Building Success

The name may be new to some, but not for long. Portland, Oregon-based Vigor Industrial is on a roll, looking for expansion opportunities well beyond its traditional base in the Pacific Northwest and Alaska. According to President & CEO Frank Foti, both the Atlantic and Gulf Coasts are fair game, and he especially likes Brazil. “Brazil makes a lot of sense to us because of our oil-and-gas expertise,” he explains.

No matter where the company goes next, it has plenty of cash to invest and a culture that puts people first. The cash comes from Endeavour Capital, which made a $75 million equity investment in the company two years ago, and from a revolving credit facility with a syndicate of banks. The culture comes from Foti, who believes strongly in the dignity of the worker and the importance of being yourself.

Bulking Up
When Foti purchased Cascade General in Portland in 1995, the business was in decline. The reduction in the size of the U.S. Navy’s fleet and the abandonment of Portland as a homeport for the Navy were having an impact, as was the decision by Jones Act tanker operators in the Alaska trade to have their repairs done abroad. The yard was down to just 80 workers. It was in danger of closing.

But Foti changed all that. He installed a new work ethic and a new incentive compensation system that motivated employees. For the first several years, he focused on putting the shipyard on firm financial footing. In 2000, he turned his focus to growth and changed the name of the company to Vigor Industrial to better reflect its culture, his own personality, and his vision for the company.

Since then, Vigor has expanded aggressively through acquisitions and new ventures, most notably US Barge, which is today called US Fab, one of Vigor’s shipbuilding arms. Two years ago Vigor made an acquisition that overnight transformed the company and more than doubled its size. It acquired Todd Pacific Shipyards for $130 million. Todd’s roots went back nearly 100 years, to the early 1900s, and for decades it was a leading shipbuilder and ship repair firm in the Pacific Northwest. Seattle-based Todd played a leading role in World War II, constructing more than 1,000 ships in its various facilities, including 350 LCIs (Landing Craft-Infantry), 40 destroyers and more than 30 Bouge Class Escort Aircraft Carriers. It also repaired or converted a staggering 23,000 vessels for military service.

The Todd acquisition brought with it a bonanza of military business along with the contract for Washington State Ferries, the largest ferry system in the U.S. and third largest in the world. It added facilities in Seattle, Bremerton and Everett, Washington to Vigor’s growing portfolio and provided a skilled workforce of over 1,000.

Having barely digested Todd, Vigor last year purchased Alaska Ship & Drydock (ASD) of Ketchikan for an undisclosed amount. ASD is a leading provider of construction and repair services for Alaska’s fishing and barge fleets, thereby both complementing and expanding Vigor’s existing suite of services. Vigor continued ASD’s involvement in an innovative public/private partnership with the Alaska Industrial Development & Export Authority to construct the Ship Assembly and Production Hall, a new, fully enclosed facility in ASD’s Ketchikan yard that was dedicated in March. The $31 million, 70,000-square-foot assembly hall features advanced modular manufacturing techniques and is already busy constructing the F/V Arctic Prowler, a 136-foot longliner, the first of what Vigor expects will be a number of similar vessels as the aging Alaskan fishing fleet recapitalizes itself.

As if that weren’t enough, Vigor announced in January that it had ordered what will be the largest floating drydock in the U.S. It will be built in China by Daoda Marine Heavy Industry Company at an estimated cost of $40 million and delivered next year to Vigor’s Portland yard in three pieces, where it will be assembled. “We decided now is the time to buy because demand to service large vessels is growing, and large drydock capacity in proximity to the U.S. West Coast has diminished,” said Foti.

At 960 feet long, with an inside width of 186 feet and a lifting capacity of 80,000 long tons, the new drydock will be 300 feet longer than the largest drydock Vigor currently owns. The new capacity will allow Vigor to service the incoming generation of the U.S. Navy’s Military Sealift Command (MSC) dry cargo/ammunition ships, which are replacing some smaller versions. The drydock will be large enough to service commercial vessels including post-Panamax cargo ships and cruise ships. The increased capacity will also help Vigor meet growing demand from the Arctic as oil-and-gas exploration companies take advantage of longer ice-free summers.

Today, the company employs about 2,000 workers and has annual revenues of more than $500 million. Its seven locations boast 10 drydocks, more than 17,000 feet of dedicated pier space, and more than half a million square feet of covered shop area. It operates more than 50 cranes, including a 600-ton gantry traversing its oversized Portland buildway.

More than just growth for growth’s sake, Vigor’s culture helps the company use its resources to achieve maximum competitiveness, including a commitment to keep those who want to work on the job as much as possible and an expectation that workers be both flexible and productive. The company has made it easier for workers at each Vigor company and location to go where the work is, meaning if there’s a slow time in one place but a glut of similar work in another, willing workers are encouraged to go help out. More than just a feel-good measure, this helps Vigor retain its most productive workers and allows the company to respond not only when, but where, a customer needs it most.

