Where Industry and Security Intersect
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The U.S. Department of Commerce, Bureau of Industry and Security (BIS), conducted this study at the request of the U.S. Army to assess the economic benefits of procuring and building Theater Support Vessels (TSVs) in the United States. The assessment analyzes the potential economic benefits of the TSV project to domestic shipyards, their key suppliers, the workforces involved, and local and regional economies. The assessment also analyzes the strategic benefits of single sourced and dual sourced production.
Per the Army's parameters, the TSV procurement will initially involve the acquisition of seven high-speed aluminum-hull vessels with delivery through 2008. Each TSV has an approximate procurement cost of $141 million. BIS also analyzed the economic impact should the TSV procurement receive funding for 12 and up to 24 vessels over the life of the program with single and dual-sourced production.1 The timeline for a single sourced procurement is projected as 2004-2016; dual sourced procurement is projected as 2004-2010.
Our analysis indicated that an initial procurement of seven TSVs between 2004 and 2008 will: (1) add more than $1.3 billion in wealth to the U.S. economy; (2) create 2,849 new domestic jobs: 81 percent at the shipyard and its local economy and 19 percent at the key suppliers; and (3) produce an increase of $310.8 million in earnings of individuals and households. If the procurement reaches 12 - or up to 24 - vessels, the amount of economic benefits increases substantially.
The BIS team also explored the dual sourcing implications of the TSV procurements. On an aggregate basis, our analysis indicates no major economic difference between single and dual sourcing to the overall U.S. economy. However, there are several strategic benefits that are highlighted from the survey results. The main strategic impacts of dual sourcing are: (1) reduced risk to the supply chain and, ultimately, readiness; (2) wider distribution of economic impacts and a faster production timeline; (3) broader dissemination of TSV-related knowledge and its skills base; and (4) enhancement of U.S. shipbuilding industry competitiveness.
The TSV-capable shipyards are all located in regions with unemployment rates higher, and wage levels lower, than the national average. Nearly 43 percent of total TSV workers will be highly skilled production workers earning base wages of $14 to $18 per hour. Including benefits, their total compensation would reach between $28 and $36 per hour.2 Should the full TSV program receive funding, these new jobs would last through 2016 and potentially beyond, with the addition of commercial high-speed aluminum vessel-related business opportunities. Dual sourcing will provide similar employment benefits but split them between the two regions and reduce production time by half (through 2010).
According to the shipyards surveyed, all of the jobs created and supported by TSV production would be filled by U.S. workers, except for a small number of foreign nationals (<1% of the total workforce required) needed for initial design, engineering, and training.
The TSV project may also create a new market for critical domestic industrial products during a period when the U.S. manufacturing sector is declining. The U.S. balance of trade in key components of the TSV procurement has been increasingly negative since 1992. Indeed, the transfer from abroad of technology used to assist the design and manufacture of TSVs would inject entirely new professional and technical skill sets into the U.S. economy and the defense manufacturing base. Over time, U.S. TSV-capable shipyards could position themselves to enter the $400 million annual, and growing, global market for high-speed aluminum vessels.3 In a fashion similar to the U.S. Coast Guard's innovative Deepwater program,4 the TSV procurement could be another vehicle for the U.S. maritime industry to increase sales and enhance its competitiveness in the global marketplace. Dual sourcing would allow two U.S. shipyards to take advantage of this capability.
Most of the TSV's content will be U.S.-made, ensuring that the greatest possible benefits are captured by the domestic economy. Although the situation varied according to shipyard, it was apparent that some important TSV sub-systems and components may be most easily procured from overseas suppliers - in particular, propulsion systems, aluminum, and some electronics. If this foreign sourcing did occur, the economic benefits would still be substantially positive to the U.S. economy, but the benefits would be an average of one-fourth smaller.
Should these subsystems be imported, the initial overall TSV benefits to U.S. economic growth, employment, and income will be reduced as follows for the first seven TSVs: (1) overall economic impact to the shipyard and supplier economies would be reduced by 26 percent, or $346 million, from 2004-2008; (2) overall earnings would be reduced by 24 percent, or $76 million, from 2004-2008; and (3) overall job growth would be reduced by 19 percent, or more than 530 jobs, from 2004-2008. If the total procurement reaches 24 vessels, the reduction in U.S. growth, employment, and income from imported components would be even greater.
1. Single sourced production refers to a single shipyard producing TSVs, dual sourced refers to two shipyards producing TSVs simultaneously.
2. Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOL/BLS Regional Wage and Employment Data 2003
3. Source: Australian Trade Commission 2003
4. U.S. Coast Guard Deepwater Program Web site: http://www.uscg.mil/deepwater