While we all know that San Diego has a world-class port that is the gateway to the Pacific and the growing markets of Asia and Latin America, most don’t realize that its maritime industry “represents one of the most unique regional economies in the world with more than 1,400 companies producing over $14 billion of direct sales and a workforce of almost 46,000 spread across an array of traditional and technology-oriented sectors.” The knowledge of how important that the maritime industry clusters has become to the regional economy was made clear to me when I recently came across a report that was released in 2012: the San Diego Maritime Industry Report, sponsored by the San Diego Workforce Partnership, (SDWP) San Diego Regional Economic Development Corporation (SDREDC), and The Maritime Alliance (TMA).
The survey portion of the project was conducted over a period of four weeks during May and June 2012. It involved quantitative economic analysis of data from proprietary business resources (such as Info-USA and Dun and Bradstreet), standard data from the BLS and Census Bureau, and first-hand information from San Diego-based ERISS Corporation through numerous in-person and telephone interviews and both a telephone and an online survey of more than 230 companies.
San Diego’s Maritime Industry and related economic activity comprise what is being called the “Blue Economy.” The maritime technology or “Blue Tech” cluster “includes nearly 200 separate NAICS (North American Industry Classification System) codes and includes businesses in sectors as obvious as fishing and as surprising as metal forging.”
The 84-page report divides the Blue Economy into three general categories of the functional organization of San Diego’s Maritime Industry:
- The traditional maritime space, in which industries are exclusively maritime, such as fishing and ship building
- The traditional maritime space, in which an industry includes maritime and non-maritime activity, such as construction industries capable of working on ports
- The maritime technology space, or “Blue Tech”
The analysis suggests an estimated 46,000 employees work in San Diego’s Maritime Industry:
- Total employment (September, 2011) 45,778
- Traditional maritime exclusive industries 8,176
- Maritime technology industries “Blue Tech” 18,948
- Other maritime 18,654 (in traditional industries that include maritime activities but are not exclusively maritime)
Shipbuilding and ship repair provide the most jobs, 6,127, followed by Testing Laboratories, 3,689, R&D in Physical, Engineering, & Life Sciences (exc. Biotechnology), 3,376, and Engineering services, 3,228.
Based on the survey, “the projected total employment growth between 2011 and 2020 is for nearly 6,000 new jobs, or 12 percent of the current total (though fast growth, new technologies, and new opportunities could yield significantly higher numbers.)”
Total revenue was estimated at slightly more than $14 billion (direct spend only) in 2011:
- Traditional maritime exclusive industries $ 1,403,082,257
- Maritime technology industries $ 6,165,840,257
- Other maritime $ 6,465,162,848
Source: ERISS; Info-USA; U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages; Dun and Bradstreet; Corporation Wiki
The report states, “The region’s focus on the high-technology aspects of the Blue Economy is increasingly well-placed. Technology is becoming ever more enmeshed in even the most traditional maritime activities…The role of technology in San Diego’s maritime economy is also unique because of the close relationship with the U.S. Navy and the need for innovation for the Defense Department and defense industries.”
The Maritime Alliance undertook “yeomen’s efforts to define the totality of the Maritime Technology Cluster – really a sub-set of the larger Blue Economy – similar to how maritime technology clusters around the world seem to identify their industry activity as an innovation industry with close and overlapping relationships to the spheres of traditional maritime activity. Their efforts resulted in 14 sectors for the San Diego Maritime Technology Cluster map with many sub-sectors:”
- Aquaculture and Fishing
- Boat and Shipbuilding
- Cables and Connectors
- Defense and Security
- Desalination and Water Treatment
- Marine Recreation
- Ocean Energy and Minerals
- Ocean Science and Observation
- Ports and Marine Transportation
- Robotics and Submarines
- Very Large Floating Platforms
- Weather and Climate Science
The report made the following general observations about San Diego’s “Blue Tech” industry:
- Highly differentiated – 14 sectors in San Diego; 71 sub-sectors
- Prevalence of multi-use technologies from small, specialized firms
- Typically high gross margins
- Largely self-reliant – traditionally modest users of bank debt and outside equity
- Largely invisible in local markets / limited public & government awareness
- Little baseline economic data due to non-specific NAICS codes
- Highly export-oriented – typically 40-60 percent for most companies
- Markets exist in virtually every country around the world
- Growth in most sectors strongly outpaces world economic growth
These sectors can largely be used to describe the overall Maritime Industry and doing so “ helps to emphasize the increasing connectedness and overlap between the traditional and technology dimensions of San Diego’s maritime businesses…to leverage shared assets and opportunities, from formal investments all the way to informal instances of collaboration among stakeholders. “
While commercial fishing in the region is much smaller than in its heyday, the industry has the potential to double in size over the next decade. Plans have been made to provide ongoing support for commercial fishing, and recommendations have been incorporated in the Commercial Fisheries Revitalization and Coastal Public Access Plan that took three years to complete. The Port of San Diego staff has begun implementation. Implementation will take several years and cost several million dollars.
