its new Chief Executive Officer told German newspaper Welt am Sonntag.

“If the road to a European giant is still too difficult, a German champion could be formed first,” Oliver Burkhard was quoted by the newspaper as saying.

Burkhard said a merger, for example, could be formed with smaller German rivals Luerssen and German Naval Yards (GNYK).

The company has been building up additional capacity since the German government’s announcement of a 100 billion euro special fund for the military after Russia’s invasion of Ukraine, Burkhard added.

Chinese Navy Ship Operating Off of Australia, Canberra Says

A People’s Liberation Army Navy (PLAN) intelligence ship is currently operating off the north-west shelf of Australia, the Australian Department of Defence said Friday. Australia’s DoD identified the vessel as China’s Dongdiao-class auxiliary intelligence ship Haiwangxing (792) and released imagery and video of the ship.

A graphic of Haiwangxing’s voyage showed the ship crossed Australia’s exclusive economic zone on the morning of May 6. On Sunday, it was approximately 70 nautical miles off the Harold E. Holt Communications Station, in Exmouth, Western Australia, while a Royal Australian Air Force (RAAF) P-8 Poseidon maritime patrol aircraft monitored the ship.

South Korea’s Shipbuilding Order Book Reaches Six-Year High

Despite concerns that the global boom in shipbuilding orders is slowing, South Korean shipbuilders’ order book reached a six-year high in April 2022. Driven by the strength of the market in 2021 and brisk orders in the first four months of this year, the South Koreans reported their orders are now at their highest point since April 2016.

Overall shipbuilding orders were down by a third in April according to data from Clarkson Research Service. They showed that a total of 71 ships were ordered last month accounting for 2.51 million gross tons. China and South Korea continue to be the two countries dominating the newbuild market but partially spurred by the large LNG carrier order for Qatar, China had nearly twice the market share versus the South Koreans in April. China received orders for 45 vessels which totaled 1.54 million gross tons. Despite coming in second in April, South Korea’s shipbuilders received orders for 16 additional ships totaling 820,000 gross tons. Deliveries in some cases are now being pushed beyond 2024 as the larger shipyards report their building slots are fully committed.

If you have any questions, please do not hesitate to contact the SCA staff.