Go Lean Commentary
The ‘Law of Supply-and-Demand’ is almost as natural as the ‘Law of Gravity’; leave it alone and it will pre-determine what will happen … in the marketplace. But just like the ‘Law of Gravity’ can bend and be defied (think airplanes and rockets), so too the ‘Law of Supply-and-Demand’ can bend and be defied. A great example of defying ‘Supply-and-Demand’ is the Crony-Capitalism (subsidies and protectionist schemes) in the highly-protected Ship-Building industry. (See the Appendix below regarding OECD Ship-Building Industry monitoring efforts).
Look at the numbers in the 2 photos above. It is apparent that the US distorts the Supply-and-Demand factors for Ship-Building in its market; their protectionist laws prevent the international market from supplying domestic shipping needs. This is bad! Though there is the need for some government-aid, to protect jobs and defense options, the US model of Crony-Capitalism is a blatant distortion – Source: https://youtu.be/GpwzoDGDGAQ.
Ship-Building can be a strategic industry! The book Go Lean…Caribbean asserts that 15,000 new direct jobs can be created with strategic endeavors for the Ship-Building industry in the region. (Even more indirect jobs applies – multiplier rate of 3-to-1). The Go Lean book calls for the elevation of Caribbean economics, positing that governmental entities must stimulate and incubate this industry. The book surveyed the world looking for industrial opportunities that could be fully explored in the Caribbean region where the natural resources of the region could be considered; the region is known for sun, sand and sea.
Tourism is a natural assumption for utilizing these “sun, sand and sea“ resources, but with the recent inadequacies of this industry, there needs to be more diversity in our commercial offerings; ship-building – which needs the sea – was identified as an ideal supplement and alternative for regional commerce. This reference to “regional commerce” refers to the economic interest that the 30 member-states in the Caribbean have to consider to provide job and entrepreneurial opportunities for its people. So this Ship-Building focus prioritizes the “Commerce of the Seas” concept. This commentary is 3 of 4 in a series considering the Lessons in Economic History related to “Commerce of the Seas”, the Crony-Capitalism in laws and practices around the maritime eco-system in the United States … and other countries. The full series is as follows:
- Commerce of the Seas – Stupidity of the Jones Act
- Commerce of the Seas – Book Review: ‘Sea Power’
- Commerce of the Seas – Shipbuilding Model of Ingalls
- Commerce of the Seas – Lessons from Alang (India)
There are many Lessons in Economic History for the Caribbean to glean by considering the actuality of this industry. Let’s consider the role model of just one American shipbuilding entity: Ingalls Shipbuilding Company in Pascagoula, Mississippi. See the reference source here, describing the business model for building ships to ‘Supply’ any open ‘Demand’ in the commercial market:
Title: Ingalls Shipbuilding
Ingalls Shipbuilding is a shipyard located in Pascagoula, Mississippi, United States, originally established in 1938, and is now part of Huntington Ingalls Industries. It is a leading producer of ships for the United States Navy, and at 12,500 employees, the largest private employer in Mississippi.
History
In 1938, Ingalls Shipbuilding Corporation was founded by Robert Ingersoll Ingalls, Sr. (1882–1951) of Birmingham, Alabama, on the East Bank of the PascagoulaRiver in Mississippi.[1] Ingalls was located where the Pascagoula River runs into the Gulf of Mexico. It started out building commercial ships including the USS George Clymer (APA-27), which took part in Liberty Fleet Day 27 September 1941. In the 1950s Ingalls started bidding on Navy work, winning a contract in 1957 to build 12 nuclear-powered attack submarines.
Litton Industries acquired Ingalls in 1961, and in 1968 expanded its facilities to the other side of the river. Ingalls reached a high point of employment in 1977, with 27,280 workers. In April 2001, Litton was acquired by the Northrop Grumman Corporation.[2]
On August 29, 2005, Ingalls facilities were damaged by Hurricane Katrina; most of the ships in dock and construction escaped serious harm. While shipbuilding was halted for a while due to the destruction of many buildings, most vehicles, and the large overhead cranes, the facility continues to operate today.
On March 31, 2011, Northrop Grumman spun off its shipbuilding sector (including Ingalls Shipbuilding) into a new corporation, Huntington Ingalls Industries.
