The CHAIRMAN. But after the experience we have had with the Savannah, this committee would have a difficult time over in the House. Mr. HOOD. I would imagine so. The CHAIRMAN. I want to go forward, I do not want to go backward. I do not want things to be obsolete when they are completed. Do European countries have this in mind? Mr. HOOD. I saw a report recently that Japan and West Ger many The CHAIRMAN. Or Russia, we might say? Mr. HOOD. I am not aware that Russia has any nuclear-powered vessels presently except the icebreaker, the Lenin. The CHAIRMAN. We passed an icebreaker bill. Mr. TOLLEFSON. Will the chairman yield? The CHARIMAN. Yes. Mr. TOLLEFSON. I know that the chairman shares views about the NS Savannah. I would not want to give any indication that the committee is unhappy about ever having approved the legislation authorizing the building of the Savannah. I think the difficulties have to do with the operation of it. That is, to put it more simply, it had to do with labor problems. It had nothing to do with the way the ship has been built. It just has not had an opportunity to operate yet for any sufficient length of time to prove itself and I, for one, want to support most vigorously the position taken by the committee and by the Congress in approving the legislation because this thing had to be done the first time sometime, and the longer we waited the further off in the distance would have been the nuclearized fleet which we envision someday. I think it was a progressive step forward and I think that we will learn a lot from the operation of the NS Savannah when it gets into operation. Mr. HOOD. Yes. As you know, Mr. Tollefson, the Chief of Naval Operations has recently said that based on encouraging experiences and new reactor developments, the Navy is giving serious consideration to nuclear propulsion for most of the naval fleet. Mr. TOLLEFSON. I just want the record to show that I stand for the NS Savannah. The CHAIRMAN. Oh, well, I did not mean that I regretted the venture. I meant that I regret the cooperation we had in the operation of that ship. We set ourselves back quite a way in my opinion. I am going to put in the record this morning at this point, since we are discussing this, a letter that I have written to Senator Pastore, chairman of the Atomic Energy Committee of the U.S. Senate, after this discussion with representatives of General Electric, and I regret very much that I did not have you, Mr. Tollefson, with me. They just came up here. I did not know what they were coming about, they tell me they have a reactor now that is about a third of the previous weight. It is an advanced reactor. It does not require the space of earlier ones. So I think it would be a good idea-I will let Mr. Drewry read the letter. but Mr. DREWRY. The letter of April 8 to Senator Pastore, chairman of the Joint Committee on Atomic Energy reads as follows: DEAR MR. CHAIRMAN: I understand that your committee is meeting tomorrow in executive session to consider the 1965 authorization bill for the Atomic Energy 31-790-64- -8 Commission. I also understand that consideration may be given to the matter of authorizing further steps in the field of atomic reactors for merchant ship propulsion. As you know, I have been tremendously interested in the possibilities of the application of nuclear power in merchant vessel operations ever since 1955 when I introduced the legislation which authorized the construction of the NS Savannah as a joint project of the Maritime Administration and the Atomic Energy Commission. As so often happens with the first of a kind, the final production of the Savannah was accompanied by not only engineering growing pains, but what might be termed "social" acceptance. Though disappointed that the Savannah project in all its aspects did not proceed faster, I do not feel that any of the difficulties surrounding it should discourage us in our efforts to move on to the next step toward practical operation and the development of a reactor system capable of integration into the active American merchant fleet. In fact, from a technical standpoint, I feel, as I believe you and your committee do, that the Savannah project has exceeded expectations and has laid the foundation for much more advanced progress in a field of great promise. Within the past year, despite the labor troubles which have plagued the operation of the Savannah, representatives of American steamship lines have spoken to me of their interest in nuclear power, in the light of reported technological advances and the promise of commercially economic powerplants. This has been particularly so in regard to those American lines engaged in very long sea trade routes. Interest has been heightened by the fact that the principal American-flag liner companies are now engaged upon a long-range ship replacement program. Recently I received a letter from Rear Adm. Ralph K. James, U.S. Navy (retired), executive