R&D in the Maritime Industry: A

Supplement 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 and

Technology (Washington, DC: U.S. Congress, Office of Technology Assessment, OTABP-O-35, May 1985).

Library of Congress Catalog Card Number 85-600540

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

Since the publication of “An Assessment of Maritime Trade and Technology” by

OTA in October 1983, various proposals have been made to provide incentives for research and development (R&D) in an effort to enhance the industry’s competitive position. Consequently, the Senate and House Subcommittees on the Merchant Marine jointly

requested OTA to analyze the Federal role and/or incentives for improved maritime

R&D including new institutional arrangements, financing and priority setting. This supplement is in reply to that request.

In order to investigate the subject in more detail than our original assessment, OTA

conducted an industry-wide survey, receiving replies from approximately 85 U.S. ship

and barge operating and building firms. Respondents to the survey represented about

one-half of the firms and work force in these two major sectors of the U.S. maritime

industry. 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 views

about 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 held

a workshop to discuss survey results and proposals for possible changes in Federal institutions. OTA sincerely appreciates the assistance provided by the workshop participants and others who offered comments on the draft report. We especially appreciate

the help of Dr. Leslie Kanuk who advised on the design of the survey itself and the

evaluation of the responses.

It appears from our analysis that, while aspects of the Federal maritime R&D effort are useful and productive, a number of problems limit the benefits to industry and

hinder the pursuit of such national goals as technological preeminence. Problems identified with existing Federal maritime R&D include: difficulty with government contracting

procedures, limited dissemination of R&D results, restricted involvement of some sectors 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 Federal role in maritime R&D is adequate or whether it should be enhanced for the benefit

of both the maritime industry and the Nation as a whole. While a wide diversity of

opinion exists concerning the need for and the nature of a new maritime R&D institution, the value in a new approach is the promise of addressing some of the more important problems noted above. One or more of a range of alternative approaches could

be put in place. Since the existing institutions also have valuable aspects, it is important to preserve the successful elements in any future changes.

Director

,., ///
OTA Workshop Participants

February 7, 1985

James B. Acton

Todd Pacific Shipyards Corp.

Charles A. Bookman

National Research Council

Marine Board

James A. Higgins

Consultant

John Leeper

Simat International, Inc.

Zelvin Levine

Maritime Administration

Larry Mallon

House Committee on Merchant Marine

and Fisheries

Report Review Group

Richard F. Brunner

Avondale Shipyards Inc.

Peter J. Finnerty

Sealand Industries, Inc.

Arthur Haskell

Matson Navigation Co.

Edwin M. Hood

National Steel & Shipbuilding Co.

Everett C. Hunt

Webb Institute of Naval Architecture

Leslie Kanuk

Baruch College

John W. McInnes

Naval Material Command

Naresh M. Maniar

M. Rosenblatt & Son, Inc.

James D. Palmer

J. J. Henry Co., Inc.

Bill Phillips

Metal Trades Department

AFL/CIO

Virgil Rinehart

Maritime Administration

Charles M. Lynch

ARCO Marine Inc.

James J. Murphy

General Dynamics

Quincy Shipbuilding Division

Peter M. Palermo

Naval Sea Systems Command

Eugene Schorsch

Bethlehem Steel Corp.

Rollin J. Shoemaker

Newport News Shipbuilding Co.

Peter Kopcsak

Ingram Barge Co.

iv
OTA Project Staff–Maritime R&D

John Andelin, Assistant Director, OTA

Science, 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 INSTITUTIONS

Foreign 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 Maritime

Department 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

. . . . . .

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Page

3

3

3

4

5

11

11

11

11

12

18

18

20

23

31

31

32

32

33

34

35

35

35

35

39

Page

stration,

. . . . . . . . . . . . . . . . . . . . . 43

. . . . . . . . . . . . . . . . . . . . . 48

. . . . . . . . . . . . . . . . . . . . . 50

. . . . . . . . . . . . . . . . . . . . . 53

. . . . . . . . . . . . . . . . . . . . . 54

1. R&D in the Maritime Industry: U.S. Ship/Barge Operators

and Builders OTA Survey and Response Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. U.S. Ship Operators R&D Expenditures: Percent of Operating

Budgets Reported for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3. U.S. Shipyard R&D Expenditures: Percent of Operating

Budgets Reported for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

vii
Contents—continued

Table No. Page

4. U.S. Ship Operators R& D Expenditures by Category—Average

Percent for Each Category . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

5. U.S. Shipyard R&D Expenditures by Category—Average Percent

for Each Category—For 21 Respondents Who Had Some R&D

Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

6. U.S. Ship Operators R&D Firms Reporting Federal Funding

Support for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

6a. U.S. Ship Operators R&D Firms Responding to Question of Whether

to Increase Direct Federal R&D Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

7. U.S. Shipyard R&D Firms Reporting Federal Funding Support for R&D . . . . . . 15

7a. U.S. Shipyard R&D Firms Responding to Question of Whether to Increase

Direct Federal R&D Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

8. U.S. Ship Operators R&D Firms Reporting Status of Access to Other R&D . . . 16

9. 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 . . . 19

11. U.S. Shipyard R&D—Factors Reported to Influence R&D Investment . . . . . . . . . 19

12. U.S. Ship Operators R&D— Federal Policies/Regulations Reported

to Affect R&D Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

13. U.S. Shipyard R&D Federal Policies/Regulations Reported

to Affect R&D Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

14. U.S. Ship Operators R&D Firms Reporting Factors Affecting

Incentive to Invest in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

15. 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 . . . . . . . . . 13

3. MarAd R&D Program Major Elements in Fiscal Year 1985 . . . . . . . . . . . . . . . . . . . . 14

. . Vlll

Section I

Introduction

CONGRESSIONAL INTEREST IN MARITIME R&D

In 1982, in response to their concerns about the

viability of U.S. maritime industries as well as the

future U.S. position in world trade, the House

Committees on Merchant Marine and Fisheries

and on Ways and Means jointly requested the Office of Technology Assessment (OTA) to undertake an analysis of maritime trade and technology issues. In particular, the committees asked

OTA to evaluate long-term trends in global seaborne trade and maritime technology in relation

to the U.S. maritime industry. This study was

completed in the course of the following year and

the final report, “An Assessment of Maritime

Trade and Technology, ” was presented to Congress in October of 1983.

In conducting this study for the Committees,

OTA reviewed the status of American maritime

technology and surveyed the members of the Society of Naval Architects and Marine Engineers

(SNAME) Ship Technical Operations Committee

for their views on U.S. maritime technology. As

a result of this work, OTA found that the U.S.

generally has lagged behind foreign competitors

in applying technological advances to much of the

U.S.-flag fleet and to the technology of constructing ships. OTA concluded that to achieve a competitive position in world shipping and shipbuilding, it is important for the United States to regain

technological preeminence in these areas.

Following these conclusions, OTA examined

the role of R&D in stimulating technological inDEFINITIONS OF R&D

For 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. Surveys of Science Resources Series. NSF 81-306 (Washington, DC: U.S.

Government Printing Office, 1981 ).

novation in the shipping and shipbuilding industries. OTA’s analysis suggested that there is a need

for a more effective R&D program, and that Congress could help establish a more specific Federal

role in maritime research. The elements of a congressionally defined Federal role, as outlined in

the OTA report, might include:

1.

2.

3.

4.

5.

identifying R&D objectives as a subset of an

overall maritime policy;

determining what U.S. industry can do better itself and formulating indirect incentives

for industry R&D;

stimulating coordination and transfer of

technology within the industry and from military, foreign, and other sources;

focusing on high-risk areas and long-range

problems that are not adequately addressed

by industry or elsewhere, the solution of

which could contribute to national goals;

and

establishing new or modified institutional arrangements to encourage, coordinate, and

foster R&D with either or both private and

Federal support.

In response to these findings, both the Senate and

House Subcommittees on the Merchant Marine

asked OTA to take a more in-depth look at maritime R&D, addressing those issues raised in the

original OTA report. The findings of that analysis are described in this supplement.

tematic study directed toward fuller scientific

knowledge or understanding of the subject studied. ” Development is defined as: “. . . the activity (that is) directed toward the creative application to practical affairs of that knowledge gained

from research and that frequently in itself involves

the discovery of new knowledge. ”

3
4

In relation to the shipping and shipbuilding in- the term “R&D” to refer to most of the activities

dustries, these inclusive definitions would encom- under discussion, it should be noted that the greatpass all activities related to designing new or im- est portion of these activities in the U.S. maritime

proved products, technologies, techniques or industries fall under “development” rather than

procedures 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 attempt

to examine in detail any programs of ongoing research or to evaluate gaps or needs in current Federal maritime R&D. Instead, its primary objective is to investigate those institutional or policy

issues that broadly influence the quantity and

quality of R&D in the United States. For example, the study focuses on issues such as the effect

of the tax, patent, and antitrust laws on research

activities by the industry. It also examines the ability of the current Federal organizational structure

to provide a focus for maritime R&D and to stimulate industry participation in this program.

In addition to a review of the existing literature,

conversations with U.S. Navy and Maritime Administration personnel, and discussions with representatives of shipyards and ship operating companies, much of the information in this study

comes from a survey sent to 80 U.S. ship operating firms and 50 U.S. shipyards, of which 66 operators and 48 builders met the survey criteria (see

below). The survey queried both operators and

shipyards on the percentage of their operating

budgets spent on R&D in the past five years and

in the current year. Information was also requested on what share of the total amount spent

by these firms on R&D was contributed by the

Federal Government. Finally, the respondents

were asked to evaluate the effect of specific Federal policies on their decisions to commit resources

to R&D and to register their support for various

policy options for promoting R&D. The survey

also solicited suggestions for other potential policy options.

The OTA ship operating survey was sent to

U.S. ship operating firms selected because of their

affiliation with major industry associations—the

American Institute of Merchant Shipping, the

Council of American-Flag Ship Operators, and

the Federation of American-Controlled Shipping.

A number of unaffiliated operators were also selected from published sources.

OTA’s shipbuilding survey was sent to the

members of the Active Shipbuilding Industrial

Base (ASIB), most of whom are also members of

the Shipbuilders Council of America. The ASIB

designates those firms that are currently building

or seeking to build ships for the U.S. Navy and

includes all of the larger U.S. shipyards and a

number of yards that specialize in medium-sized

and smaller military vessels, such as patrol boats.

In addition, OTA sent questionnaires to smaller

(so-called “second-tier”) shipyards that are members of the American Waterways Shipyard Conference. These yards build a variety of vessels including fishing boats, barges, drilling rigs, and tug

boats.

Table 1 shows the make-up of the survey sample. Out of the original group who were solicited,

a number of operators or builders were disqualified because they were either not in the business

OTA had assumed, they had just gone out of busiTable 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 50

Firms disqualified

(not in business,

etc.). . . . . . . . . . . . 14 2

Net qualified firms

in survey . . . . . . . 66 100 48 100

No response . . . . . . 18 27 12 25

Total respondents . 48 73 36 75

NOTE Percentages are rounded, and may not add up to 100 tn some tables
ness, or they were foreign-owned companies. For

example, some major petroleum companies recently disposed of their operating fleets and now

only charter ships for their needs; two shipbuilders

went out of business while OTA was conducting

the survey; two companies thought to be operators turned out to be only brokers.

Thus, the net size of the sample (i.e., the number of qualified firms included) in the OTA survey was 66 operators and 48 builders. Of that

group, 73 percent of the operators (48 firms) and

75 percent of the builders (36 firms) responded

to the survey. Those firms who responded are

listed in appendix D. Most of the firms who did

not engage in any R&D did not complete the entire survey form; however, the others reported

almost all the information that was requested.

The survey sample therefore represents a sizable portion of the U.S. maritime industry. For example, the 23 operator firms that had some R&D

activities and reported on the survey forms represent 50 percent of the total U.S. flag fleet tonnage plus about 3 million gross tons of the U.S.

owned, foreign flag fleet. These 23 firms include

seven liner companies, one roll on/roll off (Ro/Ro)

operator, 14 bulk and barge operators, and one

cruise operator.

The U.S. shipyards responding to the survey

represent 75 percent of the major yards (considered the Active Shipbuilding Industrial Base) plus

22 of the so-called “second tier” yards. The 36

yards responding represent about 50 percent of

the total U.S. shipyard employment base. Of

these, 22 (61 percent) completed the survey forms

in their entirety.

OTA also asked each respondent to identify his

or her position in the organization, The replies

were in three general categories—about one-third

were presidents or chief executive officers of the

firms, one-third were vice presidents, and onethird were division managers responsible for

SUMMARY OF FINDINGS

R&D, engineering, transportation, or planning

functions. It appears from these data and other

responses, that most firms gave serious attention

to our survey and tried to provide comprehensive and accurate information.

Changes in Federal policies supporting the U.S.

shipping and shipbuilding industries, combined

with a worldwide slump in commercial shipping

and shipbuilding, have caused severe problems

in a number of sectors of the U.S. maritime industries. These problems, leading to a decline in

traditional markets and a concentration of some

of the major firms in a few growing market segments (e. g., liner shipping and military ship construction), were analyzed in the 1983 OTA study.

Most of that analysis is still very timely and many

of the problems facing the industry are still very

evident.

Thus, the survey of R&D activities may have

met with some skepticism. Many responses were

qualified to reflect a view that R&D is far down

the list of priorities in an industry which is fighting

for day-to-day survival. Some respondents insisted that the Federal Government must change

its policy towards supporting the industry and its

markets before it would make sense to develop

new technology to either build or operate ships.

On the other hand, there is also a segment of the

industry, reflected in the survey, which does not

want Federal Government involvement in anything but support of basic research and educational facilities. This segment believes that the present Federal policy trends are beneficial.

Given this wide divergence of views within the

U.S. maritime industries, it is not clear that a cohesive national policy towards R&D, or an institutional framework for R&D, can gain adequate

support. In any case, it would be important to

integrate approaches to Federal involvement in

R&D with the major elements of an overall national maritime policy.

OTA’s approach to this analysis has been two- second, to examine ways in which the Federal

fold: first, to understand the existing impediments Government might encourage or facilitate marito 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 unambiguous answer: the marketplace is the final

arbiter. The low and unsteady demand for U. S.-

built ships, for instance, either at present or anticipated in the near future, has forced the shipbuilding industry to be extremely conservative in

devoting funds to R&D. In comparison with the

effects of the marketplace, interest rates and the

availability of capital were found to be only slightly influential factors. This is presumably because

many firms are extremely hesitant to borrow

money for R&D unless the future of the industry

looks relatively promising.

On the other hand, some believe that R&D itself

can be a driving force for improvement in both

the marketplace and the productive capability. On

the whole, Government policies were considered

by the survey respondents to have only a moderate effect on R&D decisions. When respondents

were asked about specific Government policies,

their responses did not indicate a clear pattern of

the effects of these policies.

In the shipbuilding industry, the phase-out of

subsidies was most clearly regarded as a factor

discouraging R&D investment; but a significant

number of respondents also felt the phase-out of subsidies had a negligible effect on R&D. The oceangoing ship operators, on the other hand, reported

that the phase-out of subsidies had little effect on

their R&D investment. * The shipbuilding respondents were almost equally divided as to

whether the U.S. tax code had negative, positive,

or negligible effects on investment. The ship operators were equally divided about the impact of

Coast Guard regulations. Otherwise, the respondents indicated that other policies had little or no

effect on their R&D investment. Policies that OTA

suspected might affect investment—such as antitrust statutes, patent law, OSHA safety regulations, rail and truck deregulation—apparently

were not significant, although some respondents

were in favor of modifying antitrust laws.

*It should be noted that while construction subsidies for the oceangoing fleet have virtually been eliminated for the past 2 years, existing operational subsidies, in fact, have not.

