Embed Size (px)
Citation preview
R&D in the Maritime Industry: ASupplement to an Assessment of Maritime
Trade and Technology
May 1985
NTIS order #PB85-246932
Recommended Citation:R&D in the Maritime Industry: A Supplement to An Assessment of Maritime Trade andTechnology (Washington, DC: U.S. Congress, Office of Technology Assessment, OTA-BP-O-35, May 1985).
Library of Congress Catalog Card Number 85-600540
For sale by the Superintendent of DocumentsU.S. Government Printing Office, Washington, DC 20402
Foreword
Since the publication of “An Assessment of Maritime Trade and Technology” byOTA in October 1983, various proposals have been made to provide incentives for re-search and development (R&D) in an effort to enhance the industry’s competitive posi-tion. Consequently, the Senate and House Subcommittees on the Merchant Marine jointlyrequested OTA to analyze the Federal role and/or incentives for improved maritimeR&D including new institutional arrangements, financing and priority setting. This sup-plement is in reply to that request.
In order to investigate the subject in more detail than our original assessment, OTAconducted an industry-wide survey, receiving replies from approximately 85 U.S. shipand barge operating and building firms. Respondents to the survey represented aboutone-half of the firms and work force in these two major sectors of the U.S. maritimeindustry. The results of that survey and other analyses are contained in this supplement.
The OTA survey provided some valuable basic data on R&D activities and viewsabout problems and opportunities from a broad spectrum of the maritime industry.After preparing a draft report on the survey, OTA circulated it for comments and helda workshop to discuss survey results and proposals for possible changes in Federal in-stitutions. OTA sincerely appreciates the assistance provided by the workshop partici-pants and others who offered comments on the draft report. We especially appreciatethe help of Dr. Leslie Kanuk who advised on the design of the survey itself and theevaluation of the responses.
It appears from our analysis that, while aspects of the Federal maritime R&D ef-fort are useful and productive, a number of problems limit the benefits to industry andhinder the pursuit of such national goals as technological preeminence. Problems iden-tified with existing Federal maritime R&D include: difficulty with government contractingprocedures, limited dissemination of R&D results, restricted involvement of some sec-tors of the industry, and difficulty with initiating cooperative R&D in some sectors.
The major issue highlighted by the OTA survey and analyses is whether the Feder-al role in maritime R&D is adequate or whether it should be enhanced for the benefitof both the maritime industry and the Nation as a whole. While a wide diversity ofopinion exists concerning the need for and the nature of a new maritime R&D institu-tion, the value in a new approach is the promise of addressing some of the more impor-tant problems noted above. One or more of a range of alternative approaches couldbe put in place. Since the existing institutions also have valuable aspects, it is impor-tant to preserve the successful elements in any future changes.
Director
,.,///
OTA Workshop ParticipantsFebruary 7, 1985
James B. ActonTodd Pacific Shipyards Corp.
Charles A. BookmanNational Research CouncilMarine Board
James A. HigginsConsultant
John LeeperSimat International, Inc.
Zelvin LevineMaritime Administration
Larry MallonHouse Committee on Merchant Marine
and Fisheries
Report Review Group
Richard F. BrunnerAvondale Shipyards Inc.
Peter J. FinnertySealand Industries, Inc.
Arthur HaskellMatson Navigation Co.
Edwin M. HoodNational Steel & Shipbuilding Co.
Everett C. HuntWebb Institute of Naval Architecture
Leslie KanukBaruch College
John W. McInnesNaval Material Command
Naresh M. ManiarM. Rosenblatt & Son, Inc.
James D. PalmerJ. J. Henry Co., Inc.
Bill PhillipsMetal Trades DepartmentAFL/CIO
Virgil RinehartMaritime Administration
Charles M. LynchARCO Marine Inc.
James J. MurphyGeneral DynamicsQuincy Shipbuilding Division
Peter M. PalermoNaval Sea Systems Command
Eugene SchorschBethlehem Steel Corp.
Rollin J. ShoemakerNewport News Shipbuilding Co.
Peter KopcsakIngram Barge Co.
iv
OTA Project Staff–Maritime R&D
John Andelin, Assistant Director, OTAScience, Information and Natural Resources Division
Robert W. Niblock, Oceans and Environment Program Manager
Project Staff
Peter A. Johnson, Project Director
Chris Ansell Nan Harllee
Administrative Staff
Kathleen A. Beil Jacquelynne R. Mulder Kay N. Patteson
Contractors
Judith Roales, Editor
v
Contents
Section
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Congressional Interest in Maritime R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Definitions of R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Scope and Design of This Supplemental Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. A PROFILE OF R&D IN THE MARITIME INDUSTRY . . . . . . . . . . . . . . . . . . . . . . .Industry R&D Activities . . . . . . . . . . . . . . . . . .
Ship Operators . . . . . . . . . . . . . . . . . . . . . . . .Shipbuilders . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Federal Role in Maritime R&D . . . . . . . .Factors Affecting R&D . . . . . . . . . . . . . . . . . . . .
Market Demand and Financing . . . . . . . . . .Federal Policies/Regulations . . . . . . . . . . . . .Federal Incentives . . . . . . . . . . . . . . . . . . . . . .
3. MODELS OF OTHER R&D INSTITUTIONSForeign Approaches . . . . . . . . . . . . . . . . .U.S. Approaches . . . . . . . . . . . . . . . . . . . .
Research Joint Venture. . . . . . . . . . . . .R&D Limited Partnerships . . . . . . . . .NASA Industrial Applications Center
Existing Maritime Institutions. . . . . . . . .
. . . . .
. . . . .
. . . . .
. . . . ,
. . . . .
. . . . .The-David Taylor Naval Ship Research and Development Center . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Kings Point, New York Facility . . . . . . . . . .The Maritime Research Information Service . . .
4. SUMMARY OF ISSUES . . . . . . . . . . . . . . . . . . . . . .
Appendixes
A. Summary of the R&D Program of The MaritimeDepartment of Transportation . . . . . . . . . . . . . . . .
B. The Navy’s ManTech Program . . . . . . . . . . . . . . . .C. Samples of Survey Forms . . . . . . . . . . . . . . . . . . . . .D. Firms Responding to the OTA R&D Survey . . . .E. Compilation of
List of Tables
Table No.
Responses to Open Questions . . .
Admin. . . . . .. . . . . .. . . . . .. . . . . .. . . . . . .
Page
33345
111111111218182023
31313232333435353535
39
Page
stration,. . . . . . . . . . . . . . . . . . . . . 43. . . . . . . . . . . . . . . . . . . . . 48. . . . . . . . . . . . . . . . . . . . . 50. . . . . . . . . . . . . . . . . . . . . 53. . . . . . . . . . . . . . . . . . . . . 54
1. R&D in the Maritime Industry: U.S. Ship/Barge Operatorsand Builders OTA Survey and Response Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. U.S. Ship Operators R&D Expenditures: Percent of OperatingBudgets Reported for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. U.S. Shipyard R&D Expenditures: Percent of OperatingBudgets Reported for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
vii
Contents—continued
Table No. Page
4. U.S. Ship Operators R& D Expenditures by Category—AveragePercent for Each Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. U.S. Shipyard R&D Expenditures by Category—Average Percentfor Each Category— For 21 Respondents Who Had Some R&DExpenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. U.S. Ship Operators R&D Firms Reporting Federal FundingSupport for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6a. U.S. Ship Operators R&D Firms Responding to Question of Whetherto Increase Direct Federal R&D Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. U.S. Shipyard R&D Firms Reporting Federal Funding Support for R&D . . . . . . 157a. U.S. Shipyard R&D Firms Responding to Question of Whether to Increase
Direct Federal R&D Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168. U.S. Ship Operators R&D Firms Reporting Status of Access to Other R&D . . . 169. U.S. Shipyard R&D Firms Reporting Status of Access to Other R&D. . . . . . . . . 16
10. U.S. Ship Operators R&D—Factors Reported to Influence R&D Investment . . . 1911. U.S. Shipyard R&D—Factors Reported to Influence R&D Investment . . . . . . . . . 1912. U.S. Ship Operators R&D— Federal Policies/Regulations Reported
to Affect R&D Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2113. U.S. Shipyard R&D Federal Policies/Regulations Reported
to Affect R&D Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2114. U.S. Ship Operators R&D Firms Reporting Factors Affecting
Incentive to Invest in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2315. U.S. Shipyard R&D Firms Reporting Factors Affecting
Incentive to Invest in R&D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Figures
Figure No. Page
1. Maritime Administration and Navy “ManTech” R&D Program Expenditures,Fiscal Years 1975-85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. Navy ManTech Program Fiscal Year 1985 Breakdown of R&D Subjects . . . . . . . . . 133. MarAd R&D Program Major Elements in Fiscal Year 1985 . . . . . . . . . . . . . . . . . . . . 14
. .Vlll
Section I
Introduction
Section I
Introduction
CONGRESSIONAL INTEREST IN MARITIME R&D
In 1982, in response to their concerns about theviability of U.S. maritime industries as well as thefuture U.S. position in world trade, the HouseCommittees on Merchant Marine and Fisheriesand on Ways and Means jointly requested the Of-fice of Technology Assessment (OTA) to under-take an analysis of maritime trade and technol-ogy issues. In particular, the committees askedOTA to evaluate long-term trends in global sea-borne trade and maritime technology in relationto the U.S. maritime industry. This study wascompleted in the course of the following year andthe final report, “An Assessment of MaritimeTrade and Technology, ” was presented to Con-gress in October of 1983.
In conducting this study for the Committees,OTA reviewed the status of American maritimetechnology and surveyed the members of the So-ciety of Naval Architects and Marine Engineers(SNAME) Ship Technical Operations Committeefor their views on U.S. maritime technology. Asa result of this work, OTA found that the U.S.generally has lagged behind foreign competitorsin applying technological advances to much of theU.S.-flag fleet and to the technology of construct-ing ships. OTA concluded that to achieve a com-petitive position in world shipping and shipbuild-ing, it is important for the United States to regaintechnological preeminence in these areas.
Following these conclusions, OTA examinedthe role of R&D in stimulating technological in-
DEFINITIONS OF R&DFor this study, OTA ascribes to a definition of
R&D used by the National Science Foundation(NSF). ’ The NSF defines “research” as: “. . . sys-
‘Nat ional Science Foundation, Federal Funds /or Research and
Development: Fiscal Years 1979, 1980, and 1981, Vol. XXIX. Sur-veys of Science Resources Series. NSF 81-306 (Washington, DC: U.S.Government Printing Office, 1981 ).
novation in the shipping and shipbuilding indus-tries. OTA’s analysis suggested that there is a needfor a more effective R&D program, and that Con-gress could help establish a more specific Federalrole in maritime research. The elements of a con-gressionally defined Federal role, as outlined inthe OTA report, might include:
1.
2.
3.
4.
5.
identifying R&D objectives as a subset of anoverall maritime policy;determining what U.S. industry can do bet-ter itself and formulating indirect incentivesfor industry R&D;stimulating coordination and transfer oftechnology within the industry and from mil-itary, foreign, and other sources;focusing on high-risk areas and long-rangeproblems that are not adequately addressedby industry or elsewhere, the solution ofwhich could contribute to national goals;andestablishing new or modified institutional ar-rangements to encourage, coordinate, andfoster R&D with either or both private andFederal support.
In response to these findings, both the Senate andHouse Subcommittees on the Merchant Marineasked OTA to take a more in-depth look at mar-itime R&D, addressing those issues raised in theoriginal OTA report. The findings of that analy-sis are described in this supplement.
tematic study directed toward fuller scientificknowledge or understanding of the subject stud-ied. ” Development is defined as: “. . . the activ-ity (that is) directed toward the creative applica-tion to practical affairs of that knowledge gainedfrom research and that frequently in itself involvesthe discovery of new knowledge. ”
3
4
In relation to the shipping and shipbuilding in- the term “R&D” to refer to most of the activitiesdustries, these inclusive definitions would encom- under discussion, it should be noted that the great-pass all activities related to designing new or im- est portion of these activities in the U.S. maritimeproved products, technologies, techniques or industries fall under “development” rather thanprocedures to improve the operation or construc- “research. ”tion of ships. While this supplement mainly uses
SCOPE AND DESIGN OF THIS SUPPLEMENTAL STUDY
This OTA supplemental study does not attemptto examine in detail any programs of ongoing re-search or to evaluate gaps or needs in current Fed-eral maritime R&D. Instead, its primary objec-tive is to investigate those institutional or policyissues that broadly influence the quantity andquality of R&D in the United States. For exam-ple, the study focuses on issues such as the effectof the tax, patent, and antitrust laws on researchactivities by the industry. It also examines the abil-ity of the current Federal organizational structureto provide a focus for maritime R&D and to stim-ulate industry participation in this program.
In addition to a review of the existing literature,conversations with U.S. Navy and Maritime Ad-ministration personnel, and discussions with rep-resentatives of shipyards and ship operating com-panies, much of the information in this studycomes from a survey sent to 80 U.S. ship operat-ing firms and 50 U.S. shipyards, of which 66 oper-ators and 48 builders met the survey criteria (seebelow). The survey queried both operators andshipyards on the percentage of their operatingbudgets spent on R&D in the past five years andin the current year. Information was also re-quested on what share of the total amount spentby these firms on R&D was contributed by theFederal Government. Finally, the respondentswere asked to evaluate the effect of specific Fed-eral policies on their decisions to commit resourcesto R&D and to register their support for variouspolicy options for promoting R&D. The surveyalso solicited suggestions for other potential pol-icy options.
The OTA ship operating survey was sent toU.S. ship operating firms selected because of theiraffiliation with major industry associations—theAmerican Institute of Merchant Shipping, the
Council of American-Flag Ship Operators, andthe Federation of American-Controlled Shipping.A number of unaffiliated operators were also se-lected from published sources.
OTA’s shipbuilding survey was sent to themembers of the Active Shipbuilding IndustrialBase (ASIB), most of whom are also members ofthe Shipbuilders Council of America. The ASIBdesignates those firms that are currently buildingor seeking to build ships for the U.S. Navy andincludes all of the larger U.S. shipyards and anumber of yards that specialize in medium-sizedand smaller military vessels, such as patrol boats.In addition, OTA sent questionnaires to smaller(so-called “second-tier”) shipyards that are mem-bers of the American Waterways Shipyard Con-ference. These yards build a variety of vessels in-cluding fishing boats, barges, drilling rigs, and tugboats.
Table 1 shows the make-up of the survey sam-ple. Out of the original group who were solicited,a number of operators or builders were disquali-fied because they were either not in the businessOTA had assumed, they had just gone out of busi-
Table 1 .—R&D in the Maritime Industry:U.S. Ship/Barge Operators and Builders
OTA Survey and Response Data
Operators Builders
Number Percent Number Percent
Original sample . . . 80 50Firms disqualified
(not in business,etc.). . . . . . . . . . . . 14 2
Net qualified firmsin survey . . . . . . . 66 100 48 100
No response . . . . . . 18 27 12 25Total respondents . 48 73 36 75NOTE Percentages are rounded, and may not add up to 100 tn some tables
ness, or they were foreign-owned companies. Forexample, some major petroleum companies re-cently disposed of their operating fleets and nowonly charter ships for their needs; two shipbuilderswent out of business while OTA was conductingthe survey; two companies thought to be opera-tors turned out to be only brokers.
Thus, the net size of the sample (i.e., the num-ber of qualified firms included) in the OTA sur-vey was 66 operators and 48 builders. Of thatgroup, 73 percent of the operators (48 firms) and75 percent of the builders (36 firms) respondedto the survey. Those firms who responded arelisted in appendix D. Most of the firms who didnot engage in any R&D did not complete the en-tire survey form; however, the others reportedalmost all the information that was requested.
The survey sample therefore represents a siza-ble portion of the U.S. maritime industry. For ex-ample, the 23 operator firms that had some R&Dactivities and reported on the survey forms rep-resent 50 percent of the total U.S. flag fleet ton-nage plus about 3 million gross tons of the U.S.owned, foreign flag fleet. These 23 firms includeseven liner companies, one roll on/roll off (Ro/Ro)operator, 14 bulk and barge operators, and onecruise operator.
The U.S. shipyards responding to the surveyrepresent 75 percent of the major yards (consid-ered the Active Shipbuilding Industrial Base) plus22 of the so-called “second tier” yards. The 36yards responding represent about 50 percent ofthe total U.S. shipyard employment base. Ofthese, 22 (61 percent) completed the survey formsin their entirety.
OTA also asked each respondent to identify hisor her position in the organization, The replieswere in three general categories—about one-thirdwere presidents or chief executive officers of thefirms, one-third were vice presidents, and one-third were division managers responsible for
SUMMARY OF FINDINGS
R&D, engineering, transportation, or planningfunctions. It appears from these data and otherresponses, that most firms gave serious attentionto our survey and tried to provide comprehen-sive and accurate information.
Changes in Federal policies supporting the U.S.shipping and shipbuilding industries, combinedwith a worldwide slump in commercial shippingand shipbuilding, have caused severe problemsin a number of sectors of the U.S. maritime in-dustries. These problems, leading to a decline intraditional markets and a concentration of someof the major firms in a few growing market seg-ments (e. g., liner shipping and military ship con-struction), were analyzed in the 1983 OTA study.Most of that analysis is still very timely and manyof the problems facing the industry are still veryevident.
Thus, the survey of R&D activities may havemet with some skepticism. Many responses werequalified to reflect a view that R&D is far downthe list of priorities in an industry which is fightingfor day-to-day survival. Some respondents in-sisted that the Federal Government must changeits policy towards supporting the industry and itsmarkets before it would make sense to developnew technology to either build or operate ships.On the other hand, there is also a segment of theindustry, reflected in the survey, which does notwant Federal Government involvement in any-thing but support of basic research and education-al facilities. This segment believes that the pres-ent Federal policy trends are beneficial.
Given this wide divergence of views within theU.S. maritime industries, it is not clear that a co-hesive national policy towards R&D, or an institu-tional framework for R&D, can gain adequatesupport. In any case, it would be important tointegrate approaches to Federal involvement inR&D with the major elements of an overall na-tional maritime policy.
OTA’s approach to this analysis has been two- second, to examine ways in which the Federalfold: first, to understand the existing impediments Government might encourage or facilitate mari-to R&D investment in the maritime industry; and time R&D, either directly or indirectly. In the case
6
of the former, OTA’s survey has provided an un-ambiguous answer: the marketplace is the finalarbiter. The low and unsteady demand for U. S.-built ships, for instance, either at present or an-ticipated in the near future, has forced the ship-building industry to be extremely conservative indevoting funds to R&D. In comparison with theeffects of the marketplace, interest rates and theavailability of capital were found to be only slight-ly influential factors. This is presumably becausemany firms are extremely hesitant to borrowmoney for R&D unless the future of the industrylooks relatively promising.