In 2015, Ingalls Shipbuilding Company signed a contract with US Navy for new destroyers, littoral combat ships and new landing craft. USS John Finn (DDG-113) was one of the first destroyers was launched on March 28. Company also is building Ralph Johnson (DDG 114), Paul Ignatius (DDG 117) and Delbert D. Black (DDG 119).
On March 21, 2015, the new San Antonio LPD 17-class amphibious ship John P. Murtha (LPD 26) was ceremonially christened. The vessel having been launched on October 30 and scheduled to be delivered in 2016.
On March 27, 2015, the shipyard received construction contracts for their next destroyers. Ingalls Shipbuilding Company was awarded a $604.3 million contract modification to build the yet-to-be-named DDG 121.
On March 31, 2015, the shipyard also received another contract with a $500 million fixed price to build the eighth National Security Cutter (NSC) for the US Coast Guard. Most of them will be under construction until 2019. The cutters are the most advanced ships ever built for the Coast Guard. [3]
On June 30, 2016, Ingalls Shipbuilding signed a contract with US Navy to build the U.S. Navy’s next large-deck amphibious assault warship. The contract included planning, advanced engineering and procurement of long-lead material, is just over $272 million. If options are exercised, the cumulative value of the contract would be $3.1 billion.[4]
…
Ships built
- 2.1.1 Submarines
- 2.1.2 Destroyers
- 2.1.3 Cruisers
- 2.1.4 Cutters
- 2.1.5 Amphibious transport dock
- 2.1.6 Amphibious assault ship
- 2.1.7 Attack transport
- 2.1.8 Corvette
- 2.1.9 Tankers
- 2.1.10 Cruise ships and ocean liners
i.e. Pride of America (partially built in Mississippi, then towed to Germany for outfitting)
This ship was built in the United States and is operated by Norwegian Cruise Lines. Inaugurated during the 2005/2006 cruise season as the first new US-flagged cruise ship in nearly fifty years,[5] Pride of America was designed to pay homage to the spirit of the United States, from the patriotic artwork on the hull to the American-themed public spaces.
- 2.1.11 Ships refitted
Source: Retrieved 06-11-2017 from Wikipedia: https://en.wikipedia.org/wiki/Ingalls_Shipbuilding
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VIDEO – Ingalls Shipbuilding Promotional Video – https://youtu.be/EFl8Tl0ImJo
Published on Jan 10, 2017 – Ingalls Shipbuilding is located in Pascagoula, Mississippi on 800 acres of the most important real estate in America. With 11,000 employees, Ingalls is the largest manufacturing employer in Mississippi and a major contributor to the economic growth of both Mississippi and Alabama. Our 77-year legacy has continuously proven we have the talent, experience and facilities to simultaneously build more classes of ships than any other shipyard in America.
We are the builder-of-record for 35 Aegis DDG 51 class guided missile destroyers, LHA 6 class large deck amphibious ships, National Security Cutters for the U.S. Coast Guard and the sole builder of the Navy’s fleet of San Antonio (LPD 17) class amphibious assault ships. Ingalls Shipbuilding has what it takes to build the capital ships that keep America and our allies safe.
- Category: Science & Technology
- License: Standard YouTube License
Additional VIDEO consideration: https://youtu.be/0pak_gKglqo – Ingalls shows ‘Shipyard of the Future’.
Considering that 90% of all trade transports by water, there is natural demand for shipbuilding. There is a lot of supply as well.
Ingalls Shipbuilding Company is a definite beneficiary of government-aided commerce in the US; most of their shipbuilding engagements are government contracts. They are a leading producer of ships for the US Navy or Coast Guard, and at 12,500 employees, the largest private employer in Mississippi. As related in the first commentary in this series, the Jones Act has protected maritime commerce and shipbuilding for American stakeholders like Ingalls.
It is ‘high tide’ for the Caribbean to engage some protectionism strategies. Considering that the Caribbean region is the #1 market for the Cruise Line industry, collective bargaining should be prioritized to direct some shipbuilding business to local entities in this industry. The book Go Lean… Caribbean posits that as a unified region – a Single Market – the power of collective bargaining is possible. The book serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU) with the charter to facilitate jobs in the region. We should explore the benefits of the shipbuilding (and ship-breaking) industry. This aligns with the CU charter; as defined by these 3 prime directives:
- Optimization of economic engines in order to grow the regional economy to $800 Billion and create 2.2 million new jobs.