In response to the survey findings and other

available information, OTA formulated a number of policy options. These options fall into four

categories: 1) increasing direct Federal support,

2) encouraging the industry to invest more in

R&D, 3) encouraging cooperative industry R&D,

and 4) facilitating inter- and intra-industry technology transfer. The OTA analysis also produced

a number of indications about the potential efficacy of these options to the maritime industry.

For instance, most of the firms responding to the

relevant portion of the survey (hereafter called

“respondents”) believed that increasing direct Federal funding for maritime R&D would act as an

incentive for further private investment. Respondents were also favorably disposed toward a revision of the antitrust laws to permit joint ventures

and toward measures to provide them with loan

guarantees and tax deferments on funds committed

to R&D (despite their ambivalence when asked

whether antitrust laws and the limited availability of capital were impediments to investment).

With respect to coordinating maritime R&D, respondents endorsed the concept of a central

government/industry sponsored maritime R&D

institution. However, most of the survey respondents were hesitant about their own participation in such a scheme; therefore, it is likely

that the Federal Government would not only have

to spearhead such a concept, but that the industry might be financially unwilling or unable to

provide consistent support for it. On the subject

of technology transfer, the respondents indicated

that for many firms, access to U.S. Navy and foreign R&D results is a problem. A number of positive suggestions to facilitate technology transfer

were made, such as publication of an annual catalog of completed and ongoing research activities.

While a wide diversity of opinion exists concerning the need for and the nature of a new maritime R&D institution, OTA’s industry survey and

subsequent workshop discussions led to the following principal findings regarding the features

of a new institution should it be supported:

1. Some existing Federal efforts and programs

(e.g., the National Shipbuilding Research

Program) are valuable and effective. Any

new institution should incorporate successful

existing elements and gradually phase-in new

initiatives.
7

2. Any new institution should have adequate

contracting flexibility.

3. Any new institution should have the capability of initiating joint government/industry cooperative ventures in specific areas.

4. Methods should be developed for any new

institution to encourage participation of a

broad industry group and to utilize industry guidance in developing program goals

and selecting R&D projects.

5. Any new institution should include programs for adequate technical information retrieval and for wide dissemination of R&D

results.

6. Any new institution should maintain and

enhance the most productive existing programs providing direct support of basic research, research at educational facilities, and

unique national laboratories.

7. Any new institutions should seek to incorporate methods that facilitate innovations in

the private sector and encourage adoption of

advanced technologies within the U.S. maritime industries.
Section II

A Profile of R&D in the

Maritime Industry

.
Section II

A Profile of R&D in the Maritime Industry

INDUSTRY R&D ACTIVITIES

Tables 2 and 3 display survey data concerning

past and present R&D expenditures in the maritime industry. These data provide an overview

of the number of firms who fund R&D projects

and the relative amount of that funding.

Ship Operators

For operators (table 2), over one-third (38 to

40 percent) of the respondents said their firms supported 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 60

up to 1 % . . . . . . . . . 11 23 12 25

Over 1%-2% . . . . . 4 8 5 10

Over 2% . . . . . . . . 3 6 2 4

Total respondents 48 100 48 100

Total with some

R&D ., . . . . . . . 18 38 19 40

Average percent

spent on R&D . . . 1.3% 1.2%

Largest percent

spent 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 47

up to 1% . . . . . . . 13 36 12 33

Over 1%-2% . . . . . . 5 14 4 11

Over 2% . . . . . . . . . 3 8 3 8

Total respondents . 36 100 36 100

Total with some

R&D . . . . . . . . . . . 21 58 19 53

Average percent

spent on R&D . . 1.3% 1.7%

Largest percent

spent 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 on

R&D was 1.2 percent for the current year and 1.3

percent for the past five years. The largest percentage of operating budget spent on R&D was

4 percent for both the current year and the past

five years.

The data shows very little difference in R&D

expenditures for the current year vs. the past five

years and indicate that R&D activity in the ship

and barge operating industry has been fairly constant. This suggests that R&D investments probably will not change in the near future. Those

firms with no R&D did not indicate that they may

start some R&D projects and several indicated

that R&D was not appropriate to their line of

business.

Shipbuilders

In the shipbuilding industry (table 3), 19 firms

responding to OTA’s survey reported that they

were involved in R&D activities in the current

year and 21 firms in the past five years. This is

a slightly higher percentage (53 percent and 58

percent) of firms conducting research than was

found in the ship operating industry.

Of those respondents conducting research in the

shipbuilding industry, the average amount a firm

spent on R&D in the past five years was 1.3 percent of their operating budget. This amount rose

slightly to 1.7 percent in the current year. The

largest percentage of operating budget spent by

a shipbuilding firm on R&D in the past five years

was 4 percent. In the current year, the most any

shipyard spent was 8 percent of its operating

budget,

Thus, of those firms responding, slightly fewer

are investing in R&D today than during the preceding five years. At the same time, the fraction of their

operating budgets devoted to R&D has increased.

These indications of a change in R&D involvement

by shipyards is consistent with the apparent growing concentration of U.S. shipbuilders in fewer,

11
1 2

larger firms, as was reported in OTA’s “Assessment

of Maritime Trade and Technology” in 1983.

Both operators and shipyards parceled their research funds into different types of research. Ship

operators spent most of their R&D budgets on improving ship operations (40 percent) and information systems (30 percent). The rest of their

budgets 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 Expenditures

by Category (20 Firms Reporting Some R&D)

Average Percent for each Category

Average percent

expenditure Highest percent

Category in category in category

Ship operations (including

cargo handling . . . . . . . . . 40 100

Shoreside operations

(terminals) . . . . . . . . . . . . . 7 30

Inland operations . . . . . . . . 3 50

Ship design . . . . . . . . . . . . .

Information management . . 100

Other:

Market studies . . . . . . . . .

Equipment safety . . . . . . 8 50

Medical . . . . . . . . . . . . . . .

(8 percent). Table 4 shows the breakdown of these

expenditures. Shipyards (table 5) put most of their

money—about 49 percent of their expenditures—

into R&D on shipbuilding methods and techniques, presumably to increase construction productivity. But they also spent significant portions

of their R&D budgets on ship or barge design (30

percent) and subsystem design and development

(6 percent). The remainder was spent on miscellaneous R&D (5 percent).

Table 5.–U.S. Shipyard R&D Expenditures by Category

Average Percent for each Category-For 21

Respondents Who Had Some R&D Expenditures

Average percent

expenditure in

Category category

Ship or barge design . . . . . . . . . . . 30

Subsystem design . . . . . . . . . . . . . 16

Shipbuilding/construction

technology . . . . . . . . . . . . . . . . . 49

Other:

Technology transfer. . . . . . . . . .

Materials . . . . . . . . . . . . . . . . . . .

Weapons . . . . . . . . . . . . . . . . . . . 5

Ocean engineering. . . . . . . . . . .

THE FEDERAL ROLE IN MARITIME R&D

The Federal Government through the U.S. Navy’s

Manufacturing Technology (ManTech) Office and

the Maritime Administration (MarAd) sponsors

a substantial Maritime R&D program. Funding

by these two agencies is currently about $35 million annually (figure 1). The Navy, of course,

sponsors many other research efforts that are of

interest to the commercial maritime community,

but the ManTech program is the one that deals

directly with U.S. shipyards. Appendices A and

naval ships while improving the quality of the end

product. Figure 2 illustrates the relative attention

(measured by funding) given to various R&D subjects. Very specific manufacturing techniques such

as laser metalworking and robotic painting are

given high priority because it is felt that these offer the potential for significant cost reduction. The

major shipyards and suppliers with naval construction contracts participate in this program.

Currently eight shipyards are participating.2

B describe the MarAd R&D program and the

Navy’s ManTech program. The MarAd R&D program elements are illustrated in figure 3. The largest element funds the

As is shown in figure 1, the Navy’s ManTech Kings Point research center and the Computerprogram 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 including

maritime R&D industry today. It is all directed

at improving ship construction technology with ‘Naval Materials Command, “Navy Manufacturing Technology

the 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 Program

Expenditures, 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 costs

or 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. MarAd

funds plus equal Navy ManTech funds support

this joint government/industry cost sharing effort

which has similar goals to the entire ManTech

program. The National Shipbuilding Research

Program (NSRP)—[also discussed later in this

study]—currently funds cooperative projects at

six to eight of the major shipyards. During FY

1985, over two-thirds of NSRP funding goes to

three major shipyards. The shipyards participating in the NSRP are, with few exceptions, the

same as those participating in the Navy’s ManTech

program.

Another government/industry cooperative effort with participants from the liner industry is

also funded under the MarAd R&D program. This

is the Cargo Handling Cooperative Program—

listed as part of “cargo systems” in figure 3. This

program funds a joint industry cooperative which

currently includes seven of the major liner operators. Two other MarAd R&D program elements

(Ship Performance and Fleet Management) include

projects with industry participation—but not

through a cooperative group such as NSRP or the

cargo handling cooperative. These other projects

have participants including barge operators, tanker operators, and liner operators. Descriptions of

these and other MarAd program elements are included in appendix A.

Despite the major Navy and MarAd R&D programs and many other Federal R&D efforts, only

a portion of the respondents to the OTA survey

reported that they received any Federal support

for R&D. Tables 6 and 7 show the number and

percentage of responding ship operators and shipbuilding firms which received Federal R&D funding and which Federal programs provided that

funding.

For U.S. ship operators (table 6), most respondents received no Federal support for R&D efforts.

In the current year only two respondents (4 percent of the total respondents and 11 percent of
15

Table 6.—U.S. Ship Operators R&D

Firms Reporting Federal Funding Support for R&D

Past Current

5 years year

Number Percent Number Percent

Total respondents . 48 48

Respondents with

no R&D . . . . . 30 29

Respondents with

some R&D . . . . 18 100 19 100

Respondents

engaged in R&D

and receiving

Federal

funding . . . . . . . . 8 44 2 11

Table 7.–U.S. Shipyard R&D

Firms Reporting Federal Funding Support for R&D

(Past 5 Years and Current Year are the Same)

Number Percent

Total respondents . . . . . . . . . . . . . 36

Respondents with no R&D . . . . . . 15

Respondents with some R&D . . . 21 100

Respondents engaged in R&D

and receiving Federal

funding. . . . . . . . . . . . . . . . . . . 11 52

NOTE Percentages are rounded and may not add up to 100 in some tables

the respondents with their own R&D) received

any Federal funding. These numbers were down

substantially from those of the past five years

where 17 percent of the total respondents and 44

percent of the respondents with their own R&D

received some Federal funding. Also of interest

is the wide variation in the percentage of Federal

support provided to operating firms—between 3

and 67 percent of a firms’ total R&D expenditures.

The Federal programs from which respondent

U.S. ship operators received R&D funding were

all within the Maritime Administration.

OTA also asked whether the respondents would

advocate an increase in direct Federal R&D funding. Table 6a displays the operator’s responses.

Seventy-three percent of the firms that responded

to this question replied yes, and all but one recommended joint Navy and MarAd funding. Some

firms, however, qualified their affirmative reply.

Three stated that the MarAd funding should be

directed only at more basic research, primarily

through universities and in support of educational

programs. Two stated that MarAd funding should

be subject to industry participation both in establishing goals and priorities and in selecting the

most appropriate projects.

Table 6a.—U.S. Ship Operators R&D

Firms Responding to Question of Whether to

Increase Direct Federal R&D Funding

Number Percent

Should Government increase

direct R&D to the private sector?

No . . . . . . . . . . . . . . . . . . . . . . . . 4 27

Yes . . . . . . . . . . . . . . . . . . . . . . . 11* 73

15 100

No response . . . . . . . . . . . . . . . 33

48

Which agencies should provide R&D

development funding?

MarAd . . . . . . . . . . . . . . . . . . . . . 1 9

Navy and MarAd (together) . . . 10 91

*11 100

NOTE Percentages are rounded, and may not add up to 100 In some tables

Table 7 displays the data on Federal funding

for R&D in the U.S. shipbuilding industry. Only

11 respondents (30 percent of the total and 52 percent of shipbuilders with some R&D of their own)

reported receiving Federal support. These percentages were the same for the current year as for the

past five years. Of those who received funds, the

average amount received was 21 percent of the

total funds spent by the firm on R&D but the

range was from a low of 1 percent to a high of

71 percent. This large variation indicates very different approaches to Federal involvement in shipyard R&D among these firms. Many firms find

no support for the type of R&D they consider necessary; others find a mixture of Federal and private initiatives will meet their needs; while still

others depend upon Federal funding for almost

all of their R&D work.

The shipyard survey respondents received R&D

support from both Navy and MarAd programs

in roughly equal numbers. It is interesting to note

from these data that the MarAd National Shipbuilding Research Program (NSRP) reached only

22 percent of the respondents to the OTA survey.

Since the survey sample included a substantial

portion of the U.S. shipbuilding industry, one

conclusion is that NSRP probably reaches only

one-quarter of the U.S. shipyards. Since this one

Federal program is considered by many to be very

successful in the areas where it does work, it may

be useful to consider how it could be broadened

to include more of the industry.
16

Table 7a presents data on whether shipyard respondents advocate increasing Federal R&D funding. Of the firms that replied to this question, 64

percent said yes and 36 percent said no. Of the

nearly two-thirds that favored increased direct

funding, eight firms thought MarAd should be the

funding agency; however, these firms are the same

U.S. shipyards who presently participate in the

MarAd program. Several firms qualified their call

for increased Federal support by suggesting that:

1) MarAd should develop new policy directions

before increasing any R&D funding; 2) future

R&D should be focused on fewer, more important problems; and 3) Navy and MarAd should

combine their R&D programs.

The OTA survey also questioned the industry

about access to R&D results of the U.S. Navy and

its foreign counterparts and asked for any suggestions of ways to improve that access. Tables

8 and 9 show the responses to these questions.

Only 30 percent of the ship operators reported

that they had access to U.S. Navy R&D, and 52

percent reported access to technological advances

from foreign R&D. Although some respondents

thought that the Federal Government should not

become involved or more involved in this area,

several operating firms made suggestions of Federal action to improve access to R&D results.

Most of the suggestions were for MarAd or another central agency to screen and select the most

useful reports, to translate foreign documents

Table 7a.– U.S. Shipyard R&D

Firms Responding to Question of Whether to

Increase Direct Federal R&D Funding

Number Percent

Should Government increase

direct R&D to the private sector?

No . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Yes . . . . . . . . . . . . . . . . . . . . . . . . . 14*

22

No response . . . . . . . . . . . . . . . . . . 14

36

Which agencies should provide R&D funding?

MarAd (national shipbuilding

R&D program) . . . . . . . . . . . . . . . 8

Navy . . . . . . . . . . . . . . . . . . . . , ., , . 3

Navy and MarAd (together). . . . . . 3

● G

36

64

100

57

21

21

100

NOTE 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!rms

responding to the item In that row

Table 8.–U.S. Ship Operators R&D

Firms 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 52

No . . . . . . . . . . . . . 16 70 11 48

23 100 23 100

Suggestions reported for Federal action to improve access:

1.

2.

3.

MarAd or other Federal agency should

screen, translate, publish, and disseminate useful reports abstracts/

catalogs (through SNAME, NTIS, Industry

Journals, or trade organizations such as

AWO, FACS) . . . . . . . . . . . . . . . . . . . . . . . . . . 8 firms

Establish cooperative information

exchange among Government agencies

(Navy-MarAd), SNAME, and universities . . . 1 firm

Allow Government work to be used in

civilian application . . . . . . . . . . . . . . . . . . . . . 1 firm

NOTE: 3 firms stated that there is no need for government

involvement in this area.

Table 9.–U.S. Shipyard R&D

Firms 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 41

No . . . . . . . . . . . . . 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, industry

groups, GPO). . . . . . . . . . . . . . . . . . . . . . . . . .

Sponsor seminars and meetings—present

and update specific R&D results (invite all

shipyards) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Establish institution responsible for

collection and dissemination of all

maritime 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 technical

library with broad direct access . . . . . . . . .

