EconSouth (Second Quarter 2007)
Although landlocked, the Volunteer State is home to a vibrant boatbuilding industry. Beneficial geography and an experienced workforce make for smooth sailing.
In early May, steel girders began rising on the eastern bank of Tellico Lake, a 16,000-acre finger of a dammed river 30 miles southwest of Knoxville, Tenn. The beams will form the skeleton of east Tennessee's newest and splashiest boat manufacturing plant. In a couple of years Christensen Shipyards Ltd., based in Vancouver, Wash., plans to build some of the world's poshest private vessels at its new $20 million, 400,000-square-foot Tennessee factory. These custom-built yachts will sell for more than double the cost of the plant.
Christensen will be just the latest addition to the Knoxville area's burgeoning marine manufacturing industry. Its growth was spurred by the Tennessee Valley Authority's (TVA) creation of Tellico Lake in 1976. Two years later, Brunswick Corp. located a Sea Ray boat plant on Tellico's western bank.
These companies have become part of east Tennessee's pleasure boat–building hub. Allison Boats, Black Diamond Marine, the Brunswick Corp.'s Boat Group headquarters, Bryant Boats, Bullet Boats, Cobalt Yachts, Leisure Kraft Pontunes, Malibu Boats, Mastercraft Boats, Norris Craft Boat Co., Sailabration Houseboats, Skier's Choice, Stroker Boats, and Tennessee Watercraft (a unit of Yamaha) are all in the area. The East Tennessee Economic Development Agency lists 15 boatbuilders operating in its territory, including Christensen, whose plant is initially expected to employ 500 people.
The Knoxville–Oak Ridge Innovation Valley group lists eight local boatbuilders with fewer than 100 employees. Most of the smaller firms specialize in particular types of craft. Allison, for example, makes about 100 boats a year—fewer than Sea Ray produces in a week—and is known for bass boats and speedboats. The company, said Darris Allison, president of Allison Boats, spends heavily on research and development to continually design hulls that slice through the water faster and use less gasoline.
The Knoxville area is among a half dozen or so significant boatbuilding centers in the United States, along with Florida, North Carolina, central Missouri, and northern Indiana, said Thom Dammrich, president of the National Marine Manufacturers Association (NMMA).
Navigating to the right spot
"I can't think of any better place to build boats," Allison said. His father, an east Tennessee resident, was an automobile body worker who started building speedboats as a hobby. But why did numerous other boatbuilders and suppliers gather in the shadows of the Great Smoky Mountains, more than 300 miles from the nearest seacoast?
Perhaps surprisingly, location is one reason. East Tennessee has plenty of lakes for testing and selling new boats and is safe from hurricanes that can disrupt boat production on the seacoast. Knoxville also lies at the junction of two major distribution arteries, interstate highways 40 and 75. And for Sea Ray, the site is ideally situated in the middle of the company's three major markets: the Southeast, Northeast, and Midwest, said Rick Stone, president of the Brunswick Boat Group, the world's largest boatbuilder, with sales of nearly $3 billion in 2006.
For Christensen, the area's newest arrival, east Tennessee offers a distribution advantage of a different sort. Currently, Christensen builds its "megayachts," which sell for $50 million and more, at its shipyard in Vancouver, Wash. To get its boats to its sales office in Fort Lauderdale, Fla., it sails them from Vancouver through the Pacific Ocean and the Panama Canal.
But Tellico Lake offers a veritable aquatic interstate highway system: It's possible to boat from there to 21 states, the Gulf of Mexico, or the Great Lakes. So from Tennessee—with access to the Gulf of Mexico via the Tennessee River and the Tennessee-Tombigbee Waterway, which runs from Tennessee down the western edge of Alabama to Mobile Bay—the trip to Florida and the East Coast is far shorter than from the Pacific Northwest. Additionally, the Tennessee location offers the advantage of closer proximity to European markets, Christensen President Joe Foggia said.