- Establishment of a security apparatus to protect the resultant economic.
- Improve Caribbean governance to support these engines.
Early in the Go Lean book, this responsibility to create jobs was identified as an important function for the CU with this pronouncement in the Declaration of Interdependence (Pages 14):
xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.
xxvi. Whereas the Caribbean region must have new jobs to empower the engines of the economy and create the income sources for prosperity, and encourage the next generation to forge their dreams right at home, the Federation must therefore foster the development of new industries, like that of ship-building…. In addition, the Federation must invigorate the enterprises related to existing industries tourism, fisheries and lotteries – impacting the region with more jobs.
Accordingly, the CU will facilitate the eco-system for Self-Governing Entities (SGE), an ideal concept for shipyards, with its exclusive federal regulation/promotion activities.
The Go Lean movement (book and blogs) also details the principle of job multipliers, how certain industries are better than others for generating multiple indirect jobs down the line for each direct job on a company’s payroll. In a previous blog-commentary, it was related that the shipbuilding industry has a job-multiplier rate of 3.0. So once the job-multiplier rate is applied to the 15,000 direct shipbuilding jobs, generating 45,000 indirect jobs, the full economic impact is 60,000. This is transforming!
The Go Lean book provides 370-pages of turn-by-turn instructions on “how” to reform and transform the Caribbean, starting first with how to adopt new community ethos, plus the strategies, tactics, implementations and advocacies to execute so as to transform the maritime commerce to benefit Caribbean society. Consider the Chapter excerpts and headlines from this sample on Page 209 related to Ship-Building:
10 Ways to Develop Ship-Building
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1 |
Lean-in for Caribbean Integration The CU will allow for the unification of the region into one market, creating an economy of 30 member-states, 42 million people and 2010 GDP over $800 Billion. All of the member-states are either islands or coastal, therefore there are lots of coastline and harbors. Boats, yachts and ships are therefore plentiful in the region. Consistent with the CU’s mission for globalization, the region cannot just consume these vessels; we must create and build as well. There is a history of boat-building in the islands (slopes, schooners, clippers), but what had been missing to forge a formidable industry is the capital and the community “will”. The CU will now fill those gaps. The CU will tap the capital markets to secure long-term funding (stocks/bonds), prepare the labor force for advanced skill-sets, and negotiate treaties with “mature” EU states (i.e. Holland, Ireland) for master-apprentice labor-coaching. Boats, yachts and ships are considered durable goods, the opposite of planned obsolescence. … |
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2 |
Cooperatives Movement – “Many hands make heavy job light” |
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3 |
Ferry Operations – Demand & Supply The CU envisions a fleet of ferries, to service the individual islands, in a scheme dubbed “Union Atlantic Turnpike”. The proliferation of scheduled ferries, synchronized with trains and trucks will depict a continuous logistic network. This constitutes the demand for ferries. The CU will henceforth award the contracts for building and maintaining the ferries to local industry players – this constitutes the supply. The CU will therefore foster a ship-building “incubator”. |
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4 |
Spin-off Strategy – Low-risk Contracts The CU vision is to deploy a “spin-off” strategy for ship-owning patrons. The CU region needs ships. Therefore, the CU will incentivize patrons to “go local” with their ship-building/maintenance needs. A domestic ship-building industry is a great source of skilled/high-wage jobs. So there are many ways to exploit the cost-benefit equation for a win-win. |
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5 |
Cruise Ship Dry-Dock – Let’s Make-A-Deal The Caribbean region is the Number One market for the Cruise Line industry. Big expenses for Cruise Lines are port charges and landing fees. The CU will offer rebates and incentives for the Cruise Lines to use local dry-docks for retro-fittings and refurbishing. |
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6 |
Yacht Development – Catering to a Special Market |
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7 |
Sailboats – For Every Man The history of Caribbean boat building is rich with sailing crafts; cruise ships evolved from local Banana-Boats. The CU will channel that history, passion and ethos for the region to design/develop best-inbred sailboats, big and small. |
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8 |
Boat Shows and Open Houses – Show and Tell |
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9 |
Regattas – More than Just Winning a Race The history of the region has highlighted ships, boats and boat building. There is the tradition of Regattas, used to showcase the islands boat building prowess. [199] The CU now intends to feature Regattas in the same manner that automakers feature auto racing (NASCAR, IndyCar, Formula-One), as a demonstration platform for their art and science. |
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10 |
Maritime Emergencies – Professional Response The CU will deploy the necessary equipment and training for the ship-building industry to respond to maritime emergencies in the region. Therefore a disabled cruise ship will have the rapid response of “support-barges”, tug boats, dredging equipment, portable generators. This effort will be marshaled by the CU Emergency Management Agency. |
The CU will foster shipbuilding as an industrial supplement and alternative to tourism. We have the resources (waterscapes, ports and harbors), the skills and the passionate work-force. We only need the Commerce of the Seas. The Caribbean people are now ready for this industrial empowerment. But we need to be cautious as to which role model we emulate. The US does provide material support and subsidies to their shipbuilding industry, but their protection laws – i.e. the Jones Act – have nullifies the positive effects of a Free Market. While other countries build and launch hundreds of ships every year, the US model only produce 2. That’s a lot of missing jobs, and artificially induced high prices.
