Summarized Session – Future of Shipbuilding and Ship Electriciatoin in the United States
I was invited to moderate the following session. I found it so interesting that I summarized the material and the state of US shipbuilding.
The panel began by addressing the following question: How do we ensure that people recognize the shipyards as relevant partners? In some ways, there is a need to view the shipyards as the apex integrator of the shipbuilding industry. Shipyards are not just project managers and undertake some truly innovative initiatives to build vessels. While we can focus on the oil and gas sector due to the size of their operations, the ultimate suppliers are the shipyards. When we compare US operations to shipyards in Korea, where there are “mass-produced” vessels forced onto their customers, but the American Shipyards are still focused on mass-customizable deliverables. There is a need to adopt some of the integration in design and other aspects to reduce the design-to-delivery time. However, there have always been requests from shipyards for operators to adopt standardization. While customization may be cost-effective, the integration of new technologies will require yards to begin project management with owners and system providers as early as the concept design phase.
That leads to a different topic: What do we do here in the US that is unique compared to other parts of the world? We can build standard hopper barges, but when people need different vessels, that are less standardized, companies have preferences regarding engine, paint, and a host of other parts. The industry accomplishes extraordinary things, and there is a sense of pride due to the variety of vessels that are built. But that diversity of vessels also makes shipbuilding hard to promote to a general audience. Frankly, the only time shipping is in the news is when something happens, such as the Baltimore Bridge Strike, but these are good-paying, skilled jobs. While we want the industry to be somewhat “invisible”, we do recognize that we need to elevate these jobs. In the Great Lakes region, several states and provinces are investing in shipbuilding and developing a maritime strategy. When there are big investments within the region, as an industry, we need to build upon those success stories to promote shipping and shipbuilding jobs.
While workforce questions exist, the need to consider technological adoption remains a significant challenge. There are such diverse vessel needs that vessel operators can not rely upon standardized construction. For example, Crowley operates a Jones Act fleet. They are taking delivery of five LNG-powered vessels built in Korea, which will be reflagged under the American Flag, and deployed the battery-electric tugboat, eWolf, in 2024. While U.S. shipyards can standardize tug vessels and larger commercial ships, the complexity of alternative fuel technologies and these systems’ diversity makes it challenging to design a one-size-fits-all vessel for deployment on any predefined route, thereby complicating efforts at vessel design optimization, which in turn influences the nature and pace of technological adoption.
However, this raises a new question: can we utilize big data to optimize modal traffic in the U.S., where waterways can be leveraged to offset long-distance trains or traffic congestion on Main Street America? Big Data can help justify investment decisions that prioritize freight. This concern is important, as a significant portion of the ship-assist industry will need to be replaced in the next few years. As new technology emerges, one question is whether it will alter the construction of the hull or whether firms will remain focused on what they believe is their “better” system. However, if someone needs a tug, they will get one. Nevertheless, concerns exist about where the tug will operate, as running out to Vancouver is different from operating in San Diego. Nevertheless, we can standardize tugs that can be used on 80% of the routes.
This leads to a different question: “Where are the market signals for this type of technology on investments?” It’s one thing to discuss technology applications, but the real question is who will provide the market signal to the shipyards to design/build these vessels? There are a few key factors: the number of ships to be built and the regulations driving this adoption. The oil majors are pushing for cleaner vessels, while governments implement regulations for cleaner engine, fuel, or emissions standards, and big retailers are emphasizing emission reductions throughout their supply chain. However, ultimately, investment money reflects the demand signal regarding technological innovation. There are challenges that shipyards are not hearing from ship owners, which prevent them from pushing for these new technologies on their vessels. Twelve years ago, diesel-electric vessels were perceived as an emerging technology; however, they have evolved into a more mainstream design. Nevertheless, shipyards had to take a risk in convincing owners to adopt them. Many firms are willing to pay a “green premium,” but they often prioritize cheaper carbon offsets or more cost-effective intracompany efficiency improvements over addressing their Scope 3 supply chain emissions.