director, Committee of American Steamship Lines, enclosing a copy of a letter dated February 28, 1964, to you, endorsing authorization of appropriations for fiscal year 1965 to begin shore testing of the most promising reactor for merchant vessel use as soon as possible. I enclose copy of Admiral James' letter to me with its attachment, together with a copy of my reply of March 10, to Admiral James. Only today I have had occasion to discuss the current prospects of nuclear propulsion for merchant ships with representatives from the General Electric Co., one of the American companies who feel that their engineering has proceeded to a point where successful construction and testing of a shore-based prototype could lead to the production of economically feasible commercially operated atomic ships in the very near future. I was most interested in the information I received. Since any advanced large ship design involves considerable leadtime from initial engineering to readiness for operation, and since our current cargo liner replacement program is well underway, I think it is most important that there be no delay in proceeding with the development and testing of the most promising reactor designs currently being offered so that those commercial operators who might most logically use atomic power in their new ships might have the opportunity to do so without delaying their ship replacement schedules. I believe that there is sufficient active current interest in the American shipping industry to justify proceeding in this direction without further delay. I hope you and your committee agree. Mr. DREWRY. Mr. Hood, you mentioned a number of problems but I do not believe that you really made any specific suggestions as to what the answers might be except along the line of the sentence on page 3, "To be sure with prospects for more work, greater strides could be made." How long does it take to build, let us say, a 30,000- or 40,000-ton tanker in a major U.S. yard? Mr. HOOD. Twelve months after a year's planning. Mr. DREWRY. Twelve months after a year's planning. I have just heard this morning that Japan, a Japanese shipyard is planning to build a 150,000-ton tanker with delivery time 9 months. Now, I have also heard, and I do not have any specific figures, but I have heard that this is not at all unusual between American shipyards and foreign shipyards; that the time from beginning of con struction to time of delivery is usually much longer in the U.S. yard than in the comparable major yards of major shipbuilding countries. Is that true? Mr. HOOD. That may be true, but I do not believe the time differential is very great. A thought crossed by mind when you mentioned the Japanese situation. I recall a few years ago great publicity was given to the fact that a shipyard in Red China built a ship in 57 days. Of course, they had thousands of people probably available to do it. But there are other factors that have to be taken into consideration. Mr. DREWRY. Of course, we have the famous record of World War II, when a Liberty ship was said to have been built in 7 days. Mr. HOOD. Yes. Mr. DREWRY. But, I am not talking about stunts, and my opinion is that if it is a fact that we are taking longer to build then, obviously, it costs more, the longer it takes, everything else being equal. Mr. HOOD. We might be building into our ships some features that the foreigners do not which contribute to construction time and costs. Maybe you are talking about an austere type of vessel as contrasted to something in this country that would be a little on the luxurious side. But, in any event, during the Suez crisis, foreign orders were placed with U.S. yards because of better deliveries here. Mr. DREWRY. What we are after, I mean our problem is how to narrow the gap, to try to narrow the gap, conceding that maybe forever we will never be able to do it completely. Mr. Hoop. Right. Mr. DREWRY. But it has been proposed-you were here the day before yesterday? Mr. HOOD. Yes. Mr. DREWRY. It has been proposed that one way to narrow the gap, at least as far as the Government's participation is concerned, is, in effect, to create some new formula rather than to tackle the major point, which is how to reduce American shipbuilding costs. Mr. HOOD. May I interrupt there for a moment, Mr. Drewry, and return to your earlier question? We have had a number of meetings with the Marad Office of Ship Construction. This effort came up in the context of incentives for automation and mechanization in the shipyards. We composed a committee of our members that worked for a number of months and prepared a paper for Mr. Hoffmann, the Chief of the Office of Ship Construction in which we attempt to analyze the problem and in which we also endeavor to make some specific suggestions pointed toward lowering costs. I will be happy to make this paper available for the record if you desire. It goes into some detail. However