THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, March 13, 1995 TAG: 9503120228
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
TYPE: Opinion
SOURCE: JAMES R. HERNDON
LENGTH: Medium: 85 lines
Nearly everyone in Virginia is aware of the military downsizing and the massive reductions in defense spending which have impacted Hampton Roads' shipbuilding industry.
The abundance of government contracts during the Reagan and Bush years allowed Newport News Shipbuilding to flourish and the ship repairers to survive.
While this obviously was Virginia's good fortune, the insulation allowed the industry to avoid issues that other major American industries have addressed to become global competitors.
Although obstacles remain, I believe Virginia's shipyards can survive. The first piece of good news is that there is a burgeoning shipbuilding market. The World Bank estimates that $300 billion will be needed for new ships through 2005.
Japan's order book for the first quarter of 1994 increased 62 percent over 1993's first quarter to total 213 foreign ships. In mid-1994 there were 2,148 new ships on order worldwide.
The commercial shipbuilding market our Virginia industry is most interested in involves petroleum tankers, passenger cruise ships and container carriers.
The world tanker fleet is aged and with the international requirements for double-hull construction we will see demand growing. A recent study predicts that the world passenger ship market will double by the year 2005.
As of August 1994, there were over 50 large container ships of 4,000 TEU's (a TEU is one 20-foot container) or over on order. Although few container ships will be scrapped in the near future, the demand for these larger carriers will continue. Virginia shipyards are marketing for all these types of vessels and others as well.
The second piece of good news is from Washington. Recent legislation provides favorable Title XI financing such as that to be utilized by the owners of the tankers recently ordered from Newport News Shipbuilding.
Also, government negotiators have recently achieved a long sought multilateral agreement by the key shipbuilding nations to discontinue government subsidies of commercial shipbuilding and repair. These subsidies had blocked our shipyards' competitiveness.
The third piece of good news is that labor costs in the United States are now lower than Japan and the European countries.
With wages competitive, Tenneco Inc., owner of Newport News Shipbuilding, has committed $30 million for the expansion of one dock. This will enable the construction of two vessels in the dock simultaneously. Tenneco also recently committed another $60 million for improved technology in the area of steel fabrication.
One significant obstacle for American shipyards to clear is management transformation.
As an industry, shipbuilders with few exceptions have not come to grips with their obsolete management style. It remains a fairly autocratic environment with limited empowering of the worker. Management and labor remain adversarial and untrusting of one another.
If the productivity gains that are desperately needed are to be realized the industry must come to grips with this issue.
The revitalization of the American automobile industry is a good example of what needs to be done in the shipbuilding industry. It is noteworthy that the average pay of an American auto assembly line worker is between $18 and $21 per hour while shipyard production labor averages $12 to $16 per hour.
Results of gains in the auto industry provided record profits and record employee bonuses in 1994. Worker pay is not the controlling factor; quality and productivity are.
There is a tremendous untapped resource in the workforce. Some have said that when you pay for the hands and feet of the employee you get his mind for free. Recent union negotiations at Newport News Shipbuilding indicate a recognition by shipyard management that participation of everyone will be needed if they are to achieve the necessary productivity gains.
Hampton Roads ship repairers have the same challenge if they are to establish themselves as a competitive alternative to European shipyards.
If management recognizes that these changes are not an option, but a necessity for survival, then Virginia shipbuilding and ship repair firms can become world leaders.
Shipyard management will discover that the greatest obstacle to realizing the full potential of the production worker will be management itself. MEMO: Shipbuilding consultant James R. Herndon of Norfolk was president of
Marine Hydraulics International Inc. and Colonna's Shipyard Inc.
by CNB