Only a couple of shipyards in the United States can build Navy ships. Hundreds of small shipyards, though, build important pieces of the country’s at-home infrastructure: barges, ferries, tugboats. That is why the Transportation Department, through the Maritime Administration, has an ongoing program of grants to small shipyards, to help them stay afloat, so to speak. For an update,  Federal Drive with Tom Temin spoke with MARAD Administrator, retired Navy Rear Admiral Ann Phillips.

Interview Transcript: 

Tom Temin Now, this program is about $20 million this year, but it’s a program that has been running for several years and it’s well more than $200 million that have gone to these small shipyards. How do you define a small shipyard? For starters.

Ann Phillips As you know, we’re very excited to have just made awards this year. $20.8 million went out the door to 27 small shipyards in 20 states. A small shipyard is defined as one with less than 1200 production employees. And there are some additional criteria. They make boats for federal entities or state local governments that are larger than 40 feet, or if they’re doing exclusively private construction, it has to be larger than 100 feet. But there are many, many yards, as you point out, in this country that meet that criteria. 154 private yards that do building and over 300 that do extremely significant repairs to vessels. So all of them are potential recipients of this grant.

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Tom Temin So it’s not a gigantic industry, but it has a lot of leverage over the economy.

Ann Phillips It does. And it also is a reasonably large employer. 170,000 plus jobs in that industry across the industry, $9.9 billion in labor income, $12.2 billion in gross domestic product contribution. And certainly these are facilities that while they are smaller facilities, they are located all over the country. So they’re providing capacity, economic vitality, jobs and vital need to our broader Jones Act fleet and our U.S. flag vessels and military as well, in some cases, nationwide. And I would add, and territories and noncontiguous states as well. So lots going on here and lots of opportunities.

Tom Temin And of course, when you think of the Navy, you think of carriers and destroyers and so forth, way out of the scope of I think we only have two shipyards in the country that can do that. What does the federal government tend to buy, then, from the smaller shipyards?

Ann Phillips The federal government might buy barges, they might buy small patrol craft, special mission craft or vessels, all kinds of things that they would need in and around their facilities, whether it be Coast Guard, Navy, Army Corps or other entities that would need watercraft.

Tom Temin So even the Navy does buy small craft from local shipyards in the United States?

Ann Phillips They can, yes, certainly.

Tom Temin Ok. Learn something every day. I mean, you can picture the Coast Guard in the harbors. They have these short boats with a little tiny cabin in the middle, that type of thing. That would be a U.S. made type of vessel. Not in a major shipyard.

Ann Phillips And the Navy would use similar vessels for patrolling and security in Navy facilities or in other locations. So, you know, very similar opportunities for the Navy as well as your vision of the Coast Guard.

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Tom Temin We’re speaking with retired Navy Rear Adm. Ann Phillips. She is now administrator of the Maritime Administration. And these companies, why do they need grants? What is their economic status or what are the conditions such that the federal government feels they can use grants?

Ann Phillips A lot of these companies are, as you point out, smaller businesses and they’re very much an impactor on economic productivity in the regions where they are located. So the opportunity for them to receive a grant gives them opportunity to build capacity. It may open up a whole new business line for them, which gives them an opportunity to employ more people and expand sort of the greater economic circumstances of the region where they are. Many of them are smaller scale family businesses so they may not have a lot of capital available, although I will point out there is a 25% match for this grant required. So we provide 75% of the funding, the applicant would be prepared to provide 25% of the funding. But it can be a real game changer for a small business to gain an additional capacity or update a piece of equipment so that they can be more efficient and effective in using it. And then they can build and prepare different kinds of vessels that can greatly expand their business opportunity. So it’s a real advantage and it’s a terrific opportunity. Lot of interest in this grant program every year.

Tom Temin And is there the opportunity to maybe recapitalize or update their equipment or processes? Maybe they’re switching from steel to fiberglass or vice versa, that kind of thing?

Ann Phillips Absolutely. That is a part of it. And also to expand the kinds of things they can do with the business line that they follow so they could improve their ability to build more quickly. As you point out, they could shift the kinds of materials they work with or they could open up a whole different business line and build a different kind of vessel with different capabilities and different technologies. So it’s a tremendous opportunity for them.

Tom Temin By the way, what about ferries? Is that a big business in the United States when you think about all the places that have ferry boats, it adds up?

