Philly Shipyard and NASSCO both rely on work for US trades, but in the current environment their options are limited
With the Jones Act requiring ships on domestic trades to be built in the US, there is a clear need for domestic shipbuilders with the skills and facilities to build sophisticated tankers for the nation’s coastal trades. Their problem, however, is that there is less of a need for new ships in the markets they serve.
Two builders in particular have made a name in this sector: Philly Shipyard, which is owned by Norway’s Aker Group and based in Philadelphia, and General Dynamics NASSCO – which has four yards, on both the US east and west coasts.
One sign of hope emerged in a brief note in Philly Shipyard’s latest results, published on 16 July and covering its H1 and Q2 figures, from January to June. In a two-line paragraph headed ‘Subsequent Events’ it reported that on 16 July, “Philly Shipyard and an undisclosed potential customer executed a non-binding term sheet, or letter of intent, for the construction and sale of two newbuild Jones Act Medium Range (MR) product tankers.”
It offered more detail later in the report, saying that the discussions were active and that the ships would be 50,000-dwt vessels, “substantially similar to the recently-completed series of eight MT-50 class product tankers.” Deliveries would be scheduled for Q4 2020 and Q1 2021.
“A sign of hope emerged in a brief note in Philly Shipyard’s latest results, which acknowledged the execution of a non-binding term sheet for the construction and sale of two newbuild Jones Act Medium Range product tankers”
That news was a bright point at the end of a difficult six months. As the report also noted, during that time the yard had laid off about a quarter of its employees while it looks for new work. In June, it also started what it called “an orderly liquidation process” of Oslo-listed Philly Tankers, in which the yard held a majority stake.
That process was set in motion in November last year with the delivery of the last of four 50,000-dwt product tankers that had been ordered by Philly Tankers, in pairs, in July 2014 and July 2015 for a total price of US$500M. In August 2015, Philly Tankers reached an agreement with a subsidiary of the energy infrastructure company Kinder Morgan Inc (KMI) to take over each of the contracts on completion in a deal worth US$560M.
Philly Shipyard is looking for more orders and new market sectors (credit: Philly Shipyard)
Philly Shipyard’s history has been underpinned by Jones Act product tankers for the past 13 years, since it became part of Aker American Shipping, which had been formed to build and own Jones Act tankers through the American Shipping Company (ASC). It benefited from extensive investment between 1998 and 2000 to optimise the yard for commercial shipbuilding.
It had been founded in 1997 by the City of Philadelphia, the Commonwealth of Pennsylvania, the US Government and the Kværner Shipbuilding Division, using part of the former Philadelphia Naval Shipyard which had closed in 1995.
In 2005, the shipyard started a construction programme of product tankers. So far, it has delivered 14 of its 46,000-dwt MT-46 Veteran Class product tankers and eight of its 50,000-dwt MT-50 vessels. Both designs are 183 m in length and 32.2 m wide, with the extra deadweight in the larger vessel reflected in a slightly deeper draught.
In its design notes, the yard reports that the MT-50 vessels incorporate a number of features that increase fuel efficiency compared to earlier tanker designs. They were constructed “with consideration for the use of LNG for propulsion in the future and are the first tankers to receive the ABS LNG-Ready Level 1 approval in principal,” its website notes. The first of this design was delivered in September 2015, two years after the final MT-46 product tanker had been delivered, to Crowley, in 2013.
If the yard’s term sheet turns into new orders, a key difference from the MT-50 will be that their engines will meet IMO’s Tier III emission standard, rather than Tier II.
NASSCO gains from DSEC link
NASSCO has also built eight 50,000-dwt Jones Act product tankers. These, too, were LNG-ready and were dubbed the ECO Class. The final ship, Palmetto State, was delivered on 7 June 2017 at NASSCO’s San Diego yard to a longstanding customer, American Petroleum Tankers.
Palmetto State and its sister ships “are the most environmentally friendly tankers to enter the Jones Act trade,” the yard said in a statement to mark its delivery. Compared with similar tankers, the ‘ECO’ design gives 33% better fuel efficiency and a corresponding reduction in ship emissions, it said.
Garden State was launched by NASSCO in May 2016 as the third of five product tankers for American Petroleum Tankers (credit: NASSCO)
NASSCO is supported from the other side of the Pacific Ocean, where it partners with South Korean ship designer Daewoo Ship Engineering Co (DSEC), a subsidiary of Daewoo Shipbuilding & Marine Engineering (DSME) which provided the design for the ECO Class vessels. They achieve their improved fuel efficiency through several features, including a G-series MAN ME low-speed main engine and an optimised hull form, NASSCO’s website acknowledges.
These ships are a very similar size to those built by Philly Shipyard, with a length of 186 m. Reflecting on the project last June, General Dynamics NASSCO president Kevin Graney said that the programme had “pushed us to develop more efficient planning and production techniques and fundamentally improved the way we perform every day.”
NASSCO is the only major shipyard on the US west coast that conducts design, construction and repair of both commercial and US Navy ships and in the past decade it has delivered more than 30 oceangoing ships to government and commercial customers. These include the world’s first LNG-powered containerships, built for TOTE; designed by DSEC, they included DSME’s patented LNG fuel-gas system and the world’s first order of a MAN ME-GI dual-fuel low-speed engine.
Containers hold the future
It is in container shipbuilding where NASSCO’s immediate commercial future lies. In April, it began work on the second of two 3,500-TEU containerships for Matson, which are also to a DSEC design. These will include LNG-capable main and auxiliary engines and the ships are designed to allow for the future installation of an LNG fuel gas system.
“Ominous storm clouds are forming yet again over Philly Shipyard, the commercial shipbuilding operation in the Navy Yard that taxpayers have rescued twice in the last two decades”
But it also has its baseload of naval work, both construction and repair. As its website notes, it “specialises in the design and construction of auxiliary and support ships for the US Navy”, along with tankers and dry cargo carriers. It is also a major provider of repair services for the US Navy, with capabilities in San Diego, Norfolk, Mayport, and Bremerton.
Philly Shipyard is also working for Matson. It named the first of two 260-m 3,600-TEU container ships on 30 June, with the second due in Q1 next year. These are each understood to be costing Matson US$236M.
After these however, the yard’s orderbook is empty, prompting the local newspaper, The Enquirer, to comment in May that “ominous storm clouds are forming yet again over Philly Shipyard, the commercial shipbuilding operation in the Navy Yard that taxpayers have rescued twice in the last two decades.”
In its Q2 report, Philly Shipyard noted that it is looking for work in new sectors, including specialised vessels such as fishing trawlers, cable layers and vessels to support the growing offshore wind industry. It is also working with Fincantieri Marine and Vard to bid for the US Coast Guard’s next-generation heavy polar icebreaker.
Bids are due in Q4 2018 and the contract is expected to be awarded in Q3 2019, so the news in July of its term sheet for two tankers could not have come at a more important moment.