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. This BIS assessment analyzes the economic benefits of the TSV project to potential shipyards, their suppliers, and the workforces involved, as well as to local/regional economies. The assessment also analyzes the strategic benefits of single sourced and dual sourced production.
BIS performs industrial base assessments to study the capabilities of the commercial industrial base to support the national defense. As part of these assessments, BIS collects basic economic and industrial information from industry. These assessments are conducted under the authority of Section 705 of the Defense Production Act (50 U.S.C. § 2155), as amended, and Section 401 of Executive Order 12656, as amended.
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.5 This assessment also projects the impacts of potential long-term procurements of 12 and 24 vessels. Currently, all of the shipyards that BIS surveyed have adequate facilities (land and buildings) to manufacture the TSV. Several shipyards would add production/assembly facilities if needed. On average, each shipyard could build a TSV in 24 months. Each shipyard stated that it had the capacity to build two vessels simultaneously following the initial ramp-up.
This report's findings are based on site surveys of several U.S. shipyards capable of building the TSV. The BIS survey sought to identify the major inputs required to produce each vessel as well as the proportion of total vessel costs represented by each type of input. Major inputs include materials and labor.
The survey results were then fed into the Regional Input-Output Modeling System (RIMS) developed by the Bureau of Economic Analysis of the U.S. Department of Commerce. The RIMS model creates three different ways to look at the potential effects of the TSV procurement: it contains multipliers that permit the calculation of the changes in economic growth, private and household earnings, and employment. The RIMS model is an economic analysis tool that allows for these changes to be calculated and compared from one region of the United States to another. RIMS analysis utilizes different categories of raw materials, parts, components, and subsystems - as well as labor - in manufacturing and other types of production activity to present economic impact data.
The RIMS model is widely used in the U.S. government to assess the economic impact of procurements as well as other related activities. RIMS-based analysis has been used by the U.S. Nuclear Regulatory Commission and the U.S. Department of Housing and Urban Development, and is one of the models used by the Department of Defense to determine the impacts of base closures.
Each shipyard provided a list of the major inputs used in constructing a TSV. This list was then matched to the shipbuilding input categories contained in the RIMS model. A sample of the survey and RIMS analysis explanations are included in the Appendices. To avoid disclosing proprietary information about individual shipyards, the survey responses have been aggregated.
The surveys show that materials will comprise approximately 60 percent of the cost of each TSV. Roughly two-thirds of these material costs are attributable to hull construction and equipment, propulsion systems, and electrical and control equipment. Labor costs will represent 40 percent of the cost of each vessel. Figure I below shows the full average cost breakdown for each key TSV input:
Figure I: Breakdown of TSV Components by Major Category
TSV Component |
% |
Hull construction and equipment |
19% |
Propulsion |
12% |
Electrical and control equipment |
12% |
Advanced electronic equipment |
3% |
Internal systems: Environmental, HVAC, Piping |
4% |
Weapons systems |
<1% |
Crew boats |
<1% |
Labor |
40% |
Other |
9% |
TOTAL |
100% |
Source: U.S. DOC/BIS TSV Site Survey Data
Hull construction and equipment comprises such materials and items as aluminum, helicopter pads, paint, and coatings. Propulsion encompasses such materials and items as engines, maneuvering and mooring machinery, and the fuel system. Electrical and control equipment includes lights, a public address system, and basic wiring. Advanced electronics include the navigation systems, radar, and a threat detection system. Internal systems include environmental systems, HVAC, and piping. Weapons systems and crew boats are also included, but make up a very small portion of the total cost. Other includes non-recurring costs such as insurance, design and testing costs, furnishings, and transportation.
Facilities are adequate at each shipyard surveyed to build the TSV:
The RIMS model indicates that the cumulative economic impact of building each TSV will be almost $192 million.6 Therefore, the cumulative increase in economic output generated by the initial procurement of seven TSVs will be more than $1.3 billion. These projections assume that all TSV components and subcomponents will be sourced and manufactured in the United States by U.S. workers.7
Figure II: Total Economic Impact for TSV Procurement
Vessels Built |
Total Economic Impact |
1 |
$191,525,984 |
7 |
$1,340,681,891 |
12 |
$2,298,311,814 |
24 |
$4,596,623,627 |
Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOC/BEA RIMS II Multiplier Data
Figure III: Economic Impact of TSV Procurement on Shipyard and Subsystem Manufacturers (Cumulative: 2004-2008)
Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOC/BEA RIMS II Multiplier Data
The overall economic impact of the initial procurement of seven TSVs, as well as a potential procurement of 12 and 24 TSVs over a 13-year period, is shown in Figure IV below. If the 24 proposed TSVs are built, output gains of nearly $4.6 billion will be generated through 2016.
Figure IV: Economic Impact of TSV Procurement on Shipyard and Subsystem Manufacturers (Cumulative: 2004-2016)
Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOC/BEA RIMS II Multiplier Data
Dual sourcing of the TSV would simply cut the overall production timeline
in half, to 2010 with two shipyards realizing the benefits of building 12
TSVs. The overall impact to the U.S. economy would still equal over $4.5
billion.
