Strategic Analysis of the Shipbuilding Industry
In a recent speech, US President Donald Trump asserted that the United States has fallen behind in shipbuilding, declaring a goal to make more ships “very fast, very soon.” The Wall Street Journal has reported that the Trump administration is drafting a new executive order intended to energize US shipbuilding. A proposed piece of US legislation announced in 2024 noted an intent to remedy a current shipbuilding deficit, in which the “US shipbuilding industrial base lacks the capacity to produce oceangoing vessels at scale.”
Concerns about geopolitical tensions, potential shifts in the balance of seafaring power, and emerging technologies that are expected to enable new types of military vessels could all encourage the United States—as well as other countries around the world—to consider reinforcing domestic shipyards’ capacities and capabilities. Outside of Asia, few nations have exhibited recent strength in shipbuilding productivity. Multiple US military shipbuilding programs have fallen years behind schedule.
This context presents opportunities for the private-capital industry to play a role in modernizing global shipbuilding and improving the efficiency of the world’s shipyards. A successful shipyard transformation could benefit global security efforts and generate considerable financial benefits. Private equity (PE) organizations can consider undertaking a close analysis of the shipbuilding and repair sectors to identify opportunities for value creation.
Opportunities for improving output in shipbuilding
A PE approach could bolster shipbuilding capacity by creating better supply bases, managing costs and performance, investing in infrastructure, and attracting talent to the industry.
Building a better supply base
The maritime industry lacks a mature and well-structured supply base. Private-capital companies could potentially find creative combinations of complementary organizations to improve supply chain efficiency.
Controlling costs
Historically, shipbuilding contracts have been executed on a “cost plus” basis, leading to cost bloat. Moving to a fixed-fee model and implementing strict cost management can protect and improve margins for contractors.
Managing performance
Better performance management could lead to more output without increasing cost bases. By tying individual employee compensation to performance, shipyards can increase efficiency and productivity.
Investing in infrastructure
Modernizing digital capabilities and updating equipment and facilities could result in substantial efficiency improvements. PE firms can provide sorely needed funding for infrastructure investments.
Attracting talent
Hiring capable leaders and attracting new talent to the sector can introduce novel ways of working and best practices to improve efficiency and productivity.
Potential upsides of investing in shipbuilding
Expected volume increases offer growth opportunities
To meet the demand projections for new vessels, shipyards would need to increase production rates. Investment opportunities exist in enabling the building of increasingly complex modules.
Current inefficiencies create potential for quick wins
Operational transformations can lead to significant productivity increases. PE firms that focus on efficiency and productivity gains can create value through rapid operational improvements.
Development of flexible capabilities could ensure steady utilization
Having the flexibility to fulfill contracts for services beyond construction is crucial for maintaining steady shipyard utilization. PE firms can enhance shipyards’ flexibility by equipping them with modern technologies.
Long-horizon demand could provide stable, predictable revenue
The US government is a primary customer of shipbuilding and ship repair, providing stable and recurring revenue. PE firms can benefit from the long-term demand by investing in shipbuilding companies.
In the shipbuilding industry’s quest to meet rising demand and fulfill national-security-mission needs, it could benefit from reinvigoration. Private equity firms’ involvement in the sector could accelerate necessary improvements while yielding substantial ROI.
FAQ
What are the key areas for improvement in the shipbuilding industry?
The key areas for improvement in the shipbuilding industry include building a better supply base, controlling costs, managing performance, investing in infrastructure, and attracting talent.
How can private equity firms contribute to modernizing shipbuilding?
Private equity firms can contribute by providing funding for infrastructure investments, implementing strict cost management, improving performance management, and attracting new talent to the industry.
Conclusion
The shipbuilding industry is facing challenges in meeting rising demand and improving efficiency. Private equity firms have the opportunity to play a significant role in modernizing global shipbuilding and enhancing the capabilities of shipyards. By focusing on key areas for improvement such as supply chain efficiency, cost management, performance enhancement, infrastructure investment, and talent attraction, private equity firms can drive value creation and contribute to the industry’s growth.
