The Navy’s shipbuilding capabilities are slowly sinking

Tom Temin: You have pointed out that there’s been about almost $6 billion over the past couple of years and planning the Navy to spend $ 12 billion more in the shipbuilding industrial base. Does those investments let’s start here, go only to the organic part of the Navy’s shipbuilding base. Or do they also these investments go out to some of the commercial entities that support shipbuilding?

Shelby Oakley: Yeah, we looked at the private investments. So we looked at the parts of the industrial base that are doing the shipbuilding programs and doing the repair and overhauls of the nuclear submarines. We have other work in GAO that does it. Look at the SOIP investments, the shipyard optimization infrastructure program investments, but this one was very specific.

Tom Temin: Specific. When you say private, you mean the private sector?

Shelby Oakley: Yes. Correct.

Tom Temin: And what what do they give, like grant money or contract money to the private sector, as part of? These are funds outside of direct acquisitions, in other words?

Shelby Oakley: Well, not everything is outside of direct acquisition, so the the total value that’s already been given is nearly $6 billion. And some of that includes contract incentives for shipbuilders to make some investments themselves and their facilities, workforce, infrastructure, that kind of things. The other and the bulk of the funding is called direct investments. And that’s where we’re seeing the Navy giving money to the private sector to make investments in their workforce, buy a piece of equipment that could increase productivity, expand their shipyards, all sorts of projects that they’re supposed to be taking on to be able to improve their performance and throughput for the Navy. And so that’s where the bulk of the funding has gone in that direct investment category.

Tom Temin: And speed and throughput, though, hasn’t really changed in 20 years you’re finding, and the reason is what the Navy is not looking at the backend of results of these investments?

Shelby Oakley: Yeah, so interestingly the money that we’re kind of talking about, it started being invested in like 2014. So this is over a ten-plus year time period where the Navy has invested nearly $6 billion. And that also includes OSD investments as the office of the Secretary of Defense investments through things like the Defense Production Act and that kind of thing. And so one of the things we went out and started taking a look at these investments is that there’s a lot of good anecdotal stories about so-and-so builder built this new piece of equipment and they were able to do X. But we saw that there was a lack of information about what it is that these investments are supposed to spur and result in. So those were just kind of anecdotal, but the Navy didn’t have holistic information on, all right, we’ve made $6 billion worth of investments and here’s kind of what it’s gotten us, and here are the improvements that we have seen. And that’s a problem because we’re in a really critical time right now. And we’re making and we’re giving all of these investments to try and help us not only speed up acquisition of shipbuilding, but also dig out of the hole. We’ve been. At this point in time we were projected to have well over 300 ships in the fleet, and we’re less than 300 at this point. And to be able to meet the Navy’s goals for the future, it’s going to require not only acceleration, but also digging out of the hole.

Tom Temin: And the ones that the Navy does have at a given time. A large portion is not underway because they’re in repair. And you point out that the dry dock capacity sometimes doesn’t match up with the Navy’s needs. Pretty basic stuff.

Shelby Oakley: Yeah, and that’s really a complicated issue, right. Because when you kind of just look at the numbers on the surface, the repair capacity looks like it’s sufficient for the Navy’s needs. But when you factor in repair periods that are taking longer than expected, and the deferred maintenance and the backlogs that those repair companies are experiencing and that that the Navy is experiencing, it really then kind of shifts everything. And so you can have this perfect plan that has kind of made use an adequate use of the dry docks across the country. And then something gets delayed by six months in repair. And that shifts all of those other plans for repair. The good thing about on the repair side is that they do have the capability to shift those availabilities to other yards nearby on the coast, but everybody on the repair side is also experiencing workforce challenges. And so that is one thing that is a limiting factor for some of those repair yards.

Tom Temin: We’re speaking with Shelby Oakley, director for contracting and national security acquisition at the GAO. And is part of the problem that at least in the United States, there’s really no other shipbuilding demand. I mean, cruise ships are not built here. So anything on the scale, just in terms of beam length of a Navy ship, we don’t produce them in the United States. Container ships are no longer made here. I don’t even think ferries in Port of Seattle type are US. made. And so part of the fact is that, in general, we’re not a shipbuilding nation anymore.