Industrial Evolution
Foti attributes the company’s success first and foremost to its employees. He pays them “family wages” and expects an honest day’s work in return. And he gets it. He is especially proud of the “photo wall” in his office that features pictures of Vigor workers – not, as with so many shipyard executives, pictures of ships or facilities. It’s a telling distinction.

To ensure a steady flow of skilled welders and other craft workers, the company has partnered with Portland Community College to provide training opportunities for students through its Swan Island Training Center on the grounds of its Portland yard. Candidates leave the center with a suite of modern industrial skills that qualifies them for work at Vigor and other industrial employers in the area. Another training center is in the works with South Seattle Community College. The Harbor Island Training Center is slated to open in Vigor’s Seattle Shipyard by June 1. Vigor also works with trade unions, industrial development authorities, and other workforce agencies in the communities where it operates to provide training and encourage interest in shipyard work.

The company has a robust, tiered profit-sharing program that takes ten percent of earnings each year and distributes it to the 600 “non-bargaining” staff employees. Foti says that staff pay is more heavily weighted toward the incentive compensation component than it is to base pay. This year a safety component has been added to the profit-sharing formula so that it’s not just about profitability but safety too. Foti says he learned about the importance of profit-sharing as a motivating force from the Lincoln Electric model, which he calls a “tiered profit-sharing company from soup to nuts.” Lincoln is headquartered in Cleveland and is the global leader in welding equipment.

The second key ingredient in Vigor’s success, according to Foti, is its balanced business portfolio. This has enabled Vigor to weather the lean years of the Great Recession and come out whole. Last year, for example, the company derived about 20 percent of revenues from new construction and the rest from ship repair. This year new construction will account for 40 percent of revenues as the ship repair business, particularly for the military, has fallen off.

Similarly, the ratio between commercial and military business is about 80/20.

For the record, there are seven distinct companies under the Vigor umbrella: ASD, Specialty Finishes (coatings), the Shipyard Commerce Center (60 acres of space adjacent to the company’s Portland facility), US Fab (shipbuilding), Vigor Machine ( which provides industrial services for turbine generators, pumps and other industrial applications), Vigor Marine (ship repair), and Vigor Shipyards (military). But the real breakdown, from a customer perspective, is (1) fixed-price ship repair, (2) cost-plus ship repair, and (3) fabrication. The biggest business is fixed-price ship repair, which includes both commercial and government customers, and it’s done almost entirely on a bid basis.

Vigor’s non-marine businesses, which include Specialty Finishes, Vigor Machine and the Shipyard Commerce Center, account for less than 10 percent of revenue, but they’re growing and are part of why the company has the word “Industrial” in its name and not “Shipbuilding” or “Ship Repair.” In fact, Foti classifies everything the company does as “industrial evolution” because that’s how he sees it – as the natural progression of manufacturing innovation.

New Projects
The company builds and repairs a dizzying array of products – everything from fireboats and deck barges and longline fishing vessels to USCG cutters, U.S. Navy warships, passenger vessels, oil rigs and drillships. Ferries are big business, and the purchase of ASD last year opened up a whole new market in Alaska, where ASD recently delivered the M/V Susitna, an innovative, variable-draft ferry, and has an agreement to build the next round of vessels for the Alaska Marine Highway system. For Washington State Ferries, Vigor is building the first of two new 144-car, 1,500-passenger vessels to replace older, smaller vessels. The new Olympic Class ferries will have significant safety and efficiency enhancements as well.

Drilling for oil and gas in the Chukchi and Beaufort Seas offshore Alaska also holds great promise, and Vigor did significant work on nearly half of the fleet involved in Shell Oil’s abortive 2012 Arctic drilling campaign. That effort has been suspended for 2013, but Foti has no doubt it will start up again in 2014 – whether by Shell or others – and become a major revenue generator for the company in the future.

But the big prize currently up for grabs is the contract for the Coast Guard’s new Offshore Patrol Cutter (OPC), and Vigor is among a number of companies bidding for the $8 billion, 25-vessel, 15-year package, the largest in the Coast Guard’s history. The Vigor proposal, featuring the striking Ulstein X-Bow® design, would be a dramatic departure from the typical “pointy ships” of the past. The design has proven itself in the harsh North Sea environment and features unmatched seakeeping and endurance along with enhanced fuel economy.

It’s not a “make-or-break” contract for Vigor, but winning it would be a nice feather in the cap of a company that is doing its part to make the U.S. an industrial powerhouse once again. And besides, the Ulstein design could be used on the workboats Vigor hopes to build someday for the Arctic market. “We just want to keep this thing going and make it thrive,“ says Foti, “ and be vigorous as we do it.”