Interview: TOTE's Jeff Vogel on Delivering America's New Training Ships

 

Shipbuilding in America is a costly enterprise, especially government shipbuilding. The extra requirements of a government shipowner add friction for a shipyard during construction, resulting in cost growth and delays. When it came time for the Maritime Administration to order a new generation of training ships, the agency decided to bring in a commercial shipowner to manage the project like a commercial order. To find out more about the success of this new model, TME spoke with TOTE Services' VP of Legal, Jeff Vogel, who was involved from the start. 

To start things off, do you want to tell me a little bit about yourself and your history in maritime?

I started my career as counsel at the Maritime Administration and was there for about eight years, leading maritime policy development and maritime support programs. I worked on everything from the Maritime Security Program to cargo preference and the Voluntary Intermodal Sealift Agreement. Then I returned to private practice and spent the last eight years as a Shareholder at Cozen O'Connor, representing companies from every corner of the U.S. maritime industry — U.S. flag vessel operators in international trade, Jones Act operators, and ports and marine terminal operators.

I've worked closely with TOTE Services for the past eight years, since the inception of the Vessel Construction Manager (VCM) concept, through the development of the National Security Mult-Mission Vessel (NSMV) and the delivery of the first two, with the exciting pending delivery of the third one. Many opportunities came out of that, so it really made sense to come in-house and take on this role as their new VP for Legal.

Can you tell us about the advantages of having an intermediary for the NSMV?

Coming from MARAD, I really saw some of the staffing and administrative challenges that the agency was facing. With the NSMV — which is something that I worked on at MARAD, really building the groundswell to get the authorization and appropriations — it was very clear that MARAD was not positioned to engage with a shipyard directly.

Policymakers were also looking at some of the challenges you have in traditional government shipbuilding: the cost overruns, the time overruns, the constantly changing requirements. There was a lot of conversation at the time asking, "Can't we have a commercial vessel manager come in and be a construction manager for MARAD?"

Ultimately, in 2017 there was a Congressional authorization that gave MARAD the direction to do just that. This was new—something that had never been thought of before. TOTE Services competed for the VCM contract with MARAD, and offered some very clear commercial solutions.

One of the big goals was to figure out how to remove some of the burdens that we see the government placing on our commercial shipyards or even our government shipyards, and put the shipbuilder in a position to get back to what they're good at, which is building ships.

The other aspect is to make sure that we don't get into those numerous changes to vessel design that plague so many government shipbuilding programs. We really stay focused on the design, agree on it up front, and once we get it to the yard, move ahead and build a ship and deliver on time. That's really what we've done.

For us, it's been a learning experience. But we've also realized that this is a model that's applicable across government shipbuilding. We're really excited for some of the other opportunities that we think are out there, whether it be Coast Guard icebreakers or recapitalization of the Ready Reserve Force or the Landing Ship Medium for the Marines.

Turning to the NSMVs themselves — I can't think of anything more exciting as a young man or woman thinking about attending a state maritime academy than seeing these new vessels that offer capabilities unlike any training ship that we've ever seen. A vessel that has practical application to your sailing career afterwards and is a ship that has these incredible capabilities and modern conveniences. These are the perfect recruitment assets as we think about the need to have more mariners for rebuilding the U.S. flag fleet.  We are already seeing that impact with increased enrollment at SUNY Maritime and Mass Maritime following the delivery of the first two NSMVs.

What are some of the deliverables that you could point to that have really marked this out as a success? On-time delivery, on-budget delivery, fewer challenges?

It's a model that has proven itself as being able to deliver on time, on budget, but also a model that really leverages commercial best practices in order to drive price down.

One of the things that really jumps out at me is when the concept of the NSMV was first floated and the design was being developed, it was taken to Naval Sea Systems Command (NAVSEA) and they were asked to estimate the build price. Their estimate was somewhere in the $700 million to $1 billion price range.

We've been able to deliver these vessels on time for an average of about $300 million. That to me is a huge selling point. 

This is also a great model for taking a purely commercial shipyard and turning them into a capable government shipyard. Philly Shipyard [before NSMV and Hanwha] had never really done any government work. They had never done any government ship construction. For them to come right in and be a prime contractor would have been a huge uphill battle.

With this acquisition model, you have somebody like TOTE Services - a deeply experienced government contractor - come in and serve as the prime contractor and manage the relationship with the government. Then we can use a more commercial subcontract with a shipyard, while passing down the mandatory terms under the prime contract. This allows us more flexibility in terms of ensuring that we're as commercial as possible.

As we've gone around and had conversations with other commercial yards who may be thinking about getting into government work, they're really excited about the VCM acquisition model. They love the idea of working on a commercial basis. They don't have to relearn everything from contracting to invoicing.

Is it fair to say that perhaps this model could help reduce some of the same issues for the Navy?