On the other hand, some believe that R&D itselfcan be a driving force for improvement in boththe marketplace and the productive capability. Onthe whole, Government policies were consideredby the survey respondents to have only a mod-erate effect on R&D decisions. When respondentswere asked about specific Government policies,their responses did not indicate a clear pattern ofthe effects of these policies.
In the shipbuilding industry, the phase-out ofsubsidies was most clearly regarded as a factordiscouraging R&D investment; but a significantnumber of respondents also felt the phase-out of sub-sidies had a negligible effect on R&D. The ocean-going ship operators, on the other hand, reportedthat the phase-out of subsidies had little effect ontheir R&D investment. * The shipbuilding re-spondents were almost equally divided as towhether the U.S. tax code had negative, positive,or negligible effects on investment. The ship oper-ators were equally divided about the impact ofCoast Guard regulations. Otherwise, the respond-ents indicated that other policies had little or noeffect on their R&D investment. Policies that OTAsuspected might affect investment—such as anti-trust statutes, patent law, OSHA safety regula-tions, rail and truck deregulation—apparentlywere not significant, although some respondentswere in favor of modifying antitrust laws.
*It should be noted that while construction subsidies for the ocean-going fleet have virtually been eliminated for the past 2 years, exist-ing operational subsidies, in fact, have not.
In response to the survey findings and otheravailable information, OTA formulated a num-ber of policy options. These options fall into fourcategories: 1) increasing direct Federal support,2) encouraging the industry to invest more inR&D, 3) encouraging cooperative industry R&D,and 4) facilitating inter- and intra-industry tech-nology transfer. The OTA analysis also produceda number of indications about the potential effi-cacy of these options to the maritime industry.For instance, most of the firms responding to therelevant portion of the survey (hereafter called“respondents”) believed that increasing direct Fed-eral funding for maritime R&D would act as anincentive for further private investment. Respond-ents were also favorably disposed toward a revi-sion of the antitrust laws to permit joint venturesand toward measures to provide them with loanguarantees and tax deferments on funds committedto R&D (despite their ambivalence when askedwhether antitrust laws and the limited availabil-ity of capital were impediments to investment).With respect to coordinating maritime R&D, re-spondents endorsed the concept of a centralgovernment/industry sponsored maritime R&Dinstitution. However, most of the survey re-spondents were hesitant about their own par-ticipation in such a scheme; therefore, it is likelythat the Federal Government would not only haveto spearhead such a concept, but that the indus-try might be financially unwilling or unable toprovide consistent support for it. On the subjectof technology transfer, the respondents indicatedthat for many firms, access to U.S. Navy and for-eign R&D results is a problem. A number of pos-itive suggestions to facilitate technology transferwere made, such as publication of an annual cat-alog of completed and ongoing research activities.
While a wide diversity of opinion exists con-cerning the need for and the nature of a new mar-itime R&D institution, OTA’s industry survey andsubsequent workshop discussions led to the fol-lowing principal findings regarding the featuresof a new institution should it be supported:
1. Some existing Federal efforts and programs(e.g., the National Shipbuilding ResearchProgram) are valuable and effective. Anynew institution should incorporate successfulexisting elements and gradually phase-in newinitiatives.
7
2. Any new institution should have adequatecontracting flexibility.
3. Any new institution should have the capa-bility of initiating joint government/indus-try cooperative ventures in specific areas.
4. Methods should be developed for any newinstitution to encourage participation of abroad industry group and to utilize indus-try guidance in developing program goalsand selecting R&D projects.
5. Any new institution should include pro-grams for adequate technical information re-
trieval and for wide dissemination of R&Dresults.
6. Any new institution should maintain andenhance the most productive existing pro-grams providing direct support of basic re-search, research at educational facilities, andunique national laboratories.
7. Any new institutions should seek to incor-porate methods that facilitate innovations inthe private sector and encourage adoption ofadvanced technologies within the U.S. mari-time industries.
Section II
A Profile of R&D in theMaritime Industry
.
Section II
A Profile of R&D in the Maritime Industry
INDUSTRY R&D ACTIVITIESTables 2 and 3 display survey data concerning
past and present R&D expenditures in the mari-time industry. These data provide an overviewof the number of firms who fund R&D projectsand the relative amount of that funding.
Ship Operators
For operators (table 2), over one-third (38 to40 percent) of the respondents said their firms sup-ported some research and development work. The
Table 2.—U.S. Ship Operators R&D Expenditures:Percent of Operating Budgets Reported for R&D
(Total of 48 Respondents)
Range of Past Current
percentage of 5 years year
operating budget Number Percent Number Percent
None or “nil” . . . . . 30 63 29 60up to 1 % . . . . . . . . . 11 23 12 25Over 1%-2% . . . . . 4 8 5 10Over 2% . . . . . . . . 3 6 2 4
Tota l respondents 48 100 48 100
Total with someR&D ., . . . . . . . 18 38 19 40
Average percentspent on R&D . . . 1.3% 1.2%
Largest percentspent on R&D . . 4.0% 4.0%
Table 3.—U.S. Shipyard R&D Expenditures:Percent of Operating Budgets Reported for R&D
(Total of 36 Respondents)
Range of Past Current
percentage of 5 years year
operating budget Number Percent Number Percent
None or “nil” . . . . . 15 42 17 47up to 1% . . . . . . . 13 36 12 33Over 1%-2% . . . . . . 5 14 4 11Over 2% . . . . . . . . . 3 8 3 8
Total respondents . 36 100 36 100
Total with someR&D . . . . . . . . . . . 21 58 19 53
Average percentspent on R&D . . 1.3% 1.7%
Largest percentspent on R&D . . . 4.0% 8.0%
NCITE Percentages are rounded and may not add up 10 100 In some tables
average percentage of operating budgets spent onR&D was 1.2 percent for the current year and 1.3percent for the past five years. The largest per-centage of operating budget spent on R&D was4 percent for both the current year and the pastfive years.
The data shows very little difference in R&Dexpenditures for the current year vs. the past fiveyears and indicate that R&D activity in the shipand barge operating industry has been fairly con-stant. This suggests that R&D investments prob-ably will not change in the near future. Thosefirms with no R&D did not indicate that they maystart some R&D projects and several indicatedthat R&D was not appropriate to their line ofbusiness.
Shipbuilders
In the shipbuilding industry (table 3), 19 firmsresponding to OTA’s survey reported that theywere involved in R&D activities in the currentyear and 21 firms in the past five years. This isa slightly higher percentage (53 percent and 58percent) of firms conducting research than wasfound in the ship operating industry.
Of those respondents conducting research in theshipbuilding industry, the average amount a firmspent on R&D in the past five years was 1.3 per-cent of their operating budget. This amount roseslightly to 1.7 percent in the current year. Thelargest percentage of operating budget spent bya shipbuilding firm on R&D in the past five yearswas 4 percent. In the current year, the most anyshipyard spent was 8 percent of its operatingbudget,
Thus, of those firms responding, slightly fewerare investing in R&D today than during the preced-ing five years. At the same time, the fraction of theiroperating budgets devoted to R&D has increased.These indications of a change in R&D involvementby shipyards is consistent with the apparent grow-ing concentration of U.S. shipbuilders in fewer,
11
1 2
larger firms, as was reported in OTA’s “Assessmentof Maritime Trade and Technology” in 1983.
Both operators and shipyards parceled their re-search funds into different types of research. Shipoperators spent most of their R&D budgets on im-proving ship operations (40 percent) and infor-mation systems (30 percent). The rest of theirbudgets were spent on ship design (12 percent),shoreside operations (7 percent), inland operations(3 percent), and on miscellaneous R&D projects
Table 4.—U.S. Ship Operators R&D Expendituresby Category (20 Firms Reporting Some R&D)
Average Percent for each Category
Average percentexpenditure Highest percent
Category in category in category
Ship operations (includingcargo handling . . . . . . . . . 40 100
Shoreside operations(terminals) . . . . . . . . . . . . . 7 30
Inland operations . . . . . . . . 3 50Ship design . . . . . . . . . . . . .Information management . . 100Other:
Market studies . . . . . . . . .Equipment safety . . . . . . 8 50Medical . . . . . . . . . . . . . . .
(8 percent). Table 4 shows the breakdown of theseexpenditures. Shipyards (table 5) put most of theirmoney—about 49 percent of their expenditures—into R&D on shipbuilding methods and tech-niques, presumably to increase construction pro-ductivity. But they also spent significant portionsof their R&D budgets on ship or barge design (30percent) and subsystem design and development(6 percent). The remainder was spent on miscel-laneous R&D (5 percent).
Table 5.–U.S. Shipyard R&D Expenditures by CategoryAverage Percent for each Category-For 21
Respondents Who Had Some R&D Expenditures
Average percentexpenditure in
Category category
Ship or barge design . . . . . . . . . . . 30Subsystem design . . . . . . . . . . . . . 16Shipbuilding/construction
technology . . . . . . . . . . . . . . . . . 49Other:
Technology transfer. . . . . . . . . .Materials . . . . . . . . . . . . . . . . . . .Weapons . . . . . . . . . . . . . . . . . . . 5
Ocean engineering. . . . . . . . . . .
THE FEDERAL ROLE IN MARITIME R&DThe Federal Government through the U.S. Navy’s
Manufacturing Technology (ManTech) Office andthe Maritime Administration (MarAd) sponsorsa substantial Maritime R&D program. Fundingby these two agencies is currently about $35 mil-lion annually (figure 1). The Navy, of course,sponsors many other research efforts that are ofinterest to the commercial maritime community,but the ManTech program is the one that dealsdirectly with U.S. shipyards. Appendices A and
naval ships while improving the quality of the endproduct. Figure 2 illustrates the relative attention(measured by funding) given to various R&D sub-jects. Very specific manufacturing techniques suchas laser metalworking and robotic painting aregiven high priority because it is felt that these of-fer the potential for significant cost reduction. Themajor shipyards and suppliers with naval con-struction contracts participate in this program.Currently eight shipyards are participating.2
B describe the MarAd R&D program and theNavy’s ManTech program. The MarAd R&D program elements are illus-
trated in figure 3. The largest element funds theAs is shown in figure 1, the Navy’s ManTech Kings Point research center and the Computer-
program was initiated in FY 1977 and has grown Aided Operation Research Facility (CAORF).to be a dominant source of Federal funds for the Funds for CAORF also come from users includingmaritime R&D industry today. It is all directedat improving ship construction technology with ‘Naval Materials Command, “Navy Manufacturing Technologythe goal of reducing costs and delivery times of Program Effectiveness Report, Fiscal Years 1977-1983, ” June 1984.
13
Figure 1 .—Maritime Administration and Navy “ManTech” R&D ProgramExpenditures, Fiscal Years 1975-85
-
.
75 76 77 78 79 80 81 82 83 84 85
Fiscal year
Figure 2.—Navy ManTech Program Fiscal Year 1985 Breakdown of R&D Subjects
NOTE Ail subjects are elements of shipbuilding technology development with goals of reducing costsor improving the product at those yards building Naval ships
SOURCE Naval Material Command
14
Figure 3.—MarAd R&D Program Major Elements in Fiscal Year 1985
- Fleet management
k
SOURCE: MarAd.
other agencies. The shipbuilding technology(NSRP) element is also a major focus. MarAdfunds plus equal Navy ManTech funds supportthis joint government/industry cost sharing effortwhich has similar goals to the entire ManTechprogram. The National Shipbuilding ResearchProgram (NSRP)—[also discussed later in thisstudy]—currently funds cooperative projects atsix to eight of the major shipyards. During FY1985, over two-thirds of NSRP funding goes tothree major shipyards. The shipyards participat-ing in the NSRP are, with few exceptions, thesame as those participating in the Navy’s ManTechprogram.
Another government/industry cooperative ef-fort with participants from the liner industry isalso funded under the MarAd R&D program. Thisis the Cargo Handling Cooperative Program—listed as part of “cargo systems” in figure 3. Thisprogram funds a joint industry cooperative whichcurrently includes seven of the major liner oper-ators. Two other MarAd R&D program elements
(Ship Performance and Fleet Management) includeprojects with industry participation—but notthrough a cooperative group such as NSRP or thecargo handling cooperative. These other projectshave participants including barge operators, tank-er operators, and liner operators. Descriptions ofthese and other MarAd program elements are in-cluded in appendix A.
Despite the major Navy and MarAd R&D pro-grams and many other Federal R&D efforts, onlya portion of the respondents to the OTA surveyreported that they received any Federal supportfor R&D. Tables 6 and 7 show the number andpercentage of responding ship operators and ship-building firms which received Federal R&D fund-ing and which Federal programs provided thatfunding.
For U.S. ship operators (table 6), most respond-ents received no Federal support for R&D efforts.In the current year only two respondents (4 per-cent of the total respondents and 11 percent of
15
Table 6.—U.S. Ship Operators R&DFirms Reporting Federal Funding Support for R&D
Past Current5 years year
Number Percent Number Percent
Total respondents . 48 48Respondents with
no R&D . . . . . 30 29Respondents with
some R&D . . . . 18 100 19 100Respondents
engaged in R&Dand receivingFederalfunding . . . . . . . . 8 44 2 11
Table 7.–U.S. Shipyard R&DFirms Reporting Federal Funding Support for R&D
(Past 5 Years and Current Year are the Same)
Number Percent
Total respondents . . . . . . . . . . . . . 36Respondents with no R&D . . . . . . 15Respondents with some R&D . . . 21 100Respondents engaged in R&D
and receiving Federalfunding. . . . . . . . . . . . . . . . . . . 11 52
NOTE Percentages are rounded and may not add up to 100 in some tables
the respondents with their own R&D) receivedany Federal funding. These numbers were downsubstantially from those of the past five yearswhere 17 percent of the total respondents and 44percent of the respondents with their own R&Dreceived some Federal funding. Also of interestis the wide variation in the percentage of Federalsupport provided to operating firms—between 3and 67 percent of a firms’ total R&D expenditures.The Federal programs from which respondentU.S. ship operators received R&D funding wereall within the Maritime Administration.
OTA also asked whether the respondents wouldadvocate an increase in direct Federal R&D fund-ing. Table 6a displays the operator’s responses.Seventy-three percent of the firms that respondedto this question replied yes, and all but one rec-ommended joint Navy and MarAd funding. Somefirms, however, qualified their affirmative reply.Three stated that the MarAd funding should bedirected only at more basic research, primarilythrough universities and in support of educationalprograms. Two stated that MarAd funding shouldbe subject to industry participation both in estab-lishing goals and priorities and in selecting themost appropriate projects.
Table 6a.—U.S. Ship Operators R&DFirms Responding to Question of Whether to
Increase Direct Federal R&D Funding
Number Percent
Should Government increasedirect R&D to the private sector?No . . . . . . . . . . . . . . . . . . . . . . . . 4 27Yes . . . . . . . . . . . . . . . . . . . . . . . 11* 73
15 100No response . . . . . . . . . . . . . . . 33
48
Which agencies should provide R&Ddevelopment funding?MarAd . . . . . . . . . . . . . . . . . . . . . 1 9Navy and MarAd (together) . . . 10 91
*11 100NOTE Percentages are rounded, and may not add up to 100 In some tables
Table 7 displays the data on Federal fundingfor R&D in the U.S. shipbuilding industry. Only11 respondents (30 percent of the total and 52 per-cent of shipbuilders with some R&D of their own)reported receiving Federal support. These percent-ages were the same for the current year as for thepast five years. Of those who received funds, theaverage amount received was 21 percent of thetotal funds spent by the firm on R&D but therange was from a low of 1 percent to a high of71 percent. This large variation indicates very dif-ferent approaches to Federal involvement in ship-yard R&D among these firms. Many firms findno support for the type of R&D they consider nec-essary; others find a mixture of Federal and pri-vate initiatives will meet their needs; while stillothers depend upon Federal funding for almostall of their R&D work.
The shipyard survey respondents received R&Dsupport from both Navy and MarAd programsin roughly equal numbers. It is interesting to notefrom these data that the MarAd National Ship-building Research Program (NSRP) reached only22 percent of the respondents to the OTA survey.Since the survey sample included a substantialportion of the U.S. shipbuilding industry, oneconclusion is that NSRP probably reaches onlyone-quarter of the U.S. shipyards. Since this oneFederal program is considered by many to be verysuccessful in the areas where it does work, it maybe useful to consider how it could be broadenedto include more of the industry.
16
Table 7a presents data on whether shipyard re-spondents advocate increasing Federal R&D fund-ing. Of the firms that replied to this question, 64percent said yes and 36 percent said no. Of thenearly two-thirds that favored increased directfunding, eight firms thought MarAd should be thefunding agency; however, these firms are the sameU.S. shipyards who presently participate in theMarAd program. Several firms qualified their callfor increased Federal support by suggesting that:1) MarAd should develop new policy directionsbefore increasing any R&D funding; 2) futureR&D should be focused on fewer, more impor-tant problems; and 3) Navy and MarAd shouldcombine their R&D programs.
The OTA survey also questioned the industryabout access to R&D results of the U.S. Navy andits foreign counterparts and asked for any sug-gestions of ways to improve that access. Tables8 and 9 show the responses to these questions.Only 30 percent of the ship operators reportedthat they had access to U.S. Navy R&D, and 52percent reported access to technological advancesfrom foreign R&D. Although some respondentsthought that the Federal Government should notbecome involved or more involved in this area,several operating firms made suggestions of Fed-eral action to improve access to R&D results.Most of the suggestions were for MarAd or an-other central agency to screen and select the mostuseful reports, to translate foreign documents
Table 7a.– U.S. Shipyard R&DFirms Responding to Question of Whether to
Increase Direct Federal R&D Funding
Number Percent
Should Government increasedirect R&D to the private sector?No . . . . . . . . . . . . . . . . . . . . . . . . . . 8Yes . . . . . . . . . . . . . . . . . . . . . . . . . 14*
22
No response . . . . . . . . . . . . . . . . . . 14
36
Which agencies should provide R&D funding?MarAd (national shipbuilding
R&D program) . . . . . . . . . . . . . . . 8Navy . . . . . . . . . . . . . . . . . . . . , ., , . 3Navy and MarAd (together). . . . . . 3
● G
3664
100
572121
100NOTE Percentages are rounded, and may not add up to 100 In some tables Per.
centages tn each row are calculated using the total number of f!rmsresponding to the item In that row
Table 8.–U.S. Ship Operators R&DFirms Reporting Status of Access to Other R&D
Do you have access to technical advances from:U.S. Navy R&D? Foreign R&D?
