Shipbuilder Wrings Out Savings Through Yard Improvements, Partnerships

Navy officials have come down hard on shipbuilding companies to cut out the fat where they can on soaring construction costs. One U.S. shipyard is embracing the ultra-efficient business practices of South Korean builders.

General Dynamics NASSCO, a builder of commercial cargo carriers and Navy auxiliary and support ships, is attempting to regain control over warship prices that have doubled in the last two decades. The San Diego-based yard is improving its facilities while also trimming overhead budgets, reducing supply chain costs and streamlining labor processes.

“We’re looking under all those rocks to try to reduce those costs,” says Kevin Graney, vice president of programs.

Since 2005, General Dynamics has spent $150 million to convert the steel construction facilities into a modern “outfit-centric” yard that assembles hulls in blocks that are fully equipped, or outfitted, before being connected and welded into the ship.

“If we’re installing a piece of equipment, it’s easier to do it on the ground as opposed to getting it up aboard a ship and installing it three floors down below deck where the crane can’t get to,” Graney explained.

The yard is constructing the final three hulls of a 14-ship dry cargo-ammunition transport (T-AKE) class for the Navy. Because of the facility improvements and a two-ship-per-year construction cycle, program managers have eliminated 2.5 million man-hours of construction time on each vessel.

Navy officials have lauded T-AKE as a model for the way the service will do business in the future.

Rear Adm. Frank C. Pandolfe, director of the surface warfare division on the Navy staff, called it an “effective and efficient building program.”

Though part of the efficiency can be attributed to a steady six-year production run, yard officials say that they have benefitted from the commercial side of the business as well. In 2006, the company partnered with Daewoo Ship Engineering Co., a South Korean firm with the world’s second largest shipyard, to build vessels for the U.S. market under provisions of the Jones Act. The law requires cargo ships that travel between U.S. ports to be built domestically. So far, the companies have produced for American Petroleum Tankers a five-ship class commercial product carrier designed to transport liquids and chemicals from port to port.

“That opened up an opportunity to bring Korean master shipbuilders over to show us how to improve the facility,” Graney said.

The collaboration yielded a blast and paint facility that opened in 2009. Korean officials also recommended ways to free up space in the yard to give workers larger areas to outfit parts of the ship earlier in the construction process.

“The Korean influence has been substantial for us, and has been a big benefit for efficiency and throughput in the yard,” Graney said.

Those improvements spilled over to the T-AKE, which underwent a redesign process from 2006 to 2009. The original design was not optimized for production, Graney said. From the way workers hung pipe in the ship to the block “breaks” that made it inconvenient to outfit hull sections with equipment and components, the plans were streamlined so that more work was done in earlier stages of construction. Yard officials eliminated hundreds of thousands of construction hours simply by trying to accomplish more in the blocks.

“The Koreans helped with that to a degree. They looked at some unnatural acts we had to perform to get these ships built and helped us with smarter ways of doing business,” Graney said.

One of the redesigns involved updating a decades-old sprinkler system in the cargo holds. Engineers looked at how to replace portions of the pneumatically controlled system, which was expensive, heavy and difficult to maintain, said Brian Geldart, a senior project engineer. Beginning on the T-AKE-11, the team swapped the 1950s-era equipment for modern motor-operated valves and electrical controls — a change that will net $6 million in savings over the remainder of the class.

“Because we’ve gone to commercial off-the-shelf pieces to replace the Navy standard, it makes the ship a lot easier to maintain. That goes to the operating and support costs over the life of the vessel,” said Geldart.

The engineering staff also is working on a number of other initiatives to reduce operation and maintenance costs over the ship’s service life. One effort involves improving the hydrodynamic performance of the ship by incorporating an energy recovery device onto the propeller. The technology could yield $8 million to $11 million in total fuel cost savings per ship, Geldart said.

In preparation for forthcoming carbon taxes, emissions standards and regulations, company officials also are investigating equipment that would eliminate pollutants while also reducing fuel consumption by five percent, a potential savings of $19 million per ship.

The yard is gearing up to begin construction on the Mobile Landing Platform, a new Navy ship that is based on a commercial crude oil carrier that NASSCO designed in the early 2000s. Taking lessons from the T-AKE program, officials have finished a comprehensive evaluation of the design to eliminate excessive labor processes. The resulting design accomplishes 80 percent of the requirements at 40 percent of the costs, said Rear Adm. David H. Lewis, program executive officer for ships at Naval Sea Systems Command. The old design was simply unaffordable.

NASSCO will build all three ships of the class.

In its 2012 budget proposal, the Navy wants to fund the ships so that they can be built and delivered in consecutive years.

“That’s critical for us,” Graney said. The service’s previous plan had staggered the buy so the yard would deliver a ship every other year. “You had this big valley in between production cycles, so you end up having to let portions of your critical work force go,” explained Graney. “One every year allows us to sustain the work force for that period of time,” and helps maintain its proficiency and efficiency to keep costs on par.

Yard officials trolling for future business opportunities have their eye on container ships, which are reaching the old age of 30 years or more across the fleet. Owners and operators will need to replace those ships. “But with the economy in this feeble recovery, they’re not yet ready to pull the trigger on a new construction project. So we’re doing everything possible to attract that commercial work,” Graney said. NASSCO officials believe the capital investments and streamlining that continues in the yard will place them at the competitive edge, but it is difficult to tell whether their prices are alluring enough to garner contract offers.

“We don’t know yet whether we’re at a pricing point that enables them to say, ‘yes,’” Graney said. Until the economy is on a firmer footing, it could be a while before that happens, he added.