the Constellation-class frigate
Last month, the US Navy's Constellation-class frigate program was canceled. The US Navy has repeatedly failed at making new ship classes (see the Zumwalt, DDG(X), and LCS programs) so the Constellation-class was supposed to use an existing design, the FREMM frigate used by Italy, France, and Egypt. However...
once the complex design work commenced, the Navy and Marinette had to make vast changes to the design in order to meet stricter U.S. survivability standards.
Well, ship survivability is nice to have, but on the other hand, this is what a single torpedo does to a destroyer. So how does that requirement creep happen? Here's an admiral saying "DO NOT LOWER SHIP SAFETY STANDARDS" and linking to this document but the document doesn't have any hard rules, it just says "here are some things to consider doing" and "you must evaluate whether there are cost-effective survivability improvements to make". People say "I'm just following the rules" whenever they get criticized, but it's actually a judgment call from the leadership, and the leadership has bad judgment. This post says:
Shock-hardening for near-miss torpedo protection, a chemical, biological, and radiological (CBR) citadel, thicker bulkheads for Arctic operations, and the decision to install the heavier SPY-6 version 3 radar instead of the FREMM’s lighter system all contributed to the bloat. Engineering modifications show the hull stretched 7 meters and the beam widened 0.6 meters, yet commonality with the parent design has crashed from 85% to barely 15%.
I heard there were also requests to duplicate and reroute pipes and wires for more redundancy. Anyway, the US Navy can't figure out how to design a new ship, but there's a larger underlying issue: US shipbuilding is very expensive, yet there's also a backlog of US Navy orders. A new Burke-class destroyer is more than $100/lb. That's about as much per mass as a new Lamborghini Temerario, and 25x as much as the biggest cruise ship. There's a bunch of expensive equipment on them, but still, Korea's copy of the same (inefficient) design is 1/3 the cost.
US shipbuilding
What's the problem with US shipbuilding, then? Well, I've recently seen a few super helpful articles, like this:
Amid the recent wave of optimistic headlines about American shipbuilding, one challenge continues to cast a long shadow: how to attract young, ambitious workers to an industry where entry-level wages can start as low as $35,000 a year. Yet for those who stick with it and build their skills, earnings can climb to five times that amount or more.
Aha! American labor costs are just too high! But wait...it says America has 105k shipbuilding workers now? So...
So, Korea and Japan are building over 100x as much ship per worker-year as the US. Yeah, that article is propaganda: it's a PR piece that amounts to "give us more money, we promise to use it to make good jobs for americans". By the way, that low pay for entry-level workers is because the union screws over new people to maximize pay for people with seniority. Aircraft pilot unions do the same thing.
Why is US shipbuilding so much less efficient? That's because it's using worse processes and equipment, of course, but what exactly are the differences?
The modern approach to ship construction is to make slices inside a building, use a big crane to lift them to a big drydock, and weld them together. Here's a timelapse of that basic approach being used in Korea. For comparison, here's a timelapse of the USS Gerald Ford in a drydock. Note that the cranes lift relatively small pieces, and that it sits in a drydock for 4 years.
So, why can't US shipyards do that? Obviously, the Korean approach requires large buildings, heavy cranes, and large drydocks. Maybe US shipyards fell behind on capital investment, but if they get money specifically for shipyard upgrades, presumably they can catch up. Well, that's what Congress figured, and the US government has already put a bunch of money into shipyard upgrades, partly with the $21 billion Shipyard Infrastructure Optimization Program. ("SIOP")
For comparison, the market cap of HD Hyundai Heavy Industries is about $31 billion. (And if you were wondering, its debt/equity is low.) Also, NAVSEA has an annual budget of ~$30 billion and more personnel than Japan has shipbuilders. So there was plenty of money to build shipyards with far more output than the US has now - but SIOP started in 2018, there was other federal money for shipyards before that, and somehow it hasn't solved the problem. Perhaps because the people who got that money don't want to solve the problem - and also don't know how to, but that's a secondary issue.
Corporate executives want to cut costs in the short term and move to a better job before longer-term impacts hit. That's what Jack Welch did repeatedly at GE. Unions want to maximize pay for senior members and ban automation that reduces their paid hours. That's what the US port worker union did.