Disseminate through Federal

bid requests . . . . . . . . . . . . . . . . . . . . . . . . . .

Fund additional education and training

through SNAME ship production

committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 firms

5 firms

3 firms

1 firm

1 firm

1 firm

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
17

when of significant use, to publish abstracts or

catalogs or reports, and to actively disseminate

these materials to the industry. Suggestions were

made to use professional organizations, industry

and trade organizations, and journals whenever

possible.

Shipbuilders reported better access than operators to U.S. Navy R&D results (55 percent), but

only 41 percent had access to technological advances from foreign R&D. Many more suggestions of Federal action to improve access, however, were made by the shipyards. As with

operators, the most frequently offered suggestion

was to screen, publish, and disseminate reports,

abstracts, and catalogs. Several firms suggested

more elaborate approaches including: sponsoring

regular seminars; establishing a new technology

transfer institution similar to the National Aeronautics and Space Administration (NASA) model;

and forming a joint Navy/Industry study group

to solve the problem.

One shipyard wrote: “It is recommended that

the Navy sponsor periodic reviews . . . to present

to invited shipyards the results of recent projects . . . These meetings would not only encourage a dialogue between the Navy R&D community and the shipbuilding industry, but also better

enable the shipyard to plan their own R&D programs. ” It was suggested that both publications

and seminars might be offered through the major industry trade associations. Alternatively,

these might be offered through the government/

industry sponsored maritime research facility described elsewhere. One shipyard also suggested

that the maritime industry needed an organization equivalent to NASA, which would collect

and disseminate research information on an industry-wide basis. (The possibility of such an organization is discussed later. ) On an intra-agency

basis, organizations such as MarAd and the U.S.

Navy might periodically review their own completed and ongoing research and report on its

progress through widely distributed publications

or seminars. In any case, it was pointed out that

greater information exchange among the U.S.

Navy, SNAME, MarAd, the naval architectural

schools, and others was needed.

Several distinct sources of R&D are applicable

to the maritime industry, In addition to MarAd

research, the U.S. Navy, the foreign maritime industry, and industries related to the maritime industry are all potential sources of applicable technologies and processes. The U.S. Navy, for instance,

also conducts R&D applicable to the civilian merchant marine. In 1978, for instance, over $64 million in the Navy research budget was judged to

be applicable to the commercial sector.3 In part,

the results of this R&D find their way into commercial application because some shipyards conducting Navy R&D also build commercial ships.

In theory, all of the shipyards could have access

to the results of Navy research which have commercial application, even if such research is conducted at one particular shipyard.

One mechanism for disseminating Navy R&D

results to the civilian sector is U.S. Navy representation on SNAME’s Ship Production Committee; the Navy representative is supposed to track

Naval R&D applicable to shipbuilding and keep

the Committee informed of ongoing developments.4

In addition to the Navy representative on the

Ship Production Committee (SPC), there are several other formal mechanisms for reviewing and

disseminating R&D to the civilian sector. For example, through the industry Independent Research and Development (IRAD) program, DOD

personnel advise participating firms of DOD

needs which industry could address in their respective IRAD programs. Both informal and formal shipyard and industry reviews are conducted

by DOD representatives to critique IRAD programs and make industry aware of complementary DOD efforts. Also, the Navy’s ManTech Program includes End of Project Demonstrations at

the research facility with invitations extended to

all interested parties. The Ship Structures Committee, much like the SPC, disseminates technical information. Navy laboratories conduct varjBooz.A]]en and Hami]ton, Inc., Analysis of Foreim Maritime

Research, Contract Report for the Maritime Administration, NTIS

#PB81-176364, 1981, p. 228.

‘Robert Shaffron, MarAd National Shipbuilding Research Program, personal communication, Apr. 30, 1984.
18

ious onsite technical reviews and briefings. However, because of the size and decentralization of

the Navy, it is extremely difficult for some private

firms to monitor these R&D activities. Respondents to the OTA survey indicated that the Navy

R&D programs were very difficult to monitor and

that results were difficult to obtain.

Maritime Administration program managers

are responsible for monitoring foreign military

R&D results; however, as the OTA survey confirms, it is difficult to give this responsibility adequate attention when it is essentially a secondary

priority. More formal approaches for gaining information on foreign technology have been employed from time to time. The National Shipbuilding Research Program, for instance, has sponsored

teams of industry experts to visit overseas shipyards to investigate foreign technologies. These

teams typically are interested in specific technologies (e.g., welding). There is, however, no formal, ongoing civilian effort to monitor foreign

maritime technologies. The Navy’s Office of Naval Research also maintains scientific liaison offices in Japan and Europe, but not with the express purpose of providing foreign maritime

technology to private industry.

Finally, technologies developed in other industries, such as the aerospace and automotive industries, may be borrowed by the maritime industry. Many industries may share a common

technological base, each drawing upon a common

pool of information, and each making its own

contribution to the pool. While the professionals

of the maritime industry, both within Government and in industry, are no doubt aware of major developments in other industries, there is at

present no systematic attempt to collect and disseminate this information to the maritime industry.

It should be noted that the results of the OTA

survey suggest a different conclusion about the

Federal role in maritime R&D than a number of

other recent studies.

Somewhat surprisingly, most of the shipyards

and operators did not report receiving Federal

funds. Within some industry and government

groups, it has been a widely shared belief that

most long-term research conducted by industry

and government is tied to Federal R&D programs.

This belief was supported by a 1978 survey of private shipbuilding and ship operating firms, which

found that the U.S. Government underwrote 82.8

percent of the $114.1 million spent on maritime

R&D in that years In addition, most shipbuilding

productivity-related research and development

was thought to exist today largely as the result

of the National Shipbuilding Research Program, *

which is funded by MarAd, the U.S. Navy, and

the shipbuilding industry.6 The OTA survey shows

that while an important segment of the industry

is 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 Production Committee (SPC) is jointly sponsored by MarAd ($2.0 million per year), the U.S. Navy ($2.o million per year) and shipbuilding

industry (equivalent $2.o million in management and support). The

program is contracted via MarAd and is administered by SPC panels.

The NSRP-SPC as a broad-based committee representing the shipbuilding industry has direct influence over these shipbuilding productivity related developments.

bNational Research Council, “Productivity Improvements in U.S.

Naval Shipbuilding,” National Academy Press, 1982, p. 2.

FACTORS AFFECTING R&D

Market Demand and Financing Ship operators and shipyards both responded that

The OTA survey asked ship operators and ship- market demand and competitive pressure overyards about the extent to which interest rates, shadowed other factors. The vast majority of reavailability 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 Not

Influential Influential Influential

Factor Number Percent Number Percent Number Percent

Interest rates. . . . . . . . . . . . . . . . . . . . . . . . . . 2 10 6 29 13 62

Availability of capital . . . . . . . . . . . . . . . . . . . 6 29 7 33 8 38

Government policies and programs . . . . . . 8 38 9 43 4 19

Market demand . . . . . . . . . . . . . . . . . . . . . . . . 15 68 4 18 3 14

Competitive pressure . . . . . . . . . . . . . . . . . . 13 59 6 27

Other:

3 14

Operating efficiency . . . . . . . . . . . . . . . . . 1

MarAd R&D budget . . . . . . . . . . . . . . . . . . 1

Profitability . . . . . . . . . . . . . . . . . . . . . . . . . 1

Table 11 .—U.S. Shipyard R&D—Factors Reported to Influence R&D Investment

Very Somewhat Not

Influential Influential Influential

Factor Number Percent Number Percent Number Percent

Interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . O 0 14 64 8 36

Availability of capital . . . . . . . . . . . . . . . . . . . 2 9 17 77 3 14

Government policies and programs . . . . . . 11 50 7 32 4 18

Market demand . . . . . . . . . . . . . . . . . . . . . . . . 20 91 2 9 0 0

Competitive pressure . . . . . . . . . . . . . . . . . . 17 77 5 23 0 0

Other:

Environmental . . . . . . . . . . . . . . . . . . . . . . . 1

Probable 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 to

the Item In that row

potent factors that affect private innovation decisions are probably beyond the reach of specific

R&D policies. Expectations about macroeconomic

conditions and the intensity of competition within

an industry may be the most significant determinants of its technological performance. In a strong

economy, firms have the funds and the market

prospects to justify increased commitments to

R&D. Robust sectoral markets may have a counteracting effect, however, since they lessen the

urgency to pursue other new products and processes. This implies that private innovation is likely

to be strongest under dual conditions of a healthy

macroeconomy and strong sectoral competition.”7

Some of the most important conditions necessary for stimulating R&D investment include a

strong aggregate demand, relatively stable demand growth, and predictable earnings. When

7Congresaional Budget Office, “Federal Support for R&D Imovation,” April 1984, p. 71.

business conditions are good, and incomes and

demand are growing rapidly and predictably, business firms can anticipate an expanded market,

and make their investments accordingly. When

demand is stagnant, or uncertain, investment in

new plant and equipment is deterred, and R&D

aimed to tap new markets may look like a very

risky proposition. Some economists have suggested that R&D is so much riskier than other

forms of investment that firms are loathe to rely

on borrowing to finance R& D.*

To determine the effects that borrowing might

have on the maritime industry in particular, OTA

asked survey respondents whether the availability of finance capital and interest rates were

“very, “ “somewhat,” or “not influential” factors

in their decisions to invest in R&D. The answer

was slightly different in the two sectors of the

maritime industry (tables 10 and 11). The ship81bid., note 6.
20

building sector clearly viewed interest rates and

capital availability as somewhat influential factors, though not as important as market demand

and competition. On average, the ship operators,

on the other hand, tended to look on these factors as unimportant, although a significant minority of the operators indicated that capital availability was influential.

Thus, for those firms responding to the OTA

survey, private R&D investment is primarily a

function of profitability and demand. Since the

major U.S. shipbuilding industry has traditionally

been an industry of low profits and low and unsteady demand, these conditions have resulted in

a conservative investment strategy on the part of

many shipbuilding companies. Certain shipbuilding companies have been able to reinvest more

of their profits than they normally would only

because they are owned by large conglomerates

which are willing to take the risks associated with

the investments.9

The key factor driving profits in some sectors

of the commercial shipbuilding industry appears

to be the lack of an orderly, sustained demand

for U.S.-built ships. The lack of demand stems

from two interrelated factors: 1) the high cost of

building a ship in the United States; and 2) the

high cost of operating U.S.-flag ships. Wage scales

are one cause of these high costs in these shipbuilding and sea transport industries, although the

high cost of U.S. materials has also contributed

to the shipbuilding dilemma.10 Some shipbuilders

claim an even more basic causal factor of lack of

demand; that is, no sustained Government policy to build ships as part of a defense strategy for

sea lift in the event of an extended conflict.

In the inland barge and towboat industry, as

well as the so-called “second tier” shipyards, a

somewhat different problem is evident. During

the 1970s, high growth and expanding markets

coupled with tax incentives to invest in capital

equipment, spurred an explosion in new building.

In the past few years the markets contracted due

‘Edward M. Kaitz & Associates, Inc., “The Capital Budgeting

Process of the U.S. Shipbuilding Industry: An Analysis of Defense

Industry Behavior, ” 1979, p. 3.

IOEdward M, Kaitz & Associates, Inc., “The Profitability of the

U.S. Shipbuilding Industry (1947-1976 ),” 1978, p. 61.

to export declines and the strong dollar. At present, the industry is struggling to dispose of a large

excess supply of vessels and barges.

Federal Policies/Regulations

The OTA survey asked firms to select those

Federal policies or regulations which they felt either encouraged or discouraged R&D investment

and then to rank order the selections. The response data are shown in tables 12 and 13 for

operators and shipyards respectively. The data

are widely scattered. Most firms reported that

most factors have little or no effect. However, two

factors having an encouraging ranking for both

operators and shipyards were the tax code and

patent law.

For most operators responding to the question,

rail and truck deregulation and OSHA safety regulations appear to have little effect. The Federal

subsidy phase-out did not appear to have an effect for most of these operators either. Coast

Guard manning regulations seem to have a somewhat discouraging effect on investment. For responding shipyards, however, subsidy phase-out

was seen as a more important factor discouraging investment.

The survey, thus, does not support any strong

conclusions about the effect of these policies. It

may be useful, however, to discuss a few of these

policies which have been given attention in other

analyses and reports. For this reason, the following discusses antitrust law, patent law, and subsidy phase-out, in turn.

Antitrust Law

Many of the U.S. maritime industry’s foreign

competitors do not function under laws that restrict research collaboration. Japanese antitrust

law does not prohibit firms from conducting cooperative research in targeted areas such as computers, microelectronics, electronic instruments,

lasers, optical communication, robots and aerospace. French antitrust law does not bar joint research in such areas as aerospace, telecommunications, microelectronics, energy, and conservation

equipment. Similarly, West Germans have not

been prevented from conducting joint research

and development.
21

Table 12.–U.S. Ship Operators R&D

Federal 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 82

Patent law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 23 0 0 17 77

Tax code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 2 9 13 59

Rail and truck deregulation . . . . . . . . . . . . . 4 18 2 9 16 73

OSHA safety regulations . . . . . . . . . . . . . . . 2 10 3 14 16 76

C. G. manning regulations . . . . . . . . . . . . . . 6 27 8 36 8 36

Phase-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 86

Patent law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 23 1 5 16 73

Tax code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 5 23 10 45

OSHA safety regulations . . . . . . . . . . . . . . . 3 14 3 14 16 73

Phase-out ODS/CDS. . . . . . . . . . . . . . . . . . . . 1 5 11 58 7 37

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.

One approach to funding expensive, long-term

R&D is for one or more firms to share the cost.

However, some firms have perceived ambiguities

in the antitrust statutes, which have inhibited attempts to establish joint ventures among domestic firms. Although there is neither a statutory prohibition nor any court rulings that explicitly

discourage formation of R&D joint ventures,

American corporations have been extremely hesitant to enter into research joint ventures, because

of the spectre of treble damages for violations of

antitrust laws. 11

A new law may change this situation in the future. The Research and Development Joint Venture Act of 1984 modifies existing antitrust statutes

to specify that joint research and development

ventures will not violate the law. The Act specifically, however, excludes those ventures that will

exchange sales, marketing and similar types of

commercial information, and those that restrict

or require the participation of any party in another research and development program. In ad1’U.S. House of Representatives, Committee on Science and Technology, “Japanese Technological Advances and Possible U.S. Responses Using Research Joint Ventures, ” Statement of William Baxter, Department of Justice, June 29-30, 1983, p. 151.

dition to modifying the antitrust statutes in this

way, the Act also takes two other steps to encourage joint ventures: first, it permits joint ventures

to file a statement of intent, which the Attorney

General or Federal Trade Commission is obliged

to publish in the Federal Register; second, if this

statement of intent has been properly submitted

and published in the Federal Register, the Act limits the amount that may be recovered on a claim

to the amount of actual damages sustained by the

claimant. 12

While U.S. antitrust laws in the past have been

criticized for discouraging research cooperation

between U.S. firms, neither shipyards nor ship

operators responding to this question on the OTA

survey felt that these antitrust laws had a serious

effect on their investment in R&D. This may be

partly because many in the U.S. maritime industry do not have much desire to collaborate among

themselves anyway, presumably because of competitive forces. However, countries like Japan and

Korea have found effective ways to cooperate and

coordinate their R&D in basic processes, procedures, and standards. They rely on the mainteIZThe Research and Development Joint Venture Act of 1984.
22

nance of competitive positions through management efficiency, labor-management collaboration,

marketing, and product design.

Patent Law

A report by the Office of Science and Technology Policy found that existing patent laws do not

provide sufficient protection to enable private

firms to dependably capture the value of private

aeronautical R&D.13 Since the maritime and aeronautics industries have many similarities, OTA

suspected that this conclusion might apply to

maritime R&D as well. The OTA survey, however, did not support this view. In the few cases

where respondents indicated that patent law does

influence investment, it was generally regarded

as an inducement.

