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Military vs Commercial Shipbuilding

Whereas the general manufacturing process for all types of vessels is similar, the building, outfitting, and appearance of the end product can differ significantly depending on the type of vessel being built. There are many types of commercial vessels. Some are "series built", meaning the design is the same for several ships, and other vessels are more customized. The high level of capital investment and specific applications for any vessel ensures that only a limited number of ships may be substantially alike.

The production of vessels for defense-related applications, which currently accounts for the vast majority of the ongoing activities of U.S. shipyards, is quite different from that associated with most ships employed in commercial operations. To begin with, the competition for military vessels is typically limited to a few yards in a single country, and competition often centers more on the reputation and capabilities of competing yards than on price. In addition, many defense contracts often allow for some flexibility in the final delivered price of a vessel based on the design changes and system modifications that are quite common during the construction of these ships. As the result of such changes, and efforts to incorporate the most upto-date technology, each vessel is, to some extent, "one of a kind."

The complexity and sophistication of military vessels is typically far beyond anything associated with commercial vessels. Military vessels often accommodate a significantly larger crew complement than commercial vessels do and have advanced electronics for radar, sonar, communications equipment, and weaponry. In addition, complex propulsion systems are often unique to military vessels. Because military vessels are designed to maintain their operational integrity under the most adverse environmental conditions, they are built to more exacting standards and with higher cost materials than are most commercial ships.

In contrast to the production of vessels for defense applications, the production of the major types of commercial vessels (VLCCs, ULCCs, container carriers, bulk product carriers, ro-ros, and similar product carriers) is much less technologically sophisticated and labor intensive. Major contracts for these vessels are most often awarded on the basis of price and delivery considerations. Because a number of yards in more than one country may be involved in bidding on the same contract, commercial competition is often quite intense.

With the possible exception of cruise ships, the production of a series of similar commercial vessels involves far fewer design and production modifications than a comparable generation of military ships. Thus, it is typically possible to take advantage of considerably greater learning curve efficiencies and economies of scale when building many types of commercial ships as opposed to building vessels for defense applications.3* Also, foreign shipyards specializing in commercial work typically receive orders for a number of ships of the same basic design and specification. This similarity reduces the cost of nonrecurring design changes.35 Commercial customers are typically much less involved in the ongoing production of a vesse1, which differs drastically from the hands-on approach of military vessel customers in the United States.

Outfitting a cruise vessel is more akin to building a large, luxury hotel than to shipbuilding. On average, 50 percent of the production cost of such a vessel is attributable to the labor and materials associated with outfitting. The proper scheduling of the vessel's outfitting must be maintained, because timely delivery is especially important for cruise vessels. When the construction contract is signed, the prospective owner starts advertising, making advance bookings and selling tickets, publishing itineraries, and determining berthing requirements. In addition, entertainment and employment contracts are also signed; with a large cruise vesse1, the crew size can normally be over 1,000.

The majority of U.S. yards tend to be unionized, with workers having narrow job classifications. According to one U.S. yard, there can be as many as 71 different job classifications for shipworkers in a unionized U.S. yard. This situation lends itself to production inefficiency and higher production costs than those of Asian and European yards. Labor flexibility is an important advantage in European yards. In general, European shipyards have just two labor unions: steel workers and electricians. Steel workers are trained in various steelworking jobs. This flexibility helps to obtain maximum utilization of the workforce. Although additional costs are incurred in terms of the broader training that each employee receives and in negotiating the sharing of skills with the labor unions, this approach is believed to be more economical for the foreign yard overall.

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