Again, the US Navy has a backlog of orders, which means none of the shipbuilders can have their orders reduced if they do a bad job, which means there's no competition. And when there's no competition, the only options are:
- start buying from other countries so there's competition again
- offer deals to foreign shipbuilders that get them to operate in the US
- nationalize the shipbuilders, and try to find competent management (so, not NAVSEA)
- get bad results at high prices, leaving you right at the edge of not buying anything
Or, they could give someone like me a billion dollars to make a new shipyard, but let's be semi-realistic here. The US government has been going with (4) but concerns about China and Taiwan now have it considering (1), and (2) is already happening.
In addition to China and Taiwan, there's another reason this is an interesting time for the shipbuilding industry: welding. A lot of the power of shipbuilder unions comes from the expertise of their welders being hard to replace quickly. But as this video notes, while new laser welders are EXTREMELY DANGEROUS, you can train people to get good welds with them very quickly compared to traditional methods. They also weld stuff much faster. I think this makes shipbuilding unions relatively vulnerable now.
business cultures & corporate governance
Compared to US executives, Asian business leadership has been much more willing to make big long-term investments. I think this is related to managers staying at the same place longer, and higher cultural valuations of managers having engineering knowledge. But culture is complex; the immediately visible aspects are only the tip of an iceberg consisting of a self-sustaining network of interactions. Trying to explain cultures in terms like "more individualist" or "longer-term thinking" is like the parable of the blind men and the elephant. Well, Americans think Asian cultures can be weird, Chinese and Japanese think the same thing about American culture, and you could say everybody's right.
So, if you ask how you can make US management more like Asian management in some particular way, but not other ways, the answer is that you can't, it's just in a different equilibrium.
But there are some kinds of capital investment that US businesses have been downright eager to make, so let's consider those. Specifically, I'm thinking of:
- datacenters for cloud services
- datacenters for AI
- Tesla "gigafactories"
- big software projects
What's the difference between datacenters and shipyard upgrades or factory equipment? I think it's transparency to investors. When companies buy billions of dollars of AI chips, lose money continuously, and keep getting investment, what are investors looking at? Some investors are looking directly at the amount of AI chips owned, while most capital investments are too complex and thus opaque.
As for Tesla, some investors seem to have trust in Elon Musk personally, that if you give him money he'll use it to build stuff that makes sense. Similarly, Mark Zuckerberg still has voting control of Meta, but investors don't seem to mind that he can do whatever he wants with the whole company.
In theory, investors are supposed to vote for corporate boards who figure that stuff out and make transparent reports + incentive mechanisms, but in practice nobody has an incentive to do that:
- For individual investors, their vote barely matters and isn't worth paying attention to.
- Hedge funds aren't going to hold the stock long-term; if they have a problem with management they'll just sell the stock.
- Big activist investors would generally rather take companies private so they can make a big difference than try to fight over board elections.
- Index funds have no incentive to vote in good ways, because every vote they make affects their competitors equally. This might lead to US corporate governance gradually getting worse than it is now.
Then, there's software. How is a company making software different from making big investments in factories or shipyards? Personally, I think it's largely about headcount. Managers like having a lot of people working under them, because it's a legible metric used for prestige and pay. There's also the fact that, for historical reasons, office workers who might have their work replaced by software are less unionized than people in heavy industry. I'm not sure how much credit I can give to the management here; rather than US software projects being planned well, it seems more like, if you hire enough programmers and have a suitable corporate culture you just end up with some sort of software products.
Nippon Steel
One thing ships use a lot of is steel, and Nippon Steel recently bought US Steel. That implies 2 things:
- They think it's worth making steel in the US; their advantage wasn't just being in Japan.
- Nippon Steel had better management than US Steel.
I don't generally think of Japanese companies having good management in general. In my experience, Japanese individuals and contract workers are quite professional and interested in improving their work-related skills. Probably more so than Americans. Yet, Japanese wages are (on a per-hour basis) much lower than US ones, and I think that's largely because the management culture is overall even worse than in America. (And partly because of some large-scale embezzlement from Japanese corporations involving corrupt contracts to private companies, but that's beyond the scope of this post.) But in heavy industry like steelmaking, things involving these big long-term capital investments, Japanese companies seem to have a relative advantage, and I do think that's because of management culture leading to longer time horizons and more emphasis on engineering.
By the way, a lot of Americans have the impression that Japanese work much longer hours, but that's not the case anymore. Government efforts have substantially reduced unreported overtime, too; that's probably no higher than in America these days. (You can see Germany at the bottom of that chart; GDP per hour worked is actually higher in Germany than the USA. Feierabend ist wichtig!)
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