Regional Update (July-September 1996)

Index The state of the states Southeastern manufacturing survey Views from the region Southeastern economic indicators

Cover Story - Full Speed Ahead for the Southeast's Maritime Industry

Have Taxes Contributed to the South's Economic Rise?

The Southeast's Economy Claims Its Olympic Prize

The Growing Symbiosis in Southeastern Business

Full Speed Ahead for the
Southeast's Maritime Industry

The region's shipyards are experiencing a renaissance. Thanks largely to renewed riverboat construction, an expanding commercial shipping industry, U.S. Navy contracts, and improving quality, future prospects look promising. Behind the scenes, the maritime industry is making a substantial contribution to the Southeast's economy. David Sutton reports.


fter years of virtual standstill, the Southeast's maritime shipping industry is cruising again, with shipyards and ports from Louisiana to Florida experiencing robust business. From New Orleans to Gulfport, Pascagoula, and Mobile many large and small shipyards are flourishing.

Ingalls Shipbuilding of Pascagoula, Mississippi, Halter (formerly Trinity) Marine of Gulfport, Mississippi, and Avondale Industries of New Orleans, Louisiana, are three of the area's larger producers. These, and other, southeastern shipyards are expanding again, largely due to the expansion of riverboat gambling, a growing commercial shipping industry, continued (albeit slimmed-down) U.S. Navy contracts, and a federal loan-guarantee (U.S. Maritime Administration) program. And the region's ports are benefiting too. Thanks to growing international trade and a revival in shipbuilding, the Southeast's ports are seeing record volumes of business. Indeed, two of the region's ports, New Orleans and Miami (the number one cruise port in the world), are among the busiest in the United States.

Fierce competition emerging among southeastern ports

he resurgence in regional shipbuilding has helped to boost port traffic across the Southeast. Some of the region's busiest ports include New Orleans, Mobile, Miami, and Savannah. Miami is the number one cruise port in the world and the seventh busiest container port in United States. Savannah saw a 34 percent rise in exports last year to some $568 million, according to the Associated Press.

Worldwide trade has grown significantly during the 1980s and 1990s. This trade growth continues to boost the shipping industry as well as port and harbor activity. According to the American Association of Port Authorities, more than 90 percent of U.S. exports and imports travel through sea ports. And the states with major ports don't want to lose out on this cargo business.

In the Southeast, Florida is one of several states actively pursuing trade. The state is literally pouring millions into its ports. The state government recently announced $221 million in matching grants for infrastructure development for 12 Florida ports. According to the Fort Lauderdale Sun-Sentinel, over the next five years these ports will be able to buy or build some $444 million worth of new infrastructure. As Arthur Scott, Fort Lauderdale's Port Everglades manager for sea-land services, told the Sun-Sentinel, "The future of south Florida, and of Florida, is in its ports."

This additional funding is the result of intense all-inclusive lobbying by the 14 ports throughout Florida. It is also driven by the desire for enhanced development. According to the Florida Ports Council, which includes all ports in the state, ports and port-dependent businesses generate more than 300,000 jobs and produce annual state and local tax revenues of around $600 million. Representative Fred Lippman, a sponsor of the port-financing legislation, called the state's new port financing a nod to economic development. "It relates to us as a state finally waking up to the fact that ports are truly a major economic engine," reported the Sun-Sentinel.

Florida is not alone in realizing the importance of the port industry to the Southeast's economy. The Port of New Orleans—one of the busiest ports in the United States—has recently completed a five-year, $215 million improvement program. Nearly half of the funding came from the state of Louisiana. Part of the reason: the port of New Orleans and related businesses employ around 90,000 people statewide.

While trade is expanding, competition within the port industry is getting fierce. As shipping lines merge, ships grow larger, and demand requirements increase, the pressure on individual ports to compete effectively rises. For the shipping industry, whether goods come to Miami, Savannah, New Orleans, or Fort Lauderdale makes little difference. Ships will go to the port that provides the best service at the best price.

