Rob Almeida Discusses Shipbuilding with Joe Rella, President and COO of Austal USA

At this year’s Surface Navy Association National Symposium in Washington, DC, I sat down for a chat with Joe Rella, Chief Operating Officer and President of Austal USA Shipbuilding.

RA: Joe, thanks for the opportunity.  If you would, could you tell us a little bit about yourself?  What were some of the key career moves, or experiences you had that led you to your current position as President of one of the top shipbuilding companies in North America?

JR: Well, I’m a marine engineering graduate from the US Merchant Marine Academy at King’s Point.  Before that, I was enlisted in the US Navy as a nuclear Electrican’s Mate, so that gave me a good lead-in to go to the Academy.  The King’s Point experience really produces a well rounded background for the marine industry.  The military environment also familiarizes the graduate with the Navy  organization and the protocols, so you can fit in the commercial marine sector, or the defense sector, quite easily.  I sailed for several years after graduating and then came ashore and worked at Ingalls, starting in design engineering.   I ultimately ended up in the Program office for the LHD program where I learned about the non-engineering facets associated with shipbuilding.

I went back to the commercial industry at Alabama shipyard, (Atlantic Marine), where I became a program manager for the construction of two title 11 funded chemical tankers that were delivered to a Danish shipowner.  The first foreign ships built in the United States for export in 40 years.  These were the Danabrook tankers.  During my time at Alabama Shipyard, I got my MBA at Spring Hill College which obviously gave me some business acumen  along with my technical background.  I then moved to Jeffboat where I was the Vice President of Sales and Marketing.

This versatility across the spectrum of the business of shipbuilding from design, to construction, to programmatics, to sales, all came together to position me to first start as the Chief Operating Officer at Austal USA in October 2007, and then in August of 2008, President and COO.

RA: As someone who has clearly experienced a fair bit of success over your career, what’s your advice to young professionals as they begin their career in our industry?

JR:  My advice to anyone, including my own children, is the best investment you can make is investing in yourself.  You should never stop learning, and it’s important to get your education from the best possible institutions, with the best possible reputation, because that’s marketable, and that’s what you “sell” when you’re done.  It’s also important to make sure that you are challenging yourself in your job, and that you are always trying to do your best and expand your experience at what you are doing.  You need to focus on your job, and don’t wear your hunger for growth on your sleeve because that is an unattractive way to present yourself.  My focus has always been to do the best job I can, at the job that I am doing, for the job that I have.  And, I don’t spend a lot of time worrying where my next promotion is going to come from because good performance will be rewarded and will create opportunities.

RA:  Austal’s trimaran littoral combat ship is a very cool looking ship, but clearly far different in design from the Marinette Marine version.  What was the biggest factor in pursuing a trimaran vice a monohull design?

JR: A multi-hulled high speed vessel has efficiencies that allow you to get higher speed with less installed ship’s horsepower, making the ship more efficient.  There is a reason why commercial high speed ferries are multi-hulled, and that is because they are driven by the economics of ship design.  That is what Austal is used to building, and that is what provides the most efficient hull design.  I’m not a naval architect, and it may be possible someone could come up with a mono-hulled design that could come up with towing-tank results that might rival a multi-hull, but I would like to see the results before I could accept that.

RA: Your ships are all aluminum from what I understand.  Where does the aluminum come from?

JR:  Alcoa is the principle supplier for our plate and we understand that a large amount of it is domestically sourced.  We use third party suppliers for our extruded panels and shapes.  When I say extruded panels, I mean sandwiched plate that has triangular vertical structure between the two plates to provide that inherent stiffness that you would otherwise have to weld stiffeners to.   It increases the efficiency in production.

RA: Global industry is pursuing more efficient supply chains and operations for both economical and environmental reasons, what are some of the ways that Austal is evolving to increase efficiency, and lessen the environmental impact of your operations?

JR:  Besides the inherent efficiencies built into the design of our hulls, the diesel engines we use are Tier II compliant, MTU 8000-series engines which are very efficient.

RA: But from a shipbuilding standpoint, do you have any unique processes in place that help increase the efficiency of your operations or reduce your carbon or waste footprint?

JR:  We’ve never been cited for any environmental infractions.  The one advantage of working with aluminum is that you don’t use plasma cutters, so you’re not cutting with a torch.  It’s all mechanical cutting.

So when we need to make all these different parts out of a plate of aluminum, we use a computer-controlled router table.  There’s no pollutants going into the air during this process.

