Aker Philadelphia Shipyard, in a work drought, is counting on a marine-highways system

At Aker Philadelphia Shipyard, welding a tanker bow, above, and on the panel line, below. Aker would get vessel orders if a U.S. marine-highways system were to get off the ground. The yard also is angling for Navy funds.
At Aker Philadelphia Shipyard, welding a tanker bow, above, and on the panel line, below. Aker would get vessel orders if a U.S. marine-highways system were to get off the ground. The yard also is angling for Navy funds.
Posted: July 18, 2010

Aker Philadelphia Shipyard faces an enormous challenge to stay afloat in an ever shrinking U.S. shipbuilding industry.

Aker is one of two U.S. shipyards that build oceangoing commercial vessels under the 90-year-old U.S. Jones Act, which requires U.S.-made and U.S.-operated vessels transport goods between U.S. ports.

Aker stands to gain substantial new vessel orders if a U.S. marine-highways system ever gets going.

Hoping that will happen, American Feeder Lines L.P., of New York, recently signed "letters of intent" with Aker and a Green Bay, Wis., yard to build five ships each, and maybe more, starting in 2012 to transport cargo in container ships between Maine and Texas.

But near-term, Aker is in a financial pickle, with no new orders.

The South Philadelphia yard is completing three product tankers, which have buyers and will be ready in August, December, and May.

Normally, construction would have begun on a fourth vessel. But because there are no buyers, there is a lull in work and, thus, revenue. This has triggered layoffs among the more than 1,000 shipyard workers.

"We think, if Aker can get over this hump, the future is very bright," said Gov. Rendell, who is asking the White House to request that the Navy free up $35 million already appropriated, but never spent, in 2004 on a Philadelphia terminal for high-speed cargo ships.

The $35 million is "sitting in an account" at the Navy and "is an easy lift because it doesn't affect the Treasury or the deficit," the governor said.

"I've tried to impress upon the White House that it is no cost to the Treasury. It will keep more than 1,000 workers in good-paying manufacturing jobs and also keep the supplier network intact."

Since World War II, commercial U.S. shipbuilding has dwindled, and most of the world's big ships today are built in Asia - Korea, China, and Japan.

It is a testament to the Philadelphia region that shipbuilding has survived at all.

"That Aker is still around and operating is the consequence of achievements in the past," said Paul Bingham, managing director for global commerce and transportation for IHS Global Insight Inc. "A lot of other cities that had shipbuilding 30 years ago have seen their shipyards go away."

The hurdle for U.S. shipbuilding is cost - not labor cost, but productivity and economies of scale. Korean shipbuilder Hyundai turns out 70 ships a year in each of its two yards, compared with three to five ships a year for the entire U.S. industry.

The more ships a yard builds, the more productive the workers, and the lower the overhead costs. Supplier prices also drop.

"U.S. shipyards are too small to compete with a much more efficient Asian shipyard, where it's just a critical-mass issue," Bingham said. "An Asian shipyard may launch a vessel every other week, not one per year. It's almost the difference between an assembly line, and something that's handcrafted."

Even U.S. yards that cater to the military have too little work now because, after the September 2001 attacks, the Navy and the Coast Guard have not been building as many ships as they once did.

Last week, defense contractor Northrop Grumman Corp. said it would seek to spin off or sell its entire shipbuilding unit and shut its yard in Avondale, La., by 2013 because of less military work.

"The challenges are quite enormous. It doesn't mean Aker can't be innovative and creative and find a handful of vessels to keep going," Bingham said. "If there's any silver lining, it is that Aker doesn't need to find 100 vessel orders. They only need to keep these 1,000 workers going.

"It would not take a lot, on Congress' part or anyone's part, to get Aker over that hurdle," Bingham said.

Aker employees account for less than 1 percent of the total 2.5 million jobs in the Philadelphia metropolitan area. Between 1,000 and 1,200 worked at the yard the last two years, and 7,800 depend on the shipyard for business, including suppliers and contractors.

"Apart from the economic impact, they have some other intangible values," said Philip Hopkins, director of research at Select Greater Philadelphia. "It is sort of a signature industry that has some symbolic and competitive importance that transcends just its simple contribution to the local economy."

When Select Greater Philadelphia talked recently with a company considering a manufacturing move to the East Coast, it was helpful to point to Aker. "Here's a heavy-manufacturing sector requiring very skilled workers who have been able to be fairly successful," Hopkins said. "From our standpoint, that is a real benefit."

Many think it is worth fighting for.

"Aker is the only facility on the East Coast where you can build ships, and even if you don't build ships there, you might be able to repair ships," said Tobias Koenig, a Hamburg, Germany, financier and ship owner, who has signed a tentative agreement with Aker to build five container ships.

Koenig and his partner, Percy Pyne IV, founders of American Feeder Lines, want to build ships for a U.S. marine highway - in other words moving cargo between U.S. cities over water instead of land - and say they have talked with other shipyards about a joint venture with Aker.

"There is some interest," said Pyne, a New York real estate and consulting executive. "We are talking to one in Korea, one in Taiwan, and a third in Germany."

Meanwhile, Rendell, U.S. Rep. Bob Brady (D., Pa.), and others are trying to get Aker funding.

Rendell and his Washington representative, attorney Peter Peyser, are lobbying the White House to get the Navy to transfer $35 million appropriated in 2004 for a FastShip Inc. project that never happened.

Although legislation would not be required, the U.S. House and Senate Appropriations and Armed Services committees would have to sign off, Peyser said.

Rendell is cautiously optimistic. "These days, so much is swirling around Washington that it's hard to be totally optimistic. This is such an easy lift, because it doesn't affect the Treasury or the deficit, that I think we should get it."

While $35 million would not be enough to build two tankers, Aker has private investors "who are going to come in and plug a significant portion of the hole," Rendell said. "But this $35 million is key for whether they can do that. Aker is pretty confident that, as the economy improves, there will be a significant market for these ships, so they want to keep working."


Shipyard's Economic Impact

The Heinz School Center for Economic Development at Carnegie Mellon University offered this assessment of Aker Philadelphia Shipyard's impact on the Philadelphia region in 2006:

Shipyard   jobs: 1,069, with wages of $55.2 million.

Direct and indirect employment (including suppliers and construction):

7,874 jobs, with wages

of $217.2 million.

Pennsylvania state taxes: $2.7 million.

Philadelphia wage taxes:

$3.0 million.

Property taxes:

$3.8 million.

Business income taxes: $246,882.

Total local taxes: $7 million.


Contact staff writer Linda Loyd

at 215-854-2831 or lloyd@phillynews.com.

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