The benefits of the surging maritime industry to the regional economy are substantial. For example, in Mississippi, the largest private employer is Ingalls, with some 11,000 workers. According to Connie Moran, Director of Economic Development for Jackson County, Mississippi (the state's most industrialized county), Ingalls Shipbuilding generates an annual economic impact of $380 million on the local economy. In addition, the Pascagoula, Mississippi, U.S. Navy Supervisor of Shipbuilding (SUSHIP) headquarters generates an annual salary impact along the coastal region of around $22 million. In Florida, ports and port-dependent businesses generate more than 300,000 jobs and produce annual state and local tax revenues of $600 million according to the Florida Ports Council.

The return of the riverboat

Perhaps the most amazing story of the shipbuilding industry is the return of the riverboat. The number of active paddle-wheel riverboats is the highest since the 1860s. This comeback has resulted in a roughly $1 billion construction boom for U.S. manufacturers. Since 1990 more than 100 boats of this type have gone into operation, are planned, or are under construction. And, the Southeast's shipyards, notably those in Louisiana, are winning some 80 percent of the paddle-wheel construction business according the Wall Street Journal.

Gambling has been one of the main impetuses of this resurgence. Legalization of riverboat and offshore gambling in states such as Iowa, Indiana, Mississippi, Louisiana, and Missouri continues to spur construction of these floating casinos. Against this background, the prospects for riverboat manufacturers look better than at any time since the oil platform construction boom of the 1970s.

But gambling is not the whole story in terms of paddle-wheel riverboats. The rise in the number of excursion "nostalgia" cruises is also boosting business, with paddle-wheel boats increasingly seen on lakes and rivers throughout the United States. The $60 million American Queen is a prime example.

Built by McDermott Incorporated's Amelia, Louisiana, shipyard, the American Queen is 418 feet long, holds some 400 passengers, and boasts a 50-ton paddle wheel. According to the owners, the Delta Queen Steamboat Company, the vessel takes passengers on cruises of up to 12 days, mainly on the Mississippi and Ohio rivers. The boat is described as a "floating palace," complete with a 206-room Victorian hotel and a replica 1835 river town opera house. The American Queen supplements the company's other two steamboats already in operation.

The main driving force for the growth of these excursion vessels appears to be simple nostalgia. The American Queen caters primarily to passengers in the 50-plus age group yearning for reminiscences of Mark Twain and evocations of history, all in a floating sight-seeing package.

The U.S. Navy remains a big customer

One of the bigger sectors in the region's shipbuilding industry remains U.S. Navy construction, despite the gradual scaling back of building projects. Several big yards in the Southeast, including Ingalls Shipbuilding and Avondale Industries, get a large portion of their business from Naval projects. According to a spokesman for Ingalls Shipbuilding (a division of Litton Industries) the company is the leading shipyard for the construction, repair, support, and modernization of advanced surface combatant ships for the U.S. Navy.

Ingalls' relationship with the Navy has resulted in the delivery of 72 new surface ships since 1975. The shipyard is currently producing DDG 51 Class Aegis guided missile destroyers (a contract with a potential value of around $1 billion, according to Defense News) and amphibious landing assault vessels. Assault ships being produced by Ingalls include the largest amphibious ship in the world, the 844-foot USS Wasp (commissioned in Norfolk, Virginia, in 1989). In addition, Ingalls has built similar assault ships in the Tarawa class, including the USS Tarawa and the USS Saipan. Ingalls has also built the USS Anchorage, a Dock Landing Ship.

Avondale, too, has been building Dock Landing Ships for the Navy. To date, the company has built the USS Harpers Ferry, the USS Carter Hall, and the USS Oak Hill. Avondale is currently building a fourth, the Pearl Harbor. The shipyard has also built five other similar Dock Landing vessels including the USS Gunston Hall and the USS Comstock.

SUSHIP Pascagoula continues to use the resources of the Southeast's Gulf Coast shipbuilding industry. During fiscal year 1993, SUSHIP Pascagoula paid in excess of $1.2 billion in progress payments to local shipyards and had a contractual backlog of work with Southeast Gulf Coast shipyards of over $4 billion.

Halter Marine Group's Gulfport, Mississippi, shipyard remains one of the regional shipyards getting business from SUSHIP. The former Trinity shipyard has built TAGS 60, 61, and 62 Navy ships valued at approximately $150 million. According to Moran at the Jackson County Department of Economic Development, Halter Marine is planning to expand with a new yard in Pascagoula.