Shelby Oakley: Yeah. I mean, there was a real draw down of the shipbuilding and repair industry over the past 20 years. I mean, I think 17 yards left the business. That leaves us with seven yards that build warships. And I think like maybe 14 other yards, repair yards and whatnot at that point. I should clarify that this isn’t just a Navy issue, obviously, this is a Coast Guard issue, this is a nationwide issue in terms of being able to get ships built. And I think there’s a real challenge here in kind of trying to protect the shipbuilders and the shipyards that we have already, but also encourage competition and expansion and more yards to enter the space, because if you don’t have the work to give them, we don’t have that commercial shipbuilding base to support them in times when the department is not buying the ships that it says it will. And I think that’s one of the key findings that we saw is that, the Department of Defense puts out this long range shipbuilding plan every year, the 30-year shipbuilding plan, and that’s what’s supposed to be sending the signals of stability, but it just really isn’t. It hasn’t been the marker of stability. Just this year for fiscal year 2024, those shipbuilding plans that we looked at ranged from eight ships to 18 ships and 10 ships is a big difference for companies to be able to plan their investments around. And I think as a result, we saw that a lot of the things that the Navy thinks it uses to encourage the private sector to make its own investments really aren’t doing that.

Tom Temin: And your recommendations there for often, or the bulk of them, center around just collecting data, sharing data between the Office of the Secretary of Defense and the Navy so that people know what they’re investing and have data to evaluate whether the investments are paying off.

Shelby Oakley: Yeah, absolutely. I mean, that’s really what we want to get at is, is that what is the strategy here, and how are we kind of aggregating all of the investments that we’re making at the OSD level, at the Navy level. And then beyond that, to be able to say, here’s what we’re targeting, here’s why, here’s what we expect the outcomes to be, and then monitor and measure what those outcomes are, because we can’t get five years down the road and find out that this approach didn’t work. We need this to work.

Tom Temin: And this report dropped last week. Is the Defense Department and the Navy Department, are they in such a position that you can hear the splash when you drop a report there, or are they only concerned with the border and I don’t know what else.

Shelby Oakley: No. I think the Department of Defense has or the Department of the Navy has kind of begun efforts to lead what’s called a Maritime Industrial Base initiative. And so they’ve set up that maritime industrial base office recently. And like September, to be able to begin looking at this from a holistic perspective. And so I think there’s a lot of attention and focus right now on shipbuilding and repair because of that pressing need that we have with regard to what China’s intentions are in the coming years and being able to counter and fight whatever we we might need to at that point. And so I definitely think there’s a lot of emphasis and energy around these efforts and we hope they kind of continue to make some significant progress, because we’re throwing a lot of money at this. This is money outside of contracts, for the most part, outside of those incentives. And so when you’re dropping billions and billions of dollars in, that is something you want to see, a return on that investment.

Tom Temin: And the final implication of this, as things stand now, if something were to happen in the Straits of Taiwan and five Navy ships got damaged. The question is, could they get back in the fight in any reasonable time frame?

Shelby Oakley: Yeah, and that’s part of what our findings are, is that there’s no real strategy around the repair for dealing with battle damage repair, emergent needs, that kind of thing. And I think we’ve done some significant work in that regard to say that this is a challenge and this is something that the Navy really needs to think about going forward, especially that Pearl Harbor is pretty constrained at this point. And so that’s something that we’ve made recommendations on in the past and that this report and identifying that the repair side of things really needs to think about their own strategy and base their investments for repair, which are anticipated to increase going forward on what those actual areas of need and concern are.

Tom Temin: Yes, because the acquisition price of a ship is a fraction of the lifecycle cost of maintenance and repair. Fair to say.

Shelby Oakley: Yep. It’s about acquisition is about 20 to 30%. Repair and sustainment is 80%.