In the Caribbean, we must do better. Fortunately, we do not have the Crony-Capitalism of the Jones Act to deter us. We can follow other – better – models to progress our societal investments in this industry. This is the assertion of the Go Lean roadmap.
We hereby urge all Caribbean stakeholders – governments and citizens – to lean-in to this Go Lean roadmap to foster this industrial development, so that our region can be a better homeland and seas to live, work and play. 🙂
Download the free e-book of Go Lean … Caribbean – now!
Sign the petition to lean-in for this roadmap for the Caribbean Union Trade Federation.
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Appendix – The OECD Council Working Party on Shipbuilding
(OECD = Organization of Economic Cooperation and Development)
The OECD Council Working Party on Shipbuilding (WP6) seeks to progressively establish normal competitive conditions in the industry. It encourages transparency through data collection and analysis, and seeks to expand policy dialogue with non-OECD economies that have significant shipbuilding industries. WP6 is the only international body that can influence and guide government policies by identifying and, where possible, eliminating factors that distort the shipbuilding market.
The Working Party is chaired by Ambassador Elin Østebø Johansen, Permanent Representative of Norway to the OECD. Participating OECD members are: Denmark, Finland, Germany, Italy, Japan, Korea, Netherlands, Norway, Poland, Portugal, Sweden and Turkey. Croatia and Romania are full participants in the Working Party, and the Russian Federation participates as an observer. The European Commission, representing the European Union, also participates in WP6 meetings.
What does the Working Party on Shipbuilding do?
The WP6 has placed a high priority on encouraging policy dialogues, and on establishing close working relationships with non-OECD economies. In particular, these economies were invited to participate on an equal footing with OECD members in the negotiations on a shipbuilding agreement that ran from 2002 until 2005, and Brazil, China, Croatia, the Philippines, Romania, the Russian Federation, Chinese Taipei and Ukraine participated in those negotiations. Although the negotiations were eventually halted, a close working relationship has continued with all of these economies.
The WP6 organizes regular workshops aimed at facilitating the exchange of information on policy and industry developments, and as well as the economies already mentioned, other participants have come from India, and Indonesia, amongst others.
The WP6 has also worked closely with industry groups representing shipbuilders, ship owners, ship operators and trade union interests, so that a wide range of perspectives can be taken into account by WP6 members during their formulation of policy responses to address issues and challenges faced by the global shipbuilding sector.
What is the relevance of the Working Party to non-OECD economies and industry?
While the world’s shipbuilding industry has been through a period of record production, it was severely affected by the 2008 global financial crisis, and recent years have seen very low levels of new orders received by virtually all shipyards. The global industry now faces a number of challenges, most notably global excess capacity, which will place the economic viability of the industry under pressure in some parts of the world.
Persistent worldwide overcapacity may encourage governments to provide support through subsidies and other measures, as well as spur other market distorting practices, which can create major structural problems even in the most efficient shipbuilding industries. But potential market distortions can be addressed through close co-operation among economies with significant shipbuilding sectors and the active involvement of industry.
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INVENTORY OF GOVERNMENT SUPPORT MEASURES
The Inventory of Government Subsidies and Other Support Measures is a regular exercise for the WP6. The main aim of this exercise is to provide transparency and continuity of data on support measures for the shipbuilding industry. As well as WP6 participants, the Inventory provides some information on the support measures in Partner economies.