Number Percent Number Percent
Yes . . . . . . . . . . . . 7 30 12 52No . . . . . . . . . . . . . 16 70 11 48
23 100 23 100
Suggestions reported for Federal action to improve access:1.
2.
3.
MarAd or other Federal agency shouldscreen, translate, publish, and dis-seminate useful reports abstracts/catalogs (through SNAME, NTIS, IndustryJournals, or trade organizations such asAWO, FACS) . . . . . . . . . . . . . . . . . . . . . . . . . . 8 firmsEstablish cooperative informationexchange among Government agencies(Navy-MarAd), SNAME, and universities . . . 1 firmAllow Government work to be used incivilian application . . . . . . . . . . . . . . . . . . . . . 1 firm
NOTE: 3 firms stated that there is no need for governmentinvolvement in this area.
Table 9.–U.S. Shipyard R&DFirms Reporting Status of Access to Other R&D
Do you have access to technical advances from:U.S. Navy R&D? Foreign R&D?
Number Percent Number Percent
Yes . . . . . . . . . . . . 12 55 9 41No . . . . . . . . . . . . . 10 45 13 59
22 100 22 100
Suggestions reported for Federal action to improve access(15-firms reporting):i .
2.
3.
4.
5.
6.
Publish/distribute reports, abstracts,catalogs (through SNAME, industrygroups, GPO). . . . . . . . . . . . . . . . . . . . . . . . . .Sponsor seminars and meetings—presentand update specific R&D results (invite allshipyards) . . . . . . . . . . . . . . . . . . . . . . . . . . . .Establish institution responsible forcollection and dissemination of allmaritime R&D(2 firms suggest “NASA” model)(1 firm suggests part of larger maritime
R&D facility)(1 firm suggests joint Navy/industry study
group) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Establish Government-controlled technicallibrary with broad direct access . . . . . . . . .Disseminate through Federalbid requests . . . . . . . . . . . . . . . . . . . . . . . . . .Fund additional education and trainingthrough SNAME ship productioncommittee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 firms
5 firms
3 firms
1 firm
1 firm
1 firmNOTE Percentages are rounded, and may not add up to 100 In some tables
Percentages In each row are calculated using the total number of firmsresponding to the Item in that row
17
when of significant use, to publish abstracts orcatalogs or reports, and to actively disseminatethese materials to the industry. Suggestions weremade to use professional organizations, industryand trade organizations, and journals wheneverpossible.
Shipbuilders reported better access than oper-ators to U.S. Navy R&D results (55 percent), butonly 41 percent had access to technological ad-vances from foreign R&D. Many more sugges-tions of Federal action to improve access, how-ever, were made by the shipyards. As withoperators, the most frequently offered suggestionwas to screen, publish, and disseminate reports,abstracts, and catalogs. Several firms suggestedmore elaborate approaches including: sponsoringregular seminars; establishing a new technologytransfer institution similar to the National Aero-nautics and Space Administration (NASA) model;and forming a joint Navy/Industry study groupto solve the problem.
One shipyard wrote: “It is recommended thatthe Navy sponsor periodic reviews . . . to presentto invited shipyards the results of recent proj-ects . . . These meetings would not only encour-age a dialogue between the Navy R&D commu-nity and the shipbuilding industry, but also betterenable the shipyard to plan their own R&D pro-grams. ” It was suggested that both publicationsand seminars might be offered through the ma-jor industry trade associations. Alternatively,these might be offered through the government/industry sponsored maritime research facility de-scribed elsewhere. One shipyard also suggestedthat the maritime industry needed an organiza-tion equivalent to NASA, which would collectand disseminate research information on an in-dustry-wide basis. (The possibility of such an or-ganization is discussed later. ) On an intra-agencybasis, organizations such as MarAd and the U.S.Navy might periodically review their own com-pleted and ongoing research and report on itsprogress through widely distributed publicationsor seminars. In any case, it was pointed out thatgreater information exchange among the U.S.Navy, SNAME, MarAd, the naval architecturalschools, and others was needed.
Several distinct sources of R&D are applicableto the maritime industry, In addition to MarAdresearch, the U.S. Navy, the foreign maritime in-dustry, and industries related to the maritime in-dustry are all potential sources of applicable tech-nologies and processes. The U.S. Navy, for instance,also conducts R&D applicable to the civilian mer-chant marine. In 1978, for instance, over $64 mil-lion in the Navy research budget was judged tobe applicable to the commercial sector.3 In part,the results of this R&D find their way into com-mercial application because some shipyards con-ducting Navy R&D also build commercial ships.In theory, all of the shipyards could have accessto the results of Navy research which have com-mercial application, even if such research is con-ducted at one particular shipyard.
One mechanism for disseminating Navy R&Dresults to the civilian sector is U.S. Navy repre-sentation on SNAME’s Ship Production Commit-tee; the Navy representative is supposed to trackNaval R&D applicable to shipbuilding and keepthe Committee informed of ongoing devel-opments.4
In addition to the Navy representative on theShip Production Committee (SPC), there are sev-eral other formal mechanisms for reviewing anddisseminating R&D to the civilian sector. For ex-ample, through the industry Independent Re-search and Development (IRAD) program, DODpersonnel advise participating firms of DODneeds which industry could address in their re-spective IRAD programs. Both informal and for-mal shipyard and industry reviews are conductedby DOD representatives to critique IRAD pro-grams and make industry aware of complemen-tary DOD efforts. Also, the Navy’s ManTech Pro-gram includes End of Project Demonstrations atthe research facility with invitations extended toall interested parties. The Ship Structures Com-mittee, much like the SPC, disseminates techni-cal information. Navy laboratories conduct var-
jBooz.A]]en and Hami]ton, Inc., Analysis of Foreim MaritimeResearch, Contract Report for the Maritime Administration, NTIS#PB81-176364, 1981, p. 228.
‘Robert Shaffron, MarAd National Shipbuilding Research Pro-gram, personal communication, Apr. 30, 1984.
18
ious onsite technical reviews and briefings. How-ever, because of the size and decentralization ofthe Navy, it is extremely difficult for some privatefirms to monitor these R&D activities. Respond-ents to the OTA survey indicated that the NavyR&D programs were very difficult to monitor andthat results were difficult to obtain.
Maritime Administration program managersare responsible for monitoring foreign militaryR&D results; however, as the OTA survey con-firms, it is difficult to give this responsibility ade-quate attention when it is essentially a secondarypriority. More formal approaches for gaining in-formation on foreign technology have been em-ployed from time to time. The National Shipbuild-ing Research Program, for instance, has sponsoredteams of industry experts to visit overseas ship-yards to investigate foreign technologies. Theseteams typically are interested in specific technol-ogies (e.g., welding). There is, however, no for-mal, ongoing civilian effort to monitor foreignmaritime technologies. The Navy’s Office of Na-val Research also maintains scientific liaison of-fices in Japan and Europe, but not with the ex-press purpose of providing foreign maritimetechnology to private industry.
Finally, technologies developed in other indus-tries, such as the aerospace and automotive in-dustries, may be borrowed by the maritime in-dustry. Many industries may share a commontechnological base, each drawing upon a commonpool of information, and each making its owncontribution to the pool. While the professionalsof the maritime industry, both within Govern-ment and in industry, are no doubt aware of ma-jor developments in other industries, there is at
present no systematic attempt to collect and dis-seminate this information to the maritime in-dustry.
It should be noted that the results of the OTAsurvey suggest a different conclusion about theFederal role in maritime R&D than a number ofother recent studies.
Somewhat surprisingly, most of the shipyardsand operators did not report receiving Federalfunds. Within some industry and governmentgroups, it has been a widely shared belief thatmost long-term research conducted by industryand government is tied to Federal R&D programs.This belief was supported by a 1978 survey of pri-vate shipbuilding and ship operating firms, whichfound that the U.S. Government underwrote 82.8percent of the $114.1 million spent on maritimeR&D in that years In addition, most shipbuildingproductivity-related research and developmentwas thought to exist today largely as the resultof the National Shipbuilding Research Program, *which is funded by MarAd, the U.S. Navy, andthe shipbuilding industry.6 The OTA survey showsthat while an important segment of the industryis directly involved with Federal R&D programs,a large number of firms are not.
‘Naval Materials Command, op. cit.● The National Shipbuilding Research Program (NSRP)-Ship Pro-
duction Committee (SPC) is jointly sponsored by MarAd ($2.0 mil-lion per year), the U.S. Navy ($2.o million per year) and shipbuildingindustry (equivalent $2.o million in management and support). Theprogram is contracted via MarAd and is administered by SPC panels.The NSRP-SPC as a broad-based committee representing the ship-building industry has direct influence over these shipbuilding pro-ductivity related developments.
bNational Research Council, “Productivity Improvements in U.S.Naval Shipbuilding,” National Academy Press, 1982, p. 2.
FACTORS AFFECTING R&DMarket Demand and Financing Ship operators and shipyards both responded that
The OTA survey asked ship operators and ship- market demand and competitive pressure over-
yards about the extent to which interest rates, shadowed other factors. The vast majority of re-
availability of finance capital, Government poli- spondents indicated that both market demand and
cies and programs, market demand, and competi- competitive pressure are very influential factors.
tive pressures affected their decisions to invest in In a recent analysis of the Federal role in R&D,R&D. Tables 10 and 11 present the responses. the Congressional Budget Office wrote, ‘The most
19
Table 10.—U.S. Ship Operators R&D—Factors Reported to Influence R&D Investment
Very Somewhat NotInfluential Influential Influential
Factor Number Percent Number Percent Number Percent
Interest rates. . . . . . . . . . . . . . . . . . . . . . . . . . 2 10 6 29 13 62Availability of capital . . . . . . . . . . . . . . . . . . . 6 29 7 33 8 38Government policies and programs . . . . . . 8 38 9 43 4 19Market demand . . . . . . . . . . . . . . . . . . . . . . . . 15 68 4 18 3 14Competitive pressure . . . . . . . . . . . . . . . . . . 13 59 6 27Other:
3 14
Operating efficiency . . . . . . . . . . . . . . . . . 1MarAd R&D budget . . . . . . . . . . . . . . . . . . 1Profitability . . . . . . . . . . . . . . . . . . . . . . . . . 1
Table 11 .—U.S. Shipyard R&D—Factors Reported to Influence R&D Investment
Very Somewhat NotInfluential Influential Influential
Factor Number Percent Number Percent Number PercentInterest rates . . . . . . . . . . . . . . . . . . . . . . . . . . O 0 14 64 8 36Availability of capital . . . . . . . . . . . . . . . . . . . 2 9 17 77 3 14Government policies and programs . . . . . . 11 50 7 32 4 18Market demand . . . . . . . . . . . . . . . . . . . . . . . . 20 91 2 9 0 0Competitive pressure . . . . . . . . . . . . . . . . . . 17 77 5 23 0 0Other:
Environmental . . . . . . . . . . . . . . . . . . . . . . . 1Probable future use . . . . . . . . . . . . . . . . . . 1
NOTE Percentages are rounded, and may not add up to 1(XI in some tables Percentages in each row are calculated using the total number of firms responding tothe Item In that row
potent factors that affect private innovation deci-sions are probably beyond the reach of specificR&D policies. Expectations about macroeconomicconditions and the intensity of competition withinan industry may be the most significant determi-nants of its technological performance. In a strongeconomy, firms have the funds and the marketprospects to justify increased commitments toR&D. Robust sectoral markets may have a coun-teracting effect, however, since they lessen theurgency to pursue other new products and proc-esses. This implies that private innovation is likelyto be strongest under dual conditions of a healthymacroeconomy and strong sectoral competition.”7
Some of the most important conditions neces-sary for stimulating R&D investment include astrong aggregate demand, relatively stable de-mand growth, and predictable earnings. When
7Congresaional Budget Office, “Federal Support for R&D Imova-tion,” April 1984, p. 71.
business conditions are good, and incomes anddemand are growing rapidly and predictably, bus-iness firms can anticipate an expanded market,and make their investments accordingly. Whendemand is stagnant, or uncertain, investment innew plant and equipment is deterred, and R&Daimed to tap new markets may look like a veryrisky proposition. Some economists have sug-gested that R&D is so much riskier than otherforms of investment that firms are loathe to relyon borrowing to finance R& D.*
To determine the effects that borrowing mighthave on the maritime industry in particular, OTAasked survey respondents whether the availabil-ity of finance capital and interest rates were“very, “ “somewhat,” or “not influential” factorsin their decisions to invest in R&D. The answerwas slightly different in the two sectors of themaritime industry (tables 10 and 11). The ship-
81bid., note 6.
20
building sector clearly viewed interest rates andcapital availability as somewhat influential fac-tors, though not as important as market demandand competition. On average, the ship operators,on the other hand, tended to look on these fac-tors as unimportant, although a significant mi-nority of the operators indicated that capital avail-ability was influential.
Thus, for those firms responding to the OTAsurvey, private R&D investment is primarily afunction of profitability and demand. Since themajor U.S. shipbuilding industry has traditionallybeen an industry of low profits and low and un-steady demand, these conditions have resulted ina conservative investment strategy on the part ofmany shipbuilding companies. Certain shipbuild-ing companies have been able to reinvest moreof their profits than they normally would onlybecause they are owned by large conglomerateswhich are willing to take the risks associated withthe investments.9
The key factor driving profits in some sectorsof the commercial shipbuilding industry appearsto be the lack of an orderly, sustained demandfor U.S.-built ships. The lack of demand stemsfrom two interrelated factors: 1) the high cost ofbuilding a ship in the United States; and 2) thehigh cost of operating U.S.-flag ships. Wage scalesare one cause of these high costs in these ship-building and sea transport industries, although thehigh cost of U.S. materials has also contributedto the shipbuilding dilemma.10 Some shipbuildersclaim an even more basic causal factor of lack ofdemand; that is, no sustained Government pol-icy to build ships as part of a defense strategy forsea lift in the event of an extended conflict.
In the inland barge and towboat industry, aswell as the so-called “second tier” shipyards, asomewhat different problem is evident. Duringthe 1970s, high growth and expanding marketscoupled with tax incentives to invest in capitalequipment, spurred an explosion in new building.In the past few years the markets contracted due
‘Edward M. Kaitz & Associates, Inc., “The Capital BudgetingProcess of the U.S. Shipbuilding Industry: An Analysis of DefenseIndustry Behavior, ” 1979, p. 3.
IOEdward M, Kaitz & Associates, Inc., “The Profitability of theU.S. Shipbuilding Industry (1947-1976 ),” 1978, p. 61.
to export declines and the strong dollar. At pres-ent, the industry is struggling to dispose of a largeexcess supply of vessels and barges.
Federal Policies/Regulations
The OTA survey asked firms to select thoseFederal policies or regulations which they felt ei-ther encouraged or discouraged R&D investmentand then to rank order the selections. The re-sponse data are shown in tables 12 and 13 foroperators and shipyards respectively. The dataare widely scattered. Most firms reported thatmost factors have little or no effect. However, twofactors having an encouraging ranking for bothoperators and shipyards were the tax code andpatent law.
For most operators responding to the question,rail and truck deregulation and OSHA safety reg-ulations appear to have little effect. The Federalsubsidy phase-out did not appear to have an ef-fect for most of these operators either. CoastGuard manning regulations seem to have a some-what discouraging effect on investment. For re-sponding shipyards, however, subsidy phase-outwas seen as a more important factor discourag-ing investment.
The survey, thus, does not support any strongconclusions about the effect of these policies. Itmay be useful, however, to discuss a few of thesepolicies which have been given attention in otheranalyses and reports. For this reason, the follow-ing discusses antitrust law, patent law, and sub-sidy phase-out, in turn.
Antitrust Law
Many of the U.S. maritime industry’s foreigncompetitors do not function under laws that re-strict research collaboration. Japanese antitrustlaw does not prohibit firms from conducting co-operative research in targeted areas such as com-puters, microelectronics, electronic instruments,lasers, optical communication, robots and aero-space. French antitrust law does not bar joint re-search in such areas as aerospace, telecommunica-tions, microelectronics, energy, and conservationequipment. Similarly, West Germans have notbeen prevented from conducting joint researchand development.
21
Table 12.–U.S. Ship Operators R&DFederal Policies/Regulations Reported to Affect R&D Investment
Encourages investment Discourages investment Little or no effect
Federal policy Number Percent Number Percent Number Percent
Antitrust statutes . . . . . . . . . . . . . . . . . . . . . . 1 5 3 14 18 82Patent law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 23 0 0 17 77Tax code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 2 9 13 59Rail and truck deregulation . . . . . . . . . . . . . 4 18 2 9 16 73OSHA safety regulations . . . . . . . . . . . . . . . 2 10 3 14 16 76C. G. manning regulations . . . . . . . . . . . . . . 6 27 8 36 8 36Phase-out ODS/CDS . . . . . . . . . . . . . . . . . . . . 3 14 7 32 12 55
Table 13.—U.S. Shipyard R&D—Federal Policies/Regulations Reported to Affect R&D Investment
Encourages investment Discourages investment Little or no effect
Federal policy/regulation Number Percent Number Percent Number Percent
Antitrust statutes . . . . . . . . . . . . . . . . . . . . . . 0 0 3 14 19 86Patent law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 23 1 5 16 73Tax code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 5 23 10 45OSHA safety regulations . . . . . . . . . . . . . . . 3 14 3 14 16 73Phase-out ODS/CDS. . . . . . . . . . . . . . . . . . . . 1 5 11 58 7 37NOTE Percentages are rounded, and may not add up to 100 in some tables Percentages in each row are calculated using the total number of firms responding to
the item in that row.
