BETHSHIP--Can it stay afloat? U.S. shipyards sail rough seas of new world order

July 25, 1993|By Kim Clark | Kim Clark,Staff Writer

When Bobby Davis hired on at the Bethlehem Steel Corp. shipyard at Sparrows Point, old-timers told him the business was in trouble and not to count on having a job for long.

Last week -- after 24 years of work as a ship welder -- Mr. Davis was walking a picket line outside the shipyard. He and his fellow strikers scoffed at Bethlehem's claims that the industry is in a crisis and that the yard will survive only if workers agree to take home smaller weekly paychecks.

"It's an up and down business," he says.

That's true. The worldwide shipbuilding and repair business, which is notoriously cyclical, has been ebbing along with the economy, nearly everyone in the industry agrees. And now it shows signs of rebounding.

But the 102-year-old Sparrows Point shipyard might not enjoy the next economic upturn -- no matter how the shipbuilders' strike is resolved.

American shipyards are losing business from their last guaranteed customer, the U.S. Navy, which is slashing its fleet. And they're ill-prepared to meet the growing demand for work on the world's cargo ships, says Dennis Stonebridge, who follows the industry as a director of London-based Drewry Shipping Consultants.

Other nations offer subsidies so foreign shipyards can make money on below-cost bids. Even if Congress reinstates subsidies that vanished under the Reagan administration, U.S. yards will have a tough time catching the next wave.

"Your overhead is so much higher. . . . The productivity is just not there," he said.

A Japanese yard, for example, might offer a price for a new ship based on 200,000 hours of labor. A U.S. yard, by contrast, might have to base its bid on 300,000 hours of work for the same job, he says. The cause of the gap: problems ranging from worker safety regulations to outdated American equipment.

The future of all American shipyards looks "very tough" for the next couple of years, agrees John Stocker, president of the Shipbuilders Council of America.

Countries such as Japan spend as much as $2 billion a year on loan guarantees and other programs to subsidize the work of their shipyards, the council's research shows. That allows the Japanese yards to make money bidding jobs as much as 15 percent below actual cost, he says.

Since U.S. yards lost their subsidies during the Reagan budget cuts of 1981, they have had little option but to rely almost entirely on military work, or other captive customers. For example, by law, shipping companies that move cargo between U.S. ports must use American-built ships.

But the military work is drying up. The U.S. Navy is cutting back from a planned 600-ship fleet to a "new world order" fleet of about 300 ships.

And the commercial market has suffered in recent months from a worldwide recession that has driven down shipping rates, leaving ship owners little money for repairs, Mr. Stocker said.

Meanwhile, shipyards across the U.S. are scrambling to adjust to global competition.

At Bath Iron Works, the Maine-based maker of Aegis destroyers for the Navy, the shipyard is having trouble finding commercial work and has cut its work force from a high of 12,000 to 8,800 over the past several years. It expects to lay off another 800 by next year, says spokesman Kevin P. Gildart.

The transition is difficult because U.S. yards don't have much recent experience building commercial ships, and customers don't want to buy a ship from a yard without a proven track record, he says. In addition, American yards are saddled with high overhead and outdated equipment.

"U.S. yards haven't made the capital investments" that their competitors in Europe and Asia have made, he said. "Our culture isn't used to making the long-term investments."

All those problems are compounded in Baltimore, where, managers say, labor costs are making BethShip's yard uncompetitive.

Staffing has fallen from a high of about 5,000 during the yard's heyday in the mid-1970s to about 600 in the week before the strike, which started July 17.

And now even those jobs are at risk, warns BethShip President David Watson. If workers don't agree to the company's proposal to trade a 45-cent-per-hour "bonus" payment for a profit-sharing plan, "the very survival of the shipyard is threatened," he said.

In a letter delivered to the approximately 1,000 striking shipbuilders last week, Mr. Watson conceded that the shipyard had plenty of business and made $4 million last year.

5) But 1993 has been terrible, he added.

Diversity has limits

The yard, which once built the world's largest commercial cargo ships, diversified into tunnel construction and ship repair work over the past several years to survive.

But the yard has almost finished its construction of the Boston Harbor tunnel tubes, and it hasn't found much new ship repair business. The yard now has contracts for only two ship repair jobs -- work that will last only for a couple of months.

Since early 1993, the yard lost 52 of 53 competitive bids, Mr. Watson says.

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