After a $300 million burn, Newport News is pulling its fingers out of the commercial shipbuilding fire. Its exit from the fray will involve canceling three of the eight Double Eagle products tankers still on its order book. At press time, it was unclear exactly which three ships would be axed. Negotiations were taking place that seemed likely to see export customer Eletson permit domestic customer Hvide Van Ommeren to take over some, if not all, of its orders.[On-line readers can get an update on what's going on]
.Some observers will certainly see the massive losses rolled up on the Double Eagle program as proof of the failure of the Clinton shipbuilding initiative announced with so much fanfare on October 1, 1993. Of course, it's not quite that simple.
Some American yards, particularly medium and smaller size ones, have taken full advantage of programs such as the revamped Title XI and Maritech to emerge as strongly competitive.Newport News, however, was in a different position. Its decision to enter the commercial market was a bold one, given its long commitment to the most sophisticated end of military shipbuilding. In switching some of its efforts to the merchant ship sector, Newport News faced inherent difficulties. It not only had a learning curve to contend with, but had some unlearning to do.
It was clear from the outset that Newport News would face difficulties in making a profit on the first Double Eagles. It was hoped, however, that the "sistership effect" would bring productivity gains and cost efficiencies in construction of the subsequent vessels. Evidently, things didn't work out that way.One thing Newport News could not control was the world price of basic ships such as products tankers. Those prices have, for some time now, been set by the South Koreans and have been steadily declining.
How could South Korean yards make a profit at such prices? The collapse of the Halla Group-and, indeed, of most of the South Korean economy-shows that often they could not. The primary cause of the Halla bankruptcy was that it could not make the payments on a state of the art new shipyard. The decision to build that yard was taken at a time when it was absolutely clear that world shipbuilding had absolutely no need for extra capacity, particularly capacity for fairly large, fairly simple ships.
Interestingly, while the lobbying groups for American shipbuilders have been bickering among themselves in Washington about details of this, that or the other regulatory change, their Japanese and European counterparts have been doing something sensible. They have been putting pressure on their governments to demand that no IMF bail out money for Korea be used to prop up that country's shipyards and that shipbuilding industry restructuring be made a condition of IMF help.
If the Koreans haven't been making money on merchant ship construction, who has? The Kværner Group for one. And while Newport News is preparing to put the wraps on its venture into commercial shipbuilding, Kværner is preparing to open up what will likely be the world's most modern shipyard ... in Philadelphia. So, despite what's happened at Newport News, it's premature to write "R.I.P." over U.S. commercial shipbuilding.
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