Phase-out of Subsidies

Two maritime industry subsidy programs—the

Construction Differential Subsidy (CDS) and the

Operating Differential Subsidy (ODS)—are being phased out by the Reagan Administration, although debate over the need for subsidies continues. The CDS provisions in the Merchant

Marine Act of 1936 as amended in 1970 have not

been repealed by Congress, but, for the past two

years, the Administration has requested, and has

been granted, no funding. Funding for existing

ODS contracts has continued but the Administration has announced plans to abandon ODS

when those contracts expire.

Since the industry itself has been publicly divided on whether the phase-out is a positive or

negative step for the maritime industry as a whole,

OTA asked the survey respondents whether the

phase-out encourages, discourages, or has little

or no effect on their R&D investment. Again, the

ship operators and shipbuilders responding to the

question revealed different views. More than half

of the shipbuilders viewed the phase-out as discouraging investment, and about one-third considered it to have little or no effect. Half of the

ship operators felt the phase-out would have little or no effect.

“Office of Science and Technology Policy, Aeronautical Research

and Technology Policy, vol. 2, final report, 1982, pp. VII-17.

Anticipating some industry concern over the

phase-out, OTA asked the respondents what alternative Federal incentives might help to revitalize

the industry. One of the most common responses

to this question from both shipbuilders and ship

operators, with shipbuilders somewhat more enthusiastic, was the institution of cargo preference

for U.S. shipping. One shipyard wrote:

A Federal assurance of adequate cargoes for

U.S.-flag and U.S.-built ship owners is the only

means of ensuring a large, stable and continuing demand for new building from the U.S. shipbuilding industry. Sufficient demand and stability of demand will by itself enable private

industry to invest sufficient funds in R&D of new

capital equipment to significantly improve efficiency and match foreign shipbuilders’ productivity levels.

A suggestion to employ tax credits as an alternative to direct subsidies also was made frequently. One shipyard, for example, suggested that to

“offset the higher cost of using U.S. ships, ” tax

credits should be granted to “companies that use

U.S. ships to haul their cargoes.” A bill sponsored

in 1984 by Congressman Herbert H. Bateman of

Virginia and Congresswoman Lindy Boggs of

Louisiana, the Competitive Shipping and Shipbuilding Act, would provide tax breaks resulting

in estimated credits of $800 million per year. One

respondent emphasized that such a program would

create the stable market environment necessary

to carry out R&D. Both operators and shipyards

suggested tax credits as an alternative to direct

subsidies.

A number of other suggestions were made by

the respondents. For instance, several shipyards

recommended providing incentives for productivity increases. While the ManTech Program

already does this for shipyards that build Navy

ships, it was recommended that similar incentives

could be extended to non-Navy construction. It

was further suggested that modernization incentives could be offered to the ship operations industry. Finally, a number of respondents referred

to the Jones Act. One shipyard advocated an “extension of the Jones Act and closing of loopholes, ”

while an operator called for “Jones Act” shipowners to be permitted to build abroad without

restriction.
23

Federal Incentives that might improve the effectiveness of Federal

The OTA survey questioned operators and

shipbuilders about possible future Federal policies

that might increase incentives to invest in R&D.

Such policy suggestions ranged from increasing

direct Federal R&D funding to establishing a joint

government/industry research facility. The survey also contained two open questions. One asked

respondents to suggest other organizational or institutional changes within the Federal Government

sponsored research; and the other asked for suggestions other than R&D options which might be

beneficial to the revitalization of the U.S. industry.

Responses to the specific R&D policy options

are given in tables 14 and 15. Responses to the

open questions are listed in appendix E. While a

number of the respondents thought that policies

such as cargo preference, direct subsidies, or forms

Table 14.–U.S. Ship Operators R&D

Firms 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 5

Availability of Federal loan guarantees . . . 3 17 13 72 2 11

Amend antitrust laws permitting joint

ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 16 84 2 11

Expand R&D tax credits . . . . . . . . . . . . . . . . 8 40 10 50 2 10

Increase 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 13

2. Endorse but would not participate or fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 65

3. 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&D

Firms 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 5

Availability of Federal loan guarantees . . . 8 38 12 57 1 5

Amend antitrust laws permitting joint

ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 27 14 64 2 9

Expand R&D tax credits . . . . . . . . . . . . . . . . 18 82 4 18 0 0

Increase 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 Percent

1. Strongly endorse and would participate and provide funding , , . . . ., , , , , , , ., , , , , , , , ., . . . . . . . . . 5 22

2. Endorse but would not* participate or fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 48

3. 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 more

for the industry than any R&D initiative, most

of the R&D policies suggested were considered to

offer some incentive.

The proposals can be considered in three categories: 1) direct Federal R&D support, 2) encouraging industry R&D, and 3) devising government/industry cooperative approaches. Under

“direct Federal R&D support” 42 percent of the

operators and 57 percent of the shipyards responding to the question reported this to offer a

significant incentive to R&D investment. Under

“encouraging industry R& D,” the most operators

(40 percent) and shipyards (82 percent) reported

that a significant incentive would result from expanding R&D tax credits. Other tax or financing

incentives for R&D were rated favorably but higher by the shipyards than by the operators.

Direct Federal R&D Support

Survey respondents were asked whether an increase in direct Federal support would be a significant, slight, or negative incentive for investment in R&D. For the most part, both operators

and shipbuilders who responded to the question

said that increasing Federal support would not discourage their own investment, but rather would

provide a positive incentive. Each sector of the

maritime industry, however, was divided as to

whether increased Federal support would provide

a slight or significant incentive. By a slight margin,

more shipyards felt Federal support would provide a significant incentive; whereas ship operators also, by a slight margin, tended to think such

an action would provide only a slight incentive

for R&D investment.

The OTA survey respondents were also asked

to suggest changes which might be made to improve existing institutions. While many of these

suggestions were very narrowly focused, a few

were of a scope that would bear congressional interest. In particular, one frequent request was that

a means be found to deal with current institutional

arrangements which cause decentralization of research activities. For example, the U.S. Navy has

research related to shipbuilding located under

three commands: the Assistant Secretary of the

Navy Research, Engineering and Systems, the

Chief of Naval Operations, and the Chief of Naval Material. One shipyard wrote:

This highly fragmented R&D organizational

structure . . . would not appear to result in the

effective and efficient utilization of R&D dollars.

Some effort may be made to simplify the organization and consolidate the R&D program.

This respondent recommended that:

. . . there should be more extensive use of joint

efforts in higher cost technology developments

and in technology demonstrations.

When questioned about this comment, a U.S.

Navy spokesman responded:

The preceding is a misconception of the Navy

R&D organization. There is only one Navy R&D

program. All of the above organizations plus

others participate in the planning, review, approval and execution as appropriate for the program. For instance the Commander, Naval Sea

Systems Command, plans, programs, budgets

and implements its portion of shipbuilding R&D

projects. The Chief of Naval Material integrates

across commands and submits the program to

the Chief of Naval Operations, for review and

approval, and forwarding through the Assistant

Secretary of Navy (RE&S) submission to the Department of Defense.

In general, however, it may be useful to explore

a number of alternatives to strengthen and integrate common elements of U.S. Navy, MarAd,

and U.S. Coast Guard R&D programs.

Some of the specific recommendations made by

the respondents are listed below:

1.

2.

3.

4.

Establish a fund for unspecified R&D projects administered by an agency such as

MarAd’s Office of Advanced Ship Development and Technology for funding those “target of opportunity” projects meeting predefine criteria and limits.

Change contract approval procedures to decrease proposal lead time for R&D projects

by eliminating red tape delays that, while

necessary for normal procurement items, are

an impediment to R&D projects (e.g., source

approval, advertising), In general, streamline

contracting procedures to make R&D efforts

time 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 shipbuilding

firms themselves as primary contractors.

Several respondents supported the recommendations of a recent National Research Council

(NRC) study which reviewed ship operations

R&D and found that an arrangement similar to

the National Shipbuilding Research Program is

needed to improve the efficacy of ship operations

research. One of the NRC’s primary findings was

that the ship operations R&D program of MarAd

“has not achieved wide acceptance of its project

results, principally because of insufficient industry participation in the direction and management

of research. ” NRC further concluded that “cooperative ship operation R&D should be coordinated

and managed not by a government agency but

by the private sector.”14

Encouraging Industry R&D

Extending CCF.—In 1970, Congress adopted a

tax measure for the U.S.-flag fleet that instituted

the Capital Construction Fund (CCF). This program generally allows U.S. shipping companies

to enter into agreements with MarAd to establish CCF for the replacement or addition of vessels

for use in the U.S.-flag merchant marine. Earnings from the operation of U.S. merchant vessels

can be deposited in the CCF. Federal income taxes

on these earnings are then deferred until the funds

are withdrawn from the CCF for a purpose not

permitted under the agreement with MarAd.

Theoretically, the tax deferral can continue on income deposited in the CCF as long as the fundholder continues to acquire U.S.-built ships or to

construct, or reconstruct qualified vessels in a U.S.

shipyard.

The OTA survey asked ship operators and

builders whether extending the CCF concept to

R&D expenditures would represent a significant,

slight or negative incentive for investing in R&D.

A large majority of operators responding to the

question reported that this option would be a

slight incentive for future R&D investment. Only

four operating firms said that this extension of the

fund would be a significant incentive, and only

one firm indicated that it would be a negative in-

‘~fNationa] Rewarch council, “Ship Operation Research and Development —A Program for Industry, ” 1983, p. 39.

centive. The shipyards, on the other hand, endorsed this option more enthusiastically. * Ten

yards indicated that this would be a significant

incentive, while 11 yards reported that extension

of the fund would only represent only a slight incentive. Only one yard felt this option would be

a negative incentive for R&D investment.

Make Federal Loan Guarantees Available for

R&D Expenditures.—The Federal Ship Financing

Guarantee program was established in 1938 pursuant to Title XI of the Merchant Marine Act of

1936. It provides for a full faith and credit loan

guarantee by the U.S. Government. The program

was overhauled in 1972 and is now a financing

guarantee program, rather than a mortgage insurance program under which the government

guarantees shipbuilding obligations sold to investors.

OTA asked survey respondents whether similarly guaranteeing loans for R&D expenditures

would represent a significant, slight, or negative

incentive for R&D investment. A majority of both

operators and shipbuilders answered that loan

guarantees for R&D would create a slight incentive to invest. Relatively more of the shipyards

felt that such an option would create a significant

incentive (eight yards) than did the ship operators. Only one shipyard and two ship operators

reported that this option would create a negative

incentive for investment.

Expand Existing Tax Credits for R&D Expenditures.—The OTA survey asked respondents to

indicate whether an expansion of tax credits for

R&D expenditures would have a significant, slight

or negative incentive for R&D investment. Shipbuilders as a whole were more enthusiastic about

the positive effects of an expanded tax credit than

were ship operators. A large majority of the shipyards indicated that an expanded tax credit would

have a significant incentive, while only four yards

indicated that it would represent a slight incentive. None of the yards indicated that such a tax

credit would have negative effects. In contrast to

the shipbuilders, the operators were more equally

divided on whether an expansion of tax credits

● This would, of course, require changes in the law to allow shipyards to establish Capital Construction Funds similar to those now

allowed for operators.

46-601 0 - 85 - 3
26

would have a slight or significant effect on the

incentive to invest in R&D.

The Economic Recovery Tax Act of 1981 instituted major changes in the Nation’s tax system.

One of the most important changes introduced

was the incremental R&D tax credit, which amounts

to 25 percent of “qualified” R&D expenditures in

excess of outlays in a preceding base period .15 Because of its incremental character, the 25 percent

tax credit is designed to be especially cost effective, since it targets changes in a firm’s behavior.

Whereas a nonincremental credit would reward

firms for their existing level of R&D expenditures,

an incremental credit encourages increased R&D

since only the increase over the base qualifies for

credit. The relevant issue in evaluating the incremental credit concerns the relationship between

the Federal tax revenue losses it generates and the

additional R&D it encourages. Estimates of the

benefits of the incremental tax credit—namely,

the additional R&D it encourages—tend to be

lower than the estimated Treasury Department

losses. One study, for instance, suggests that the

additional R&D generated by the incremental

credit lies somewhere between $227 million and

$638 million for 1983, compared to estimated

Treasury losses of $645 million. Analyses of similar tax incentives in other countries suggest the

same result. Tax credits for R&D do not appear

to be a particularly cost-effective mechanism for

increasing R&D activity.

The R&D credit is scheduled to terminate at the

end of 1985. Such a sunset provision, even with

periodic extensions, undermines the credit’s effectiveness. From a business planning standpoint,

there must be certainty that the credit will be

available when the research is performed.

In conclusion, for most of the American economy, the incremental R&D tax credit does provide some incentive for increased R&D. For firms

in more extreme circumstances—those that have

no tax liabilities in a given year and those that

are rapidly increasing R&D spending—the impact

of this program may be limited.

15The discussion of the incremental tax credits is based on a Congressional Budget Office report, entitled “Federal Support for R&D

Innovation,” 1984, pp. 72-83.

Devising Cooperative Approaches

Reduce the Risk of Antitrust Violation Associated With Research Joint Ventures.—While the

survey respondents indicated that antitrust laws

do not have much effect on their investment in

R&D, most reported that amending antitrust laws

to permit joint research ventures would represent

a slight incentive for them to conduct more R&D.

Only two operators and two shipyards indicated

that such an option would act as a negative incentive for investment. Relatively more shipyards

than ship operators reported that revision of antitrust statutes would have a significant effect on

investment. Recently, a number of measures have

been adopted to encourage joint research, including the Research and Development Joint Venture

Act of 1984.

Several other approaches have also been suggested for eliminating the real or perceived antitrust barriers to joint research ventures. It is

beyond the scope of this discussion to analyze the

pros and cons of these various approaches. However, some approaches are discussed in the next

section on R&D approaches in other industries.

Establish a Central Research Facility to be Sponsored Jointly by Industry and Government for

Conducting Maritime Research.—The OTA survey asked ship operators and shipyards whether

they would endorse the formation of a government/industry sponsored maritime research facility for the purposes of conducting long-term

basic and applied research and for serving as a

clearinghouse for Navy, foreign, and domestic civilian R&D advances. Specifically, the respondents were asked whether they would: strongly endorse such a facility and be willing to participate

and provide funding for cooperative research

projects; endorse the facility but not necessarily

become actively involved with its research projects; or not endorse such a facility.

The responses are shown on tables 14 and 15.

Seventy-eight percent of the operators responded

that they would endorse such a facility but only

13 percent indicated strong endorsement including

participation and funding. For shipyards, the response was similar, 70 percent endorsement and

22 percent strong endorsement with participation.
2 7

Some firms qualified their responses saying they

would or might participate if the facility was designed to be relevant to their specific needs.

A comment by one of the shipyards is representative: “Our company would be interested in

participating in a Government sponsored maritime research facility but is not willing to commit any funding until a charter is firmly established.” Only three operators indicated that they

would strongly endorse a central facility and actively participate, financially or otherwise. Five

operators did not endorse such a facility at all.

The shipyard responses were more equally divided than the operators. Eleven yards endorsed

this option, but did not anticipate that they would

actively participate. Five yards strongly endorsed

the idea of a central facility, seven yards rejected

the idea. It appears from these responses that the

maritime industry as a whole would have difficulty taking the lead in establishing a joint government/industry institution but that a properly

designed institution with competent leadership

may be able to attract substantial industry support after it is established.
Section Ill

Models of Other R&D Institutions
Section Ill

Models of Other R&D Institutions

FOREIGN APPROACHES

A variety of foreign approaches to encouraging R&D possibly could serve as models for considering support of U.S. maritime research:

In Germany, the Wagnisfinanzierungs Gesellschaft program under the Ministry of Research

and Technology is an independent corporation

formed by seven banks. The consortium purchases equity shares in new companies undertaking innovative projects. The government underwrites up to 75 percent of any losses incurred by

this corporation for the first 12 years of its existence, thus considerably reducing investment

risk. In return, the government retains a seat on

the corporation’s board of directors. Another program, the “First Innovations” program of the Ministry of Economic Affairs, advances interest-free

loans of up to 50 percent of the cost for commercial development of a new technology. If the effort fails, the loan is canceled. The Japanese Ministry of Trade and Industry provides similar R&D

support in the form of long-term notes or lowinterest loans. The loans are repayable only if the

program is successful.