One approach to funding expensive, long-termR&D is for one or more firms to share the cost.However, some firms have perceived ambiguitiesin the antitrust statutes, which have inhibited at-tempts to establish joint ventures among domes-tic firms. Although there is neither a statutory pro-hibition nor any court rulings that explicitlydiscourage formation of R&D joint ventures,American corporations have been extremely hesi-tant to enter into research joint ventures, becauseof the spectre of treble damages for violations ofantitrust laws. 11
A new law may change this situation in the fu-ture. The Research and Development Joint Ven-ture Act of 1984 modifies existing antitrust statutesto specify that joint research and developmentventures will not violate the law. The Act specif-ically, however, excludes those ventures that willexchange sales, marketing and similar types ofcommercial information, and those that restrictor require the participation of any party in an-other research and development program. In ad-
1’U.S. House of Representatives, Committee on Science and Tech-nology, “Japanese Technological Advances and Possible U.S. Re-sponses Using Research Joint Ventures, ” Statement of William Bax-ter, Department of Justice, June 29-30, 1983, p. 151.
dition to modifying the antitrust statutes in thisway, the Act also takes two other steps to encour-age joint ventures: first, it permits joint venturesto file a statement of intent, which the AttorneyGeneral or Federal Trade Commission is obligedto publish in the Federal Register; second, if thisstatement of intent has been properly submittedand published in the Federal Register, the Act lim-its the amount that may be recovered on a claimto the amount of actual damages sustained by theclaimant. 12
While U.S. antitrust laws in the past have beencriticized for discouraging research cooperationbetween U.S. firms, neither shipyards nor shipoperators responding to this question on the OTAsurvey felt that these antitrust laws had a seriouseffect on their investment in R&D. This may bepartly because many in the U.S. maritime indus-try do not have much desire to collaborate amongthemselves anyway, presumably because of com-petitive forces. However, countries like Japan andKorea have found effective ways to cooperate andcoordinate their R&D in basic processes, proce-dures, and standards. They rely on the mainte-
IZThe Research and Development Joint Venture Act of 1984.
22
nance of competitive positions through manage-ment efficiency, labor-management collaboration,marketing, and product design.
Patent Law
A report by the Office of Science and Technol-ogy Policy found that existing patent laws do notprovide sufficient protection to enable privatefirms to dependably capture the value of privateaeronautical R&D.13 Since the maritime and aero-nautics industries have many similarities, OTAsuspected that this conclusion might apply tomaritime R&D as well. The OTA survey, how-ever, did not support this view. In the few caseswhere respondents indicated that patent law doesinfluence investment, it was generally regardedas an inducement.
Phase-out of Subsidies
Two maritime industry subsidy programs—theConstruction Differential Subsidy (CDS) and theOperating Differential Subsidy (ODS)—are be-ing phased out by the Reagan Administration, al-though debate over the need for subsidies con-tinues. The CDS provisions in the MerchantMarine Act of 1936 as amended in 1970 have notbeen repealed by Congress, but, for the past twoyears, the Administration has requested, and hasbeen granted, no funding. Funding for existingODS contracts has continued but the Adminis-tration has announced plans to abandon ODSwhen those contracts expire.
Since the industry itself has been publicly di-vided on whether the phase-out is a positive ornegative step for the maritime industry as a whole,OTA asked the survey respondents whether thephase-out encourages, discourages, or has littleor no effect on their R&D investment. Again, theship operators and shipbuilders responding to thequestion revealed different views. More than halfof the shipbuilders viewed the phase-out as dis-couraging investment, and about one-third con-sidered it to have little or no effect. Half of theship operators felt the phase-out would have lit-tle or no effect.
“Office of Science and Technology Policy, Aeronautical Researchand Technology Policy, vol. 2, final report, 1982, pp. VII-17.
Anticipating some industry concern over thephase-out, OTA asked the respondents what alter-native Federal incentives might help to revitalizethe industry. One of the most common responsesto this question from both shipbuilders and shipoperators, with shipbuilders somewhat more en-thusiastic, was the institution of cargo preferencefor U.S. shipping. One shipyard wrote:
A Federal assurance of adequate cargoes forU.S.-flag and U.S.-built ship owners is the onlymeans of ensuring a large, stable and continu-ing demand for new building from the U.S. ship-building industry. Sufficient demand and stabil-ity of demand will by itself enable privateindustry to invest sufficient funds in R&D of newcapital equipment to significantly improve effi-ciency and match foreign shipbuilders’ produc-tivity levels.
A suggestion to employ tax credits as an alter-native to direct subsidies also was made frequent-ly. One shipyard, for example, suggested that to“offset the higher cost of using U.S. ships, ” taxcredits should be granted to “companies that useU.S. ships to haul their cargoes.” A bill sponsoredin 1984 by Congressman Herbert H. Bateman ofVirginia and Congresswoman Lindy Boggs ofLouisiana, the Competitive Shipping and Ship-building Act, would provide tax breaks resultingin estimated credits of $800 million per year. Onerespondent emphasized that such a program wouldcreate the stable market environment necessaryto carry out R&D. Both operators and shipyardssuggested tax credits as an alternative to directsubsidies.
A number of other suggestions were made bythe respondents. For instance, several shipyardsrecommended providing incentives for produc-tivity increases. While the ManTech Programalready does this for shipyards that build Navyships, it was recommended that similar incentivescould be extended to non-Navy construction. Itwas further suggested that modernization incen-tives could be offered to the ship operations in-dustry. Finally, a number of respondents referredto the Jones Act. One shipyard advocated an “ex-tension of the Jones Act and closing of loopholes, ”while an operator called for “Jones Act” ship-owners to be permitted to build abroad withoutrestriction.
23
Federal Incentives that might improve the effectiveness of Federal
The OTA survey questioned operators andshipbuilders about possible future Federal policiesthat might increase incentives to invest in R&D.Such policy suggestions ranged from increasingdirect Federal R&D funding to establishing a jointgovernment/industry research facility. The sur-vey also contained two open questions. One askedrespondents to suggest other organizational or in-stitutional changes within the Federal Government
sponsored research; and the other asked for sug-gestions other than R&D options which might bebeneficial to the revitalization of the U.S. in-dustry.
Responses to the specific R&D policy optionsare given in tables 14 and 15. Responses to theopen questions are listed in appendix E. While anumber of the respondents thought that policiessuch as cargo preference, direct subsidies, or forms
Table 14.–U.S. Ship Operators R&DFirms Reporting Factors Affecting Incentive to Invest in R&D
Significant incentive Slight incentive Negative incentive
Factor Number Percent Number Percent Number Percent
Extend CCF* to R&D. . . . . . . . . . . . . . . . . . . 4 21 14 74 1 5Availability of Federal loan guarantees . . . 3 17 13 72 2 11Amend antitrust laws permitting joint
ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 16 84 2 11Expand R&D tax credits . . . . . . . . . . . . . . . . 8 40 10 50 2 10Increase direct Federal support of R&D. . . 8 42 9 47 2 11
“Capital Construction Fund.
Firms Reporting Whether They Would Support New Government/Industry Maritime Research Facility
Number Percent
1. Strongly endorse and would participate and provide funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 132. Endorse but would not participate or fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 653. Do not endorse* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 22
23 100“one firm said they did not endorse because they were in a specialized field which would probably not be covered in such a facility
Table 15.–U.S. Shipyard R&DFirms Reporting Factors Affecting Incentive to Invest in R&D
Significant incentive Slight incentive Negative incentive
Factor Number Percent Number Percent Number Percent
Extend CCF* to R&D. . . . . . . . . . . . . . . . . . . 10 45 11 50 1 5Availability of Federal loan guarantees . . . 8 38 12 57 1 5Amend antitrust laws permitting joint
ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 27 14 64 2 9Expand R&D tax credits . . . . . . . . . . . . . . . . 18 82 4 18 0 0Increase direct Federal support of R&D. . . 13 57 9 39 1 4
“Capital Construction Fund
Firms Reporting Whether They Would Support New Government/Industry Maritime Research Facility
Number Percent1. Strongly endorse and would participate and provide funding , , . . . ., , , , , , , ., , , , , , , , ., . . . . . . . . . 5 222. Endorse but would not* participate or fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 483. Do not endorse* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 30— —
“Two firms reported they may participate after established if work was relevant to their needs,NOTE: Percentages are rounded, and may not add up to 100 in some tables, Percentages in each row are calculated using the total number of firms responding to
the item in that row.
24
of capital investment assistance would offer morefor the industry than any R&D initiative, mostof the R&D policies suggested were considered tooffer some incentive.
The proposals can be considered in three cate-gories: 1) direct Federal R&D support, 2) en-couraging industry R&D, and 3) devising govern-ment/industry cooperative approaches. Under“direct Federal R&D support” 42 percent of theoperators and 57 percent of the shipyards re-sponding to the question reported this to offer asignificant incentive to R&D investment. Under“encouraging industry R& D,” the most operators(40 percent) and shipyards (82 percent) reportedthat a significant incentive would result from ex-panding R&D tax credits. Other tax or financingincentives for R&D were rated favorably but high-er by the shipyards than by the operators.
Direct Federal R&D Support
Survey respondents were asked whether an in-crease in direct Federal support would be a sig-nificant, slight, or negative incentive for invest-ment in R&D. For the most part, both operatorsand shipbuilders who responded to the questionsaid that increasing Federal support would not dis-courage their own investment, but rather wouldprovide a positive incentive. Each sector of themaritime industry, however, was divided as towhether increased Federal support would providea slight or significant incentive. By a slight margin,more shipyards felt Federal support would pro-vide a significant incentive; whereas ship opera-tors also, by a slight margin, tended to think suchan action would provide only a slight incentivefor R&D investment.
The OTA survey respondents were also askedto suggest changes which might be made to im-prove existing institutions. While many of thesesuggestions were very narrowly focused, a fewwere of a scope that would bear congressional in-terest. In particular, one frequent request was thata means be found to deal with current institutionalarrangements which cause decentralization of re-search activities. For example, the U.S. Navy hasresearch related to shipbuilding located underthree commands: the Assistant Secretary of theNavy Research, Engineering and Systems, theChief of Naval Operations, and the Chief of Na-val Material. One shipyard wrote:
This highly fragmented R&D organizationalstructure . . . would not appear to result in theeffective and efficient utilization of R&D dollars.Some effort may be made to simplify the orga-nization and consolidate the R&D program.
This respondent recommended that:
. . . there should be more extensive use of jointefforts in higher cost technology developmentsand in technology demonstrations.
When questioned about this comment, a U.S.Navy spokesman responded:
The preceding is a misconception of the NavyR&D organization. There is only one Navy R&Dprogram. All of the above organizations plusothers participate in the planning, review, ap-proval and execution as appropriate for the pro-gram. For instance the Commander, Naval SeaSystems Command, plans, programs, budgetsand implements its portion of shipbuilding R&Dprojects. The Chief of Naval Material integratesacross commands and submits the program tothe Chief of Naval Operations, for review andapproval, and forwarding through the AssistantSecretary of Navy (RE&S) submission to the De-partment of Defense.
In general, however, it may be useful to explorea number of alternatives to strengthen and inte-grate common elements of U.S. Navy, MarAd,and U.S. Coast Guard R&D programs.
Some of the specific recommendations made bythe respondents are listed below:
1.
2.
3.
4.
Establish a fund for unspecified R&D proj-ects administered by an agency such asMarAd’s Office of Advanced Ship Develop-ment and Technology for funding those “tar-get of opportunity” projects meeting prede-fine criteria and limits.Change contract approval procedures to de-crease proposal lead time for R&D projectsby eliminating red tape delays that, whilenecessary for normal procurement items, arean impediment to R&D projects (e.g., sourceapproval, advertising), In general, streamlinecontracting procedures to make R&D effortstime effective.Coordinate all specialized R&D areas (e.g.,computer integrated manufacturing systems)through one government agency.Improve control over research funds by uti-
25
lizing the ship operating and shipbuildingfirms themselves as primary contractors.
Several respondents supported the recommen-dations of a recent National Research Council(NRC) study which reviewed ship operationsR&D and found that an arrangement similar tothe National Shipbuilding Research Program isneeded to improve the efficacy of ship operationsresearch. One of the NRC’s primary findings wasthat the ship operations R&D program of MarAd“has not achieved wide acceptance of its projectresults, principally because of insufficient indus-try participation in the direction and managementof research. ” NRC further concluded that “coop-erative ship operation R&D should be coordinatedand managed not by a government agency butby the private sector.”14
Encouraging Industry R&D
Extending CCF.—In 1970, Congress adopted atax measure for the U.S.-flag fleet that institutedthe Capital Construction Fund (CCF). This pro-gram generally allows U.S. shipping companiesto enter into agreements with MarAd to estab-lish CCF for the replacement or addition of vesselsfor use in the U.S.-flag merchant marine. Earn-ings from the operation of U.S. merchant vesselscan be deposited in the CCF. Federal income taxeson these earnings are then deferred until the fundsare withdrawn from the CCF for a purpose notpermitted under the agreement with MarAd.Theoretically, the tax deferral can continue on in-come deposited in the CCF as long as the fund-holder continues to acquire U.S.-built ships or toconstruct, or reconstruct qualified vessels in a U.S.shipyard.
The OTA survey asked ship operators andbuilders whether extending the CCF concept toR&D expenditures would represent a significant,slight or negative incentive for investing in R&D.A large majority of operators responding to thequestion reported that this option would be aslight incentive for future R&D investment. Onlyfour operating firms said that this extension of thefund would be a significant incentive, and onlyone firm indicated that it would be a negative in-
‘~fNationa] Rewarch council, “Ship Operation Research and De-velopment —A Program for Industry, ” 1983, p. 39.
centive. The shipyards, on the other hand, en-dorsed this option more enthusiastically. * Tenyards indicated that this would be a significantincentive, while 11 yards reported that extensionof the fund would only represent only a slight in-centive. Only one yard felt this option would bea negative incentive for R&D investment.
Make Federal Loan Guarantees Available forR&D Expenditures.—The Federal Ship FinancingGuarantee program was established in 1938 pur-suant to Title XI of the Merchant Marine Act of1936. It provides for a full faith and credit loanguarantee by the U.S. Government. The programwas overhauled in 1972 and is now a financingguarantee program, rather than a mortgage in-surance program under which the governmentguarantees shipbuilding obligations sold to in-vestors.
OTA asked survey respondents whether simi-larly guaranteeing loans for R&D expenditureswould represent a significant, slight, or negativeincentive for R&D investment. A majority of bothoperators and shipbuilders answered that loanguarantees for R&D would create a slight incen-tive to invest. Relatively more of the shipyardsfelt that such an option would create a significantincentive (eight yards) than did the ship opera-tors. Only one shipyard and two ship operatorsreported that this option would create a negativeincentive for investment.
Expand Existing Tax Credits for R&D Expend-itures.—The OTA survey asked respondents toindicate whether an expansion of tax credits forR&D expenditures would have a significant, slightor negative incentive for R&D investment. Ship-builders as a whole were more enthusiastic aboutthe positive effects of an expanded tax credit thanwere ship operators. A large majority of the ship-yards indicated that an expanded tax credit wouldhave a significant incentive, while only four yardsindicated that it would represent a slight incen-tive. None of the yards indicated that such a taxcredit would have negative effects. In contrast tothe shipbuilders, the operators were more equallydivided on whether an expansion of tax credits
● This would, of course, require changes in the law to allow ship-yards to establish Capital Construction Funds similar to those nowallowed for operators.
46-601 0 - 85 - 3
26
would have a slight or significant effect on theincentive to invest in R&D.
The Economic Recovery Tax Act of 1981 in-stituted major changes in the Nation’s tax system.One of the most important changes introducedwas the incremental R&D tax credit, which amountsto 25 percent of “qualified” R&D expenditures inexcess of outlays in a preceding base period .15 Be-cause of its incremental character, the 25 percenttax credit is designed to be especially cost effec-tive, since it targets changes in a firm’s behavior.Whereas a nonincremental credit would rewardfirms for their existing level of R&D expenditures,an incremental credit encourages increased R&Dsince only the increase over the base qualifies forcredit. The relevant issue in evaluating the incre-mental credit concerns the relationship betweenthe Federal tax revenue losses it generates and theadditional R&D it encourages. Estimates of thebenefits of the incremental tax credit—namely,the additional R&D it encourages—tend to belower than the estimated Treasury Departmentlosses. One study, for instance, suggests that theadditional R&D generated by the incrementalcredit lies somewhere between $227 million and$638 million for 1983, compared to estimatedTreasury losses of $645 million. Analyses of simi-lar tax incentives in other countries suggest thesame result. Tax credits for R&D do not appearto be a particularly cost-effective mechanism forincreasing R&D activity.
The R&D credit is scheduled to terminate at theend of 1985. Such a sunset provision, even withperiodic extensions, undermines the credit’s effec-tiveness. From a business planning standpoint,there must be certainty that the credit will beavailable when the research is performed.
In conclusion, for most of the American econ-omy, the incremental R&D tax credit does pro-vide some incentive for increased R&D. For firmsin more extreme circumstances—those that haveno tax liabilities in a given year and those thatare rapidly increasing R&D spending—the impactof this program may be limited.
15The discussion of the incremental tax credits is based on a Con-gressional Budget Office report, entitled “Federal Support for R&DInnovation,” 1984, pp. 72-83.
Devising Cooperative Approaches
Reduce the Risk of Antitrust Violation Associ-ated With Research Joint Ventures.—While thesurvey respondents indicated that antitrust lawsdo not have much effect on their investment inR&D, most reported that amending antitrust lawsto permit joint research ventures would representa slight incentive for them to conduct more R&D.Only two operators and two shipyards indicatedthat such an option would act as a negative in-centive for investment. Relatively more shipyardsthan ship operators reported that revision of an-titrust statutes would have a significant effect oninvestment. Recently, a number of measures havebeen adopted to encourage joint research, includ-ing the Research and Development Joint VentureAct of 1984.
Several other approaches have also been sug-gested for eliminating the real or perceived anti-trust barriers to joint research ventures. It isbeyond the scope of this discussion to analyze thepros and cons of these various approaches. How-ever, some approaches are discussed in the nextsection on R&D approaches in other industries.
Establish a Central Research Facility to be Spon-sored Jointly by Industry and Government forConducting Maritime Research.—The OTA sur-vey asked ship operators and shipyards whetherthey would endorse the formation of a govern-ment/industry sponsored maritime research fa-cility for the purposes of conducting long-termbasic and applied research and for serving as aclearinghouse for Navy, foreign, and domestic ci-vilian R&D advances. Specifically, the respond-ents were asked whether they would: strongly en-dorse such a facility and be willing to participateand provide funding for cooperative researchprojects; endorse the facility but not necessarilybecome actively involved with its research proj-ects; or not endorse such a facility.
The responses are shown on tables 14 and 15.Seventy-eight percent of the operators respondedthat they would endorse such a facility but only13 percent indicated strong endorsement includingparticipation and funding. For shipyards, the re-sponse was similar, 70 percent endorsement and22 percent strong endorsement with participation.