Both Ingalls and Avondale are also involved in competing consortia actively seeking the construction contract for the Navy's next generation (LPD-17 class) of assault ships. This contract will reportedly comprise a 12-ship project lasting until 2008, which is expected to be worth around $8 billion, according to the New Orleans Times-Picayune.

Commercial shipbuilding remains strong

Tampa Shipyards is another southeastern shipbuilder experiencing a new lease on life. The company was effectively finished several years ago, before being bought in bankruptcy court by Delphi American Maritime in 1995 for around $20 million. According to Business Week, Delphi plans to carry out complex interior work at the Tampa yard in the medium term before moving to overall ship construction.

Alabama Shipyards of Mobile, Alabama (owned by Atlantic Marine Holding Company), is a regional growth story, particularly in construction of tankers and barges. The shipyard is currently in the midst of a $70 million modernization program designed to help tap the international ocean-going vessel market. This program has already yielded success. Trinity is currently building two chemical tankers, valued at around $51 million, for Danish company Danneborg Rederi.

Ingalls too is branching out to other niches, returning to what a spokesman calls "its heritage," constructing commercial marine structures. The company is currently under contract to the Parker Towing Company of Tuscaloosa, Alabama, for the construction of 40 hopper barges. The shipyard has also recently delivered components for an offshore oil and natural gas drilling and production platform to Oryx Energy Company and CNG Production Company of Houston, Texas.

Avondale is also focusing on other business areas. The shipyard is picking up business in oil tanker hull conversion: by international agreement all oil tankers must have double-skinned hulls by the year 2015. Avondale is building oil field transport and utility boats that move supplies and crew to and from oil-drilling platforms and conduct repairs. According to David Kocen, Banking Officer at First National Bank of Commerce (FNBC) in New Orleans, Avondale is regarded as "one of the lowest-cost shipyards in the United States." Apparently the company is cashing in on its reputation and attracting new business: Avondale currently has around $2 billion worth of backlog work on its books.

A bright, but hazy, horizon

Despite the resurgence in southeastern shipbuilding, the industry has a long way to go in the international market. According to Business Week, in 1994 the U.S. shipbuilding industry ranked 12th in gross tonnage construction worldwide.

And while prospects are good in the $50 billion-a-year global market, competition is intense in big-ship construction, with western European, Japanese, and South Korean yards dominating the industry. In addition, low-wage builders, particularly those in China and eastern Europe, pose significant threats to the region's shipyards.

However, southeastern shipbuilders won't want to miss the opportunities presented by the international markets—particularly as most projections indicate that much of the world's aging merchant shipping fleet must be replaced within 10 years.

Targeting a market appears crucial to success. "We aren't going to build 500 or 600 ships a year or challenge the Japanese or Koreans for supremacy. But America has an opportunity to compete in certain markets for world-class ships," argued George Gibbs, chairman of Atlantic Marine Holding Company in the Wall Street Journal. Indeed, focusing on specialized production, like riverboats or commercial barges, seems to pay dividends.

For the Southeast's shipyards, focusing on the domestic niche markets and Naval contracts continues to offer healthy medium-term prospects. But long term, the international markets look likely to become the main areas of growth. Expanding effectively into the international sector is perhaps the most daunting challenge facing the regional industry. However, improving productivity, competitive cost bases (hourly wage and benefit costs at southeastern yards average a little less than $20, compared with $33 in Japan, $38 in Germany, and $11 in South Korea), and rising quality standards may allow the Southeast's shipbuilders to fly the flag in the global market.

Select Recent Large-ship Contracts at Southern Shipyards
Shipyard Client Value
Alabama Shipyard Dannebrog Rederi
$51 million
Trinity Marine U.S. Navy
$150 million
Newport News Eletson
$152 million
Avondale American Heavy Lift Shipping
$159 million
Newport News Van Ommeren Tankers
$234 million
Avondale Primorsk Shipping
$280 million
Newport News American Marine Tankships
$314 million
Ingalls Shipbuilding U.S. Navy
$330 million
Source: Wall Street Journal