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Shipyards

There are over 280 privately owned firms of varying capabilities, employing over 98,000 workers, involved in shipbuilding and ship repair in the United States. However, only 43 yards are capable of dry-docking vessels of 122 meters in length or over, and only 6 shipyards are building Navy combatant ships. Since 1980, major shipbuilding in the United States has been maintained predominantly by construction of Naval vessels, but with the end of the Cold War, the Navy's construction program has been significantly reduced.

The naval shipyards under the headquarters command of the Naval Sea Systems Command (NAVSEASYSCOM) provide the organic industrial base to the Navy for the repair, overhaul, alteration, and modernization of surface ships and submarines of the Fleet. This capability is used primarily to overhaul vessels on a scheduled availability basis to ensure that the highest state of capability and readiness is maintained in the Fleet. The naval shipyards also provide the foundation upon which to mobilize, and are therefore an essential part of the Fleet's readiness for war. Additionally, the naval shipyards perform depot repairable work and serve as engineering planning yards for applicable ship classes.

The government-owned Puget Sound West Coast shipyard could refuel nuclear-powered carriers if it made substantial investments in its facilities, personnel, and training. The Portsmouth government-owned US East Coast shipyard is presently involved in nuclear refueling, overhauling, and de-activation of Los Angeles-class submarines.

The Fleet Modernization Program is a multi-billion dollar per year program for installing alterations and modernizing the US Navyís active and reserve ships. As the defense department has downsized both budgets and resources in the 1990s, the fleet has been reduced from a high of nearly 600 ships in the mid-80ís to 260 ships worldwide. One avenue to maintaining the US Navyís sea power is ongoing modernization and continual improvement of the fleetís ships and equipment. The levels of management necessary to coordinate the FMP are spread across various organizations. These include CNO, NAVSEA, and the Fleet Commands.

The termination of the US construction-differential subsidy program in 1981 significantly curtailed the ability of US shipyards to compete successfully for international commercial shipbuilding contracts with foreign shipyards, many of which are heavily subsidized by their governments. The effects of the elimination of these subsidies were largely offset, however, by the initiative to expand the US Navy fleet to 600 ships.

In late 1993, Congress amended the loan guarantee program under Title XI of the Merchant Marine Act, 1936, to permit the US government to guarantee loan obligations of foreign vessel owners for foreign-flagged vessels that are built in US shipyards. Enabling shipowners to obtain financing on more favorable terms than those currently offered by other countries having similar guarantee or subsidy programs, these 1993 amendments attracted foreign owners and created foreign and domestic commercial shipbuilding opportunities for US shipyards.

A December 1994 trade agreement among the United States, the European Union, Finland, Japan, Korea, Norway and Sweden (which control over 75% of the market share for worldwide vessel construction), negotiated under the auspices of the Organization for Economic Cooperation and Development (the "OECD Agreement") seeks to eliminate government subsidies provided to commercial shipbuilders.

Merchant Marine Act of 1920, as amended [the "Jones Act"] requires that ships engaged in coastwise trade must be owned by a US company, crewed by US citizens and built by a US shipbuilder. Legislation seeking to rescind or substantially modify the provisions of the Jones Act are introduced in Congress from time to time, although it is unlikely the Jones Act will be rescinded or materially modified in the foreseeable future.

There are principally six private US shipyards that compete for contracts to construct or convert military vessels. Two of these companies are subsidiaries of much larger corporations that have substantially greater resources than the independent shipyards. The reduced level of shipbuilding activity by the US Navy during the past decade has resulted in significant workforce reductions in the industry, but almost no infrastructure consolidation. The general result has been fewer contracts awarded to the same fixed number of large shipyards.

With respect to commercial vessels that must be constructed by a US shipyard under the Jones Act, there are approximately 20 private US shipyards that can accommodate the construction of vessels up to 400 feet in length. Because of the current overcapacity at US shipyards, the current small volume of commercial work available, and the fact that most contracts are awarded on the basis of competitive bidding, price competition is particularly intense.



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