2 7
Some firms qualified their responses saying theywould or might participate if the facility was de-signed to be relevant to their specific needs.
A comment by one of the shipyards is repre-sentative: “Our company would be interested inparticipating in a Government sponsored mari-time research facility but is not willing to com-mit any funding until a charter is firmly estab-lished.” Only three operators indicated that theywould strongly endorse a central facility and ac-tively participate, financially or otherwise. Fiveoperators did not endorse such a facility at all.
The shipyard responses were more equally di-vided than the operators. Eleven yards endorsedthis option, but did not anticipate that they wouldactively participate. Five yards strongly endorsedthe idea of a central facility, seven yards rejectedthe idea. It appears from these responses that themaritime industry as a whole would have diffi-culty taking the lead in establishing a joint gov-ernment/industry institution but that a properlydesigned institution with competent leadershipmay be able to attract substantial industry sup-port after it is established.
Section Ill
Models of Other R&D Institutions
Section Ill
Models of Other R&D Institutions
FOREIGN APPROACHESA variety of foreign approaches to encourag-
ing R&D possibly could serve as models for con-sidering support of U.S. maritime research:
In Germany, the Wagnisfinanzierungs Gesell-schaft program under the Ministry of Researchand Technology is an independent corporationformed by seven banks. The consortium pur-chases equity shares in new companies undertak-ing innovative projects. The government under-writes up to 75 percent of any losses incurred bythis corporation for the first 12 years of its ex-istence, thus considerably reducing investmentrisk. In return, the government retains a seat onthe corporation’s board of directors. Another pro-gram, the “First Innovations” program of the Min-istry of Economic Affairs, advances interest-freeloans of up to 50 percent of the cost for commer-cial development of a new technology. If the ef-fort fails, the loan is canceled. The Japanese Min-istry of Trade and Industry provides similar R&Dsupport in the form of long-term notes or low-interest loans. The loans are repayable only if theprogram is successful.
In France, a Letter of Agreement program in-sures a company against loss for large projects in-volving high initial production costs and servesas a method for obtaining low-interest capital. AnAid to Development program pays 50 percent ofthe total cost of prototype development and pro-vides for reimbursement in the case of success.16
In Norway, an industry government researchinstitute, The Ship Research Institute of Norway,was chartered by Norwegian ship owners, theRoyal Norwegian Council for Scientific and In-dustrial Research, and Det norske Veritas.17 Most
16Te~tjmo~y of Danje] Desjmone, Office o f Technology A=S-ment to the Subcommittee on Transportation, Aviation and Com-munications of the Subcommittee on Transportation, Aviation andCommunications of the Committee on Science and Technology, U.S.House of Representatives, May 1979.
17 Persona1 communication with Mr. Egil Wulff, Research Coor-dinator, The Ship Research Institute of Norway and the 1983 an-nual report of The Ship Research Institute of Norway.
of the Institute’s projects are started with grantsfrom the Royal Norwegian Council for Scientificand Industrial Research or through a commissionfrom a government directorate or a business com-pany. Government funding of the Institute, how-ever, has declined and is now approximately 8percent of the total funding. Projects are normallyconducted by Institute researchers but almost al-ways in close contact with a customer or steer-ing committee. The steering committee can be es-tablished for a single project, but is typicallyorganized around programs composed of a num-ber of similar projects. It will typically have re-sources of more than $250,000.
The Ship Research Institute of Norway spon-sors a number of associated facilities. The MarineTechnology Center (MTC) is one of the world’smost comprehensive and well-equipped researchfacilities. Some of its laboratories are unique, andthe center represents a considerable potential forNorwegian companies in their development ofnew products and services. A computer-aided de-sign/computer-aided manufacturing (CAD/CAM)center, for instance, was recently established atthe MTC. Its aim is to build up competence andto accumulate a library of CAD/CAM programs.In addition to laboratories and model testing fa-cilities, The Ship Research Institute provides in-formation and training services. Managementseminars are organized to teach modern mana-gerial concepts, skills, and techniques for mana-gers in the shipping industry. The Institute hasstandard library services and access to domesticand foreign data bases. It participates in a Euro-pean cooperative on-line information service calledShip Abstracts, which abstracts information onship technology, ship operation and ocean engi-neering from approximately 450 periodicals, re-ports series and papers from all over the world.
The Institute experienced a high rate of activi-ty in 1983 despite a sharp drop in Norwegian ship-building, a set-back for traditional shipping, andlimited research grants in the public sector. The
31
32
1983 turnover was $15.9 million compared with$14.2 million in 1982 (calculated in 1984 dollars).The shipowners’ share of the Institute’s revenuesincreased from 14.3 percent in 1982 to 21.4 per-cent in 1983. In 1983, the Institute had a total staffof over 300 people.
In the Far East, the Shipbuilding Research Asso-ciation of Japan was established over 20 years agoby eight major Japanese shipbuilding companies,suppliers, and shipping industries. It is authorizedby the Japanese Government as a nonprofit orga-nization. A planning committee, composed of rep-resentatives of member organizations and schol-
U.S. APPROACHESA variety of models of proposed or existing
R&D institutions can be found in other U.S. in-dustries. In fact—especially in basic industries—recent reports have urged new attention to R&Das a means of improving world competitiveness.The January 1985 report of the President’s Com-mission on Industrial Competitiveness concludedthat technological innovation is fueled by R&Dwhich is vital to America’s future, being the keyto productivity advances. That report recom-mended initiatives in the areas of R&D partner-ships and cooperation between industry, govern-ment, and academic institutions .19
In one important U.S. industrial sector, OTAhas recently published an assessment of Informa-tion Technology R&D. Among other topics, thatreport discusses Federal patent policies, technol-ogy transfer, tax credits, R&D limited partner-ships, and antitrust policy. It also provides infor-mation about industry R&D in areas of industry-university links and jointly funded research. Itconcludes that cooperative industry researchcould have long-run policy implications for thelevel and focus of Federal R&D programs.20
— . . .“Report of the President’s Commission on Industrial Competi-
tiveness, “Global Competition–The New Reality, ” Washington,DC, January 1985.
‘“Off ice of Technology Assessment, U.S. Congress, InformationTechnology and R&D: Critical Trends and issues, OTA-CIT-268(Washington, DC: U.S. Government Printing Office, February1985).
ars, selects priority “R&D themes, ” which are thenapproved by a Board of Directors. Committeescomposed of the member organizations with rele-vant expertise are then organized to implementthese “R&D themes. ” The Association receives fi-nancial support from its membership and throughgrants from private financial bodies. The aver-age appropriation over the past five years hasbeen about $4 million a year.18
lspersona] communication with the Shipbuilding Research Asso-ciation of Japan, Mr. H. Haga, Managing Director, August 22, 1984;and with Mr. Katayama of the Japanese consulate in New York,June 5, 1984.
The following discusses two joint industry R&Dapproaches that may have relevance to the mari-time industry, one Federal program from anotheragency (NASA) and some existing maritime in-stitutions that have potential for modification.
Research Joint Venture
R&D joint ventures and R&D limited partner-ships have both been suggested by a few of OTA’srespondents as a model for certain maritime R&D.Both approaches probably have limited applica-tions (as other advisors to OTA have commented)but their characteristics are of interest becauseother industries have found useful applications.
For the joint venture approach, antitrust im-munity is often a concern. In a new project, theapplicability of the 1984 R&D Joint Venture Actwould need to be examined, Further antitrust im-munity might be sought for a specific industry sec-tor, area of research, or qualifying institution.
Actually, at least two major research joint ven-tures have already been established—the Micro-electronics and Computer Technology Corpora-tion (MCC) and the Semiconductor ResearchCooperative (SRC). MCC is a research and de-velopment venture owned by a number of majorU.S. corporations in the computer, electronic, andsemiconductor industries. Participating so far areAdvanced Micro Devices, Allied Corporation,
33
Control Data, Digital Equipment Corporation,Harris, Honeywell, Martin Marietta, Mostek,Motorola, National Semiconductor, NCR, RCA,and Sperry. 21
Projects to be undertaken by MCC are aimedbeyond the state-of-the-art. Initially, four projectshave been identified, lasting from 5 to 10 years.All shareholders are not required to participatein each project, but each is required to partici-pate in at least one. MCC projects will be staffedto a considerable extent by personnel from share-holder companies. At the completion of a proj-ect, these borrowed experts will return to theirrespective companies. This flow of talent to andfrom shareholder companies is a key to the suc-cess of MCC projects. In addition, such a proc-ess greatly facilitates the transfer of technologiesto participating companies. For convenience,MCC will hold title to all know-how and patents.Although participating companies will have ini-tial rights to the resulting technology and to re-ceive preferential treatment, technology will belicensed to other companies on reasonable terms.22
In 1980, the association that represents the semi-conductor industry, the SIA, focused on self-helpaction by the industry to counter increasing com-petition from abroad by forming the Semiconduc-tor Research Cooperative (SRC). The objectivesof SRC are: to plan and to promote, conduct andsponsor research; to improve the understandingof semiconductor material, devices, and phenom-ena; and to develop new design and manufactur-ing technologies. The program operates on a con-tract basis, primarily with universities. About 50projects have been funded so far.23 Three univer-sity research centers have been established underthe aegis of the SRC—computer-aided design cen-ters at Carnegie-Mellon and Berkeley, and amicrostructure center at Cornell. SRC is negoti-ating with MIT on a materials contract, withNorth Carolina on manufacturing research, andwith Rensselaer Polytechnic Institute on beamtechnology. Thirty-eight other contracts of asmaller nature have been negotiated with otheruniversities.
Z] Edward M. Kaitz & Associates, Inc., “The Profitability of theU.S. Shipbuilding Industry (1947-1976 ),” 1978, p. 7, statement ofAdmiral B. R. Inman.
*’U.S. Department of Commerce, 1983. The New Climate for JointResearch, Conference Proceedings held May 13, 1983, pp. 17-18.
ZJKaitz & Associates, Op. cit., note 10, pp. 45-46, statement ofErich Bloch.
R&D Limited Partnerships
In some very special cases of high risk productdevelopment R&D limited partnerships may beuseful to consider. Several basic concepts are com-mon to all forms of R&D partnerships. Generally,limited partner investors receive a tax deductionfor a substantial part of their initial investments.In addition, if the deal is properly structured, in-vestors receive favorable capital gain treatmenton their royalty or equity payback. A sponsor-ing corporation performs research on a particu-lar project on behalf of the partnership, whichowns the developed technology. The corporationcontrols the commercial exploitation of the prod-uct that results from the research and has an op-tion to buy the technology from the partnership.If the corporation exercises its option, its paymentto the partnership may take the form of royalties,stock, or a combination of royalties and equity,depending on the structure of the particular deal .24
The R&D limited partnership is an alternativeto the joint research venture. It is based on a 1954law that was not used until it was tested and val-idated by the Supreme Court in 1974. The Eco-nomic Recovery Tax Act of 1981 and a reductionof capital gains tax to a maximum of 20 percenthave combined with this law to stimulate the cre-ation of new venture capital businesses in recentyears.
R&D partnerships have been evolving as a fi-nancial alternative since 1974. The early partner-ships were formed to provide seed money to start-up ventures. These partnerships raised money tocarry very early-stage companies through oftenprotracted development periods before venturecapital could be raised from more traditionalsources. Later, early-stage operating companiesbegan to consider R&D partnerships as a meansto finance new or second generation products thatfaced either a high technical risk, a long devel-opment period, or both.
Finally, mature companies are now using R&Dpartnerships to raise substantial amounts of mon-ey. To these companies, the R&D partnerships of-fer a way to shift the development risk to out-side investors—to avoid betting the company on
2iKaitz & As50ciate5, Op. cit. ~ P. 57.
34
a speculative new technology. To the private in-vestors, a joint investment like this with a well-established company may be less risky than onewith an early-stage company. A number of re-gional and national investment banking firms arenow involved in funding offerings such as these.
In spite of the numerous advantages of R&Dpartnerships, they are not right for all companies.First, the use of the funds raised will be strictlylimited to research and development activities, ex-cept to the extent that the company generatesprofit on the contract. Second, only high marginproducts are appropriate for royalty partnerships,since generous royalties directly reduce profitmargins. Depending on the particular structure,the company’s cost of capital may be relativelyhigh. Third, the company must be prepared togive up potential tax loss carry forwards and R&Dtax credits, since the investors, rather than thecompany, would take the deductions for researchexpenses. Finally, the formation and structuringof R&D partnerships could have high transactioncosts, and may dilute the use of management’stime.
Investors in R&D limited partnerships face par-ticular uncertainty with respect to long-term cap-ital gains treatment. Recent changes in the tax law,under the Tax Equity and Fiscal Responsibility Actof 1982, have been designed to discourage indi-vidual investments in R&D. It is too early to assessthe impact of the recent change to include researchand development expense deductions as a tax pref-erence item for the minimum tax, but it is likelyto reduce the attractiveness of R&D partnershipsto a great number of potential investors .25
NASA Industrial Applications Center
The U.S. Navy conducts a great deal of researchand development that has significant applicabilityto the commercial maritime industry. While theresults of unclassified R&D are generally avail-able to the commercial sector, the institutional
———“KaitZ & &sociates, op. cit., p. 59.
aspects and quantity of completed and ongoingwork preclude easy access to these products.
An effort to facilitate the flow of informationfrom the U.S. Navy to the private sector mightbe modeled on the industrial application centersset up by NASA. As one shipyard responded tothe OTA survey: “1 would suggest the establish-ment of a maritime industry (applications center)equivalent to NASA with responsibility for col-lection and industry-wide dissemination of mar-itime related basic research, design, and construc-tion technology. ” Eight nonprofit industrialapplication centers were organized under an orig-inal grant from NASA to transfer NASA technol-ogy to commercial industrial applications. Thesecenters enter into agreements with individual firmsor groups of companies to develop solutions toindustry technical problems. The fees from pri-vate firms help to support these activities.
The first Aerospace Research Applications Cen-ter (ARAC) was created by NASA in 1963 as aprivate not-for-profit technical information andassistance center operated by the IndianapolisCenter for Advanced Research. ARAC maintainsa staff of scientists and engineers and a systemof computerized data bases of world-wide scien-tific and technical literature to aid industry, busi-ness, and government. It was first designed to helpNASA find industrial uses for space research.However, ARAC’s literature and data resourceshave now extended into the full range of mod-ern, industrial science and technology chemistry,materials, reliability and quality control, andcomputer science.
ARAC provides two primary services to indus-trial clients. One is through engineering back-ground studies, essentially extensive literaturesearches. The other is a current awareness search,which provides access to the new literature thatis continuously added to the ARAC data bases.The current awareness search contains abstractsof new literature on a monthly basis in an attemptto keep clients abreast of new research and de-velopments taking place in industrial science andtechnology.
35
EXISTING MARITIME INSTITUTIONSThe David Taylor Naval Ship Researchand Development Center
The David Taylor Naval Ship Research and De-velopment Center is the U.S. Navy’s principal re-search, development, test, and evaluation centerfor naval vehicles.26 It was established March 31,1967, with the merger of the David Taylor ModelBasin at Carderock, Maryland, and the MarineEngineering Laboratory at Annapolis, Maryland.The Carderock laboratory is the largest facilityof its kind in the Western World with about 1,000people employed in its seven major research de-partments. The Annapolis facility employs an-other 500 people. Research areas addressed atthese two facilities include hull-form structures,propulsion, silencing, maneuvering and control,auxiliary machinery, environmental effects, pol-lution abatement, logistics, computer techniques,and software for analysis and design.
The enabling legislation for a model experimenttank at the Washington Navy Yard, the precur-sor to the Carderock facility, specified that uponthe authorization of the Secretary of the Navy,experiments could be conducted for private ship-builders provided that they defray the costs of ma-terial and of labor for such experiments. This au-thority continues to prevail today but is seldomused.
The Kings Point, New York, Facility
At present, a national maritime research cen-ter exists at the U.S. Merchant Marine Academyat Kings Point, New York, but it provides fewservices and lacks the focus for R&D projects thatthis option might envision. The National Mari-time Research Center was created in response toconclusions drawn at a maritime R&D conferenceheld at Wood’s Hole, Massachusetts, in 1969 to
attempt to identify a long-range maritime researchprogram. One final recommendation called forestablishing field centers to conduct maritime re-search. In response, centers were set up in Gal-veston, Texas, and at Kings Point, New York.
jbBroChure of the DaVid Taylor Naval Ship R&D Center and leg-islation establishing the Washington Navy Yard’s model experimenttank, 54th Cong., 1st sess., June 10, 1896.
Originally, the intent was to establish laboratoryand model testing facilities at both centers, butneither materialized. The Computer-aided Oper-ations Research Facility was the only facility ac-tually established; it now dominates the budgetand agenda of the Kings Point operation. The Gal-veston center was closed a few years ago.
In January 1982, MarAd completed a study thatassessed the level of industry interest in support-ing a shipping management center designed to dis-seminate management techniques to individualcompanies. As a result of this effort, an exchangecenter, which would rely on industry for most ofits support, was proposed. At least on paper, itwas established and a few symposia were spon-sored under its auspices. However, progress to-wards full realization of its stated objectives hasstalled. Through congressional oversight activi-ties, full-scale realization of such a center mightbe encouraged.
The Maritime ResearchInformation Service
The Transportation Research Information Serv-ice (TRIS) is a computer-based research informa-tion storage and retrieval system maintained andoperated by the Transportation Research Boardof the National Research Council. TRIS consistsof more than 185,000 abstracts of published worksand summaries of research in progress. This database is made up of four principal subfiles on high-way, urban mass transportation, highway safety,and railroad research.
The Railroad Research Information Service(RRIS), for example, which receives its financialsupport from the Federal Railroad Administra-tion, began abstracting technical papers, journalarticles, research reports, statistical sources, com-puter programs, and data sets in 1973. The serv-ice collects information from a number of U.S.Government and industry sources and has a for-mal exchange agreement with the InternationalUnion of Railways, which allows it to obtain for-eign railroad research information. In addition,RRIS provides dissemination services such as thesemiannual Railroad Research Bulletin which lists
.
36
all new references placed on its magnetic tape filesduring the preceding six months. File searches arealso conducted on request.
A maritime research data base, similar to theRRIS, was formerly available as part of the Trans-portation Research Information Service. The Mar-itime Research Information Service (MRIS) hadinformation exchange agreements with Norwegianand British maritime research institutes. The data
base was financially supported by MarAd until1981. Abstracts from this data base, however, arestill filed on the TRIS computers and operationscould be resumed if funding were reinstated. Al-ternatively, MRIS could be integrated with the in-formation services already available at the Mer-chant Marine Academy. This alternative was, infact, proposed after MRIS was discontinued, butit was never acted on.