In France, a Letter of Agreement program insures a company against loss for large projects involving high initial production costs and serves

as a method for obtaining low-interest capital. An

Aid to Development program pays 50 percent of

the total cost of prototype development and provides for reimbursement in the case of success.16 

In Norway, an industry government research

institute, The Ship Research Institute of Norway,

was chartered by Norwegian ship owners, the

Royal Norwegian Council for Scientific and Industrial Research, and Det norske Veritas.17 Most

16Te~tjmo~yofDanje]Desjmone, Office of Technology A=Sment to the Subcommittee on Transportation, Aviation and Communications of the Subcommittee on Transportation, Aviation and

Communications of the Committee on Science and Technology, U.S.

House of Representatives, May 1979.

17 Persona1 communication with Mr. Egil Wulff, Research Coordinator, The Ship Research Institute of Norway and the 1983 annual report of The Ship Research Institute of Norway.

of the Institute’s projects are started with grants

from the Royal Norwegian Council for Scientific

and Industrial Research or through a commission

from a government directorate or a business company. Government funding of the Institute, however, has declined and is now approximately 8

percent of the total funding. Projects are normally

conducted by Institute researchers but almost always in close contact with a customer or steering committee. The steering committee can be established for a single project, but is typically

organized around programs composed of a number of similar projects. It will typically have resources of more than $250,000.

The Ship Research Institute of Norway sponsors a number of associated facilities. The Marine

Technology Center (MTC) is one of the world’s

most comprehensive and well-equipped research

facilities. Some of its laboratories are unique, and

the center represents a considerable potential for

Norwegian companies in their development of

new products and services. A computer-aided design/computer-aided manufacturing (CAD/CAM)

center, for instance, was recently established at

the MTC. Its aim is to build up competence and

to accumulate a library of CAD/CAM programs.

In addition to laboratories and model testing facilities, The Ship Research Institute provides information and training services. Management

seminars are organized to teach modern managerial concepts, skills, and techniques for managers in the shipping industry. The Institute has

standard library services and access to domestic

and foreign data bases. It participates in a European cooperative on-line information service called

Ship Abstracts, which abstracts information on

ship technology, ship operation and ocean engineering from approximately 450 periodicals, reports series and papers from all over the world.

The Institute experienced a high rate of activity in 1983 despite a sharp drop in Norwegian shipbuilding, a set-back for traditional shipping, and

limited 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 revenues

increased from 14.3 percent in 1982 to 21.4 percent in 1983. In 1983, the Institute had a total staff

of over 300 people.

In the Far East, the Shipbuilding Research Association of Japan was established over 20 years ago

by eight major Japanese shipbuilding companies,

suppliers, and shipping industries. It is authorized

by the Japanese Government as a nonprofit organization. A planning committee, composed of representatives of member organizations and scholU.S. APPROACHES

A variety of models of proposed or existing

R&D institutions can be found in other U.S. industries. In fact—especially in basic industries—

recent reports have urged new attention to R&D

as a means of improving world competitiveness.

The January 1985 report of the President’s Commission on Industrial Competitiveness concluded

that technological innovation is fueled by R&D

which is vital to America’s future, being the key

to productivity advances. That report recommended initiatives in the areas of R&D partnerships and cooperation between industry, government, and academic institutions .19

In one important U.S. industrial sector, OTA

has recently published an assessment of Information Technology R&D. Among other topics, that

report discusses Federal patent policies, technology transfer, tax credits, R&D limited partnerships, and antitrust policy. It also provides information about industry R&D in areas of industryuniversity links and jointly funded research. It

concludes that cooperative industry research

could have long-run policy implications for the

level and focus of Federal R&D programs.20

— . . .

“Report of the President’s Commission on Industrial Competitiveness, “Global Competition–The New Reality, ” Washington,

DC, January 1985.

‘“Off ice of Technology Assessment, U.S. Congress, Information

Technology and R&D: Critical Trends and issues, OTA-CIT-268

(Washington, DC: U.S. Government Printing Office, February

1985).

ars, selects priority “R&D themes, ” which are then

approved by a Board of Directors. Committees

composed of the member organizations with relevant expertise are then organized to implement

these “R&D themes. ” The Association receives financial support from its membership and through

grants from private financial bodies. The average appropriation over the past five years has

been about $4 million a year.18

lspersona] communication with the Shipbuilding Research Association 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&D

approaches that may have relevance to the maritime industry, one Federal program from another

agency (NASA) and some existing maritime institutions that have potential for modification.

Research Joint Venture

R&D joint ventures and R&D limited partnerships have both been suggested by a few of OTA’s

respondents as a model for certain maritime R&D.

Both approaches probably have limited applications (as other advisors to OTA have commented)

but their characteristics are of interest because

other industries have found useful applications.

For the joint venture approach, antitrust immunity is often a concern. In a new project, the

applicability of the 1984 R&D Joint Venture Act

would need to be examined, Further antitrust immunity might be sought for a specific industry sector, area of research, or qualifying institution.

Actually, at least two major research joint ventures have already been established—the Microelectronics and Computer Technology Corporation (MCC) and the Semiconductor Research

Cooperative (SRC). MCC is a research and development venture owned by a number of major

U.S. corporations in the computer, electronic, and

semiconductor industries. Participating so far are

Advanced 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 aimed

beyond the state-of-the-art. Initially, four projects

have been identified, lasting from 5 to 10 years.

All shareholders are not required to participate

in each project, but each is required to participate in at least one. MCC projects will be staffed

to a considerable extent by personnel from shareholder companies. At the completion of a project, these borrowed experts will return to their

respective companies. This flow of talent to and

from shareholder companies is a key to the success of MCC projects. In addition, such a process greatly facilitates the transfer of technologies

to participating companies. For convenience,

MCC will hold title to all know-how and patents.

Although participating companies will have initial rights to the resulting technology and to receive preferential treatment, technology will be

licensed to other companies on reasonable terms.22

In 1980, the association that represents the semiconductor industry, the SIA, focused on self-help

action by the industry to counter increasing competition from abroad by forming the Semiconductor Research Cooperative (SRC). The objectives

of SRC are: to plan and to promote, conduct and

sponsor research; to improve the understanding

of semiconductor material, devices, and phenomena; and to develop new design and manufacturing technologies. The program operates on a contract basis, primarily with universities. About 50

projects have been funded so far.23 Three university research centers have been established under

the aegis of the SRC—computer-aided design centers at Carnegie-Mellon and Berkeley, and a

microstructure center at Cornell. SRC is negotiating with MIT on a materials contract, with

North Carolina on manufacturing research, and

with Rensselaer Polytechnic Institute on beam

technology. Thirty-eight other contracts of a

smaller nature have been negotiated with other

universities.

Z] Edward M. Kaitz & Associates, Inc., “The Profitability of the

U.S. Shipbuilding Industry (1947-1976 ),” 1978, p. 7, statement of

Admiral B. R. Inman.

*’U.S. Department of Commerce, 1983. The New Climate for Joint

Research, Conference Proceedings held May 13, 1983, pp. 17-18.

ZJKaitz & Associates, Op. cit., note 10, pp. 45-46, statement of

Erich Bloch.

R&D Limited Partnerships

In some very special cases of high risk product

development R&D limited partnerships may be

useful to consider. Several basic concepts are common to all forms of R&D partnerships. Generally,

limited partner investors receive a tax deduction

for a substantial part of their initial investments.

In addition, if the deal is properly structured, investors receive favorable capital gain treatment

on their royalty or equity payback. A sponsoring corporation performs research on a particular project on behalf of the partnership, which

owns the developed technology. The corporation

controls the commercial exploitation of the product that results from the research and has an option to buy the technology from the partnership.

If the corporation exercises its option, its payment

to 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 alternative

to the joint research venture. It is based on a 1954

law that was not used until it was tested and validated by the Supreme Court in 1974. The Economic Recovery Tax Act of 1981 and a reduction

of capital gains tax to a maximum of 20 percent

have combined with this law to stimulate the creation of new venture capital businesses in recent

years.

R&D partnerships have been evolving as a financial alternative since 1974. The early partnerships were formed to provide seed money to startup ventures. These partnerships raised money to

carry very early-stage companies through often

protracted development periods before venture

capital could be raised from more traditional

sources. Later, early-stage operating companies

began to consider R&D partnerships as a means

to finance new or second generation products that

faced either a high technical risk, a long development period, or both.

Finally, mature companies are now using R&D

partnerships to raise substantial amounts of money. To these companies, the R&D partnerships offer a way to shift the development risk to outside investors—to avoid betting the company on

2iKaitz & As50ciate5, Op. cit. ~ P. 57.
34

a speculative new technology. To the private investors, a joint investment like this with a wellestablished company may be less risky than one

with an early-stage company. A number of regional and national investment banking firms are

now involved in funding offerings such as these.

In spite of the numerous advantages of R&D

partnerships, they are not right for all companies.

First, the use of the funds raised will be strictly

limited to research and development activities, except to the extent that the company generates

profit on the contract. Second, only high margin

products are appropriate for royalty partnerships,

since generous royalties directly reduce profit

margins. Depending on the particular structure,

the company’s cost of capital may be relatively

high. Third, the company must be prepared to

give up potential tax loss carry forwards and R&D

tax credits, since the investors, rather than the

company, would take the deductions for research

expenses. Finally, the formation and structuring

of R&D partnerships could have high transaction

costs, and may dilute the use of management’s

time.

Investors in R&D limited partnerships face particular uncertainty with respect to long-term capital gains treatment. Recent changes in the tax law,

under the Tax Equity and Fiscal Responsibility Act

of 1982, have been designed to discourage individual investments in R&D. It is too early to assess

the impact of the recent change to include research

and development expense deductions as a tax preference item for the minimum tax, but it is likely

to reduce the attractiveness of R&D partnerships

to a great number of potential investors .25

NASA Industrial Applications Center

The U.S. Navy conducts a great deal of research

and development that has significant applicability

to the commercial maritime industry. While the

results of unclassified R&D are generally available to the commercial sector, the institutional

——— “KaitZ & &sociates, op. cit., p. 59.

aspects and quantity of completed and ongoing

work preclude easy access to these products.

An effort to facilitate the flow of information

from the U.S. Navy to the private sector might

be modeled on the industrial application centers

set up by NASA. As one shipyard responded to

the OTA survey: “1 would suggest the establishment of a maritime industry (applications center)

equivalent to NASA with responsibility for collection and industry-wide dissemination of maritime related basic research, design, and construction technology. ” Eight nonprofit industrial

application centers were organized under an original grant from NASA to transfer NASA technology to commercial industrial applications. These

centers enter into agreements with individual firms

or groups of companies to develop solutions to

industry technical problems. The fees from private firms help to support these activities.

The first Aerospace Research Applications Center (ARAC) was created by NASA in 1963 as a

private not-for-profit technical information and

assistance center operated by the Indianapolis

Center for Advanced Research. ARAC maintains

a staff of scientists and engineers and a system

of computerized data bases of world-wide scientific and technical literature to aid industry, business, and government. It was first designed to help

NASA find industrial uses for space research.

However, ARAC’s literature and data resources

have now extended into the full range of modern, industrial science and technology chemistry,

materials, reliability and quality control, and

computer science.

ARAC provides two primary services to industrial clients. One is through engineering background studies, essentially extensive literature

searches. The other is a current awareness search,

which provides access to the new literature that

is continuously added to the ARAC data bases.

The current awareness search contains abstracts

of new literature on a monthly basis in an attempt

to keep clients abreast of new research and developments taking place in industrial science and

technology.
35

EXISTING MARITIME INSTITUTIONS

The David Taylor Naval Ship Research

and Development Center

The David Taylor Naval Ship Research and Development Center is the U.S. Navy’s principal research, development, test, and evaluation center

for naval vehicles.26 It was established March 31,

1967, with the merger of the David Taylor Model

Basin at Carderock, Maryland, and the Marine

Engineering Laboratory at Annapolis, Maryland.

The Carderock laboratory is the largest facility

of its kind in the Western World with about 1,000

people employed in its seven major research departments. The Annapolis facility employs another 500 people. Research areas addressed at

these two facilities include hull-form structures,

propulsion, silencing, maneuvering and control,

auxiliary machinery, environmental effects, pollution abatement, logistics, computer techniques,

and software for analysis and design.

The enabling legislation for a model experiment

tank at the Washington Navy Yard, the precursor to the Carderock facility, specified that upon

the authorization of the Secretary of the Navy,

experiments could be conducted for private shipbuilders provided that they defray the costs of material and of labor for such experiments. This authority continues to prevail today but is seldom

used.

The Kings Point, New York, Facility

At present, a national maritime research center exists at the U.S. Merchant Marine Academy

at Kings Point, New York, but it provides few

services and lacks the focus for R&D projects that

this option might envision. The National Maritime Research Center was created in response to

conclusions drawn at a maritime R&D conference

held at Wood’s Hole, Massachusetts, in 1969 to

attempt to identify a long-range maritime research

program. One final recommendation called for

establishing field centers to conduct maritime research. In response, centers were set up in Galveston, Texas, and at Kings Point, New York.

jbBroChure of the DaVid Taylor Naval Ship R&D Center and legislation establishing the Washington Navy Yard’s model experiment

tank, 54th Cong., 1st sess., June 10, 1896.

Originally, the intent was to establish laboratory

and model testing facilities at both centers, but

neither materialized. The Computer-aided Operations Research Facility was the only facility actually established; it now dominates the budget

and agenda of the Kings Point operation. The Galveston center was closed a few years ago.

In January 1982, MarAd completed a study that

assessed the level of industry interest in supporting a shipping management center designed to disseminate management techniques to individual

companies. As a result of this effort, an exchange

center, which would rely on industry for most of

its support, was proposed. At least on paper, it

was established and a few symposia were sponsored under its auspices. However, progress towards full realization of its stated objectives has

stalled. Through congressional oversight activities, full-scale realization of such a center might

be encouraged.

The Maritime Research

Information Service

The Transportation Research Information Service (TRIS) is a computer-based research information storage and retrieval system maintained and

operated by the Transportation Research Board

of the National Research Council. TRIS consists

of more than 185,000 abstracts of published works

and summaries of research in progress. This data

base is made up of four principal subfiles on highway, urban mass transportation, highway safety,

and railroad research.

The Railroad Research Information Service

(RRIS), for example, which receives its financial

support from the Federal Railroad Administration, began abstracting technical papers, journal

articles, research reports, statistical sources, computer programs, and data sets in 1973. The service collects information from a number of U.S.

Government and industry sources and has a formal exchange agreement with the International

Union of Railways, which allows it to obtain foreign railroad research information. In addition,

RRIS provides dissemination services such as the

semiannual Railroad Research Bulletin which lists
.

36

all new references placed on its magnetic tape files

during the preceding six months. File searches are

also conducted on request.

A maritime research data base, similar to the

RRIS, was formerly available as part of the Transportation Research Information Service. The Maritime Research Information Service (MRIS) had

information exchange agreements with Norwegian

and British maritime research institutes. The data

base was financially supported by MarAd until

1981. Abstracts from this data base, however, are

still filed on the TRIS computers and operations

could be resumed if funding were reinstated. Alternatively, MRIS could be integrated with the information services already available at the Merchant Marine Academy. This alternative was, in

fact, proposed after MRIS was discontinued, but

it was never acted on.
Section IV

Summary of Issues
Section IV

Summary of Issues

The major issue highlighted by the OTA survey and the foregoing analysis is whether the Federal role in maritime R&D is adequate or whether

it should be enhanced for the benefit of both the

maritime industry and the Nation as a whole. If

it is to be enhanced, then one or more of a range

of suggestions for new or modified institutions

could be put in place. Since some of the existing

institutions are valuable and productive, it is also

important to preserve the successful elements as

a part of any future institutions.

