Does Southern California need a shipyard?

Robert Stein is willing to bet $50 million that it does. But the Port of Los Angeles doesn’t seem too willing to go along.

Stein is president of Gambol Industries Inc., a Long Beach company that believes it holds a key to the region’s maritime future: renovation of a 19-acre facility at the port to build and service large ships. The site has the only two slips in Los Angeles and Long Beach big enough to do that. The slips are like a community asset that are going unused, he said.

While the port already has a boatyard for smaller craft of up to 260 feet, large vessels have to cruise to San Diego or San Francisco to get dry-dock repairs.

“Why should customers drag their vessels up and down the coast when we have an ideal place to work on them here?” he said. “It will be a nice return for us, and it will serve the community’s needs.”

Stein, whose company already owns a smaller boatyard at the Port of Long Beach, wants to build his new facility at the site of the now-abandoned Southwest Marine shipyard on the southwest corner of Terminal Island.

Besides the two supersize slips, the site includes seven cranes, dry-dock facilities and a number of buildings. Stein plans to spend the money to rehabilitate all the facilities including the slips and dry docks to work on ships up to 720 feet long.

Dry docks allow vessels to be raised out of the water for such jobs as painting, routine inspections and hull repairs. The proposed Gambol Marine Center also would be able to build yachts up to 350 feet long, plus ferries and barges up to 500 feet.

Some question whether a shipyard is needed, arguing there isn’t enough business to go around. But Steven Erie, a UC San Diego urban studies professor who has written about the ports, believes that since the nearest large-vessel facilities are far away, the facility could flourish.

“Given the number of big ships using the ports of San Pedro Bay,” Erie said, the proposal could “make economic sense.”

More ominously, however, the company has been at loggerheads with the Port of Los Angeles. The port wants to wall off the openings of the big slips and fill the cavities with sludge from channel-deepening work that is to take place elsewhere at the complex.

Colorful history

The drawn-out conflict between Gambol and the port has its roots in history. Constructed at Berth 240 by the Southwestern Shipbuilding Co. in 1917, the old Southwest Marine shipyard was active through both world wars. In 1922, Bethlehem Shipbuilding Corp. acquired the site, constructing a 15,000-ton-capacity dry dock as well as many shops. Surviving mainly on contracts with the Navy, the shipyard kept operating until its contracts dried up in 2005 after the Navy consolidated its local operations to a large base in San Diego.

Today the shipyard looks like a ghost town and, with its old buildings still intact, is used mainly for film and television shoots. Productions shot there include episodes of “24,” “CSI: Miami” and dozens of feature films.

Gambol signed a memo of understanding with the port in July for the site’s development and reopening as a shipyard. Under terms of the agreement, the two entities have until this July to work out a plan they both can support. But the obstacles have been major, mostly surrounding an impending plan to deepen certain parts of the port so that vessels can safely maneuver – a project that officials deem critical.

The point of contention is that the port’s plan calls for sludge from the dredging project to be deposited in the two slips that Gambol said it needs for the shipyard. The sludge deposits would close the slips.

“In the absence of a deep, well-maintained main channel that provides safe navigation to and from the container terminals that generate the lion’s share of port revenue, the viability of the Port of Los Angeles’ and future operations is jeopardized,” wrote port Executive Director Geraldine Knatz in a Jan. 27 letter to Stein.

Slimmer slips

In an effort to address the port’s needs, Gambol devised a plan. It would build what amounts to new walls in the slips that are well inside the current walls. The dredge material could be deposited over the walls. That would make the slips smaller, but there would still be enough space to work on ships.

Port officials, citing potential mediation, declined last week to discuss Gambol’s plan, referring instead to the Jan. 27 letter. In it, Knatz outlines a number of concerns, most notably that Gambol’s plan would not allow enough sludge to be dredged, and cause likely delays in the channel deepening’s schedule and possible higher costs.

There is “a lack of objectively verifiable data to support the numerous assumptions Gambol makes with regard to the viability of the proposed operation,” wrote Knatz, who also questions whether the market can support a new shipyard.

