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Shipyards Give San Diego Region Prosperous Manufacturing Muscle

San Diego’s growing shipbuilding and ship repair industry generated $1.25 billion in total income in 2014, according to research unveiled on the 74th anniversary of the Pearl Harbor attack.

Shipbuilding and repair is an industry that San Diegans should never take for granted, said Paul Cassani, 2015 president of the San Diego Military Advisory Council (SDMAC), the organization that issued the report.

It is a “critically important” industry for San Diego, Mayor Kevin Faulconer said during a Dec. 7 news conference outside the executive offices of General Dynamics NASSCO, the last major shipbuilder on the West Coast.

While speakers didn’t directly mention any threats the industry might face, study lead author Lynn Reaser told journalists later that there are always challenges, from potential cuts in the federal budget to downturns in the economy.

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“The industry has ups and downs,” said Reaser, an economist with Point Loma Nazarene University.

The $1.25 billion figure reflects total income earned by payroll employees and company proprietors as a result of direct and indirect spending linked to shipbuilding and repair.

The private sector shipbuilding and repair industry had sales of $1.5 billion in 2014, the report said. Almost exclusively, dollars supporting the industry come from out of the area.

The largest customer for ship repair — the U.S. Navy’s Southwest Regional Maintenance Center — issued more than $1 billion in contracts last year, said Capt. Paul Bieraugel, the center’s executive officer.

Counting the ripple effects of dollars turning over in the community, SDMAC estimates shipbuilding and repair put $1.75 billion into San Diego County’s economy in 2014. SDMAC is a nonprofit that serves as a business and civic liaison with the U.S. Navy and U.S. Marine Corps in San Diego.

The shipbuilding and repair cluster employed more than 12,000 people in 2014 — with about 6,000 in core shipyard industries, 2,100 in government and 4,000 in the supply chain. Dollars turning over in the community created another 5,000 jobs, bringing 2014 employment to 17,000 when ripple effects are considered, said Reaser, an economist with Point Loma’s Fermanian Business & Economic Institute.

That 12,000 employees in the shipyard cluster grew to an estimated 14,000 in 2015, report authors said.

Jobs at the Doorstep

The availability of shipyard work is very important to his constituents, Councilman David Alvarez told the crowd outside NASSCO. Alvarez, who represents Barrio Logan on the San Diego City Council, said not everyone in San Diego trains to work in the biotech industry.

“We want to see this industry grow,” Alvarez said. “This is where the good jobs are.”

Some 17 percent of shipyard workers live within two miles of their jobs. On the opposite end of the spectrum, some 6 percent commute from Riverside and Imperial counties.

The average shipyard job pays 20 percent more than the average San Diego job, study authors concluded. Average wages in shipbuilding and repair were $66,983 in 2014, while average wages in private industry were $55,324. The study also showed that wages in the shipyards are growing faster than wages in the economy as a whole.

The largest employers in the industry are General Dynamics (NYSE: GD) NASSCO, which had 2,882 employees in 2014; BAE Systems, which had 1,717 employees; and Continental Maritime of San Diego, which had 461. Continental Maritime is part of Huntington Ingalls Industries (NYSE: HII).

The big yards depend on 400 local subcontractors for specialized services.

Navigating Opportunity and Risk

The report spells out opportunities and risks for the industry.

One opportunity is more U.S. Navy ships expected in the area. The Navy plans to put more of its assets in the Pacific, going from less than 60 ships in San Diego now to more than 80 in 2020 and later.

A repeal of the Jones Act would strike a blow to the industry, the report stated. The Merchant Marine Act of 1920 requires ships traveling between U.S. ports to be built or rebuilt in the United States. As a result, lines serving Puerto Rico, Alaska and Hawaii often need U.S.-built freighters. Although overseas shipyards have lower cost structures, commercial work goes to domestic yards such as NASSCO because of Jones Act protections.

Increased production of oil and natural gas and increased shipments would spell a need for tankers, the report said, while declining oil prices — seen recently — could spell production cutbacks and decreased demand for tanker capacity.

The Navy’s Capt. Bieraugel added some humor to the news conference at NASSCO.

He noted how the finished SDMAC report featured photos of shipyard workers smiling broadly. The workers “don’t always look like that” as they emerge from the bilge of a ship after welding for hours, Bieraugel observed. The work is tough, he said.

Bieraugel praised those who work on Navy vessels at San Diego’s shipyards and military bases. The people are “salt of the earth,” he said.

The ships, he added, “are not just weapons systems, but also our homes around the world.”

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