If the present Federal system is considered adequate, then perhaps no changes are desirable and

existing programs should be continued much as

they are.

A majority of the respondents to the OTA survey are among those advocating some change.

Those advocates, however, do not agree on any

one specific alternative. Also, if made, any

changes should offer clear benefits to the Nation

as a whole as well as to the maritime industry.

It appears from the OTA analysis that, while

aspects of the Federal maritime R&D effort are

useful and productive, a number of problems limit

the benefits to the U.S. industry and hinder the

pursuit of such national goals as technological preeminence.

Problems identified with existing Federal maritime R&D are in the following categories: 1) government contracting, 2) disseminating R&D results, 3) outreach, 4) cooperative R&D, and 5)

promoting application of new technology.

Government Contracting.—Research and development, by its very nature, requires experimentation, risk-taking and somewhat open-ended

exploration of new ideas. The most important criteria for selecting a good project, and someone

to perform it, are the potential of the idea and

the expertise of the people who will work on the

project. The government’s contracting process is

not designed to be sensitive to such selection criteria. It was developed mainly for the purchase

of materials at the lowest prices. Consequently,

many R&D contracts take years to execute, are

given to the lowest bidder, and are not selected

to meet long-range technology goals. This has discouraged some of the best innovators and stifled

some of the best ideas.

One participant at the OTA workshop stressed

that, if a more effective shipbuilding R&D program is to be achieved, then the Navy (i.e., the

Naval Sea Systems Command) must understand

the problem better and institute much needed

changes. The Navy is currently almost the exclusive customer for the U.S. shipbuilding industry.

Therefore, “the U.S. Navy will be the principal

beneficiary of the (shipbuilding R&D) program

for years to come and must join the industry in

fully understanding and making the changes in

the ship design, procurement, and contracting

processes that are necessary to exploit the full potential of these improved methods. ”

If government-supported maritime R&D is to

be enhanced or expanded, improved contracting

procedures should be a major consideration.

Disseminating R&D Results.—The OTA survey indicates that in the past many private firms

have not received the results and/or the benefits

of much of the R&D efforts sponsored by Federal agencies. At least two problems have been described. One is that reports and abstracts are not

always published in the proper format and journals, with complete data and results of R&D

work. The other is that relevant information on

new technologies is not always disseminated to

a wide group of those who will be able to make

the best use of it. Information and technology

transfer systems of the past have had a number

of problems, but, if an R&D project is worthy of

Federal support, there should be an equal effort

to make the results as useful as possible to as

broad a group as possible. Any new institution

for R&D should be developed with careful attention to procedures for disseminating the end

product.

Outreach.—The OTA survey indicates that a

majority of the number of firms in the industry

39
.-

40

do not participate in the ongoing Federal R&D

effort. Many feel that much of the work is not

relevant to their needs. Some other recent studies

of ship operations R&D indicate that a number

of operators have not participated in federally

sponsored R&D efforts and consequently the results have not been widely accepted.

Future R&D work and institutions would benefit from wider participation and acceptance from

the industry. While it is difficult to achieve such

participation, there have been recent examples of

excellent participation and acceptance in some

specific cases (e.g., the NAS Ship Structures Committee work and the MarAd National Shipbuilding Research Program and Cargo Handling Program).

Cooperative R&D. —Since the U.S. maritime

industry itself is made up of diverse sectors, the

opportunities for cooperative R&D may be limited

to special cases where groups of firms have the

clear interest and need. In other cases R&D by

individual firms may be the best approach; in still

other cases, direct Federal support of basic and

long-range research may be the best.

The OTA survey indicates that some firms are

eager to participate in a government/industry

cooperative R&D venture; others are cautious but

would support some versions of cooperative ventures; and still others do not see the need nor the

benefit of such approaches. Under these circumstances, it appears important to provide enough

flexibility within any new R&D institution both

to sponsor cooperative ventures where they make

sense and to sponsor independent R&D where it

makes sense.

Promoting Application of New Technology.—

A persistent problem in the U.S. maritime industry appears to be the application of certain advanced technologies or the pursuit of innovations

seeking such goals as increased productivity or

improved competitiveness. Several studies have

identified a need for encouraging new maritime

ventures, new products, or the adoption of new

technologies. If a new R&D institution were developed, attention also should be given to the application of useful new technologies in business

ventures. One participant in OTA’s workshop

suggested that a Government role in R&D should

be to assist and encourage the innovator or new

venture entrepreneur through the creation and

support of maritime venture capital funds. Whatever approach to future Federal R&D programs

may be followed, the application of advanced

technologies developed to enhance U.S. maritime

enterprises is an important consideration.
Appendixes
Appendix A

Summary of the R&D Program of

the Maritime Administration (MarAd),

Department of Transportation

Overview*

MarAd’s research program grew out of the program

office for the nuclear ship SAVANNAH of the late

1950s and early 1960s. The program pursued a variety of small projects and worked with the Navy on

surface effect ships until 1970 when it was enlarged

and redirected. The emphasis then shifted to cooperative work with industry to solve the near-term problems that plagued shipbuilders and operators,

In the past year or two emphasis is once again shifting. Administration policy is to have industry assume

more responsibility for its near-term problems while

government concentrates its efforts on the longer term

basic research. Corresponding to this policy, MarAd’s

research budget gradually has been reduced. In the

1970s, funding peaked at $25 million per year, after

which budget cutting took its toll. The FY 1984 and

1985 budget are $11.4 million and $9.9 million respectively. Accordingly, MarAd has been trimming some

of its programs. Work will continue in certain applied

research areas but it will involve broad-based projects

which apply to many or all companies, and these areas

will be turned over to industry whenever that becomes

possible.

With the limited funds available, high priority projects will be undertaken in shipbuilding, ship operations, and port technology. First priority will be policy or defense-related issues. Second priority will be

fundamental research. Third priority will be applied

research that can be useful to a broad range of shipyards, operators, or ports.

Government/industry cost sharing is a key element

in certain of the MarAd R&D programs. During fiscal

year 1982, MarAd committed $9.6 million to R&D

projects. Industry contributed an additional $4.5 million (FY 82 Annual Report, chapter 6). Joseph A. Seelinger, assistant to MarAd’s Research Advisor, estimates that the industry contributed $5 million to $7

million in 1983. The actual amount the industry contributed, however, is difficult to estimate because in-

—

“The material [n this appendix was taken from various publlshed and unpublished 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, facilities, or technical assistance rather than cash.

MarAd also has cost-sharing and cost-reimbursed

arrangements with the U.S. Navy and the U.S. Coast

Guard. In 1983, MarAd obligated $25 million of research and development funds. Of this amount, $15.5

million, including a one-time amount of $5.3 million

for funding of USCG icebreaker operations, was directly appropriated to MarAd, while $9.5 million was

contributed or reimbursed by other agencies, primarily the Navy.

The MarAd R&D program was recently reorganized. Formerly, an Associate Administrator had sole

responsibility for research and development. The Associate Administrator’s supervisory responsibilities encompassed: 1) the Office of Advanced Ship Development, which included the shipbuilding and ship

machinery programs; 2) the Office of Advanced Ship

Operations, which included the programs of fleet management, cargo handling, and ship performance and

safety; and 3) the Office of Maritime Technology,

which included the hydrodynamics, university research, marine science, advanced ship systems, and

ship structures programs.

With the recent reorganization, the R&D office was

merged with the MarAd Operations office and is now

under the Associate Administrator for Shipbuilding

Operations and Research. The major organizational

change was to combine the Offices of Advanced Ship

Development and the Office of Maritime Technology

in the Office of Advanced Ship Development and

Technology.

Within MarAd, the managers at the program level

(e.g., shipbuilding, ship machinery, etc. ) are largely

responsible for the organization and the conduct of individual programs. This results in a great deal of variation in how these various programs are operated and

how they interact with the industry. In a few programs, such as the Shipbuilding, Fleet Management

and Cargo-Handling Programs, formal relationships

have been established between the programs and the

industry. These arrangements may dictate specific procedures for soliciting input from the industry and for

carrying out joint research projects. Other programs

have less formal mechanisms for coordinating with the

43
4 4

industry but still have an active relationship with the

private sector. Overall, it is a policy of MarAd to conduct most projects on a cost-sharing basis; projects that

are not conducted on this basis are required to justify

their 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 program

are jointly sponsored by MarAd and industry; this

joint participation is widely thought to be the primary

reason this program has been so successful. J. E. DeMartini of the Bath Shipyard writes: “The National

Shipbuilding Research Program has grown into an effective vehicle for the conduct of industry-wide research and development programs that have made substantial contributions to increasing the productivity of

our industry. ” (DeMartini, 1982. )

NSRP coordinates R&D activities through the Society of Naval Architects and Marine Engineers

(SNAME). SNAME helps to disseminate the results of

R&D projects to their members. In addition, the Ship

Production Committee of SNAME has formulated a

five-year R&D plan. According to M. Lee Rice, President of the Shipbuilders Council of America, the shipbuilding industry generally views NSRP as a successful

program.

Ship Machinery

Before the oil embargo of 1973, the Ship Machinery Program concentrated on lower cost engines and

lower manning. After the embargo, fuel efficiency became its main thrust although work continues on lowering capital and maintenance costs. All work in coming years will be on longer range projects: fundamental

work will be conducted on the diesel engines, alternate fuels, and fluidized bed combustion. The nearterm work on energy conservation and steamship retrofits will be left to industry.

In FY 1985 the first phase of a project on ceramic

coatings for diesel components will be completed.

These coatings, which were originally developed for

gas turbine blades, can be applied to diesel internals

and allow higher operating temperatures, and thereby

attain greater efficiency and raise tolerance to lower

grades of fuel. In cooperation with the U.S. Coast

Guard, the problem of spontaneous combustion of

coal aboard ship will be studied.

In FY 1986, further work on diesel efficiency will

be conducted including the application of the Navy’s

RACER system (Rankine Cycle Energy Recovery) to

diesel waste heat recovery. In both 1985 and 1986,

work will continue on the use of alternate fuels, such

as coal-in-water slurries, and on a cooperative project

with industry to adapt the new concept of fluidized

bed combustion to ships.

Cargo Handling

The Cargo-Handling Cooperative Program (CHCP)

is an arrangement between MarAd and six U.S. carriers for conducting cooperative R&D on cargo handling. The program was initiated in 1981, with projects actually beginning in 1983. The program operates

through an executive committee composed of representatives of the carriers and MarAd. The committee

meets two to four times a year to discuss common interests and to plan future projects. These projects are

then conducted by contractors recommended by the

MarAd program administrator and approved by the

executive committee. The carriers themselves do not

conduct R&D projects as do the shipyards associated

with the Ship Production Committee; however, one

of the member carriers takes the lead in monitoring

each of the projects. Results of the projects are disseminated through monthly reports written and distributed by the MarAd program administrator. The CHCP

was budgeted at $500,000 for FY 1984. Additionally,

the CHCP is being funded by the Navy to conduct research relevant to both military and civilian needs.

In 1985, work on a computerized simulation model

of container terminal operations will continue. The

carriers use this model to determine the impacts of

changes in operational methods and vessel scheduling.

Another project is determining how changes in cargo

handling might capture some additional cargo for container carriers. Bar code identification equipment is being tested to determine its ability to function in the

marine environment. There is a continuing effort to

assess the technologies used in other industries for their

application to marine cargo handling.

Future projects will include a test of low frequency

microwave identification systems, improved communications between yard equipment and a central control station, automatic storage and retrieval of containers in the container yard, automated interchange

transactions, testing of automated guided vehicles, and

laser disc storage of documentation.

Computer-Assisted Operations

Research Facility (CAORF)

This facility simulates a ship’s bridge as well as ports

or channels and their associated traffic and is used to

investigate and test alternative operating procedures.
45

Cost-shared projects are carried out with U.S. Coast

Guard, U.S. Navy, Corps of Engineers, port authorities, and shipping companies to test the effect of variables in their operations—changes in turning basins,

positioning of buoys, changes in training procedures,

etc.

In FY 1985 and 1986, CAORF will continue to work

on a wide variety of navigational problems, many for

other parties on a reimbursable basis. One project

which will continue into FY 1985 is a reimbursable

project for the Panama Canal Commission. The Corps

of Engineers will continue to be a heavy user of

CAORF in connection with several dredging projects,

including Hampton Roads, Mobile, and New York.

Individual port authorities will also be funding projects at the facility. MarAd will conduct its own work

at CAORF on safety-related projects such as improved

navigational and training procedures.

Fleet Management

The Fleet Management Program has established a

formal mechanism—the Cooperative Industry Research Program—for soliciting ideas and establishing

cost-shared projects with the industry. Under this program, a Request for Proposal is issued annually to over

800 firms. The program then funds the best proposals

among those submitted.

MarAd has been working with the ship operating

industry on information technology since the early

1970s. Various computer modules were developed but

problems arose on the transferability y of these modules

from one company to the next. A new approach is to

work with groups of companies through trade associations and to structure the output so that it is as widely

usable as possible. This work has been merged with

a former program on ship communications. Work on

near-term computer/communications applications is

being phased out as recently developed modules are

being implemented, and as industry takes a larger role

in developing new ones that may be required. A new

generation of technology is being investigated to see

how 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 a

technology forecasting project initiated in FY 1984.

These projects will use technologies that are not yet

fully developed, but are currently in the basic research

phase of R&D. Projects will be undertaken to provide

a useful product within 5 to 10 years. Although of a

lesser priority, work will continue in the Cooperative

Industry Research Program, which provides for 50/50

cost sharing with industry on near-term projects to implement existing state-of-the-art technology. Continuation of these near-term projects is thought by MarAd

to be essential to maintaining a spirit of cooperation

with industry.

Ship Performance and Safety

This program addresses several areas of ship operations not covered elsewhere. Among these are effective manning, maintenance and repair, and hull and

propeller coatings. Projects are usually conducted in

cooperation with industry and/or labor. They are

aimed at reducing fuel consumption, reducing the

hazards aboard ship, or analyzing motivational aspects

of seafaring to improve productivity and retain skilled

seafarers in the work force. There has been an increasing emphasis in this program on making better use of

the human resources of the industry. The biggest effort in coming years will be on effective manning of

ships. In cooperation with shipowners and unions,

shipboard experiments will determine the safest and

most economical crew levels. Hull and propeller coatings will continue to be an important area of research

in an effort to increase propulsive efficiency and reduce maintenance.

Advanced Ship Systems

This program is designed as the industry’s bridge to

tomorrow’s shipping systems. The maritime industry

is not organizationally or financially equipped to do

long-range research and development. Under present

circumstances limited resources are directed at nearterm survival. The probability of success in any given

Advanced Ship Project is small compared to that of

the other programs, and the successes may come in

directions other than those originally intended.

For FY 1985 and FY 1986, an initiative is planned

on “competitive ships of the future. ” This would be

an R&D joint venture, involving both government and

industry, to develop prototype ship designs which incorporate the latest technology. The goal would be a

series of ships which could be competitive in many

world freight markets. While this project has been approved in the budget, the project has not yet been given the go-ahead to begin.

In addition, technology development for ice transiting ships will continue, Also, the study of powering needs in various ice conditions will continue. This

will require additional full-scale tests of polar class

icebreakers in cooperation with the U.S. Coast Guard.

Marine Science

Just as there is very little work on advanced concepts by the industry, there is little or no fundamen-
46

tal research on hydrodynamics, structures, and propellers. In addition, because of the nature of this

research, relatively few projects are cost-shared by industry. Other government agencies such as the U.S.