Absolutely. We've been having a lot of these conversations about whether this is something that ultimately could be used by the Navy for auxiliary vessels or combatants. I certainly think that there's room for that discussion. As we continue to develop, that's a direction that we could start moving in and creating some of those efficiencies.

I look at some of the opportunities that are out there in terms of transitioning the experience that we now have to some of the naval vessels. I certainly think that there's a lot of lessons learned that can be implemented on the Navy side.

How has the NSMV program's experience been with workforce availability?

We started that project right at the beginning of COVID. I think we had some expectations about workforce availability that changed as a result of COVID, as it did in a lot of industries. The shipbuilding industry has had some challenges in getting back to the manning levels that they previously had.

From our perspective, the shipyards are working at innovating and moving towards better recruitment tools. I think about some of the apprenticeship programs and the education that's being offered by a number of shipyards. Certainly that's an area that we've seen Philly Shipyard invest in throughout the life of this project and really build up their apprenticeship program.

We are also seeing more focus on vocational schools and the importance of that sort of education and recruiting early - not at graduation from high school, but recruiting as early as possible, getting in with the middle schoolers, early high schoolers, educating them on the opportunities that exist in shipbuilding and quite frankly, the significant economic opportunities that exist there. A lot of these jobs are extremely high paying. If you're a skilled welder or machinist, you can command salaries that you can't in other sectors. 

Part of it is also the demand signal. As soon as we start having some of these contracts come out - whether it be icebreakers or commercial orders under the SHIPS for America Act - it's going to incentivize those yards to come out and invest more in their workforce development. I think it's just a matter of time until we see a significant uptick in those workforce opportunities that we've really been working towards over the past few years.

There will be challenges in terms of finding senior level experienced ship fitters, machinists, specialized welders. We didn't make those investments over the past few decades. I don't want to sugarcoat it. But I think that the industry is willing to make the investments that are necessary to address those challenges. We'll be even more willing to do so once those contracts start arriving.

Can you tell us what you're hearing in D.C. right now about the prospects for the SHIPS Act?

This is the first time in my career where we've had bicameral, bipartisan agreement in Congress, together with agreement with the Administration, that we need to invest in the U.S. maritime industry. Now seeing things like the SHIPS for America Act, seeing the Executive Order on rebuilding our maritime industrial base put out, seeing a shipbuilding office within the Office of Management and Budget — the signals are there that regardless of what party you're in, whether you're in the Executive Branch or in Congress, there is strong interest in investing in the U.S. maritime industrial base.

From everything we're seeing, I am absolutely optimistic that we'll see all or significant parts of the SHIPS for America Act move. I know the Executive Branch is working diligently together with all the agencies of oversight in implementing the Executive Order as well.

It's the first time that I can say day in and day out there are people who are showing up just thinking about what the future of the U.S. maritime industry looks like. That, to me, is so exciting because when I was at MARAD, so many times we thought we were an agency on an island. We knew the importance of this industry, but others hadn't bought into it. That's not the case anymore. From top to bottom, folks are bought into it.

What kind of federal investment will this take?

We're talking about a huge investment. There's no doubt about it. I think it has to be truly a public-private partnership to get this thing done. We need to look at those operating differentials for U.S. flag and international trade. Obviously things like the Maritime Security Program have created the roadmap for government subsidies to help keep those vessels under the U.S. flag. But that's not going to be enough to get us to where we want to be as a true maritime powerhouse once again.

We have to look at a stronger differential subsidy through things like the Strategic Commercial Fleet in order to really be able to compete on some of those commercial cargoes.

What we're seeing emerge here between things like the SHIPS for America Act and the Executive Order on one side and things like the United States Trade Representative Section 301 action on the other is a stick and carrot approach. You have fees that are going to be collected for Chinese-built, Chinese-flagged, Chinese-owned vessels that may be calling the U.S. and taking those fees and, in my mind, reinvesting them directly into the U.S. maritime industry. That way you're not adding to the burden of other existing programs or the taxpayer burden.

Could you tell us a little bit about the opportunities that TOTE as a company sees in this, both as a vessel operator and as an intermediary between government and shipyards?

Absolutely. We view this as an unprecedented time of opportunity. For us, I covered the VCM quite a bit. From our perspective, all those platforms that we talked about before are a great opportunity for us to reinvest not only in the government fleet and in the commercial fleet, but in our domestic shipyards.

When we look at the SHIPS for America Act and the reinvestment that Senator Kelly and Senator Young and their House counterparts want to make, those create some tremendous opportunities for us. That public investment could match with the private investment that TOTE has always been willing to make in growing our profile in the U.S. maritime industry.

There's so much opportunity out here right now. We're talking about so much of the policy in the right way. But let's not talk about building icebreakers overseas. Let's focus on getting a contract from the Coast Guard - out through a Vessel Construction Manager model - to build icebreakers in the United States.