Why has the cost of navy ships increased? Introduction Over the past four decades the cost of Navy ships has exceeded the rate of inflation. Even if the Navy increases its budget by $10 billion to $12 billion, it will have a fleet of 260 ships by 2035 instead of the 290 it currently has. The reason and sources of the increase are investigated in this paper. The problem is also considered from the industry point of view. Some options are found for the Navy to reduce ship costs. In this document, the rising costs of four types of ships are noted: nuclear attack submarines, guided-missile destroyers, amphibious ships and nuclear aircraft carriers. We generally consider these four ships as a whole. Naval Vessel Cost Increase Ship Class Cost in 1967 million dollars Cost in 2005 million dollars Cost Increase % Nuclear Attack Submarines $484 $2,427 401 Guided Missile Destroyers $515 $1,148 $123 Amphibious Ships $229 $1,125 391 Nuclear Aircraft Carriers $3,036 $ 6.065 100To organize From the analysis, we divide the sources of cost-increasing factors into two groups. (economy-driven factors and customer-driven factors). Economically driven factors: Largely outside government control, such as worker wages, indirect labor costs, and the cost of physical equipment. Customer-driven factors are factors that the customer directly influences. Customer-driven factors include elements that the government wants on a ship. The most important problem from the point of view of shipbuilders is the fluctuating demands from the government, their main customer. The Growth of Ship Costs Since 1950, naval ship costs have increased at a rate of between 7 and 11 percent. However, inflation during this period fluctuated between 4 and 5%. To observe inflation we can look at the CPI (consumer price index). The CPI is the best known measure of changes in consumer prices. This index measures the price changes of a sample of typical consumer goods. Annual growth rate of some components of the CPI Annual growth rate of the CPI component (%) Private transportation 2.4Food and beverages 4.2Gasoline 4.9Medical care 6.6College tuition 8.0Cost increase rates for naval vesselsType of vessel Annual Growth rate Amphibious ships 10.8 Surface combatants 10.7 Submarine assignment 9.8 Nuclear aircraft carriers 7.4 The rate of increase in costs can be measured as (cost2/cost1)-1 We generally look at the annual growth rate = (year2-year1) ãcost2/cost1-1We divide the sources of increasing factor costs into two groups. Economically driven factors: Largely out of government control. Economically driven factors may include worker wages and benefit costs, labor productivity, indirect labor costs, and the cost of physical equipment. These factors uniformly influence all shipbuilding programs. Labor constitutes between 32 and 51% of the construction costs of the ships we analyze. The cost of equipment varies from 35 to 57% of the construction costs for the analyzed ships, the cost of materials varies from 11 to 17%.