With a $1 billion order, Philly Shipyard shrugs off gloomy economy and steams ahead

The headlines these days are gloomy. Tech companies are laying off workers by the thousands. Cryptocurrency is melting down. Energy prices are up. Interest rates keep going up.

But there’s no talk about recession at the Philly Shipyard Inc., which announced this month it signed a $1 billion contract to build three new container vessels for a Hawaiian shipping company. The former Navy shipyard, which four years ago had an empty order book and laid off most of its workforce, now is fully subscribed with work until 2027.

“I see a lot of companies that are a little bit reluctant about the future,” said Steinar Nerbovik, the chief executive of the shipyard, whose majority shareholder is the Norwegian holding company Aker ASA. “But I’m very optimistic. It’s good days ahead for us. Smiley faces. People know what they have to do for the next five years.”

» READ MORE: Flashback to 2018: With dearth of orders, Philly Shipyard’s future is at risk

The latest order at Philly Shipyard is for three 854-foot container ships for Matson Inc.’s Hawaii-Pacific service. Philly Shipyard previously built two ships of the same design for Matson, the largest container ships built in America. They were delivered in 2018 and 2019, emptying the order book at the time.

“When a shipowner comes back to you and places a new contract in your yard, then you know you’ve done a great job,” said Nerbovik, a Norwegian who has spent his life building ships. “So we are very proud of the relationship we have with Matson.” The three new vessels, which are scheduled to be delivered in 2026 and 2027, can use liquefied natural gas for fuel, which produces less pollution than diesel and will help Matson meet its goals of reducing emissions.

The Matson order comes after the shipyard secured contracts starting in 2020 to build five training vessels for U.S. maritime academies, the first of which was launched in September and will be delivered this winter. That $1.5 billion job for five ships will be followed by a contract to build a specialty vessel designed for the offshore wind industry, a growing new opportunity for domestic shipbuilders.

The full order book is a stark turnaround from 2018 and 2019, when business dried up and Nerbovik laid off most of the shipyard’s workforce. It began taking on repair contracts, which are not as lucrative as new construction. With the new orders, it’s now back up to 1,400 employees, including 300 hired this year. Nerbovik would like to hire a few hundred more.

“I would love to have 200 more local guys yesterday, if you can go out and find them for me,” he said. “Give me 200 skilled guys, or even non-skilled as long as they have the right attitude, then I can make them into shipbuilders.”

On a recent tour of the shipyard, Nerbovik greeted workers amid showers of sparks from welders joining massive steel panels that will form the ship’s hull. “It’s a great day to be a shipbuilder,” said Lily Lawrence, 24, of Drexel Hill, who is in the first year of a three-year shipyard apprenticeship program.

Hourly wages for union workers at the yard range from $17 at entry level to more than $30 for experienced workers, said Louis Agre, president of the Philadelphia Metal Trades Council. “With overtime, a lot of folks are making over $100,000 a year,” he said. The Metal Trades Council represents several shipyard trade unions under a single contract, including boilermakers, sheet-metal workers, ironworkers, painters, plumbers, electrical workers, asbestos workers, laborers, and operating engineers. They began negotiating a new contract on Thursday, Agre said.

Shipbuilding has always been a cyclical business, but it has been particularly difficult for U.S. shipyards, whose high labor costs can’t compete with giant enterprises in South Korea and China that build large ships in assembly-line fashion for the international market.

But Philly Shipyard and several other domestic shipbuilders have a lock on the narrower market for producing large oceangoing vessels that comply with the Jones Act, named for the 1920 merchant-marine protectionist measure that requires cargo shipped between U.S. ports to sail on American-made vessels, staffed with U.S. crews. The Jones Act market is largely restricted to vessels that trade between the U.S. mainland and Hawaii, Alaska, Puerto Rico, and Guam.

Since Philly Shipyard was converted to a private enterprise in 1997 — as a Navy shipyard it produced military vessels until the 1970s — most of its business has been in oil tankers and container ships for the domestic cargo trade. The private shipbuilding venture was headed by Kvaerner, Aker’s predecessor.

Orders for new vessels dried up by 2019, as the market for Jones Act cargo ships became saturated. The downturn prompted the shipyard’s owners to explore other markets to diversify, including noncombat vessels for the U.S. government, as well as fabricating vessels for the offshore wind industry, which requires some unorthodox watercraft to erect 800-foot-tall turbines on the seafloor.

The voyage to a more diverse order book has not always been smooth.