RA: Mike Webster, the Chief Naval Architect on this project, mentioned you recycled all these aluminum shavings by sweeping it all up and melting it all down for reuse.  Is that right?

JR: Yes, we reclaim all our scrap and we have a third-party company who manages this recycling for us, and pays us for our scrap.  Additionally, 30% of the aluminum we use in our shipbuilding is actually from recycled products.

RA:  Welding aluminum is a unique skill, and one that was not prevalent in Mobile, Alabama before Austal moved to town.  How did you approach the task of assembling a skilled workforce to build your ships, and why were you ultimately successful?

JR:  Initially, Austal “seeded” the workforce with experienced welders from Australia.  That was in the very early days.   A lot of credit, in fact, needs to go to the state of Alabama.  Alabama has a program called AIDT, which stands for Alabama Industrial Development and Training, and what they will do is fund training for companies who are hiring people with a specific skillset.  AIDT has been a partner of Austal for probably 8 of the 12 years we have been in the United States.  They have since built a $16M maritime training center adjacent to our property  where we have two-thirds of that building for our unfettered use.  The state has also provided training reimbursement commitments to Austal of $32M against employment thresholds that we were meant to reach and maintain over a number of years.  In addition, the state has also provided construction and infrastructure grants of $10M to help us expand.  So the state has been a fantastic partner in helping us build up our work force.

The curriculum we’ve developed is done in our maritime training facility and pre-hire folks can go into the program, unpaid and on their own schedule, and in 6-weeks, they can test-out of the program to qualify to be hired at Austal.  The other thing is that there are a lot of maritime trades and a lot of shipyards on the US Gulf Coast and we were growing when other yards were contracting, so we were able to take steel welders and teach them the art of aluminum welding.  Those individuals with steel welding experience are well ahead of those who haven’t welded at all.

RA:  Shipbuilding in the United States has been on the decline for many years, however it seems to be plateauing a bit with the influx of foreign builders such as Austal, Fincantieri, and BAE Systems.  Why are these companies experiencing success where formerly American-owned builders have not succeeded?

JR:  It’s a two part answer.  First, commercial shipbuilding has been on the decay in the United States due to the differential in labor rates where ships are being built.  Looking at where ships are being built now… South Korea, China, Vietnam, Singapore… India may even get into it soon.  You can’t compete in a sophisticated industrialized market against countries that have lower labor rates and fewer regulatory requirements.  That’s the reality of it.

When it comes to Navy shipbuilding, it’s been a captive market here in the United States, and there aren’t many Navy shipbuilders to support that.  That’s a unique animal because it has a lot of oversight, it has a lot of documentation support governing requirements that burden the programs.  The emergence of foreign companies into the US I think is a manifestation of the fact that companies aligned with shipbuilding in those markets where commercial shipbuilding was able to be sustained have taken that experience and investment capital, and rolled it into the US to get a piece of the captive market that was Jones Act-restricted and/or US Navy.

The United States does not make it easy for foreign companies to build weaponry for them.  The Defense Security Service has requirements for the prevention of foreign ownership, control, or influence over classified programs.  So while a foreign company can invest in the US, and build their infrastructure, and stand up an organization, they are not allowed to tell that company how to operate.  And you can imagine how that would make you feel if you were putting money somewhere and running a business, but you were not allowed to tell them how to operate.  So it does create a hardship on foreign investors, but it does protect our national interests.

We think about a country like Australia, which is obviously very friendly to the United States and a close ally, so you’re less concerned about it, then you think well, there might be other countries that we wouldn’t want to be so closely aligned with, let alone build our Navy warships for us, even if they were here in the United States.

RA: How is the Eurozone crisis affecting your business?

JR: I guess the biggest risk is in currency exchange.  We’re looking at our hedging strategies on the Euro to make sure that we lock in the best rates.  We manage this so that we don’t get hurt by a big downside effect of currency exchange.  The other thing is that we do have some manufacturers that we buy from overseas, and we have to make sure that the health of their organizations is vibrant.  We have to keep an eye on our vendor base overseas.

RA:  A few southeast Asian shipbuilders such as (I think) HHI and Keppel FELS have diversified their businesses into the wind energy sector.  Do you see Austal making similar moves in the future?

JR: Yes.  In Perth actually, we just signed a contract to build a windfarm support vessels.

RA: But what about building the actual towers, nacelles, or possibly wind blades themselves?  Is that a market on Austal’s radar?

JR: There’s a possibility of that in the future, but we’re not actively pursuing that right now.

RA: I appreciate your time sir.