For about “one-third of the 22 companies that participated in live interviews, energy, especially offshore oil and gas, directly or indirectly, represented major, if not dominant customers. Most of these firms have few or no local customers. Their customers are either foreign firms or, if U.S. firms, located in either the Gulf of Mexico or foreign waters.” This sector has a high-growth potential market.
San Diego is the world leader in desalination and reverse osmosis technology, which was patented in San Diego in 1964. “More than 3,000 professionals and workers are employed by companies in the region which includes two of the three global market-share leaders in membrane supply.”
“San Diego has a long history in underwater vehicles and maritime robotics, initially driven by the Navy’s needs. The major Navy lab in San Diego (SPAWAR Systems Center Pacific) developed ten manned underwater vehicles and nearly two dozen unmanned vehicles.” Private companies have developed various kinds of UUVs (Unmanned Underwater Vehicles), such as the underwater vehicle models of SeaBotix Inc., the world’s leading MiniROV manufacturer.
The report states, “Workforce development has a critical role to play when cluster strategies consider the practical challenges and opportunities within any region…workers at the top of the income and education spectrum are no longer a central facet of what cluster strategies can offer a region…An occupational strategy for the Maritime Industry must be necessarily unique. On the one hand, the industry composition is too diverse to look for industry-driven occupational patterns as a driving rationale. On the other hand, that diversity includes both the kinds of firms that headline The Maritime Alliance’s membership and those that rely critically on workers who are skilled but unlikely to hold a bachelor’s degree.”
Most of the small, high-tech firms interviewed primarily recruited individuals with college or advanced degrees, with very high concentrations of various engineering disciplines. They reported considerable talent availability, particularly due to the recession. “The primary recruiting concern was lack of maritime-specific experience and training. Lack of undersea experience was especially noted by several firms. A few firms expressed concern about a growing shortage of software developers and programmers.”
The company interviews revealed the following common trends and challenges:
- Firms saw considerable opportunity, especially in offshore markets, but some of the most attractive deals are seen as too large or too complex for small companies to pursue effectively by themselves.
- Strong global competition is emerging, especially from firms with considerable foreign government support or from large firms with access to significant private or public capital resources.
- A large number expressed concerns about California’s regulatory burden, as well as that of the U.S. Environmental Protection Agency (EPA).
- Many were very concerned about threats to the working waterfront and saw residential and tourism interests eating away at industrial and commercial uses of the waterfront.
Many supported strong local advocacy in support of reducing the state burden on maritime activity, easing commercial regulation on surveying and mapping activity and on recreational yachts over 300 tons, as well as harmonizing California ballast water regulations with those promulgated by the International Maritime Organization, until a common suite of U.S. regulations are issued. Shipyards claimed that they face overlapping and sometimes conflicting regulations and oversight from multiple agencies and that San Diego is worse than the rest of California.
While these are too numerous and detailed to consider in depth in this brief article one of the most important was that it was recommended that the SDREDC focus on attracting and promoting high wage, high value-added, capital and R&D intensive firms and operations, with five focus areas for initial priority attention:
- Target offshore energy, and potentially offshore minerals extraction, as a priority cluster strategy effort. The range of companies in the San Diego region with deep expertise and technologies focused on operations in hostile ocean environments face an exciting array of opportunities.
- Launch a focused effort to take advantage of (and protect San Diego from) changing DoD strategy and restructuring.
- Strengthen organizational participation in the existing TMA Seafood (Aquaculture and Fishing) Working Group that brings together the fishing, processing, aquaculture, and other related interests to determine if the strong mutual interests identified can be leveraged into a seafood strategy for the region or the state.
- Aggressively promote shipbuilding, repair, and refit as this is a relatively robust local industry.
- Enhance seaborne trade and the associated land-based, logistics infrastructure.
The respondents expressed strong concerns that the various maritime organizations were not doing enough collectively to “protect the working waterfront.” Some of the recommendations included:
- Create joint-use facilities such as a world-class testing facility that firms could access
- Create incubator space for young firms, which would include access to shared equipment and facilities
- Create a network of existing specialized facilities, equipment, and other assets that could be made available to smaller firms (for a fee)
- Create a core marine biology facility for joint use (similar to an existing North Carolina initiative)
Finally, there was strong interest in more networking and collaboration between the Navy and private industry, between large firms and small firms, and among the many maritime-related organizations in the San Diego region. The consensus was that that the San Diego community does not think big enough in the maritime space. A clear recommendation was made for the San Diego maritime community to come up with a big idea and make it happen (such as the Maritime Center of Excellence).