Section IV
Summary of Issues
Section IV
Summary of Issues
The major issue highlighted by the OTA sur-vey and the foregoing analysis is whether the Fed-eral role in maritime R&D is adequate or whetherit should be enhanced for the benefit of both themaritime industry and the Nation as a whole. Ifit is to be enhanced, then one or more of a rangeof suggestions for new or modified institutionscould be put in place. Since some of the existinginstitutions are valuable and productive, it is alsoimportant to preserve the successful elements asa part of any future institutions.
If the present Federal system is considered ade-quate, then perhaps no changes are desirable andexisting programs should be continued much asthey are.
A majority of the respondents to the OTA sur-vey are among those advocating some change.Those advocates, however, do not agree on anyone specific alternative. Also, if made, anychanges should offer clear benefits to the Nationas a whole as well as to the maritime industry.
It appears from the OTA analysis that, whileaspects of the Federal maritime R&D effort areuseful and productive, a number of problems limitthe benefits to the U.S. industry and hinder thepursuit of such national goals as technological pre-eminence.
Problems identified with existing Federal mar-itime R&D are in the following categories: 1) gov-ernment contracting, 2) disseminating R&D re-sults, 3) outreach, 4) cooperative R&D, and 5)promoting application of new technology.
Government Contracting.—Research and de-velopment, by its very nature, requires experi-mentation, risk-taking and somewhat open-endedexploration of new ideas. The most important cri-teria for selecting a good project, and someoneto perform it, are the potential of the idea andthe expertise of the people who will work on theproject. The government’s contracting process isnot designed to be sensitive to such selection cri-teria. It was developed mainly for the purchaseof materials at the lowest prices. Consequently,
many R&D contracts take years to execute, aregiven to the lowest bidder, and are not selectedto meet long-range technology goals. This has dis-couraged some of the best innovators and stifledsome of the best ideas.
One participant at the OTA workshop stressedthat, if a more effective shipbuilding R&D pro-gram is to be achieved, then the Navy (i.e., theNaval Sea Systems Command) must understandthe problem better and institute much neededchanges. The Navy is currently almost the exclu-sive customer for the U.S. shipbuilding industry.Therefore, “the U.S. Navy will be the principalbeneficiary of the (shipbuilding R&D) programfor years to come and must join the industry infully understanding and making the changes inthe ship design, procurement, and contractingprocesses that are necessary to exploit the full po-tential of these improved methods. ”
If government-supported maritime R&D is tobe enhanced or expanded, improved contractingprocedures should be a major consideration.
Disseminating R&D Results.—The OTA sur-vey indicates that in the past many private firmshave not received the results and/or the benefitsof much of the R&D efforts sponsored by Feder-al agencies. At least two problems have been de-scribed. One is that reports and abstracts are notalways published in the proper format and jour-nals, with complete data and results of R&Dwork. The other is that relevant information onnew technologies is not always disseminated toa wide group of those who will be able to makethe best use of it. Information and technologytransfer systems of the past have had a numberof problems, but, if an R&D project is worthy ofFederal support, there should be an equal effortto make the results as useful as possible to asbroad a group as possible. Any new institutionfor R&D should be developed with careful atten-tion to procedures for disseminating the endproduct.
Outreach.—The OTA survey indicates that amajority of the number of firms in the industry
39
.-
40
do not participate in the ongoing Federal R&Deffort. Many feel that much of the work is notrelevant to their needs. Some other recent studiesof ship operations R&D indicate that a numberof operators have not participated in federallysponsored R&D efforts and consequently the re-sults have not been widely accepted.
Future R&D work and institutions would ben-efit from wider participation and acceptance fromthe industry. While it is difficult to achieve suchparticipation, there have been recent examples ofexcellent participation and acceptance in somespecific cases (e.g., the NAS Ship Structures Com-mittee work and the MarAd National Shipbuild-ing Research Program and Cargo Handling Pro-gram).
Cooperative R&D. —Since the U.S. maritimeindustry itself is made up of diverse sectors, theopportunities for cooperative R&D may be limitedto special cases where groups of firms have theclear interest and need. In other cases R&D byindividual firms may be the best approach; in stillother cases, direct Federal support of basic andlong-range research may be the best.
The OTA survey indicates that some firms areeager to participate in a government/industrycooperative R&D venture; others are cautious but
would support some versions of cooperative ven-tures; and still others do not see the need nor thebenefit of such approaches. Under these circum-stances, it appears important to provide enoughflexibility within any new R&D institution bothto sponsor cooperative ventures where they makesense and to sponsor independent R&D where itmakes sense.
Promoting Application of New Technology.—A persistent problem in the U.S. maritime indus-try appears to be the application of certain ad-vanced technologies or the pursuit of innovationsseeking such goals as increased productivity orimproved competitiveness. Several studies haveidentified a need for encouraging new maritimeventures, new products, or the adoption of newtechnologies. If a new R&D institution were de-veloped, attention also should be given to the ap-plication of useful new technologies in businessventures. One participant in OTA’s workshopsuggested that a Government role in R&D shouldbe to assist and encourage the innovator or newventure entrepreneur through the creation andsupport of maritime venture capital funds. What-ever approach to future Federal R&D programsmay be followed, the application of advancedtechnologies developed to enhance U.S. maritimeenterprises is an important consideration.
Appendixes
Appendix A
Summary of the R&D Program ofthe Maritime Administration (MarAd),
Department of Transportation
Overview*
MarAd’s research program grew out of the programoffice for the nuclear ship SAVANNAH of the late1950s and early 1960s. The program pursued a vari-ety of small projects and worked with the Navy onsurface effect ships until 1970 when it was enlargedand redirected. The emphasis then shifted to cooper-ative work with industry to solve the near-term prob-lems that plagued shipbuilders and operators,
In the past year or two emphasis is once again shift-ing. Administration policy is to have industry assumemore responsibility for its near-term problems whilegovernment concentrates its efforts on the longer termbasic research. Corresponding to this policy, MarAd’sresearch budget gradually has been reduced. In the1970s, funding peaked at $25 million per year, afterwhich budget cutting took its toll. The FY 1984 and1985 budget are $11.4 million and $9.9 million respec-tively. Accordingly, MarAd has been trimming someof its programs. Work will continue in certain appliedresearch areas but it will involve broad-based projectswhich apply to many or all companies, and these areaswill be turned over to industry whenever that becomespossible.
With the limited funds available, high priority proj-ects will be undertaken in shipbuilding, ship opera-tions, and port technology. First priority will be poli-cy or defense-related issues. Second priority will befundamental research. Third priority will be appliedresearch that can be useful to a broad range of ship-yards, operators, or ports.
Government/industry cost sharing is a key elementin certain of the MarAd R&D programs. During fiscalyear 1982, MarAd committed $9.6 million to R&Dprojects. Industry contributed an additional $4.5 mil-lion (FY 82 Annual Report, chapter 6). Joseph A. Seel-inger, assistant to MarAd’s Research Advisor, esti-mates that the industry contributed $5 million to $7million in 1983. The actual amount the industry con-tributed, however, is difficult to estimate because in-
—“The material [n this appendix was taken from various publlshed and un-
published MarAd sources then rev]ewed by Dr Zelvln Lev]ne, Sen]or Adv]-sor for R&D, February 1 Q85
dustry often makes in-kind contributions of labor, fa-cilities, or technical assistance rather than cash.
MarAd also has cost-sharing and cost-reimbursedarrangements with the U.S. Navy and the U.S. CoastGuard. In 1983, MarAd obligated $25 million of re-search and development funds. Of this amount, $15.5million, including a one-time amount of $5.3 millionfor funding of USCG icebreaker operations, was di-rectly appropriated to MarAd, while $9.5 million wascontributed or reimbursed by other agencies, primar-ily the Navy.
The MarAd R&D program was recently reorga-nized. Formerly, an Associate Administrator had soleresponsibility for research and development. The As-sociate Administrator’s supervisory responsibilities en-compassed: 1) the Office of Advanced Ship Develop-ment, which included the shipbuilding and shipmachinery programs; 2) the Office of Advanced ShipOperations, which included the programs of fleet man-agement, cargo handling, and ship performance andsafety; and 3) the Office of Maritime Technology,which included the hydrodynamics, university re-search, marine science, advanced ship systems, andship structures programs.
With the recent reorganization, the R&D office wasmerged with the MarAd Operations office and is nowunder the Associate Administrator for ShipbuildingOperations and Research. The major organizationalchange was to combine the Offices of Advanced ShipDevelopment and the Office of Maritime Technologyin the Office of Advanced Ship Development andTechnology.
Within MarAd, the managers at the program level(e.g., shipbuilding, ship machinery, etc. ) are largelyresponsible for the organization and the conduct of in-dividual programs. This results in a great deal of varia-tion in how these various programs are operated andhow they interact with the industry. In a few pro-grams, such as the Shipbuilding, Fleet Managementand Cargo-Handling Programs, formal relationshipshave been established between the programs and theindustry. These arrangements may dictate specific pro-cedures for soliciting input from the industry and forcarrying out joint research projects. Other programshave less formal mechanisms for coordinating with the
43
4 4
industry but still have an active relationship with theprivate sector. Overall, it is a policy of MarAd to con-duct most projects on a cost-sharing basis; projects thatare not conducted on this basis are required to justifytheir actions.
Current MarAd Program
Shipbuilding Research
A large percentage of MarAd
Elements
R&D funds are de-- .voted to the National Shipbuilding Research Program(NSRP). The projects conducted under this programare jointly sponsored by MarAd and industry; thisjoint participation is widely thought to be the primaryreason this program has been so successful. J. E. De-Martini of the Bath Shipyard writes: “The NationalShipbuilding Research Program has grown into an ef-fective vehicle for the conduct of industry-wide re-search and development programs that have made sub-stantial contributions to increasing the productivity ofour industry. ” (DeMartini, 1982. )
NSRP coordinates R&D activities through the So-ciety of Naval Architects and Marine Engineers(SNAME). SNAME helps to disseminate the results ofR&D projects to their members. In addition, the ShipProduction Committee of SNAME has formulated afive-year R&D plan. According to M. Lee Rice, Presi-dent of the Shipbuilders Council of America, the ship-building industry generally views NSRP as a successfulprogram.
Ship Machinery
Before the oil embargo of 1973, the Ship Machin-ery Program concentrated on lower cost engines andlower manning. After the embargo, fuel efficiency be-came its main thrust although work continues on low-ering capital and maintenance costs. All work in com-ing years will be on longer range projects: fundamentalwork will be conducted on the diesel engines, alter-nate fuels, and fluidized bed combustion. The near-term work on energy conservation and steamship ret-rofits will be left to industry.
In FY 1985 the first phase of a project on ceramiccoatings for diesel components will be completed.These coatings, which were originally developed forgas turbine blades, can be applied to diesel internalsand allow higher operating temperatures, and therebyattain greater efficiency and raise tolerance to lowergrades of fuel. In cooperation with the U.S. CoastGuard, the problem of spontaneous combustion ofcoal aboard ship will be studied.
In FY 1986, further work on diesel efficiency willbe conducted including the application of the Navy’s
RACER system (Rankine Cycle Energy Recovery) todiesel waste heat recovery. In both 1985 and 1986,work will continue on the use of alternate fuels, suchas coal-in-water slurries, and on a cooperative projectwith industry to adapt the new concept of fluidizedbed combustion to ships.
Cargo Handling
The Cargo-Handling Cooperative Program (CHCP)is an arrangement between MarAd and six U.S. car-riers for conducting cooperative R&D on cargo han-dling. The program was initiated in 1981, with proj-ects actually beginning in 1983. The program operatesthrough an executive committee composed of repre-sentatives of the carriers and MarAd. The committeemeets two to four times a year to discuss common in-terests and to plan future projects. These projects arethen conducted by contractors recommended by theMarAd program administrator and approved by theexecutive committee. The carriers themselves do notconduct R&D projects as do the shipyards associatedwith the Ship Production Committee; however, oneof the member carriers takes the lead in monitoringeach of the projects. Results of the projects are dissem-inated through monthly reports written and distrib-uted by the MarAd program administrator. The CHCPwas budgeted at $500,000 for FY 1984. Additionally,the CHCP is being funded by the Navy to conduct re-search relevant to both military and civilian needs.
In 1985, work on a computerized simulation modelof container terminal operations will continue. Thecarriers use this model to determine the impacts ofchanges in operational methods and vessel scheduling.Another project is determining how changes in cargohandling might capture some additional cargo for con-tainer carriers. Bar code identification equipment is be-ing tested to determine its ability to function in themarine environment. There is a continuing effort toassess the technologies used in other industries for theirapplication to marine cargo handling.
Future projects will include a test of low frequencymicrowave identification systems, improved commu-nications between yard equipment and a central con-trol station, automatic storage and retrieval of con-tainers in the container yard, automated interchangetransactions, testing of automated guided vehicles, andlaser disc storage of documentation.
Computer-Assisted OperationsResearch Facility (CAORF)
This facility simulates a ship’s bridge as well as portsor channels and their associated traffic and is used toinvestigate and test alternative operating procedures.
45
Cost-shared projects are carried out with U.S. CoastGuard, U.S. Navy, Corps of Engineers, port authori-ties, and shipping companies to test the effect of vari-ables in their operations—changes in turning basins,positioning of buoys, changes in training procedures,etc.
In FY 1985 and 1986, CAORF will continue to workon a wide variety of navigational problems, many forother parties on a reimbursable basis. One projectwhich will continue into FY 1985 is a reimbursableproject for the Panama Canal Commission. The Corpsof Engineers will continue to be a heavy user ofCAORF in connection with several dredging projects,including Hampton Roads, Mobile, and New York.Individual port authorities will also be funding proj-ects at the facility. MarAd will conduct its own workat CAORF on safety-related projects such as improvednavigational and training procedures.
Fleet Management
The Fleet Management Program has established aformal mechanism—the Cooperative Industry Re-search Program—for soliciting ideas and establishingcost-shared projects with the industry. Under this pro-gram, a Request for Proposal is issued annually to over800 firms. The program then funds the best proposalsamong those submitted.
MarAd has been working with the ship operatingindustry on information technology since the early1970s. Various computer modules were developed butproblems arose on the transferability y of these modulesfrom one company to the next. A new approach is towork with groups of companies through trade associ-ations and to structure the output so that it is as widelyusable as possible. This work has been merged witha former program on ship communications. Work onnear-term computer/communications applications isbeing phased out as recently developed modules arebeing implemented, and as industry takes a larger rolein developing new ones that may be required. A newgeneration of technology is being investigated to seehow it can be applied profitably to ships and shipping.
Emphasis in 1985 and 1986 will be on long-term,high-risk projects which will be formulated during atechnology forecasting project initiated in FY 1984.These projects will use technologies that are not yetfully developed, but are currently in the basic researchphase of R&D. Projects will be undertaken to providea useful product within 5 to 10 years. Although of alesser priority, work will continue in the CooperativeIndustry Research Program, which provides for 50/50cost sharing with industry on near-term projects to im-plement existing state-of-the-art technology. Continua-
tion of these near-term projects is thought by MarAdto be essential to maintaining a spirit of cooperationwith industry.
Ship Performance and Safety
This program addresses several areas of ship oper-ations not covered elsewhere. Among these are effec-tive manning, maintenance and repair, and hull andpropeller coatings. Projects are usually conducted incooperation with industry and/or labor. They areaimed at reducing fuel consumption, reducing thehazards aboard ship, or analyzing motivational aspectsof seafaring to improve productivity and retain skilledseafarers in the work force. There has been an increas-ing emphasis in this program on making better use ofthe human resources of the industry. The biggest ef-fort in coming years will be on effective manning ofships. In cooperation with shipowners and unions,shipboard experiments will determine the safest andmost economical crew levels. Hull and propeller coat-ings will continue to be an important area of researchin an effort to increase propulsive efficiency and re-duce maintenance.
Advanced Ship Systems
This program is designed as the industry’s bridge totomorrow’s shipping systems. The maritime industryis not organizationally or financially equipped to dolong-range research and development. Under presentcircumstances limited resources are directed at near-term survival. The probability of success in any givenAdvanced Ship Project is small compared to that ofthe other programs, and the successes may come indirections other than those originally intended.
For FY 1985 and FY 1986, an initiative is plannedon “competitive ships of the future. ” This would bean R&D joint venture, involving both government andindustry, to develop prototype ship designs which in-corporate the latest technology. The goal would be aseries of ships which could be competitive in manyworld freight markets. While this project has been ap-proved in the budget, the project has not yet been giv-en the go-ahead to begin.
In addition, technology development for ice tran-siting ships will continue, Also, the study of power-ing needs in various ice conditions will continue. Thiswill require additional full-scale tests of polar classicebreakers in cooperation with the U.S. Coast Guard.
Marine Science
Just as there is very little work on advanced con-cepts by the industry, there is little or no fundamen-
46
tal research on hydrodynamics, structures, and pro-pellers. In addition, because of the nature of thisresearch, relatively few projects are cost-shared by in-dustry. Other government agencies such as the U.S.Navy and U.S. Coast Guard as well as the AmericanBureau of Shipping share in this work, especiallythrough the Ship Structures Committee. Whereverpossible, the agencies work together to solve commonproblems. MarAd, however, must take the sole initi-ative in problems peculiar to the merchant fleet, suchas the maneuvering of tankers in shallow water or theresistance of vessels with very high block coefficients.Research will continue in the following areas: 1) im-proving ship maneuvering performance, 2) propulsion
ket opportunities are assessed, such as heavy lift cargo,perishable cargo, or shipments to developing nations.Market information is produced, such as monthly per-formance printouts and Canadian diversion reports.Planning is carried out on new market strategy modelsand forecasts of trade. In addition, U.S. and interna-tional policies are evaluated for their affect on U. S.-flag carriage. Industry has taken part in this programby recommending research projects.
In FY 1985 and 1986, this program will emphasizeresearch on possible barriers to U.S.-flag vessels inworld markets. The impact of international maritimepolicies also will be assessed and responses will be rec-ommended.
efficiency, and 3) ship structural safety through the in-teragency Ship Structure Committee.
