What Sequestration? Naval Expansion to Fuel Shipbuilder Growth

From 2013 through 2016, sequestration, a system of budget cuts meant to enforce spending caps set by the Budget Control Act, led to stagnation in US shipbuilding output. Now, plans to dramatically increase the size of the US naval fleet from 275 ships to 355 promise to reinvigorate US shipbuilders.

What Sequestration?

While the Budget Control Act is supposed to impose caps on federal spending – including that on defense – through 2021, political leaders have become increasingly effective at circumventing these caps. The primary method of evasion is through a portion of the budget intended for funding operations in Iraq and Afghanistan, which is exempted from the limits, to augment funding for other programs. As a result of such tactics, sequestration is not expected to significantly impair shipbuilding expenditures through 2021.

Industry Highly Reliant on Navy Spending

An escape from sequestration will be a major boon for the US shipbuilding industry, which is heavily reliant on military contracts. In 2016, military shipbuilding and repair collectively accounted for over 70% of US shipyard output. Leading shipbuilders Huntington Ingalls Industries and General Dynamics each report that the government accounts for over 90% of their shipbuilding revenue.

Consequently, US shipbuilders stand to benefit a great deal from a fleet expansion by the US Navy. While the 355 ship target is a long term goal, meeting such an aggressive target will require a significant increase in ship procurement through 2021, and the possible return to service of vessels that had been set for retirement, which will provide a sizable boost to repair and retrofit revenues.

Want to Learn More?

Don’t worry, we have you covered! For additional information and analysis of US industry trends, see Shipbuilding: United States, a report published by the Freedonia Focus Reports division of The Freedonia Group. The report also includes numbers and analysis covering US shipbuilding shipments by type for 2006-2016 with projections to 2021. Shipment by type segments include:

• military self-propelled ship construction
• military ship repair
• nonpropelled ship construction
• nonmilitary self-propelled ship construction
• nonmilitary ship repair.

While you’re there, check out some of our related reports, which include Freight Services: United States, Transport Equipment: United States, and Water Transport Services: United States.

About the Author

Steven Richmond is a Research Analyst with Freedonia Focus Reports. He holds a degree in economics and international affairs, and his experience as an analyst spans multiple industries.