Private Equity Poised to Revolutionize Struggling Shipbuilding Industry

What's New

McKinsey's recent report reveals that as global demand for military and commercial vessels surges past available supply, private equity firms are uniquely positioned to transform the struggling shipbuilding sector through targeted investments in efficiency, modernization, and supply chain integration. According to the report, US shipyards now produce just 0.1% of global tonnage compared to 5% in the 1970s.

Why It Matters

With growing geopolitical tensions and President Trump's recent call to build ships "very fast, very soon," the shipbuilding capacity gap has become a national security concern. Private capital could provide the financial muscle and operational expertise needed to revitalize an industry hampered by aging infrastructure, talent shortages, and inefficient production methods.

Big Picture Drivers

• Security concerns about shifting seafaring power balances are pushing nations to reinforce domestic shipbuilding capabilities.

• Supply chain fragmentation forces major shipyards to rely on disjointed networks of small suppliers, increasing complexity and costs.

• Contracting models are shifting from cost-plus to fixed-fee structures, creating new incentives for operational efficiency.

• Infrastructure at American and European shipyards is aging after decades of low production volumes, requiring significant capital investment.

• Talent pools have declined, particularly at the management level, threatening the institutional knowledge needed for complex shipbuilding operations.

By The Numbers

• 50% increase in vessel tonnage production needed to meet projected demand through mid-2050s

• 60% productivity improvement achieved by one US shipyard through operational transformation with zero capital expenditure

• 2-4× higher profit margins possible for maintenance, repair, and overhaul work versus new vessel construction

• 73 Arleigh Burke-class destroyers remained in service in 2024 after production began in the late 1980s

Key Trends to Watch

• Performance management reforms could tie executive compensation and hourly worker incentives directly to efficiency metrics rather than encouraging slower work paces.

• Digital transformation of workflow management could replace outdated pen-and-paper systems, dramatically improving coordination across shipyards and dry docks.

• Supply base consolidation through private equity-backed mergers could create more efficient networks of complementary maritime service providers.

• Module production partnerships between prime shipyards and smaller fabrication companies are expanding to address capacity constraints.

The Wrap

Private equity's approach to value creation—strict cost management, performance-based incentives, strategic capital investment, and talent acquisition—aligns perfectly with the shipbuilding industry's current challenges. With stable, long-term government demand virtually guaranteed, PE firms that successfully drive efficiency gains could realize substantial returns while simultaneously bolstering national security.