Market Analysis
The small amount of research conducted by this pro-gram is directed at a number of areas. Specific mar-
Table A-1 .—MarAd R&D Program Funding,(dollars in thousands)
Fiscal Years 1969-76
Contract awards by final year
1969 1970 1971 1972 1973 1974 1975 1976
$ 492.424,000.024,492.424,2994
$ 193022,432.022,625.022,138,9
$ 768019,768,020,536019,164.1
$9,314.78,434.41,626.63,3846
66680 0
872.3ab
00
$6,572.29,677.32,343,32,221.9
882.90.0
525.039.3
b
(123 O)
$ 7,43313,272.83,65663,1279
56820.0
318.530064864
00
47
Table A-2.—MarAd R&D Program Funding, Fiscal Years 1976-85(dollars in thousands)
Contract awards by fiscal year
Transfer 1985quarter 1977 1978 1979 1980 1981 1982 1983 1984 (estimated)
Prior year carryover $1,371,8
Appropriation 4,000,0Total available 5,371.8O b l i g a t i o n s : $3,101.3
Advanced shipdevelopment 574.0
Advanced shipoperations 774,6
Maritime technology 742.1NMRC/CAORF 8370NS Savannah/nuclear 870J S E S P O 0.0Agency support. 8.6Market development aPort & intermodal 780O t h e r 0.0
$2,270.4 $2,595.7 $1,910.0 $2,701.0 $1,102.5 $1,507.0 $ 636.0 $ 908.0 $2,919.02,670.4
18,500,0 18,325.0 17,500,0 16,300.0 13,800.0 8,481.0 15,300.0 11,385.0 9,900.020,770.4 20,920.7 22,080.4 19,001.0 14,902.5 9,988.0 15,936.0 12,293.0 12,819,0
$18,174.6 $19,030.2 $19,362.8 $18,007.0 $13,738.0 $9,668.0 $15,330.0 $10,500.0 $13,790.0
5,973.6 5,735.7 4,860,7 5,179.0 4,409.0 2,808.0 3,670.0 2,666.0 3,365.0
1,882,23,624.35,080.5
107,30.0
2055a
1,301.20.0
1,922,34,889,74,850,6
0.00.0
175,6a
1,45630.0
2,476.05,111.36,568.4
0.00.0
346.4ac
0.0
2,673.04,159,05,802,0
0.00.0
194,0a
c
0.0
2,274.02,852.03,534.0
0.00.0
669.0
0.0
1,569.01,181.03,666.0
0.00.0
444.0bb
0.0
2,16601,244.02,933.0
0.00.0
617.0b
b
4,7000
1,332,02,731,03,478.0
0.00.0
2930b
b
0.0
4,164,01,818.03,547.0
0.00.00.0
450,0446,0
0.0alnclu~ed In arjvan~d sh[p developmentb(ncluded (n agency supporlclnc(u,jed (n advanad ship operations
VOTE Numbers are ballpark snce recoupments from prior years are no!enlered (n a cons[sfenl fashton
Appendix B
The Navy’s ManTech Program
The U.S. Navy’s ManufacturingTechnology Program (ManTech)
The U.S. Navy’s ManTech Program was establishedin 1977. Its objective is to encourage the adoption ofadvanced production equipment and processes to re-duce the cost and delivery time of Navy systems, im-prove the quality of fleet hardware, improve the mo-bilization readiness of the Navy’s industrial base, andreduce dependency on strategic and critical materials.It provides funding and other incentives for the adop-tion of production technologies where industry can-not provide for such advances in a timely manner.
The ManTech Program directs its efforts towardsall industrial sectors that manufacture products for na-val use. However, a major effort in shipbuilding tech-nology was initiated in FY 1984, with the goal of a re-duction of 10 percent in the cost of Navy ships and25 percent in delivery time by 1990. This effort is ajoint undertaking between Navy, MarAd, and the in-dustry as represented by SNAME’s Ships ProductionCommittee. The shipbuilding technology program ofManTech will be a priority program of the Navy’s forat least the next five years. The program’s budget inFY 1983 and FY 1984 was $10.27 million and $19.12million respectively. The projected budgets for FY 1985and FY 1986 are $21,37 million and $24.70 million.
The U.S. Navy’s ManTech Program is an AdvancedDevelopment Program (identified as Navy ProgramElement 78011N, Project Z1050). Funding in theamount of $2.0 million per year is provided to theNSRP-SPC from the ManTech Program as the Navy’sshare. In addition to conducting development withinthe SPC, the SPC provides oversight review of theNavy’s ManTech Program applicable to ship produc-tion. Criteria for selecting ManTech projects is speci-fied in NAVMATINST 4800 and emphasizes “Returnon Investment” to the Navy.
The portion of the ManTech Program supportingshipbuilding or ship performance technology develop-ment is managed by NAVSEA. The NAVSE (ships)project funding for FY 1977 through FY 1985, repre-senting the Navy’s efforts in this area over the past nineyears, is as follows:
Fiscal year Funding ($-millions)1977 . . . . . . . . . . . . . . . . . . . . . . . 8.91978 . . . . . . . . . . . . . . . . . . . . . . . 7.51979 . . . . . . . . . . . . . . . . . . . . . . . 8.21980 . . . . . . . . . . . . . . . . . . . . . . . 5.11981 . . . . . . . . . . . . . . . . . . . . . 2.11982 . . . . . . . . . . . . . . . . . ......11.81983 . . . . . . . . . . . . . . . . . ......10.31984 . . . . . . . . . . . . . . . . . ......19.11985 . . . . . . . . . . . . . . . . . ......21.4
Table B-1.— Navy’s ManTech Program Funding, Fiscal Years 1983-86(dollars in millions)
4-yearFY 1983 Percent FY 1984 Percent FY 1985 Percent FY 1986 Percent total Percent
Ships 10.27 32 19.12 34 21.37 31 24.70 31 75.46 32(MarAd)a (2.2) (2.2) (2.2) (3.0) (9.6)Aircraft 7,89 25 15,639 28 16.03 23 18.58 23 58.14 25Electronics 6.96 22 8.147 15 10.69 16 12.37 16 38.17 16L o g i s t i c s .30 1 1,1 2 5.34 8 6.20 8 12.94 6Manufacturing science 3.34 11 7.92 14 10.27 15 11.90 15 33.43 14Administration and planning 2.96 9 4,202 7 4.79 7 5.65 7 17.6 7
T o t a l 31.72 100 56.13 100 68.49 100 79.4 100 235.74 100alncluded In ships lineNOTE Percentages are rounded and may not add up to 100 m some tables
48
49
Table B-2.—U.S. Navy
Category (subject)
Program (Shipbuilding Portion)(dollars in millions)
Category, Fiscal Years 1983-85
FY 1983 FY 1984 FY 1985
Amount Percent Amount Percent Amount Percent
Hull structure—automatic welding . . . . . . . . . . . . . . . . . . . . . . . 0.0 0 1.4 7 1.1 5Propulsion—propeller manufacturing,
reduction gear measure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 24 2.4 12 3.2 15Electrical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0 0.0 0 3.2 15Auxiliary-piping automation
flexible machining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 18 4.8 25 3.2 15Outfit—robotic preparation and coating. . . . . . . . . . . . . . . . . . . 0.2 2 3.7 19 3.2 15Armament—laser metalworking . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 35 4.6 24 4.3 20Integration—computer scheduling . . . . . . . . . . . . . . . . . . . . . . . 0.0 0 0.2 1 1.0 5National shipbuilding R&D—MarAd . . . . . . . . . . . . . . . . . . . . . . 2.2 21 2.2 12 2.2 10
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 100 19.1 100 21.4 100NOTE Percentages are rounded, and may not add up to 100 In some tables
Appendix C
Samples of Survey Forms
CONGRESS OF THE UNITED STATESOFFICE OF TECHNOLOGY ASSESSMENT
Survey of R & D activities in the
SHIPBUILDING INDUSTRYJUly 1 9 8 4
1) Please indicate the approximate percentage of your firm’s—eluding Federal funds for R & D):a) in the past 5 years? %2) Of the total spent on R & Dbelow.
a. Ship design and performanceb. Ship subsystem design —
indicated in question
%%
(e.g., propulsion system, navigational equipment, etc.)
b)
operating budget spent on R & D activities (not in-
in the current year? %
1, estimate the percentage spent for each of the categories
c. Shipbuilding research %(e.g., CAD/CAM, ship production technology, ship-yard management, etc. )d. Other (please specify below) %
3) If your firm received any Federal R & D funds, please indicate what percentage of your total R & D expenditures(Federal + private) the Federal monies represented?a) in the past 5 years? % b) in the current year %
4) If any Federal funds were received for R & D activities, which agency and program contributed them? In addi-tion, indicate the approximate percentage of the total contribution that each agency/program contributed.
Agency Program
5) Please indicate the relative influence that the following factors have onVery
InfluentialInterest ratesAvailability of finance CapitalGovernment policies and programsMarket demandCompetitive pressureOther (please specify)
6) How do the following Federal laws, regulations and policies affectEncouragesInvestment
Antitrust statutesPatent lawU.S. tax codeOSHA safety regulationsPhase out of ODS/CDS
070 of Total Contribution070
%070
070
your firm’s investment in R & D.Somewhat NotInfluential Influential
your firm’s investment in R & D?Discourages Little orInvestment No Et’feet
—
51
7)or
1.2.3.4.5.6.7.
8)
a.b.
9)
Please rank order the laws anddiscourage R & D investment.
EncouragesInvestment
regulations from question 6 according to the relative degree
1.2.3 .
4.5.6.7.
Does your firm have access
U.S. Navy R & D activitiesForeign R & D activities
Could you suggest ways the
DiscouragesInvestment
to the technological advances resulting from:Yes
Federal government might
that they encourage
No
make this information more accessible?
NegativeIncentive
10) How would the following options affect your firm’s incentive to invest in R & D?Significant SlightIncentive Incentive
a. Extension of the Capital ConstructionFund to R & D expenditures (allowing taxdeferment ).b. Availability of Federal loan guaranteesfor R & D expenditures (e.g., Title XI)c. Amendment of antitrust laws to permitresearch joint venturesd. Expansion of tax credits for R & D ex-penditurese. Increase in direct Federal support for R& D
11) Would you support the formation of a government-industry sponsored maritime research facility for the pur-poses of conducting long-term basic and applied research and for serving as a clearinghouse for Navy, foreign, anddomestic civilian R & D advances?
Strongly endorse such a research facility and would be willing to participate and provide funding forcooperative research projects.Endorse such a facility but do not anticipate that my organization would actively participate or providefunding.Do not endorse the concept of such a facility.
52
12) Do you have any suggestions for any other organizational or institutional changes within the Federal govern-ment that might improve the effectiveness of government-sponsored research?
13) Would you advocate increasing direct Federal expenditures on maritime R & D? If so, please indicate throughwhich Federal agency or program.
14) In addition to the R & D options suggested on questions 10-13, and in light of the recent phase out of Federalconstruction and operating subsidies, can you suggest other Federal maritime incentives that might help revitalizethe industry? Which of these, if any, would be significantly more beneficial than R & D incentives?
Classification QuestionsAnswers to the following questions will be used to classify the survey responses and will assist OTA in drawing con-clusions from the data collected.1. Is your firma participant in the Active Shipbuilding Industrial Base (ASIB)? (yes or no)2. What is the average (past three years) annual gross tonnage constructed in your shipyard? gross tons
3. Please indicate the approximate percentage of your work that is:For the U.S. Navy ’70 For commercial clients % New cons t ruc t ion— % Repair %
4. Title of survey respondent5. Name of respondent (optional)6. Affiliation (optional)
Thank you for your cooperation.
Appendix D
Firms Responding to the OTA R&D Survey*
Ship Operators
Alcoa Steamship Co.Amerada Hess Corp.American Automar, Inc.American Global LinesAmerican President LinesAmerican Trading Transportation Co.AMOCO Transport Co.Arco Marine, Inc.Bulkfleet Marine Corp.Central Gulf Lines, Inc.Charter Marine Transportation Co.Chevron Shipping Co.Cosmopolitan Shipping Co.Crowley Maritime Corp.Diamond ShamrockDixie Carriers, Inc.Dow Chemical Co.Energy Transportation Corp.Falcon GroveFarrell LinesGetty MarineGulf Oil ProductsHvide ShippingIngram Barge Co.Lykes Bros. Steamship Co.Marathon International PetroleumMarine Transport LinesMobil OilNational Marine Service, Inc.Navieras de Puerto RicoOgden Corp.Overseas Shipholding GroupPacific-Gulf Marine, Inc.Phillips Petroleum Co.Reomar, Inc.Shell Oil Co.Standard Fruit & Steamship Co.Stolt-Nielsen, Inc.Sun Transport, Inc.Texaco, Inc.The Lubrizol Corp.Trinidad Corp.
Tropical Shipping Co.Union Oil Co. of CaliforniaUnnamed Operators-Two (2)U.S. LinesWestern Hemisphere Corp.
Shipyards
Alabama Dry Dock & Shipbuilding Corp.Avondale ShipyardsBath Iron Works Corp.Bay ShipbuildingBethlehem Steel Corp.Campbell IndustriesDillingham Ship RepairDravo Marine Equipment Co.FMC Corp.General Dry Dock & Repair Corp.General Ship Corp.HBC BargeHoboken Shipyards, Inc.Ingalls ShipbuildingLeevac ShipyardsLockheed Shipbuilding Co.Marco SeattleMarinette Marine Corp.McDermott, Inc.NABRICONational Marine Service, Inc.National Steel & Shipbuilding Co.Newport News ShipbuildingNewport Shipyard, Inc.Norfolk Shipbuilding & DrydockPennsylvania Shipbuilding Co.Peterson BuildersService Machine GroupSouthern Shipbuilding Corp.Southwest MarineSt. Louis ShipSteiner Shipyard, Inc.Todd ShipyardsTracer Marine, Inc.Twin City Shipyard, Inc.
● Not all the firms listed here completed the survey; a number of them indicated that they did not conduct any R&D and were unable to respond in full.
53
Appendix E
Compilation of Responsesto Open Questions
A Compilation of Specific Suggestionsof Survey Respondents
1. Question #9 —Could you suggest ways theFederal Government might make (R&D) in-formation more accessible?
Operators
MarAd could screen this information on behalf ofU.S.-flag operators and distribute free abstracts ofapplicable material very much as many trade asso-ciation libraries make industry information avail-able to their members.Regular publications issued to the Federation ofAmerican Controlled Shipping Organization.The Federal Government could make informationregarding USN and foreign R&D activities into asingle source, single catalog, available to U.S. linercompanies through a single agency such as MarAd.Allow government contractors greater freedom touse their government work in civilian applications.The Freedom of Information Act has been very help-ful in accruing information. The response time orturnaround time needs to be greatly reduced if in-formation is to be utilized properly.There is no need for Federal Government involve-ment in this area.It could be summarized for publication through anindustry trade association.Microfiche Titles. Supply to our national organiza-tion in Washington-American Waterways Associa-tion (AWA). Run articles in our publications, suchas, Waterways Journal, Work Boat, etc.They should be presented (including translation) ina form that is understandable to the merchant fleetand shipbuilders in general.Provide an industry-related catalog listing and de-scribing R&D programs in progress or completed forthe past 2 or 3 years.Greater information exchange between U.S. Navyand organizations such as MarAd, SNAME, andNaval Architectural schools in areas which affectcost savings and shipbuilding techniques. For exam-ple, MarAd could periodically update commercialS.B. specifications, say, yearly reflecting currentstate of the art. Also, R&D should be targeted atthe practical aspects of S.B. and operations.
54
● The National Technical Information Service peri-odically makes available lists of technical publica-tions collected from various sources, which may beordered. The number of items included in this listingcould be expanded to make more technical infor-mation available.
Shipyards
●
●
●
●
●
●
Establish a government/industry sponsored mari-time research facility as described in question #11with the provision that overall management controlbe exercised by industry.A how-to-help access catalog might help. Seminarshave been successful, such as IREAPS-SPC showand tell programs, such as have been held at Univer-sity of Michigan. Education training programs couldbe improved with more funds. They have a goodstart on library information but need to be adver-tised more and put on technology updates.Conduct annual symposiums. Distribute via GPOboth domestic and foreign R&D updates.Navy R&D should be shared on a periodic basiswith all shipyards. Meetings should be convened topresent and update the results of MarAd R&D proj-ects with particular emphasis on ship system andproductivity developments. Item 9 addresses a sig-nificant shortfall in Navy R&D, specifically thetimely accessibility of Navy generated R&D data.It is recommended that the Navy sponsor periodicreviews during the year organized by NRL orDTNSRDC to present to invited shipyards the re-sults of recent projects. Emphasis should be placedon those projects which enhance shipyard produc-tivity or describe ship system developments. Thesemeetings would not only encourage a dialog be-tween the Navy R&D community and the shipbuild-ing industry, but also better enable the shipyardsto plan their own R&D programs.Assuming R&D activity results in hardware designs,and those designs are utilized to produce hardware,“technological advances” could be accessible via de-sign information included with Federal bid requestsfor the hardware involved. The point is that the firmconducting the R&D work should not necessarily}have control of the R&D output.Publish through the Society of Naval Architects andMarine Engineers.
55
Publish a catalog of U.S. Navy R&D reports andavailable R&D reports of foreign governments.Offer seminars where shipyards are invited. Sendout information indicating the scope and objectivesof ongoing R&D.Use industry technical groups.Establishment of maritime industry equivalent toNASA with responsibility for collection and indus-try-wide dissemination of maritime-related basic re-search, design, and construction technology.Accessibility appears adequate in the ShipbuildingIndustry. However, direct access to a U.S. Govern-ment controlled technical library would enhance andbroaden the application of advanced techniques.Publication on a quarterly basis of the documentsregistered at the library would also assist.Acquisition and distribution: cost of printing only.Seminars, meetings, publications, etc.It is suggested that a recommendation be made toestablish a joint Navy/industry study group to ad-dress this issue. The group should be tasked to iden-tify the specific problems, identify and evaluate al-ternative solutions, and develop specific recommen-dations. Specific possibilities include establishmentof a formal technology transfer program similar toNASA’s with its many and varied mechanisms.Publish a quarterly compendium of R&D effortswith progress reports on each project.
Question #12–Could you suggest other orga-——nizational or institutional changes within theFederal Government that might improve theeffectiveness of government-sponsored re-search?