Navy and U.S. Coast Guard as well as the American

Bureau of Shipping share in this work, especially

through the Ship Structures Committee. Wherever

possible, the agencies work together to solve common

problems. MarAd, however, must take the sole initiative in problems peculiar to the merchant fleet, such

as the maneuvering of tankers in shallow water or the

resistance of vessels with very high block coefficients.

Research will continue in the following areas: 1) improving 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 performance printouts and Canadian diversion reports.

Planning is carried out on new market strategy models

and forecasts of trade. In addition, U.S. and international policies are evaluated for their affect on U. S.-

flag carriage. Industry has taken part in this program

by recommending research projects.

In FY 1985 and 1986, this program will emphasize

research on possible barriers to U.S.-flag vessels in

world markets. The impact of international maritime

policies also will be assessed and responses will be recommended.

efficiency, and 3) ship structural safety through the interagency Ship Structure Committee.

Market Analysis

The small amount of research conducted by this program is directed at a number of areas. Specific marTable 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

$ 492.4

24,000.0

24,492.4

24,2994

$ 1930

22,432.0

22,625.0

22,138,9

$ 7680

19,768,0

20,5360

19,164.1

$9,314.7

8,434.4

1,626.6

3,3846

6668

0 0

872.3

a

b

00

$6,572.2

9,677.3

2,343,3

2,221.9

882.9

0.0

525.0

39.3

b

(123 O)

$ 7,4331

3,272.8

3,6566

3,1279

5682

0.0

318.5

3006

4864

00
47

Table A-2.—MarAd R&D Program Funding, Fiscal Years 1976-85

(dollars in thousands)

Contract awards by fiscal year

Transfer 1985

quarter 1977 1978 1979 1980 1981 1982 1983 1984 (estimated)

Prior year carryover $1,371,8

Appropriation 4,000,0

Total available 5,371.8

Obligations : $3,101.3

Advanced ship

development 574.0

Advanced ship

operations 774,6

Maritime technology 742.1

NMRC/CAORF 8370

NS Savannah/nuclear 870

JSESP O 0.0

Agency support. 8.6

Market development a

Port & intermodal 780

Othe 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 $2,919.0

2,670.4

18,500,0 18,325.0 17,500,0 16,300.0 13,800.0 8,481.0 15,300.0 11,385.0 9,900.0

20,770.4 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

1,882,2

3,624.3

5,080.5

107,3

0.0

2055

a

1,301.2

0.0

1,922,3

4,889,7

4,850,6

0.0

0.0

175,6

a

1,4563

0.0

2,476.0

5,111.3

6,568.4

0.0

0.0

346.4

a

c

0.0

2,673.0

4,159,0

5,802,0

0.0

0.0

194,0

a

c

0.0

2,274.0

2,852.0

3,534.0

0.0

0.0

669.0

0.0

1,569.0

1,181.0

3,666.0

0.0

0.0

444.0

b

b

0.0

2,1660

1,244.0

2,933.0

0.0

0.0

617.0

b

b

4,7000

1,332,0

2,731,0

3,478.0

0.0

0.0

2930

b

b

0.0

4,164,0

1,818.0

3,547.0

0.0

0.0

0.0

450,0

446,0

0.0

alnclu~ed In arjvan~d sh[p development

b(ncluded (n agency supporl

clnc(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 Manufacturing

Technology Program (ManTech)

The U.S. Navy’s ManTech Program was established

in 1977. Its objective is to encourage the adoption of

advanced production equipment and processes to reduce the cost and delivery time of Navy systems, improve the quality of fleet hardware, improve the mobilization readiness of the Navy’s industrial base, and

reduce dependency on strategic and critical materials.

It provides funding and other incentives for the adoption of production technologies where industry cannot provide for such advances in a timely manner.

The ManTech Program directs its efforts towards

all industrial sectors that manufacture products for naval use. However, a major effort in shipbuilding technology was initiated in FY 1984, with the goal of a reduction of 10 percent in the cost of Navy ships and

25 percent in delivery time by 1990. This effort is a

joint undertaking between Navy, MarAd, and the industry as represented by SNAME’s Ships Production

Committee. The shipbuilding technology program of

ManTech will be a priority program of the Navy’s for

at least the next five years. The program’s budget in

FY 1983 and FY 1984 was $10.27 million and $19.12

million respectively. The projected budgets for FY 1985

and FY 1986 are $21,37 million and $24.70 million.

The U.S. Navy’s ManTech Program is an Advanced

Development Program (identified as Navy Program

Element 78011N, Project Z1050). Funding in the

amount of $2.0 million per year is provided to the

NSRP-SPC from the ManTech Program as the Navy’s

share. In addition to conducting development within

the SPC, the SPC provides oversight review of the

Navy’s ManTech Program applicable to ship production. Criteria for selecting ManTech projects is specified in NAVMATINST 4800 and emphasizes “Return

on Investment” to the Navy.

The portion of the ManTech Program supporting

shipbuilding or ship performance technology development is managed by NAVSEA. The NAVSE (ships)

project funding for FY 1977 through FY 1985, representing the Navy’s efforts in this area over the past nine

years, is as follows:

Fiscal year Funding ($-millions)

1977 . . . . . . . . . . . . . . . . . . . . . . . 8.9

1978 . . . . . . . . . . . . . . . . . . . . . . . 7.5

1979 . . . . . . . . . . . . . . . . . . . . . . . 8.2

1980 . . . . . . . . . . . . . . . . . . . . . . . 5.1

1981 . . . . . . . . . . . . . . . . . . . . . 2.1

1982 . . . . . . . . . . . . . . . . . ......11.8

1983 . . . . . . . . . . . . . . . . . ......10.3

1984 . . . . . . . . . . . . . . . . . ......19.1

1985 . . . . . . . . . . . . . . . . . ......21.4

Table B-1.— Navy’s ManTech Program Funding, Fiscal Years 1983-86

(dollars in millions)

4-year

FY 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 25

Electronics 6.96 22 8.147 15 10.69 16 12.37 16 38.17 16

Logistic s .30 1 1,1 2 5.34 8 6.20 8 12.94 6

Manufacturing science 3.34 11 7.92 14 10.27 15 11.90 15 33.43 14

Administration and planning 2.96 9 4,202 7 4.79 7 5.65 7 17.6 7

Tota l 31.72 100 56.13 100 68.49 100 79.4 100 235.74 100

alncluded In ships line

NOTE 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 5

Propulsion—propeller manufacturing,

reduction gear measure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 24 2.4 12 3.2 15

Electrical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0 0.0 0 3.2 15

Auxiliary-piping automation

flexible machining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 18 4.8 25 3.2 15

Outfit—robotic preparation and coating. . . . . . . . . . . . . . . . . . . 0.2 2 3.7 19 3.2 15

Armament—laser metalworking . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 35 4.6 24 4.3 20

Integration—computer scheduling . . . . . . . . . . . . . . . . . . . . . . . 0.0 0 0.2 1 1.0 5

National shipbuilding R&D—MarAd . . . . . . . . . . . . . . . . . . . . . . 2.2 21 2.2 12 2.2 10

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 100 19.1 100 21.4 100

NOTE Percentages are rounded, and may not add up to 100 In some tables
Appendix C

Samples of Survey Forms

CONGRESS OF THE UNITED STATES

OFFICE OF TECHNOLOGY ASSESSMENT

Survey of R & D activities in the

SHIPBUILDING INDUSTRY

JUly 198 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 & D

below.

a. Ship design and performance

b. Ship subsystem design —

indicated in question

%

%

(e.g., propulsion system, navigational equipment, etc.)

b)

operating budget spent on R & D activities (not inin the current year? %

1, estimate the percentage spent for each of the categories

c. Shipbuilding research %

(e.g., CAD/CAM, ship production technology, shipyard 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 addition, 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 on

Very

Influential

Interest rates

Availability of finance Capital

Government policies and programs

Market demand

Competitive pressure

Other (please specify)

6) How do the following Federal laws, regulations and policies affect

Encourages

Investment

Antitrust statutes

Patent law

U.S. tax code

OSHA safety regulations

Phase out of ODS/CDS

070 of Total Contribution

070

%

070

070

your firm’s investment in R & D.

Somewhat Not

Influential Influential

your firm’s investment in R & D?

Discourages Little or

Investment No Et’feet

—
51

7)

or

1.

2.

3.

4.

5.

6.

7.

8)

a.

b.

9)

Please rank order the laws and

discourage R & D investment.

Encourages

Investment

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 activities

Foreign R & D activities

Could you suggest ways the

Discourages

Investment

to the technological advances resulting from:

Yes

Federal government might

that they encourage

No

make this information more accessible?

Negative

Incentive

10) How would the following options affect your firm’s incentive to invest in R & D?

Significant Slight

Incentive Incentive

a. Extension of the Capital Construction

Fund to R & D expenditures (allowing tax

deferment ).

b. Availability of Federal loan guarantees

for R & D expenditures (e.g., Title XI)

c. Amendment of antitrust laws to permit

research joint ventures

d. Expansion of tax credits for R & D expenditures

e. Increase in direct Federal support for R

& D

11) Would you support the formation of a government-industry sponsored maritime research facility for the purposes of conducting long-term basic and applied research and for serving as a clearinghouse for Navy, foreign, and

domestic civilian R & D advances?

Strongly endorse such a research facility and would be willing to participate and provide funding for

cooperative research projects.

Endorse such a facility but do not anticipate that my organization would actively participate or provide

funding.

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 government 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 through

which 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 Federal

construction and operating subsidies, can you suggest other Federal maritime incentives that might help revitalize

the industry? Which of these, if any, would be significantly more beneficial than R & D incentives?

Classification Questions

Answers to the following questions will be used to classify the survey responses and will assist OTA in drawing conclusions 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 construction— % Repair %

4. Title of survey respondent

5. 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 Lines

American President Lines

American 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 Shamrock

Dixie Carriers, Inc.

Dow Chemical Co.

Energy Transportation Corp.

Falcon Grove

Farrell Lines

Getty Marine

Gulf Oil Products

Hvide Shipping

Ingram Barge Co.

Lykes Bros. Steamship Co.

Marathon International Petroleum

Marine Transport Lines

Mobil Oil

National Marine Service, Inc.

Navieras de Puerto Rico

Ogden Corp.

Overseas Shipholding Group

Pacific-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 California

Unnamed Operators-Two (2)

U.S. Lines

Western Hemisphere Corp.

Shipyards

Alabama Dry Dock & Shipbuilding Corp.

Avondale Shipyards

Bath Iron Works Corp.

Bay Shipbuilding

Bethlehem Steel Corp.

Campbell Industries

Dillingham Ship Repair

Dravo Marine Equipment Co.

FMC Corp.

General Dry Dock & Repair Corp.

General Ship Corp.

HBC Barge

Hoboken Shipyards, Inc.

Ingalls Shipbuilding

Leevac Shipyards

Lockheed Shipbuilding Co.

Marco Seattle

Marinette Marine Corp.

McDermott, Inc.

NABRICO

National Marine Service, Inc.

National Steel & Shipbuilding Co.

Newport News Shipbuilding

Newport Shipyard, Inc.

Norfolk Shipbuilding & Drydock

Pennsylvania Shipbuilding Co.

Peterson Builders

Service Machine Group

Southern Shipbuilding Corp.

Southwest Marine

St. Louis Ship

Steiner Shipyard, Inc.

Todd Shipyards

Tracer 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 Responses

to Open Questions

A Compilation of Specific Suggestions

of Survey Respondents

1. Question #9 —Could you suggest ways the

Federal Government might make (R&D) information more accessible?

Operators

MarAd could screen this information on behalf of

U.S.-flag operators and distribute free abstracts of

applicable material very much as many trade association libraries make industry information available to their members.

Regular publications issued to the Federation of

American Controlled Shipping Organization.

The Federal Government could make information

regarding USN and foreign R&D activities into a

single source, single catalog, available to U.S. liner

companies through a single agency such as MarAd.

Allow government contractors greater freedom to

use their government work in civilian applications.

The Freedom of Information Act has been very helpful in accruing information. The response time or

turnaround time needs to be greatly reduced if information is to be utilized properly.

There is no need for Federal Government involvement in this area.

It could be summarized for publication through an

industry trade association.

Microfiche Titles. Supply to our national organization in Washington-American Waterways Association (AWA). Run articles in our publications, such

as, Waterways Journal, Work Boat, etc.

They should be presented (including translation) in

a form that is understandable to the merchant fleet

and shipbuilders in general.

Provide an industry-related catalog listing and describing R&D programs in progress or completed for

the past 2 or 3 years.

Greater information exchange between U.S. Navy

and organizations such as MarAd, SNAME, and

Naval Architectural schools in areas which affect

cost savings and shipbuilding techniques. For example, MarAd could periodically update commercial

S.B. specifications, say, yearly reflecting current

state of the art. Also, R&D should be targeted at

the practical aspects of S.B. and operations.

54

● The National Technical Information Service periodically makes available lists of technical publications collected from various sources, which may be

ordered. The number of items included in this listing

could be expanded to make more technical information available.

Shipyards

●

●

●

●

●

●

Establish a government/industry sponsored maritime research facility as described in question #11

with the provision that overall management control

be exercised by industry.

A how-to-help access catalog might help. Seminars

have been successful, such as IREAPS-SPC show

and tell programs, such as have been held at University of Michigan. Education training programs could

be improved with more funds. They have a good

start on library information but need to be advertised more and put on technology updates.

Conduct annual symposiums. Distribute via GPO

both domestic and foreign R&D updates.

Navy R&D should be shared on a periodic basis

with all shipyards. Meetings should be convened to

present and update the results of MarAd R&D projects with particular emphasis on ship system and

productivity developments. Item 9 addresses a significant shortfall in Navy R&D, specifically the

timely accessibility of Navy generated R&D data.

It is recommended that the Navy sponsor periodic

reviews during the year organized by NRL or

DTNSRDC to present to invited shipyards the results of recent projects. Emphasis should be placed

on those projects which enhance shipyard productivity or describe ship system developments. These

meetings would not only encourage a dialog between the Navy R&D community and the shipbuilding industry, but also better enable the shipyards

to 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 design information included with Federal bid requests

for the hardware involved. The point is that the firm

conducting the R&D work should not necessarily}

have control of the R&D output.

Publish through the Society of Naval Architects and

Marine Engineers.
55

Publish a catalog of U.S. Navy R&D reports and

available R&D reports of foreign governments.

Offer seminars where shipyards are invited. Send

out information indicating the scope and objectives

of ongoing R&D.

Use industry technical groups.

Establishment of maritime industry equivalent to

NASA with responsibility for collection and industry-wide dissemination of maritime-related basic research, design, and construction technology.

Accessibility appears adequate in the Shipbuilding

Industry. However, direct access to a U.S. Government controlled technical library would enhance and

broaden the application of advanced techniques.

Publication on a quarterly basis of the documents

registered 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 to

establish a joint Navy/industry study group to address this issue. The group should be tasked to identify the specific problems, identify and evaluate alternative solutions, and develop specific recommendations. Specific possibilities include establishment

of a formal technology transfer program similar to

NASA’s with its many and varied mechanisms.

Publish a quarterly compendium of R&D efforts

with progress reports on each project.

Question #12–Could you suggest other orga- ——

nizational or institutional changes within the

Federal Government that might improve the

effectiveness of government-sponsored research?

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 the

steamship industry. Accordingly, the organizational

institutional changes within the Federal Government

that would most improve effectiveness, would be

proper funding and market research conducted by

the office of tourism. Where we could most use the

help would be in development of international markets for our operations in the State of Hawaii. This

is an area where it is very difficult for a company

of our size to develop an adequate international

presence, and the continuing cutbacks in funds for

the office of tourism has significantly hampered our

ability 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 competitors in the cruise industry who generally have

easy access of foreign markets because of their ownership structures.