This leads to a question concerning ferries: Various programs within the US Department of Transportation can fund innovation in ferry design and construction. The challenge lies in aligning these program eligibility differences, as other government programs may reduce the ability to adopt hybrids in various ferry fleets. There are still Buy America provisions, which may limit the ability to source these new technologies. There are restrictions on electrical components, steel, and other elements, but this may limit the ability of grants to implement hybrid technologies. This means that grant applicants must ensure these elements are addressed in the application process. Each program has its own criteria, so while an operator may receive grant funding for the same vessel, the applicant must understand the specific program’s requirements. Applicants have to know what the design is for a vessel at the shipyard. However, from the harbor assistance side, there is limited dedicated funding for ship-assist tugs by the federal government. Electrification is occurring in the Ferry Industry because funding is available; however, this technology is not being deployed in other sectors due to a lack of funds to mitigate the risks associated with constructing these vessels. There is a need for seed funding to germinate this in the broader maritime system. For example, regional ferries like the Badger and the ferry to Mackinac Island would benefit from cleaner technology. There are electric ferries in Toronto, Niagara Falls, and Gee’s Bend; however, we need to fund pilot projects and secure some public sector wins. It is unclear what the first “win” would look like. In Niagara, the ferry owner sought a green vessel that would provide a competitive advantage in the service. The Toronto service is funded by airport fees, making it easier to manage those risks. However, services that are interested in the triple bottom line will push for these innovations if they help the bottom line. For ferries, they will have to cover their revenue streams. For example, in a simulated ferry service between Alaska and the Pacific Northwest, a variable-speed generator would allow for savings in fuel and maintenance costs. This will allow off-line generators, and the crew benefits from quieter operations. In Alaska, there is a significant amount of bootstrapping in fuels, as shore-side services are not readily available.
This led to a different question: how to manage the risks associated with integrating innovative design elements into the pricing of a new vessel’s construction bid costs. As a shipyard and designer, there would be a need to reach back to the integrators to understand how to manage these risks. There are plenty of places where one can examine these risks, but it requires more information in the package to determine whether a contract is suitable. Ultimately, the customer will pay for these costs. Currently, tariffs are a financial challenge, but those will be passed on to the owner. For some things, changes occur in the supply chain and among integrators, while other price changes can result from a lack of understanding of the technology itself; however, these cannot all be borne by the shipyard. However, there is still a need for bids to undergo a technology qualification process. Technical Readiness Levels are crucial for enhancing systems to mitigate specific risks, as well as for conducting more comprehensive risk analyses. For newer technologies, risk evaluation tools are more advanced; however, older technologies often lack the same level of analysis. Technical qualifications are more important now than in the past, and numerous examples from across the entire transportation industry can be borrowed to inform the design standard and better manage these risks, adding more value, especially if this is done at the pre-compete stage. This is critical, especially as it took one panelist two years to get a design approved by the Coast Guard. Time is Money. New technology and new risks are adding costs throughout the construction cycle. The problem is that shipyards are now being asked to take on all these risks. There must be a balance between the shipyard, the owner, and integrators; however, owners, especially those who dictate more specialized systems, remain responsible for these risks. This also means that local inspectors and regulators must be educated about these systems. This is not talking “to them”, but talking “with them”. This is where the lessons are learned.
One of the challenges is the slowness of government policy formulation, particularly in the Coast Guard, which has taken the Coast Guard ten years to publish a policy letter on LNG bunkers. This technology has been deployed in the US for over a decade. However, in other countries that use classes, their standards are adopted more quickly. This also means that there needs to be a greater focus on capturing information to help new Coast Guard members get up to speed more quickly, particularly when considering innovative processes. All of these groups want the same thing but discover it in a different framework. However, once the process is completed, it becomes easier to provide a framework for additional class or regulatory review.
A new question was asked: Who owns the design-build information? For example, one shipyard may not have the same capabilities, resulting in different costs. Some shipyards want more control over the process, while in some cases, the owner wants more control. To better manage the risk, the shipyard recognizes that not all risks are borne by the shipyard; therefore, a design-bid-build contract introduces more variability and risk to the yard. However, for the offshore sector, they tend to focus on the owner to deliver the design and components. Again, there is a question about whether working with partners early in the process can reduce these costs.