it eventually boils down to the point that until the opportunity for more work exists there is little more that can be done. If there is only going to be a program of five ships, for example, there is no incentive for the industry as a whole to proceed with more modernization. (The document mentioned follows:) SHIPBUILDERS COUNCIL OF AMERICA, Mr. L. C. HOFFMANN, yards has been considered carefully by our membership. In the following paragraphs, I will endeavor to summarize their thoughts and reactions, and then answer the hypothetical questions which you and your associates raised. The obvious incentive needed for further investment in mechanization and automation in U.S. shipyards is, of course, a shipbuilding program of greater magnitude than is presently foreseeable, with assurances of continuity in the future. Agreement on this point is unanimous. Continuity is necessary from the standpoint of generating reasonable prospects for business stability and a reasonable return on capital invested for plant improvements. Over the last decade, U.S. shipyards have placed great stress on cost reduction. According to recent statistics supplied by the Maritime Administration, shipbuilding costs to the shipbuilder have increased about 30 percent during the past 10 years. Your Department's assessment of price trends shows, however, that shipbuilding selling prices in December 1961 were about 22 percent below those which prevailed in October 1957. And, during the first quarter of 1963, the price levels were still 18 percent below the October 1957 level. This pattern of decreasing prices and increasing costs in U.S. shipyards since 1958 is really the problem of survival in a highly competitive industry. It has dictated great effort to reduce man-hours, material costs, and overhead costs. In many cases, profit considerations have been either eliminated or severely reduced. Ingenuity, progress, and cost consciousness in our industry have come to be an abolutely necessary way of life. Those who suggest that U.S. shipyards, with built-in higher costs represented largely by our substantially higher wage costs, can, by some magical formula, overcome the cost advantages of our foreign competitors are not facing squarely the economic facts of life. U.S. shipyards produce mostly custom-built ships requiring a large number of skills and many months to complete. Opportunities for assembly-line, costsaving techniques are limited. Shipyard production runs are small. And production in our industry usually consists of an order for two to five ships of duplicate design. Even so, U.S. shipyards have not been "penny-wise and pound-foolish." In the past 10 years, despite a minimal shipbuilding program, it is conservatively estimated that between $250 and $400 million have been spent for capital improvements by the private shipyards. Supporting the higher estimate is the latest "Census of Manufactures," published by the Department of Commerce, which shows that nearly $40 million were spent for capital improvements in the shipyards in 1958 alone. Most of the modern shipbuilding techniques such as reduced scale lofting. optical layout, automated flame cutting, new welding processes, prefabrication, and so forth, are already being employed in our shipyards. Consideration is also being given to the adoption of computerized operations and tape control of fabrication processes. The U.S. shipbuilding industry leads the world in developing and building nuclear-powered vessels. This accomplishment would not be possible without the personnel capabilities and plant facilities to deal with the full spectrum of engineering and technical problems associated with nuclear power. To the uninitiated, mechanization and modernization frequently reflect wishful thinking which ignores some of the basic tenets of economics. For example, Willy Schlieker's yard in Hamburg, Germany, which for a while was widely advertised as the most up-to-date and most automated shipyard in the world, went into bankruptcy. William Denny & Co., the venerable Clydeside shipbuilder and manufacturer of Hovercraft air-cushion vessels, which have been pictured as the forerunner of merchant ships of the future, has gone into voluntary liquidation. And, earlier this year, the trade journals announced that the modern Swedish yard, Uddavallavarvet AB, had gone into receivership and had been taken over by the Swedish Government. The experiences of these yards suggests that any modernization scheme whether grandiose or modest-must be predicated on the expectation of a sufficient work volume to enable full use of the facilities to justify the investment of hard cash. Those who downgrade the progress of U.S. shipyards and clamor for even more ambitious improvement programs, would make sense if they could offer some assurances that work volumes will increase to adequate levels needed to amortize the capital investment required. While a heavy investment in capital improvements can only be justified by subsequent cost reduction, it must be borne in mind that certain fixed overhead costs are thereby increased, making it mandatory to produce the maximum volume from given facilities. This rather elementary tenet of economics has been overlooked by those, not directly responsible for shipyard operation, who, nevertheless, seek to prescribe remedies. That the level of appropriations for ship construction has averaged something in the order of one ship per shipyard per year-hardly sufficient by any standard-has been a potent contributory factor in the higher costs of U.S.