George Whittier is CEO of Fairbanks Morse Defense.
The United States has lost its maritime dominance. In 2022, we contributed 0.2% to the world’s commercial ships, contrasting the combined 93% produced by China, Japan and South Korea. These Asian giants perfected the art of shipbuilding, delivering ships swiftly and cheaply. China manufactures nearly 50% of the commercial ships in use worldwide but also maintains a Navy with roughly 370 ships, compared to the U.S. fleet of 291 vessels.
Global events remind us of the ephemeral nature of global peace and stability and underscore the urgency for the U.S. to strengthen its shipbuilding capabilities. However, revitalizing American shipbuilding will require us to maintain control over our national defense supply chain.
The Risk Of Overreliance On Foreign Sources
Many parts required for the Navy’s programs are manufactured overseas. One study found “over 40 percent of the semiconductors that sustain DoD weapons systems and associated infrastructure are now sourced from China.” Aside from superconductors and microelectronics, China is also responsible for 63% of global rare earth mining (which is essential to the production of defense equipment) and 92% of rare earth magnet production.
While foreign manufacturing may function adequately in a “just-in-time” environment, it can pose a risk to national security due to global instability. Unencumbered delivery of critical components must be a high priority.
Some industry voices believe securing foreign-made parts is the only way to meet its commitments to the Navy within the promised timeframe. While it is unreasonable to expect there will not be instances where it makes sense to source a component or part from a foreign supplier, the U.S. industrial base needs predictability and assurance from the Navy that competition with foreign suppliers will be fair. To that end, I think foreign suppliers should be expected to meet the same specifications and standards as domestic companies.
It’s also important for foreign suppliers to demonstrate to the Navy a similar level of long-term sustainment of their equipment, in addition to delivering the up-front supply. The Navy needs an active and robust supply chain. If a foreign supplier goes out of business or a corporation discontinues production of a particular piece of equipment while it is still being used in the Navy’s fleet, the ability to maintain and repair these critical assets becomes compromised.
Reshoring American Manufacturing
The U.S. has sometimes incentivized reshoring with initiatives, such as the “Buy America” provisions in the National Defense Authorization Act. However, despite incentives and trade policies, reshoring requires infrastructure investment.
Investing in training and skills development is another crucial aspect of reshoring that could yield substantial economic benefits for the U.S. and its workforce. One potential solution could be to revise the tax system for defense companies. This would incentivize companies to invest in training workers for skilled trades, further enhancing the potential for job creation and alleviating the much-publicized labor shortages impacting the entire defense industrial base.
For companies, collaborating with local community colleges and vocational schools to provide input into the curriculum or create specialized certification programs is one way to build a workforce with specific skill sets.
Providing accreditation programs and delivering training workshops for professional associations is another low-cost training option that could yield an immediate impact.
Preserving Small And Medium-Sized Domestic Suppliers
Many companies that provide essential parts or components to prime defense contractors have one major customer—the U.S. government. These vendors tend to be small to mid-sized companies that provide essential “niche” parts or services. When these companies leave the maritime defense supply chain, replacing their parts of technology is extremely difficult.
Suppliers rely on steady, consistent demand from the Navy to plan for long-term labor, inventory and other resources. It is hard for private companies to risk recruiting labor or investing in infrastructure or inventory if they do not have transparency about the government’s plans for the program.
Similarly, the Navy needs a thriving supplier base healthy enough to support its components’ lifetime. For instance, my company supplies backup diesel engines for aircraft carriers. The company must not only exist through 2045 to supply engines through the end of this program but also through 2085 to provide service through the 40-year engine lifespan.
Right now, the demand is not there. Although the Navy has traditionally funded the construction of 10-12 ships annually, the FY 2025 budget only calls for purchasing six ships while decommissioning 19. This demand signal tells suppliers to hold off on increasing labor and inventory. Should the Navy decide to surge production, the industrial base will need time to recalibrate the supply chain.
Expanding from a single product provider to offering multiple products and aftermarket services is an effective strategy for creating a steady stream of business, even from a single customer.
For example, my company was primarily known as a marine engine manufacturer before we began expanding our product and service portfolio in 2020 through acquisitions and organic growth. We accomplished this by having ongoing, in-depth conversations with the Navy to fully understand their needs, and then focusing on acquiring companies that aligned with providing products, services and technologies that fill those needs.
I recommend to look for companies that provide essential components for marine defense and already have a strong relationship with the Navy. This strategy can help expand your geographic presence as well as your presence on various platforms.
As the importance of maritime strength becomes ever more apparent, protecting the freedom of the seas means that the U.S. must commit to rebuilding its shipbuilding prowess.
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