In many ways, this leads to the following question: namely, in the Great Lakes, there is a seasonal element of work due to the closure of the navigation season. For a shipyard, the workforce doubles in the winter, and in the past, this was typically local labor, often working alongside local unions. Today, there is a need to work across multiple languages, as we aim to bring people from all over the world together. They are using more agencies to find certified workers who can do the work, even as the workforce is aging. There is a problem, as younger employees can arrive, make $24 an hour, complete the training, and then leave to work in an air-conditioned warehouse for similar or less money. Workers today may expect different jobs than what is available, and we are not informing new workers about all the in-demand jobs, such as those in design, electrical work, and other specialized skills. Some booming shipyards are paying higher wages, but wages are expected to increase further. The shipbuilding sector may need to reconsider how to build ships more efficiently and intelligently, given these constraints. In some ways, shipyards may find themselves focusing more on component construction, such as that done by Metal Shark and others in the superyacht and sport fishing vessel sectors. Standardized designs will help address this issue and could benefit workforce concerns. But this challenge can be incentivized with government support the improve America’s maritime competitiveness.
This raises the question of how we inform people about career opportunities in the maritime industry, which cater to a diverse range of skills and expertise. Regionally, the Great Lakes are making a concerted effort to focus on workforce development, but it remains a challenge. In some way, you are not hiring a welder, but someone who can run a video game all day. The question is how to find wins that can be made public. And yes, mariners are 30 days on/off, and today, every vessel has a Starlink and a PlayStation. There is more variation in the industry, but it still has a lot of room for the industry to be relevant and cool to “younger workers”. But the industry is cool. Ships are huge, ships are awesome. The new technologies, such as nuclear power, icebreakers, and green industries, will further make this an attractive industry. The focus on creature comforts makes this a more attractive alternative than it was in the past. Still, challenges remain in the industry’s visibility to younger generations and overcoming outdated stigma accrued over the ~10,000 years the maritime industry has existed.
However, as the vessels become more complex, there is a need for increased communication as shipyards can not make all the “stuff”. There is an order to building a ship, as the hull, wheelhouse, etc., must be fabricated, painted, etc. It is no longer just one module; the shipyard must work with local fabricators, and integrators must integrate vessels into supply chains to manage inventory and warehouse space. And shipyards must pay for equipment when it arrives at their warehouse, so cash flow becomes a significant concern. And in some ways, the equipment can become technically obsolete even while the vessel is being constructed, or when a change order is issued. The cost management, especially integrated components, becomes a larger share of the total costs. This means that scheduling will become increasingly critical in the process in the future, especially across integrators and new technologies. In many ways, scheduling can be a differentiator for working with shipyards. The supply chain can consider what components can be broken down and shipped in stages, as opposed to a single, lump-sum shipment that would take up space and incur financial obligations. This also means that shipyards, often located in urbanized areas, must consider using alternative or off-site facilities to manage these components. For example, there is always a need for storing propellers, but what about other elements, such as keeping a single crane that may have a unique gear you may need? Vessel operators maintain spare parts and other necessary components to keep the system operational, but this also requires collaboration with shipyards to schedule equipment needs/repairs. For example, there was one operator who had problems with obtaining the wrong seals, which resulted in the vessel being laid up for several months. One of the observations is that 3-D printing is still an option, but it does not really fit in the shipyard due to the nature of the vessel and the materials being used. But usually, it takes 10-15 years in the automotive space before you see new production approaches in the maritime industry.
This led to a question about the recent IMO Net Zero mandate. The IMO NetZero framework is expected to be implemented; however, how will this influence the US maritime system? The joint statement by the United States Department of State directly stated that it will not adhere to the provisions. In the US, there are indications that countries that integrate the Net Zero protocols will be penalized if they impose costs on US consumers. For technology providers, are there no incentives in just a few years? Vessel operators must plan for changing standards, but saving on fuel costs directly supports a firm’s bottom line. More efficiency and reliability will drive the industry from now on. However, the environmental push in the maritime industry has been an issue since the 1960s. Technology can reduce costs, and no one will build a vessel without some degree of hybridization. Regarding the future of shipbuilding, the recent executive order can give the industry some push, and it remains a viable policy document. There remains a need for Congress to pass several laws; however, the Executive Order effectively highlights the gap between US yards and the rest of the world. And there will still be a need for regulatory elements to be updated to accommodate the new technology.
Ultimately, the shipyard industry requires vendors to present a clear plan for meeting critical lead times and addressing any contractual delays caused by its partners. The industry needs to know what they are doing to strengthen the region. While there is a need for patience, the shipyard will need assistance in addressing new requirements and interesting practical technologies that build a better ship.
For more about the conference, you can visit https://electricandhybridmarineworldexpo-usa.com/en/conference-program