In 2018, Philly Shipyard teamed up with two other shipbuilders to bid for the U.S. Coast Guard’s next-generation heavy polar icebreaker. The Philly Shipyard consortium enlisted labor and political leaders to press the Coast Guard for the contract, but the work was awarded in 2019 to VT Halter Marine of Pascagoula, Miss., for $746 million.

But VT Halter has struggled to meet cost targets and has not yet completed the icebreaker. The troubled shipbuilder was sold last week for a token $15 million to Louisiana-based Bollinger Shipyards, which will assume the Coast Guard contract.

“I’m very good with the order book I have today,” Nerbovik said. “I don’t need to have the icebreakers to be successful.”

A different federal agency came knocking on the shipyard’s door in early 2020 when the U.S. Maritime Administration, which supports the merchant marine, awarded a $630 million contract to Philly Shipyard to build two ships known as National Security Multi-Mission Vessels, or NSMVs. The contract is being managed by TOTE Services LLC, under a congressional mandate to use commercial design-build practices to keep costs in line.

The 525-foot vessels primarily serve as floating training academies for cadets entering the merchant marine. But the ships are also designed to be deployed for disaster relief and can accommodate up to 1,000 people in a humanitarian emergency -- they’re equipped with a helicopter pad, hospital facilities, and roll-on, roll-off capabilities for carrying vehicles or containers to a disaster. The initial two-ship contract has been expanded to total five ships at about $1.5 billion.

“Having that runway of work is really important to the efforts to rebuild the whole ecosystem at the shipyard,” said U.S. Rep. Mary Gay Scanlon, a Democrat whose district includes the shipyard. She took office in 2018 and first visited the shipyard that year, encountering a downcast workforce soon headed for the unemployment office.

Scanlon was among several political and labor leaders who pressed the government to steer the NSMV contract to Philly Shipyard. “So often with government, you don’t see progress,” she said. “But this is an area where we’ve seen a lot of progress over the four years that I’ve been in office. And it’s exciting to see it moving forward.”

The first vessel built under the contract, the Empire State VII, was launched in September and is undergoing final testing and outfitting before commissioning this winter. A second NSMV is being assembled in a dry dock. The steel panels for the third vessel are being cut, shaped, and welded in the shipyard’s cavernous assembly plants.

The training vessels are unlike anything the shipyard has produced in recent decades. They include classrooms and living quarters for 600 cadets. Construction of the cabins, which are like dorm rooms, required Philly Shipyard to develop skills more closely related to building a cruise ship. It builds the individual crew cabins, each equipped with bunks and showers, which are then assembled into multistory sections that will be fixed as a unit on the ship’s deck.

Nerbovik likens the construction of a ship to a massive Lego assembly. Each component of the ship is fashioned to precisely fit to the next -- all the plumbing, wiring, and ventilation systems are engineered to mate with adjoining modules. The ship is assembled from 36 giant sections of the hull and above-deck sections, each of which are lowered carefully into place by a 600-ton crane as the vessel takes shape in a dry dock.

“The more I work for the government, the more they realize I can do ships for the government,” said Nerbovik. “So I’m confident that I can compete in the government arena” for future contracts.

Meanwhile, before the fifth government training vessel is finished in 2026, the shipyard will build a new vessel for the offshore wind industry as it grows to pursue the Biden administration’s goal of installing 30 gigawatts of offshore wind generation by 2030, enough to power an estimated 10 million homes.

The shipyard a year ago signed a $197 million contract with Great Lakes Dredge & Dock Corp. to build a “rock installation vessel” that does exactly what its name says: The sole purpose of the vessel is to deliver massive loads of rock that slide down a fall pipe, or chute, to the seabed to form a stable foundation for offshore wind turbines. The 461-foot vessel can carry 20,000 tons of rock, the capacity of about 200 railcars.

“I didn’t even know there was something called a rock installation vessel,” said Nerbovik.

The rock vessel is scheduled to be delivered at the end of 2024. The agreement allows the owner to order a second vessel for delivery in 2025, according to MarineLog, a trade publication.

The shipyard’ is busy lining up other contracts for Jones Act-compliant vessels for the offshore wind industry. Designing and ordering ships is much like the proverbial steering of a ship — it takes a long time.

“We’re talking to potential new owners, because we need to sell something two years from now in order to deliver that five years from now,” said Nerbovik. “So we can’t lay back and relax. We need to be forward-leaning.”