Stein, however, disagrees. The shipyard would not interfere with the dredging project, and there would be space enough to store the dredge material under his plan. Also, he estimates there are roughly 100 barges, freighters and other vessels that frequent the L.A. and Long Beach ports that could patronize the facility.

“We can’t support five large shipyards in this area, but we can certainly support one,” said Stein, who has already spent $1 million on engineering, market studies, consulting and legal fees. “We know this is a viable enterprise. It will purposely be built to serve a market that is underserved.”

Still, there are others who wonder about the need for a shipyard, especially considering that it could work on smaller boats, too. “What Gambol is proposing is to handle boats the size of what we’re currently doing and perhaps a little bigger,” said Jack Wall, president of L. Larson Boat Shop, an existing port boatyard. It offers routine inspections and dry-dock repairs, but only for vessels of up to 260 feet.

“They’re after our work, no question about it,” Wall said. “I’m not afraid of the competition, but I don’t think it would be successful over time.”

While Wall’s shipyard has had to put potential customers on waiting lists, business has dropped 15 percent to 20 percent in the last year as the recession has slowed port traffic.

“There’s no waiting now,” he said. “If Gambol had proposed this 10 years ago, it possibly might work, but not today.”

Moreover, Wall said his shipyard is in the midst of a long-planned expansion aimed at doubling capacity, though not up to the dimensions of ships that Gambol could service.

Potential customers

At least one potential customer agreed.

“A second shipyard, for selfish reasons, would be welcome,” said Mark Miller, a spokesman for Crowley Maritime Corp., a Jacksonville, Fla.-based company that operates six 200-foot tugboats in Southern California that need periodic dry-dock inspections, hull maintenance and repairs. “But would we, as an industry, keep it going full time with lots of work? Probably not.”

Indeed, the proposal for the new shipyard comes at a time when shipping has been slow. Last year, overall volume at the ports of Los Angeles and Long Beach – the two busiest in the nation – fell 17.8 percent compared with the prior year.

Yet, as the economy recovers, numbers are improving. Traffic rose by nearly 2 percent earlier this year compared with the same time in 2009. In addition, an analyst hired by Gambol to study the potential market believes a new shipyard would work.

“You can’t look at it as a short-term investment,” said Larry Kosmont, president of Kosmont Cos., an L.A. provider of economic analysis for development projects. “The world economy will rely on key gateway ports, and shipbuilding and repair have to be part of that strategy. The down economy doesn’t mean that there isn’t proper positioning for an additional shipyard that is state of the art.”

Gregory Freeman, vice president of consulting for the Los Angeles Economic Development Corp., looked at Kosmont’s study and found it sound. “We took a brief look at it and it seems plausible,” he said.

Gambol projects that the shipyard would create more than 800 jobs and generate $80 million to $150 million in annual revenue. Assuming those figures are accurate, Freeman said, the operation could eventually pump as much as $220 million annually into the economy.

“As an economic development corporation, we see that as positive,” he said.

All of which is good news to some potential customers, especially the operators of large ships based in Southern California that can’t be serviced by existing yards.

“We think it’s a great idea,” said Doug Houghton, general manager of Millennium Maritime and Westoil Marine Services, which runs five tugboats and 10 barges out of San Pedro and Long Beach.

The barges frequently need inspections, maintenance, hull work and, occasionally, emergency mechanical repairs.

Given fuel and crew costs involved in running a ship to San Diego – where Navy ships usually take priority over merchant vessels for repairs – the proposed shipyard could save his company “hundreds of thousands” of dollars a year, Houghton said.

Agreeing with that analysis was Greg Bombard, president of Catalina Express, which runs catamarans to Catalina Island that can’t always be serviced locally when in need of dry-dock repairs.

“Given what we have at the present there’s a need for more service,” said Bombard, whose company operates eight boats.

Meanwhile, Stein argued that the project should be allowed to proceed since it does not involve any subsidies, or risk to the port. He and a partner intend to put up half of their $50 million investment in cash and finance the rest.

“The market is there,” he said. “I’m the only one who has something to lose.”