-built ships. On this point, the following comments from a recent paper on "Shipbuilding Production A Short Appraisal" by D. B. Kimber, Fairfield Shipbuilding & Engineering Co., Glasgow, Scotland, are pertinent: ***** the prime objective of modernizing and reequipping a shipyard is, evidently, to reduce production costs; but it is still not always appreciated that the incidence of fixed and 'semi-fixed' overhead charges makes it more reward. ing to obtain an increase in the volume of the product, in this instance, ships, from the same labor force than to maintain the same volume of product with a reduced labor force. Thus, capital investment in new plant which has the lim ited objective of 'saving' a few men on this operation or that machine, without increasing throughout, can only be marginally successful. Having tried to provide, usually at heavy capital cost, the best means of production within a given shipyard area, management's aim must always be to exploit the improved facilities effectively and to the maximum extent. *** **** to strike a mildly cautionary note the pace of the technological revolution in shipbuilding methods during the last 10 years has been fast: for steelwork it is indeed still accelerating on an ever-widening front. In such an atmosphere the temptation to make changes for prestige reasons to keep up with the Joneses or indeed to be the Joneses'-must sometimes be very strong, but the only valid basis for making any change remains the same will it improve the profitability of the firm's business-and a change which is appropriate to one yard may not be so advantageous in the differing circumstances of another establishment." The suggestion has also been made that ships constructed in U.S. shipyards are perhaps too elaborate. This, of course, is not the fault of the builder but of the owner-operator and designer-separately or in concert. Similarly, the charge is often made that U.S. ships are designed and built with greater power margins than those of foreign competitors. National defense features, as stipu lated by the Department of Defense, account in large measure for this condition, but the added costs of these features do not come under the control of the shipbuilder. The yards are rarely consulted for the purpose of recommending potential cost savings in this area. As you know, there seems to be an inherent reluctance on the part of U.S. ship operators to accept so-called standardized designs. Each shipping company selects a vessel design which, in their judgment, meets the requirements of the trade of trades in which the vessel will serve. Traffic expectancies, operational problems, and individual preferences receive major, if not controlling consideration. No criticisms of the owner/operators is intended, but this practice severely limits the prospects for utilizing standard designs and standardized hardware, both of which inherently offer opportunities for reducing costs and, of course, for reducing the Government's share in the costs of new ships. To support this point, the Mariner program, instituted by the Maritime Administration in the post-World War II period, is said to have proved successful. The initial reluctance of the operators to accept these standardized vessels presented some difficulties, but after application of this functional vessel proved economical, as well as profitable, the same operators were most laudatory of this standardized design. In the final analysis, after giving due consideration to all relevant factors, the only incentive for further capital investment in mechanization and auto. mation in shipyards is a shipbuilding program of greater magnitude than at present with assurances of continuity in the future. With this background, the answers to the hypothetical questions you and your associates raised are as follows: (1) If there is to be a larger building program, how large should it be? There have been many studies over the last decade on the proper size for our shipbuilding program, generally ranging from 25 to 60 merchant vessels per year. Only weeks ago, Vice Adm. John Sylvester, Deputy Chief of Naval Operations (Logistics), publicly asserted that to protect the Nation's commerce and defense interests, we should be building general cargo ships at the rate of 25 to 31-790-64- 9 |