Globalization of Navy shipbuilding: a key to affordability for a new maritime strategy

Naval War College Review, Autumn, 2007 by Robert J. White

The Navy states that 313 ships are necessary to support U.S. national security requirements. To build this fleet, the service is requesting a significant increase in its shipbuilding budget. Both the Government Accountability Office and the Congressional Budget Office contend that the Navy request underestimates true shipbuilding costs. Worse yet, current budget pressures and historical budget trends leave even the lowest budget figure in jeopardy. How then can the Navy make its plan affordable? To meet shipbuilding requirements it must look beyond domestic industrial sources and fully exploit the comparative advantages of globalization.

Globalization exploits the advantages of multiple countries through not only labor and technology but also "trade, finance, production, and even the rules of national economies and how they relate to each other." (1) Its impact on manufactured goods is complex and widespread. Today the meaning of an American or Japanese label on a computer or automobile is problematic, in that over two dozen components come from more than half a dozen countries. (2) A "made in the United States" security requirement has become an arcane vestige of the industrial age. At best, it is a comfortable fantasy. At worst, it is a waste of national resources. In practice, in fact, it is already a fiction. One needs to look no farther than the HARM, Patriot, and Tomahawk missiles or the "Marine One" presidential helicopter to realize that foreign sourcing is already well under way in military systems.

Can global production reduce the Navy's shipbuilding cost risk? This article examines such a strategy to rationalize the budgetary means with the shipbuilding goals of the U.S. Navy. (3) The service needs to exploit the efficiencies of foreign shipyards to meet its force planning goals. Globalization should be embraced as an affordability measure within the new maritime strategy now being formulated.

THE 313-SHIP NAVY

The United States is a maritime nation. "More than 80 percent of the world's trade travels by water and forges a global maritime link." (4) As a result, American economic prosperity is contingent upon the freedom of the seas, and U.S. Navy primacy is the only reliable guarantor of that freedom for the United States and the international community. To maintain that primacy, in February 2006 the Navy laid out the details of a new plan for a 313-ship navy. (5) During congressional testimony the Chief of Naval Operations, Admiral Michael Mullen, stated:

   The 2007 Annual Long Range Plan for Construction of Naval Vessels
   is an investment plan that is both executable and affordable based
   on balancing several factors: naval force operational capability,
   risk, and the ability of the shipbuilding industrial base to
   execute the plan.... Full funding and support for execution of this
   plan is crucial to transforming the Navy to a force tuned to the
   21st Century and built upon the foundation of Sea Power 21 and
   FORCEnet.... As part of the QDR [Quadrennial Defense Review]
   process, the Navy used a capability-based approach to calculate the
   size and composition of the future force.... The analysis concluded
   that a fleet of about 313 ships is the force necessary to meet all
   of the demands and to pace the most advanced technological
   challengers well into the future, with an acceptable level of risk.
   (6)

If we accept at face value the figure of 313 ships as representing the tools required to execute the Navy's portion of grand strategy--that is, to support national goals with acceptable risk in the envisioned security environment--what remains is to rationalize resource constraints. Unfortunately, while the Navy believes the plan is executable and affordable, the Government Accountability Office (GAO) sums up the reality of the situation: "The Navy plan requires more funds than may reasonably be expected." (7)

The Cost Risk of the 313-Ship Navy

In press reports even before Admiral Mullen's comments, the Navy announced that it would require an average of $14.4 billion annually for new ship construction over the next thirty years. (8) This represented a 37 percent increase over the 2000-2005 average of $10.5 billion in annual new ship-construction funding. (9)

A 2006 GAO report questioned the accuracy of the Navy estimate. It analyzed the cost growth in the construction of four ships, each the "lead ship" of a new class, over the period from fiscal year (FY) 1996 to 2006. This analysis revealed an average increase of 27 percent over initial budget estimates. (10) According to the report, the Navy plan scheduled nine new lead ships for construction between fiscal years 2006 and 2016. (11) The Congressional Budget Office (CBO) is even less confident than GAO in the Navy's numbers. Because of significant cost growth in recent Navy shipbuilding programs, the CBO projects the actual requirement to be $19.5 billion, a 35 percent increase over the Navy estimate--and a nearly 100 percent increase over recent budgets. (12) Add on a CBO estimate of support ships missing from the Navy plan, and the annual costs reach $21.7 billion (see figure 1).