Stone and others cite additional reasons that boatbuilders choose east Tennessee, such as state and local government incentives and the absence of a state income tax. Another strong draw is the abundance of experienced workers because of the industry concentration there. "Every boat, regardless of the manufacturer, is pretty much hand built," Stone said. "So you need to have a skilled workforce."
Sea Ray's parent, the Brunswick Boat Group, moved its headquarters to Knoxville in 2002 from Brunswick Corp.'s headquarters in Lake Forest, Ill. With a substantial Sea Ray staff already in Tennessee, Stone said it was ultimately less expensive and disruptive to move information technology, accounting, dealer credit, finance, and legal staff from Sea Ray into the Brunswick Boat Group to augment that operation in Knoxville rather than move many of those people elsewhere. While the company weighed incentive packages from other locations, Stone said, the city of Knoxville, Knox County, and the state offered inducements, including grants for establishing downtown offices.
"It's been a very prosperous and good relationship," said Stone, whose Brunswick Boat Group encompasses 23 brands including Boston Whaler, Hatteras, Bayliner, and Triton.
All hands on deck
Boatbuilders and suppliers in east Tennessee employ more than 4,000 people, some 2,000 of them at Sea Ray and Brunswick, said Ron Hammontree, executive director of the Tellico Reservoir Development Agency, a state-chartered group charged with developing 11,000 acres the state purchased from the TVA. The agency helped recruit Christensen and other boatbuilders.
The 4,000 marine industry jobs, which will grow by a projected 500 when Christensen begins production and another 200 or so as Cobalt expands, and the ripple effect have buoyed the economy south of Knoxville, which had been at a low ebb. Twenty years ago, the unemployment rate around Tellico Lake exceeded 15 percent, Hammontree said.
That rate has changed, in part because of the boatbuilders. Two counties just south of Knoxville show the benefits. Loudon County (with 22,500 jobs) and Monroe County (with 19,000 jobs) are small economies where boatbuilding makes up a significant share of the labor force, with just over 10 percent of the workforce in boatbuilding in 2005, according to 2005 U.S. Bureau of Labor Statistics data.
And it continues to. In addition to Christensen's arrival, Cobalt Yachts built its first yacht in the summer of 2006 at its Monroe County plant. In January 2006, Cobalt purchased from Matsushita a 375,000-square-foot plant on 72 acres in the county. Cobalt also acquired another 12 acres on Tellico Lake for a boat launch, testing facility, and marina.
The Knoxville area, according to Hammontree, secured Kansas-based Cobalt's plant over competition from Alabama, Mississippi, North Carolina, South Carolina, and Georgia. In their recruiting, east Tennessee officials used local tax breaks, an $8 million bond issue, and a state incentives package including more than $1 million in infrastructure improvements and job training services, according to the Knoxville News-Sentinel.
Sea Ray has also recently expanded its Knoxville-area operations. In cooperation with Sea Ray, other boatbuilders, and local community colleges, the Tellico Reservoir Development Agency established a 25,000-square-foot corporate training center in part to teach marine employees advanced design techniques. Boat hull design and production are constantly evolving, and builders work to keep their staff current.
In another move to retain and expand the local industry, the agency plans to broaden the mission of the training center to educate workers in all aspects of boatbuilding, from electronics to engine components to upholstery, Hammontree said.
Riding a rising tide
Amid the competition of builders large and small, boat sales tend to fluctuate with the economy and consumer confidence. In 2005, the latest year for which comprehensive data are available, total retail sales for new boats and motors was $14.7 billion, according to the NMMA, compared with $11.2 billion in 2000. Those sales are driven up by ever fancier, more feature-laden models, Stone said.
Larger boats have amenities that increase prices: air conditioning, ice makers, sound systems, and big-screen televisions, for example. "Anything you have in your homes," Stone continued, "to the extent we can get it marine grade and have the ability to take it on 10-foot seas, it's on a boat."
Boatbuilders view their customers like home buyers—many will trade up as they can afford more. An avid boater, Stone said, will typically buy five to seven boats in his lifetime.
If that trend continues, it will lift a lot of boats—and boat manufacturers—around Knoxville.
This article was written by Charles Davidson, a staff writer for EconSouth.