The RIMS model indicates that the impact on regional earnings from building each TSV will be $44.4 million.8 Therefore, the cumulative impact on regional earnings of building the initial seven TSVs will be $310.8 million over five years. These figures assume the same production schedule as the economic impact figures, as well as virtually 100 percent U.S. manufacturing and sourcing. If all 24 proposed TSVs are built, earnings gains of more than $1 billion will be generated through 2016. Specific earnings increases for each TSV procurement scenario are presented below.
Figure V: Total Economic and Earnings Impacts for the TSV Procurement
Vessels Built |
Total Economic Impact |
Total Earnings Impact |
1 |
$191,525,984 |
$44,402,351 |
7 |
$1,340,681,891 |
$310,816,456 |
12 |
$2,298,311,814 |
$532,828,210 |
24 |
$4,596,623,627 |
$1,065,656,420 |
Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOC/BEA RIMS II Multiplier Data
As shown, these earnings would grow steadily over the 13-year life of the program:
Figure VI: Earnings Impact of TSV Procurement on Shipyard and Subsystem Manufacturers (Cumulative: 2004-2016)
Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOC/BEA
RIMS II Multiplier Data
The jobs created by the TSV program would pay considerably better wages than the typical shipyard job in the regions surveyed. During the 2004-2008 phase of TSV procurement, the average non-salaried TSV job would pay $16 per hour. During this same period, the average non-salaried, non-TSV shipbuilding job would pay $13.17 per hour - nearly 18 percent lower. The average TSV and non-TSV wages represented below in Figure VII have been adjusted for inflation. An annual inflation rate of 2.34 percent (the average annual inflation rate from 1997-2003) was applied to these wage rates. Inflation rate data were obtained from the U.S. Department of Labor, Bureau of Labor Statistics.
Figure VII: Average Hourly Wage Trends: TSV Level and Non-TSV Level 2004-2008
(Adjusted for Inflation)
Source: U.S. DOC/BIS TSV Site Survey Data and U.S. DOL/BLS Regional Wage Data
An examination of TSV employment requirements reveals why the program would pay such high wages on 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. Another 13.8 percent of total TSV workers will be salaried engineers and designers whose wages and benefits would be even higher.
A detailed breakout of TSV employment categories and their associated wage and benefit levels is presented below in Figure VIII. Salaried employees, such as engineers and designers, have been separated in order to show the impact on hourly wage positions at TSV shipyards.
Figure VIII: Employment Wage and Type Breakout for TSV Procurement
| Type | Base Wage | Wage w/Benefits9 | % of Total Workforce |
|---|---|---|---|
*Engineer |
$25 to 30 |
$50 to 60 |
4.5% |
*Designer |
$20 to 25 |
$40 to 50 |
9.3% |
Draftsman |
$10 to 14 |
$20 to 28 |
13.8% |
Welder |
$14 to 18 |
$28 to 36 |
7.4% |
Fitter |
$14 to 18 |
$28 to 36 |
14.9% |
Helper |
$10 to 14 |
$20 to 28 |
13.0% |
Pipefitter |
$14 to 18 |
$28 to 36 |
5.6% |
Painter/Blaster |
$14 to 18 |
$28 to 36 |
4.5% |
Electrician |
$14 to 18 |
$28 to 36 |
7.4% |
Machinist |
$14 to 18 |
$28 to 36 |
3.0% |
Pipewelder |
$14 to 18 |
$28 to 36 |
3.0% |
**Other |
$10 to 15 |
$20 to 30 |
13.8% |
Average Hourly Wage |
$10 to 18 |
$20 to 36 |
86.2% |
Average Salaried |
$20 to 30 |
$40 to 60 |
13.8% |
* - Salaried Workers
** - 'Other' includes clerical, marketing,
supervisory, quality assurance, program management and other peripheral
positions
Source: U.S. DOC/BIS TSV Site Survey Data
In addition, the high-wage manufacturing jobs created by the TSV program would utilize skills valuable for many types of high-value and defense-related production. Aluminum welding is the most prevalent skill example because the TSV potentially could be built almost exclusively of aluminum. According to the shipyards surveyed, most of the welding done by their current workforces is steel-based whereas aluminum welding requires completely different skill sets and is more difficult because of the specific properties of the metal.
Benefits from TSV-related construction would extend to other professional jobs such as high-speed ship design and aluminum vessel engineering. These new skill sets would help to expand the nation's manufacturing and defense industrial base as well as make U.S. shipyards more competitive in emerging markets such as high-speed ferry and transport vessel design and construction. Dual sourcing would multiply the effects of these benefits.
5. According to shipyards surveyed, profit margin is projected at 10 percent - or approximately $14.1 million per TSV. This margin is already included in the RIMS II model because it is part of the initial input.
6. This economic impact aggregates the following benefits to the economy: employee earnings and enterprise income for the industry, related industries, and local service industries; local and national tax revenue; increased investment and capital spending; and other tangential advancements in technology and competitiveness.
7. Production schedule from the BIS shipyard survey: one ship will be completed in 2005, followed by two ships each year from 2006-2008.
8. Earnings are earnings of individuals. Earnings include aggregate wages of those workers involved directly in the TSV production and local workers benefiting from increased spending and commercial activity.
9. According to each shipyard's human resources personnel, the average total wage with benefits was roughly double the hourly wage.