Ann Phillips Oh, sure. This grant can be applied to small yards that are building any kind of vessel. So there’s there’s no restriction on the kinds of vessels other than the size restrictions that I mentioned earlier. It needs to be above a certain size.

Tom Temin Got it. And that 25% match. Are you aware whether states or other localities might be able to supply that part to the yard? Is that allowed?

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Ann Phillips It can’t be federal money.

Tom Temin Sure. Can it be state money?

Ann Phillips As long as it’s not federal money where there are different opportunities that can be considered there.

Tom Temin Ok. And I guess the state money can’t come from federal originally either, if that’s the case. Then you kind of got money going around in circles.

Ann Phillips So generally they’re providing their own support, but it just can’t be federal dollars.

Tom Temin Got it. And you mentioned there were some 20 recipients of this year’s round. Is this competitive and what kind of response do you get?

Ann Phillips It is very competitive. This year we had 99 applicants asking for over 80 million in funding support. But of course, that’s just a piece of it, so it actually generate spending much higher than that. So in that context, you know, the ability to award 27 small shipyard grants out of the $20.8 million, there’s an awful lot of people who didn’t get something they ask for this year. And I always tell people who have applied and are not successful, please call and ask for a debrief and please apply again. These grants apply across the country, as you know, and it’s pretty important that we ensure that people have an opportunity and that they know that their grant will be considered again in the future. And it’s also important that we think about everybody has an opportunity, so if you don’t succeed this year, you may have an opportunity next year because maybe somebody else in your state got one this year. And so we’ll be looking to move money to a different place next time.

Tom Temin And from the MARAD standpoint, you know, the merchant marine fleet in the United States is kind of up there in age. I think there’s still some steam powered vessels in that whole fleet, the Jones Act fleet. Are those also users of small shipyards in some cases?

Ann Phillips We’re mixing apples and oranges a little bit here. MARAD does run a ready reserve force, which you’re aware of. These are very large vessels. They’re not small shipyard qualified vessels, except potentially in a repair circumstance. Many of them are steam, the largest steam fleet in the world. And they are, as you pointed out, aging. However, in the context of smaller vessels that are steam, that is becoming more and more rare because there are fewer of them. I know specifically of some ferries that are quite elderly that are still steam powered, but that would be almost a niche circumstance, in today’s world. Most small vessels are diesel or some form of turbo diesel shifting to other kinds of propulsion, jet propulsion, and we’re seeing people shift to electric or hybrid, which which is a more costly vessel, of course. But the opportunity to reduce emissions is always good and always there. But I think in the context of repair, certainly some of these yards do do repairs and depending on the size of the yard, whether they’re less than 1200, they could conceivably be doing repair work on the ready reserve force and qualified for the scrap.

Tom Temin I guess the steam would be the novelty for tourist attraction for you. As someone who loves watching steam locomotives.

Ann Phillips And I am a steam engineer qualified person from the Navy, so I always enjoy visiting the steam ships, but it is a dying art.

Tom Temin Yeah. So if you see an array of 37 dials and knobs, you know what to do with it.

Ann Phillips I’ve seen them before. Yes.

Tom Temin All right. And by the way, what’s it like going from a naval career where you commanded fleets, at some point, to to MARAD?

Ann Phillips Well, of course, it’s an honor and a tremendous opportunity to command, to be the maritime administrator. Certainly, my largest command in the Navy was Expeditionary Strike Group Two, which is all the amphibious forces on the East Coast. And that was my last command at sea. And I retired from that job. It’s a real honor to be able to support and advocate for, to promote for America’s merchant marine fleet, particularly in the context of our needs, and to ensure our economic and national security needs, which, of course, is the mission of the Maritime Administration. And it’s an honor to work with our industry, to work with our  carriers and our labor force that supports the industry, and also to be building new ships, which we are doing here in the Maritime Administration in a U.S. shipyard in Philly ship, the national multi-mission support vessel that we are building, that will be a training vessel for five of the six state maritime academies, but also has a dual hat as a national asset and we can use it for other needs as the nation might require. It’s an honor to be a part of that. It’s an honor to maintain already reserve force and ensure our support to the Department of Defense there. And it’s an honor to be involved in these grant programs that support our small shipyards and to meet people in these yards across the country and to work with our ports and waterways staff and and meet the many people who run ports that where the small shipyards might be located across the country, both brown water and blue water. So it’s an amazing portfolio, a very large portfolio for a small agency. And I’m honored to have this opportunity and thrilled to be here.

 

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