Operators
● Adopt the Peter Grace Commission Report.c As a passenger operator, it is not understood that
we are more in the vacation business than in thesteamship industry. Accordingly, the organizationalinstitutional changes within the Federal Governmentthat would most improve effectiveness, would beproper funding and market research conducted bythe office of tourism. Where we could most use thehelp would be in development of international mar-kets for our operations in the State of Hawaii. Thisis an area where it is very difficult for a companyof our size to develop an adequate internationalpresence, and the continuing cutbacks in funds forthe office of tourism has significantly hampered ourability to attract foreign passengers This, of course,affects the balance of payments of the United States,as well as putting us at the mercy of our foreign com-
petitors in the cruise industry who generally haveeasy access of foreign markets because of their own-ership structures.Those areas chosen for government-sponsored re-search should be established with strong participa-tion and input from the end users of any expectedR&D results.In general, it is important for the government to en-courage improved industry contact (shipyards-own-ers-consultants-operators-navy-education insti-tutes). The feeling of’ unity through the marineindustry gives an enormous boost, which both arerequired in the U.S. Research should be done withinall the marine groups and preferably with the par-ticipation of more than one group in each program.The government can help to coordinate and pay forthis or leave the coordination to someone else.Under present arrangements, results of research tendto be too narrow and too late. Administration ofresearch should be directed more to the timelinessand practical applicability of the results.The U.S. Department of Transportation should takedirect responsibility for government-sponsored re-search, and also the direct responsibility for the com-munication of this information to shipowners.Rather than making payments to secondary contrac-tors, payments if made to U.S. liner companieswould ensure better control over R&D activity per-formed by the subcontractors.We recommend that the Federal Government shiftits support of marine R&D to a role of primarily be-ing a source of funding. The marine industry shouldparticipate to a greater extent in the selection ofR&D projects and their administration. This wouldhelp to make the funded work relevant to real in-dustry problems, thereby providing the most effi-cient use of government R&D funds. Under this sce-nario an industry-wide research information facilitywould be most desirable.Government-sponsored research has been ineffec-tive in the commercial marine area. It makes littlesense to spend $4 million in one day on commercialshipbuilding research when no ships are being builtor contemplated.Focus on things we’d all use—such as better bargefastening systems, better navigation aides for Mis-sissippi River, river pilot simulator/trainer devel-opment, shorter range radar enhancement, etc.
Shipyards
● Establish a fund for unspecified R&D projects ad-ministered by an agency such as the Maritime Ad-ministration’s Office of Advanced Ship Develop-
56
●
●
●
●
●
●
●
ment and Technology for funding those “target ofopportunity” projects meeting predefine criteriaand limits. Change contract approval procedures(F. A. R.) to decrease proposal lead time for R&Dprojects by eliminating “red tape” delays that, whilenecessary for normal procurement items, are an im-pediment to R&D projects (e.g., source approval,advertising). Coordinate all R&D specialized areas(e.g., Computer Integrated Manufacturing Systems)through one government agency (e.g., National Bu-reau of Standards). Designate and fund a centralcontrol agency to administer all major R&D proj-ects with authority to mandate implementation ofthe results of those projects as a condition of con-tinuing/obtaining government contracts (e.g., shipacquisition and repair organizations implement theadvances made by some of the industry in the useof group technology).Make the results more readily available to privateindustry.The effectiveness of government-sponsored mari-time research could be improved by centralizing theadministration of research projects in one agency,specifically the U.S. Navy.Research is only effective when it can be applied.Without U.S. commercial ship and offshore con-struction U.S. maritime research will always be in-effective. The Federal Government must establisha positive maritime policy to decrease dependenceon foreign vessels. Establish a positive maritime pol-icy which will cause vessels to be built in the UnitedStates. Commit to build and maintain an adequatemilitary sealift capability with an adequate sustain-ing domestic industrial shipbuilding base.Strengthen integration of common elements of U.S.Navy, MarAd, and U.S. Coast Guard research pro-grams. Suggest detailed investigation of role and ef-fectiveness of the British Shipbuilders Research As-sociation (BSRA).Streamline contracting procedures to make R&D ef-forts time effective. Broaden the concept of IR&Dsuch as to create greater acceptance of cost allowa-bility for efforts undertaken independent of govern-ment sponsorship.Force existing agencies (i.e., Coast Guard, MarAd)to be more sensitive to industry needs and require-ments and become more aggressive in pursuing pro-grams to benefit the marine industry (inland andoffshore).At the present time, three government organizationsare directly involved in maritime research: theNavy, the Coast Guard, and the Maritime Admin-istration. While the focus of these research effortsis not the same it would appear that there should
●
3.
be more extensive use of joint efforts in higher costtechnology developments and in technology dem-onstrations. The research activities accomplished bythe Navy are not centralized under a single com-mand as illustrated in the following:
Assistant Secretary of Navy Research,Engineering and Systems:
–Director RDT&E—Director of Navy Laboratories—Chief of Naval Research—Chief of Naval Development–Deputy Chief of Staff Marine Corps RD&S
Chief of Naval Operations:—Director RDT&E
Chief of Naval Material:—Deputy Chief of Naval Material (Labora-
tories)—Deputy Chief of Naval Material (Tech-
nology)This highly fragmented R&D organizational struc-ture when coupled with the R&D activities accom-plished under the Under Secretary of Defense Re-search and Engineering would not appear to resultin effective and efficient utilization of the R&D dol-lars. Some effort may be made to simplify the orga-nization and consolidate the R&D program. A ma-jor detriment to R&D effectiveness is the slow paceat which new technology is introduced. A major rea-son for this is the absence of R&D platforms (ships,submarines) on which to demonstrate this technol-ogy in an operational environment as is done inaerospace programs.Clarify Jones Act to include icebreaking and icemanagement in the OCS as an absolute requirementof the U.S.-flag built and manned vessels.
Question #13—Would you advocate increas-ing direct Federal expenditures on maritimeR&D? If so, please indicate through which Fed-eral agency or program.
Operators
No, I would recommend curtailing such programs,particularly those of the Maritime Administration.Through universities—we have best interface there.No, if this means an all government-controlled ac-tivity. Yes, if it means channeled through govern-ment agencies and including nongovernment par-ticipants.Yes. Maritime Administration.Yes, through Maritime Administration support ofeducational and pure research institutions, notthrough industry.
57
●
●
●
●
●
●
!
I
All expenditures on maritime R&D should be bene-ficial and should be administered through the U.S.Department of Transportation.Yes. MarAd.Yes, increasing Federal expenditures on maritimeR&D would be helpful. Again, selection of the prop-er agency could be based on experience of R&D ad-ministration such as MarAd.Yes—The Maritime Administration Fleet Manage-ment Technology Research and DevelopmentProgram.Increased Federal support might be useful if indus-try participated in selection and administration ofprojects.As presently constituted now. Again we can onlycomment with respect to the American flag passen-ger industry. The most important Federal policy orincentive change which could affect the passengership industry, would be a recognition that the pres-ent body of law governing passenger vessels waswritten and devised at the time when the purposeof passenger vessels was to transport somebodyfrom point A to point B. People don’t do that any-more, with the exception of small ferries. People geton passenger ships to take a vacation, not to travelfrom point A to point B. The laws as presently con-stituted place a great handicap on American opera-tors. A proper body of law recognizing that the pas-senger business has changed from transportation tovacation industry could perhaps promote the Amer-ican industry more than any other single change.As you can see, the classification questions indicatethat the survey is designed for other than a passen-ger operation and we again caution you againstusing the results incorporating our percentage resultsand our responses into your main survey.Yes. Navy and MarAd.Yes—through a program of funding research by aca-demic institutions.
Shipyards
Yes, but with some modifications: a) The currentManufacturing Technology program is an excellentvehicle if modified to reduce funding time from pro-posal to contract award and to expand its defini-tion to include total manufacturing systems in ad-dition to production machinery and supportingsystems. b) Recognize the National Shipbuilding Re-search Program, which has momentum and is suc-cessful (described in a 1976 Rand Corporation re-port as being one of the five most effectivegovernment-funded research programs in terms ofdevelopment and implementation achieved), as a de
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
facto research consortium that should be continuedand supported with increased funding.Yes, Maritime Administration and U.S. Navy viathe National Shipbuilding Research Programs whichhave done a lot to educate all levels of shipyard peo-ple. Keep them talking as to how to be more com-petitive. This program has sharpened up. A lot ofshipbuilders and I believe the Navy has benefitedmost as they are currently the ones having shipsbuilt in U.S. shipyards.Yes, by increasing Navy, MSC, and USCG design/construction programs; fund through MarAd forconversion of steam turbine vessels to diesel.Yes, MarAd.Yes, U.S. Navy.Current funding levels are adequate but should beused and appropriated in a more timely efficientmanner.Yes: 1) Navy ManTech Program; 2) MarAd NSRP;3) Combine the above.Yes—MarAd ship production committee panels.Only as necessary to recover/maintain parity withcompeting modes of transportation.The Federal funding of maritime R&D should be in-creased at least to the extent necessary to permit thefunding of demonstration projects to expedite theintroduction of new technology. This could best bedone through a Navy program.MarAd.Yes, MarAd.Yes, through the U.S. Navy. With regard to items12 and 13, we believe Federal expenditures on mar-itime R&D should be increased, and more impor-tantly, this funding of private industry should beadministered through one agency, specifically anagency of the U.S. Navy, This would have the ef-fect of eliminating redundancy and improving theoverall effectiveness of the Federal research dollar.Yes. Through a Maritime Administration, firmly in-structed and dedicated to a new maritime policy tomaintain a viable shipbuilding industry. Present pol-icies are leading to the rapid demise of commercialshipbuilding and no research can be effective or stemthat tide without a change in policy.Not particularly, all published R&D in the UnitedStates is readily available to foreign competitors.There is very little way of the U.S. maritime indus-try taking exclusive advantage of this R&D.Strongly advocate Government financial support ofexisting industry-wide R&D efforts conducted bySNAME ship production committee.No, use tax incentives for privately funded R&Dprograms.Focus entire research budget on labor productivi-
58
4.
ty—skills assessment and training, production plan-ning and organization, productivity measurementand control.
Question #14—In addition to the R&D optionssuggested on questions 10-13, and in light ofthe recent phase-out of Federal constructionand operating subsidies, can you suggest otherFederal maritime incentives that might help re-vitalize the industry? Which of these, if any,would be significantly more beneficial thanR&D incentives?
Operators
Stop changing laws and regulations. Apply cargopreference. Prevent CDS payback. Halt the exportand re-import of petroleum products.Cargo preference.Significant tax incentives for investment in vessels.Greater freedom to purchase abroad where U.S.suppliers are not competitive. Particularly criticalin making slow-speed diesel equipment available.Let's form a real export selling team for our bulkcommodities (grain and coal in particular, but alsotimber products, finished steel, containers, etc. ) witha focus on barters and exchanges.Avocation of foreign technological advances to beincorporated in U.S. hull construction.In my opinion, the U.S. Government needs somegood basic Maritime Shipper input for the entirebusiness. Most input today comes from the Mari-time Unions and ship operators. How about doinga study of shippers (those who pay the bills)? Someresearch on what shippers really want and needcould be worthwhile. Most people in the businesstoday know what can and cannot be accomplishedin ship construction and overhaul areas. The limita-tions and restraints are the laws and regulations lim-iting the flexibility of using foreign equipment andfacilities. U.S. shippers cannot continue to competein the world market place using U.S. equipment andU.S. crews.Permit “Jones Act” Coastwise shipowners to buildabroad without restriction.Consider U.S. Government review of the current im-pact on operating costs of U.S. union pension fundcost/unfunded liability. Union membership crewsignificantly as a result of U.S. Government require-ments for supply capability connected with the Ko-rean/Viet Nam conflicts result being that today andin foreseeable future a “declining” industry is saddledwith an excess of manpower.
●
●
●
●
●
●
●
●
●
Greater proportion of U.S. generated cargoes re-served for U.S. flag (cargo preference) with compe-tition among carriers for the cargo, and subsidy ifnecessary to the shipper so that he does not suffercompetitive disadvantage.No. Federal maritime incentives would currently“revitalize” the tanker industry which is experienc-ing a long sustained recession.An increase of monies for wharfage improvementand less trade route regulations would be areas thatcould be looked into. The areas that reduce porttime would be more beneficial than R&D incentives,at least for the near outlook.Development of a positive Federal Maritime Policy.Income tax exemptions for the merchant marinewhile abroad.Non-union labor. MarAd—increase their budget.Improve direct tax credit(s) deductions to encourageexpansion.Direct orders, under Defense appropriations, forships designed to meet Defense requirements. De-velopment of joint effort by shipyards and ship-owners and U.S. Government of realistic nationalprogram (based only on need) to support and main-tain required national shipbuilding ban. (Both wouldbe more beneficial than R&D incentives. )Elimination of Federal Duty (50 percent) on foreignreplacement and repairs on vessels. Also, providegreater operational flexibility for deployment offleet.
Shipyards
● a) Recognition of the U.S. commercial fleet as the“Merchant Navy” with formal integration into thedefense plan. b) Identify the required geographicallydispersed mobilization base needed to support thecombatant and merchant navies and devise an ef-fective allocation system for construction and repairof both merchant and combatant ships. c) Establisha cargo preference act with modernization incentivesimilar to the DOD Industrial Modernization Incen-tives Program (IMIP) as an integral part of thoseshipyards identified and allocated in part b). d) Es-tablish a program of Government aid for U.S. ship-yards to secure construction work of any kind, con-tingent upon their being part of the mobilizationbase and which are demonstrably adopting analyt-ical means for constantly improving their manufac-turing systems. e) A modified version of the DODIndustrial Modernization Incentives Program (IMIPwhich would permit shipyards without significant
. 59
●
●
●
●
●
●
●
●
●
●
major Navy ship construction contracts to partici-pate (e.g., average annual Navy ship overhauls,etc. ).We build ships usually too small to get involved insubsidies. The tuna vessels had no help. Tuna peo-ple did well up until the market fell apart two yearsago. The Naval vessels and tugs and ferries also getno outside help so we can’t really comment.Reinstate ODS/CDS. Limit small business set aside.Preference Act percentage of American cargoes car-ried by American bottoms. Ad Valorum Tax.There are two areas where the Federal Governmentmight have an appropriate role in revitalizing themaritime industry: 1) adopting a Federal policywhich implements a contingency strategy to be fol-lowed in case of conventional war, i.e., guaranteedmaintenance of shipbuilding facilities; and 2) incen-tives, laws, etc., which increase the volume andprofits of U.S. ship and barge owners (effectivelycreating an investment “fund”).Enact cargo preference legislation. Reserve to U.S.built, U.S. flag all temporary and permanent marineconstruction, including vessels, rigs, stationary andunderwater construction, involved in the explora-tion, development, and production of nonliving re-sources with the U.S. 200-mile Exclusive EconomicZone. Preserve the Jones Act. These three measuresinvolve no direct Federal expenditures and wouldhave a far greater benefit than any R&D incentivesin revitalizing the industry and preserving a viableindustrial base for national defense.The largest help would be in low-cost, long-termcredit facilities. the two major ship costs are inter-est and fuel; interest is the greater of the two.A Federal assurance of adequate cargoes for U. S.-flag and U.S.-built ship owners is the only meansof ensuring a large, stable, and continuing demandfor new building from the U.S. shipbuilding indus-try. Sufficient demand and stability of demand willitself enable private industry to invest sufficientfunds in R&D or new capital equipment to signifi-cantly improve efficiency and match foreign ship-builder’s productivity levels.Tax incentives for shipping U.S. goods on U.S. bot-toms. Tax incentives for foreign imports shipped onU.S. bottoms.Bring more ships under U.S. flag by making it aneconomic advantage to do so.No, R&D incentives outlined should be adequate.A shipbuilding subsidy which provides incentivesfor increases in productivity.
●
●
●
1) A Title VII shipbuilding program. 2) Shift of em-phasis in naval shipbuilding from combatant to aux-iliaries and sealift. 3) Bulk and neobulk cargo pref-erence. 4) Tax credits for shipbuilders, shipowners,ship operators, and shippers. 5) Extention of JonesAct and closing of loopholes. 6) 100 percent cargopreference for government-impelled cargoes. 7) Etc.,etc.Maintenance of inland waterways, removing ob-structions to navigation. Funding for facilities andequipment to maintain minimum mobilization ca-pability.The greatest incentive for revitalizing the U.S. Mer-chant Marine is a program which makes oceango-ing cargoes available to U.S.-flag ships. Because ofthe prevalence of foreign government supports forthe national maritime fleets, a “free trade” environ-ment has not existed for many years, and U.S.-flagcarriage of U.S. export and import cargoes has de-creased to less than 4 percent. Because of this un-healthy market environment, many ship owning/operating and shipbuilding companies are unprof-itable. This lack of profit, together with the low levelof cargo carried, results in virtually no tax revenuesderived by the Federal Government from this indus-try. The U.S. is in danger of being held hostage forthe carriage of cargoes not only to support the na-tional economy, but also to support one or severalmajor military contingents involved in sustainedoperations in overseas trouble spots. The realisticsolution to this potentially dangerous situation is todevelop and implement a national program whichreserves a reasonable amount of U.S. import andexport cargo for carriage in U.S.-built, U.S.-crewed,U.S.-flag merchant vessels having defense utility.Without government support, the freight rates re-quired to be charged by the owners/operators ofthese vessels will be much higher than rates chargedby foreign ships. This will make U.S. exporters lesscompetitive in world markets, and will increase theconsumer cost of imports. To offset the higher costsof suing U.S. ships, tax credits should be allowed.These tax credits should not go to the shipbuilderor the ship operator, but to the companies that usethe U.S. ships to haul their cargoes. The Competi-tive Shipping and Shipbuilding Act, as redrafted byCongressman Herb Bateman of Virginia, does all ofthe above. The passage of this bill would result inthe construction of an overage of 20 ships a yearfor 1.5 years. The bill requires that shipbuilding andship operating costs for a 10-ship series in any single
60
yard to be reduced by 20 percent from the currentlevel for a one-ship project. If the bill is passed andsigned into law, and if the 20 percent cost reduc-tion is achieved, the resulting long-term programwould establish a stable market for the commercialpart of the maritime industry. Such a stable marketenvironment invariably creates a strong incentivefor R&D as more efficient building and operatingmethods are sought. Program costs to the Federal
●
●
o
Government would be nil, and the total tax creditswould be about $800 million per year. This $800 mil-lion in tax credits would not be a revenue reductionto the Federal Treasury. For, without the tax creditsthere will be no market.Clarify Jones Act to include icebreaking and icemanagement in the OCS as an absolute requirementof U.S.-flag built and manned vehicles.Accelerate the decisionmaking process at MarAd.
