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General Dynamics Is Building a Peaceful (and Green) Fleet

By Rich Smith - Feb 29, 2016 at 11:00AM

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It's been a major shipbuilder for the U.S. Navy, but General Dynamics' NASSCO subsidiary sees a big future for its commercial cargo ship business -- specifically in liquefied natural gas-powered vessels.

As one of the U.S. Navy's biggest shipbuilders, General Dynamics' (GD 2.22%) NASSCO subsidiary specializes in the production and repair of its auxiliary and support ships. But as the Navy reduces its ship count, General Dynamics has been turning more to the civilian world for shipbuilding contracts.

First launch of the Perla Del Caribe. Image source: TOTE Maritime.

Case in point: Last month, General Dynamics announced that NASSCO has delivered the liquefied natural gas-powered container ship Perla Del Caribe to its new owner, TOTE Maritime. According to data from S&P Global Market Intelligence, TOTE, which operates  the Sea Star Line that services Puerto Rico, the Caribbean, and the United States Virgin Islands, is itself a subsidiary of privately held Saltchuk Resources, based out of Seattle.

The Perla is actually the second LNG-powered ship that NASSCO has built for TOTE. Like the first, her sister ship, the Isla Bella, is described as 764-foot Marlin Class vessel. They're the first LNG-powered containerships in the world, according to NASSCO General Manager Kevin Graney . That makes then not only environmentally cleaner than conventionally powered vessels -- but more fuel-efficient as well.

Currently, with oil prices so low, that may not mean much to NASSCO customers. But oil prices go up as well as down, and with cargo vessels routinely in service for operating lives of up to 40 years, there will certainly come a day when fuel efficiency matters again, and when LNG may beat out oil as a fuel source regularly. When that happens, NASSCO's having staked out a leading position in LNG ship construction should prove beneficial to its business.

Indeed, NASSCO President Fred Harris seems to be looking ahead to that day already. Calling  the Marlin class "the next generation of U.S.-built ships," he implies that these deliveries to TOTE are only the beginning of General Dynamics' ambitions in the commercial ship-building world.

Since 2005, NASSCO has built 12 commercial ships for various customers, including LNG-capable product tankers delivered to Kinder Morgan (KMI -1.36%) subsidiary American Petroleum Tankers. NASSCO says it has a total of seven commercial vessels of varying types on order from its customers, with deliveries due over the next two years. That's more than half as many ships as it delivered over the previous ten years.

So while General Dynamics continues to hold pricing information on these vessels close to the vest, making it difficult to say for certain how big a part of General Dynamics' $8 billion-a-year maritime business they represent, one thing is certain: However big this business is for General Dynamics today -- it's growing.

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