High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Tony Capaccio
Dec. 12 (Bloomberg) — Lockheed Martin Corp. and Austal Ltd., makers of the Navy’s Littoral Combat Ship, have emerged unscathed in the new strategy by departing Defense Secretary Chuck Hagel to buy 20 modified vessels.
Hagel, expressing “considerable reservations” about the troubled ship built for shallow coastal waters, cut the program to 32 ships from 52 in January and ordered a study of possible modifications and alternatives. Instead of going for a new ship, he announced late yesterday that he’d opted for changes that he said will “offer improvements in ship lethality and survivability” at an “affordable price.”
The ship is built in two versions by Lockheed and Austal, and Sean Stackley, the Navy’s top weapons buyer, told reporters that the service will continue the “dual-sourcing” approach that’s been used to buy the first 20 ships. That means “two builders competing on the program,” he said, adding that the service is still drafting an acquisition strategy for the modified vessels.
The Littoral Combat Ship was conceived to engage in surface warfare against small vessels as well as submarine-hunting and mine-clearing. Development delays, rising costs and questions about whether the lightly armed, small ships would survive in battle fueled mounting criticism.
Hagel directed that the modified Littoral Combat Ships be equipped with improved armor, long-range surveillance, weapons, electronic warfare, decoys and sonar. He said production will begin no later than fiscal 2019.
The defense secretary also directed the Navy to present a plan by May examining the cost of making improvements to the 32 original ships.
Hagel intends to step down upon confirmation of his successor. President Barack Obama’s nominee for the job, Ashton Carter, championed the Littoral Combat Ship as a model for weapons purchasing practices when he served as the Pentagon’s acquisitions chief from 2009 to 2011.
Congressional critics of the ship’s cost and performance, including Arizona Republican John McCain, the incoming chairman of the Senate Armed Services Committee, may ask Carter about that during his confirmation hearing next year.
The Navy said the modifications ordered by Hagel can be achieved with an increase of less than 20 percent over the cost of the current vessels. Stackley said the modifications will add about $75 million to the ship’s price tag, which was about $360 million for the basic seaframe in the latest contract.
Although the Pentagon will include money to initiate the changes in its upcoming fiscal 2016 budget request, the plan laid out by Hagel will have little immediate impact on the current 32-ship program. That’s because the Navy has approval to buy eight more of the existing designs in fiscal years 2016-2018.
About $12 billion has been appropriated by Congress so far for 20 vessels. In addition to $23 billion to build the 32 ships in the original program, the Navy had planned to spend $7.2 billion to buy the modules that are supposed to be swapped out for different missions.
Production of the first modified vessels wouldn’t begin until well into the next president’s administration. It could face the need to train personnel and maintain four new and older variations of the ship made by Bethesda, Maryland-based Lockheed and Henderson, Australia-based Austal.
Copyright 2014 Bloomberg.
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