Those areas chosen for government-sponsored research should be established with strong participation and input from the end users of any expected

R&D results.

In general, it is important for the government to encourage improved industry contact (shipyards-owners-consultants-operators-navy-education institutes). The feeling of’ unity through the marine

industry gives an enormous boost, which both are

required in the U.S. Research should be done within

all the marine groups and preferably with the participation of more than one group in each program.

The government can help to coordinate and pay for

this or leave the coordination to someone else.

Under present arrangements, results of research tend

to be too narrow and too late. Administration of

research should be directed more to the timeliness

and practical applicability of the results.

The U.S. Department of Transportation should take

direct responsibility for government-sponsored research, and also the direct responsibility for the communication of this information to shipowners.

Rather than making payments to secondary contractors, payments if made to U.S. liner companies

would ensure better control over R&D activity performed by the subcontractors.

We recommend that the Federal Government shift

its support of marine R&D to a role of primarily being a source of funding. The marine industry should

participate to a greater extent in the selection of

R&D projects and their administration. This would

help to make the funded work relevant to real industry problems, thereby providing the most efficient use of government R&D funds. Under this scenario an industry-wide research information facility

would be most desirable.

Government-sponsored research has been ineffective in the commercial marine area. It makes little

sense to spend $4 million in one day on commercial

shipbuilding research when no ships are being built

or contemplated.

Focus on things we’d all use—such as better barge

fastening systems, better navigation aides for Mississippi River, river pilot simulator/trainer development, shorter range radar enhancement, etc.

Shipyards

● Establish a fund for unspecified R&D projects administered by an agency such as the Maritime Administration’s Office of Advanced Ship Develop-
56

●

●

●

●

●

●

●

ment and Technology for funding those “target of

opportunity” projects meeting predefine criteria

and limits. Change contract approval procedures

(F. A. R.) to decrease proposal lead time for R&D

projects by eliminating “red tape” delays that, while

necessary for normal procurement items, are an impediment 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 Bureau of Standards). Designate and fund a central

control agency to administer all major R&D projects with authority to mandate implementation of

the results of those projects as a condition of continuing/obtaining government contracts (e.g., ship

acquisition and repair organizations implement the

advances made by some of the industry in the use

of group technology).

Make the results more readily available to private

industry.

The effectiveness of government-sponsored maritime research could be improved by centralizing the

administration 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 construction U.S. maritime research will always be ineffective. The Federal Government must establish

a positive maritime policy to decrease dependence

on foreign vessels. Establish a positive maritime policy which will cause vessels to be built in the United

States. Commit to build and maintain an adequate

military sealift capability with an adequate sustaining domestic industrial shipbuilding base.

Strengthen integration of common elements of U.S.

Navy, MarAd, and U.S. Coast Guard research programs. Suggest detailed investigation of role and effectiveness of the British Shipbuilders Research Association (BSRA).

Streamline contracting procedures to make R&D efforts time effective. Broaden the concept of IR&D

such as to create greater acceptance of cost allowability for efforts undertaken independent of government sponsorship.

Force existing agencies (i.e., Coast Guard, MarAd)

to be more sensitive to industry needs and requirements and become more aggressive in pursuing programs to benefit the marine industry (inland and

offshore).

At the present time, three government organizations

are directly involved in maritime research: the

Navy, the Coast Guard, and the Maritime Administration. While the focus of these research efforts

is not the same it would appear that there should

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be more extensive use of joint efforts in higher cost

technology developments and in technology demonstrations. The research activities accomplished by

the Navy are not centralized under a single command 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 (Laboratories)

—Deputy Chief of Naval Material (Technology)

This highly fragmented R&D organizational structure when coupled with the R&D activities accomplished under the Under Secretary of Defense Research and Engineering would not appear to result

in effective and efficient utilization of the R&D dollars. Some effort may be made to simplify the organization and consolidate the R&D program. A major detriment to R&D effectiveness is the slow pace

at which new technology is introduced. A major reason for this is the absence of R&D platforms (ships,

submarines) on which to demonstrate this technology in an operational environment as is done in

aerospace programs.

Clarify Jones Act to include icebreaking and ice

management in the OCS as an absolute requirement

of the U.S.-flag built and manned vessels.

Question #13—Would you advocate increasing direct Federal expenditures on maritime

R&D? If so, please indicate through which Federal 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 activity. Yes, if it means channeled through government agencies and including nongovernment participants.

Yes. Maritime Administration.

Yes, through Maritime Administration support of

educational and pure research institutions, not

through industry.
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All expenditures on maritime R&D should be beneficial and should be administered through the U.S.

Department of Transportation.

Yes. MarAd.

Yes, increasing Federal expenditures on maritime

R&D would be helpful. Again, selection of the proper agency could be based on experience of R&D administration such as MarAd.

Yes—The Maritime Administration Fleet Management Technology Research and Development

Program.

Increased Federal support might be useful if industry participated in selection and administration of

projects.

As presently constituted now. Again we can only

comment with respect to the American flag passenger industry. The most important Federal policy or

incentive change which could affect the passenger

ship industry, would be a recognition that the present body of law governing passenger vessels was

written and devised at the time when the purpose

of passenger vessels was to transport somebody

from point A to point B. People don’t do that anymore, with the exception of small ferries. People get

on passenger ships to take a vacation, not to travel

from point A to point B. The laws as presently constituted place a great handicap on American operators. A proper body of law recognizing that the passenger business has changed from transportation to

vacation industry could perhaps promote the American industry more than any other single change.

As you can see, the classification questions indicate

that the survey is designed for other than a passenger operation and we again caution you against

using the results incorporating our percentage results

and our responses into your main survey.

Yes. Navy and MarAd.

Yes—through a program of funding research by academic institutions.

Shipyards

Yes, but with some modifications: a) The current

Manufacturing Technology program is an excellent

vehicle if modified to reduce funding time from proposal to contract award and to expand its definition to include total manufacturing systems in addition to production machinery and supporting

systems. b) Recognize the National Shipbuilding Research Program, which has momentum and is successful (described in a 1976 Rand Corporation report as being one of the five most effective

government-funded research programs in terms of

development and implementation achieved), as a de

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facto research consortium that should be continued

and supported with increased funding.

Yes, Maritime Administration and U.S. Navy via

the National Shipbuilding Research Programs which

have done a lot to educate all levels of shipyard people. Keep them talking as to how to be more competitive. This program has sharpened up. A lot of

shipbuilders and I believe the Navy has benefited

most as they are currently the ones having ships

built in U.S. shipyards.

Yes, by increasing Navy, MSC, and USCG design/

construction programs; fund through MarAd for

conversion of steam turbine vessels to diesel.

Yes, MarAd.

Yes, U.S. Navy.

Current funding levels are adequate but should be

used and appropriated in a more timely efficient

manner.

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 with

competing modes of transportation.

The Federal funding of maritime R&D should be increased at least to the extent necessary to permit the

funding of demonstration projects to expedite the

introduction of new technology. This could best be

done through a Navy program.

MarAd.

Yes, MarAd.

Yes, through the U.S. Navy. With regard to items

12 and 13, we believe Federal expenditures on maritime R&D should be increased, and more importantly, this funding of private industry should be

administered through one agency, specifically an

agency of the U.S. Navy, This would have the effect of eliminating redundancy and improving the

overall effectiveness of the Federal research dollar.

Yes. Through a Maritime Administration, firmly instructed and dedicated to a new maritime policy to

maintain a viable shipbuilding industry. Present policies are leading to the rapid demise of commercial

shipbuilding and no research can be effective or stem

that tide without a change in policy.

Not particularly, all published R&D in the United

States is readily available to foreign competitors.

There is very little way of the U.S. maritime industry taking exclusive advantage of this R&D.

Strongly advocate Government financial support of

existing industry-wide R&D efforts conducted by

SNAME ship production committee.

No, use tax incentives for privately funded R&D

programs.

Focus entire research budget on labor productivi-
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ty—skills assessment and training, production planning and organization, productivity measurement

and control.

Question #14—In addition to the R&D options

suggested on questions 10-13, and in light of

the recent phase-out of Federal construction

and operating subsidies, can you suggest other

Federal maritime incentives that might help revitalize the industry? Which of these, if any,

would be significantly more beneficial than

R&D incentives?

Operators

Stop changing laws and regulations. Apply cargo

preference. Prevent CDS payback. Halt the export

and 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 critical

in making slow-speed diesel equipment available.

Let's form a real export selling team for our bulk

commodities (grain and coal in particular, but also

timber products, finished steel, containers, etc. ) with

a focus on barters and exchanges.

Avocation of foreign technological advances to be

incorporated in U.S. hull construction.

In my opinion, the U.S. Government needs some

good basic Maritime Shipper input for the entire

business. Most input today comes from the Maritime Unions and ship operators. How about doing

a study of shippers (those who pay the bills)? Some

research on what shippers really want and need

could be worthwhile. Most people in the business

today know what can and cannot be accomplished

in ship construction and overhaul areas. The limitations and restraints are the laws and regulations limiting the flexibility of using foreign equipment and

facilities. U.S. shippers cannot continue to compete

in the world market place using U.S. equipment and

U.S. crews.

Permit “Jones Act” Coastwise shipowners to build

abroad without restriction.

Consider U.S. Government review of the current impact on operating costs of U.S. union pension fund

cost/unfunded liability. Union membership crew

significantly as a result of U.S. Government requirements for supply capability connected with the Korean/Viet Nam conflicts result being that today and

in foreseeable future a “declining” industry is saddled

with an excess of manpower.

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Greater proportion of U.S. generated cargoes reserved for U.S. flag (cargo preference) with competition among carriers for the cargo, and subsidy if

necessary to the shipper so that he does not suffer

competitive disadvantage.

No. Federal maritime incentives would currently

“revitalize” the tanker industry which is experiencing a long sustained recession.

An increase of monies for wharfage improvement

and less trade route regulations would be areas that

could be looked into. The areas that reduce port

time 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 marine

while abroad.

Non-union labor. MarAd—increase their budget.

Improve direct tax credit(s) deductions to encourage

expansion.

Direct orders, under Defense appropriations, for

ships designed to meet Defense requirements. Development of joint effort by shipyards and shipowners and U.S. Government of realistic national

program (based only on need) to support and maintain required national shipbuilding ban. (Both would

be more beneficial than R&D incentives. )

Elimination of Federal Duty (50 percent) on foreign

replacement and repairs on vessels. Also, provide

greater operational flexibility for deployment of

fleet.

Shipyards

● a) Recognition of the U.S. commercial fleet as the

“Merchant Navy” with formal integration into the

defense plan. b) Identify the required geographically

dispersed mobilization base needed to support the

combatant and merchant navies and devise an effective allocation system for construction and repair

of both merchant and combatant ships. c) Establish

a cargo preference act with modernization incentive

similar to the DOD Industrial Modernization Incentives Program (IMIP) as an integral part of those

shipyards identified and allocated in part b). d) Establish a program of Government aid for U.S. shipyards to secure construction work of any kind, contingent upon their being part of the mobilization

base and which are demonstrably adopting analytical means for constantly improving their manufacturing systems. e) A modified version of the DOD

Industrial Modernization Incentives Program (IMIP

which would permit shipyards without significant
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major Navy ship construction contracts to participate (e.g., average annual Navy ship overhauls,

etc. ).

We build ships usually too small to get involved in

subsidies. The tuna vessels had no help. Tuna people did well up until the market fell apart two years

ago. The Naval vessels and tugs and ferries also get

no outside help so we can’t really comment.

Reinstate ODS/CDS. Limit small business set aside.

Preference Act percentage of American cargoes carried by American bottoms. Ad Valorum Tax.

There are two areas where the Federal Government

might have an appropriate role in revitalizing the

maritime industry: 1) adopting a Federal policy

which implements a contingency strategy to be followed in case of conventional war, i.e., guaranteed

maintenance of shipbuilding facilities; and 2) incentives, laws, etc., which increase the volume and

profits of U.S. ship and barge owners (effectively

creating an investment “fund”).

Enact cargo preference legislation. Reserve to U.S.

built, U.S. flag all temporary and permanent marine

construction, including vessels, rigs, stationary and

underwater construction, involved in the exploration, development, and production of nonliving resources with the U.S. 200-mile Exclusive Economic

Zone. Preserve the Jones Act. These three measures

involve no direct Federal expenditures and would

have a far greater benefit than any R&D incentives

in revitalizing the industry and preserving a viable

industrial base for national defense.

The largest help would be in low-cost, long-term

credit facilities. the two major ship costs are interest 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 means

of ensuring a large, stable, and continuing demand

for new building from the U.S. shipbuilding industry. Sufficient demand and stability of demand will

itself enable private industry to invest sufficient

funds in R&D or new capital equipment to significantly improve efficiency and match foreign shipbuilder’s productivity levels.

Tax incentives for shipping U.S. goods on U.S. bottoms. Tax incentives for foreign imports shipped on

U.S. bottoms.

Bring more ships under U.S. flag by making it an

economic advantage to do so.

No, R&D incentives outlined should be adequate.

A shipbuilding subsidy which provides incentives

for increases in productivity.

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1) A Title VII shipbuilding program. 2) Shift of emphasis in naval shipbuilding from combatant to auxiliaries and sealift. 3) Bulk and neobulk cargo preference. 4) Tax credits for shipbuilders, shipowners,

ship operators, and shippers. 5) Extention of Jones

Act and closing of loopholes. 6) 100 percent cargo

preference for government-impelled cargoes. 7) Etc.,

etc.

Maintenance of inland waterways, removing obstructions to navigation. Funding for facilities and

equipment to maintain minimum mobilization capability.

The greatest incentive for revitalizing the U.S. Merchant Marine is a program which makes oceangoing cargoes available to U.S.-flag ships. Because of

the prevalence of foreign government supports for

the national maritime fleets, a “free trade” environment has not existed for many years, and U.S.-flag

carriage of U.S. export and import cargoes has decreased to less than 4 percent. Because of this unhealthy market environment, many ship owning/

operating and shipbuilding companies are unprofitable. This lack of profit, together with the low level

of cargo carried, results in virtually no tax revenues

derived by the Federal Government from this industry. The U.S. is in danger of being held hostage for

the carriage of cargoes not only to support the national economy, but also to support one or several

major military contingents involved in sustained

operations in overseas trouble spots. The realistic

solution to this potentially dangerous situation is to

develop and implement a national program which

reserves a reasonable amount of U.S. import and

export cargo for carriage in U.S.-built, U.S.-crewed,

U.S.-flag merchant vessels having defense utility.

Without government support, the freight rates required to be charged by the owners/operators of

these vessels will be much higher than rates charged

by foreign ships. This will make U.S. exporters less

competitive in world markets, and will increase the

consumer cost of imports. To offset the higher costs

of suing U.S. ships, tax credits should be allowed.

These tax credits should not go to the shipbuilder

or the ship operator, but to the companies that use

the U.S. ships to haul their cargoes. The Competitive Shipping and Shipbuilding Act, as redrafted by

Congressman Herb Bateman of Virginia, does all of

the above. The passage of this bill would result in

the construction of an overage of 20 ships a year

for 1.5 years. The bill requires that shipbuilding and

ship operating costs for a 10-ship series in any single
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yard to be reduced by 20 percent from the current

level for a one-ship project. If the bill is passed and

signed into law, and if the 20 percent cost reduction is achieved, the resulting long-term program

would establish a stable market for the commercial

part of the maritime industry. Such a stable market

environment invariably creates a strong incentive

for R&D as more efficient building and operating

methods are sought. Program costs to the Federal

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Government would be nil, and the total tax credits

would be about $800 million per year. This $800 million in tax credits would not be a revenue reduction

to the Federal Treasury. For, without the tax credits

there will be no market.

Clarify Jones Act to include icebreaking and ice

management in the OCS as an absolute requirement

of U.S.-flag built and manned vehicles.

Accelerate the decisionmaking process at MarAd.