Naval ShipbuildingIn Canada Why Canada needs a National Shipbuilding Procurement Strategy November 2009
Outline Naval Shipbuilding in Canada The Challenge of Geography The Challenge of Cost Strategic Requirement of Federal Fleet
Earliest Shipbuilding – New France The first sailing ships launched at PORT-ROYAL, Acadia, in 1606 In 1732 a shipyard was established on Rivère St-Charles (Québec) The 10 merchant vessels built there that year may be termed the true start of the industry as a commercial enterprise in Canada Warships were also ordered for the French navy, including a ship-of-the-line mounting 70 guns built in 1750 Undated photo of building fishing schooners (Library and Archives Canada/C-8599)
Earliest Shipbuilding – Great Lakes In 1677-78 a single-decked barque of 10 tons, and 3 other vessels were built on Lake Ontario In 1679, the GRIFFON, 20 m 60 tons was built on the Niagara River Between 1732 and 1745 a number of vessels were built, 6 for Lake Ontario and one for Lake Superior The WAR OF 1812 generated a flurry of shipbuilding. The ST LAWRENCE, built in Kingston in 1814, was a 3-decker mounting 102 guns, and was larger than Nelson's Victory Construction of the "Cutty Sark", named for the famous British clipper, in the 1880s at Saint John in the 1880s (Wilson Studios)
Early Shipbuilding in Canada The heyday of Canadian shipbuilding was in the years 1840 to the early 1880s, when wooden sailing ships ruled the waves In the peak shipbuilding years during the 1870s Canada produced 500 to 600 vessels per year, making her the fourth largest producer of ships in the world Ships of Saint John (New Brunswick Museum)
The Great Naval Debate In the lead up to Canada acquiring a Navy, there were two trains of thought: Some favoured direct contributions to the British fleet Others preferred their own standing naval forces Within Canada, a great division over composition with the government favouring a force which could patrol both coasts and, in time of war, could support the Royal Navy Others argued that nothing more than an armed Fisheries Protection Service was needed
Best Intentions The fleet plan of 1910: 1 Boadicea Class Medium Cruiser 4 Bristol Class Light Cruisers 6 River Class Destroyers
Reality Sinks In … “Its original plan, much championed, was that this new fleet would be entirely built in Canada and ready in three years. But the Canadian shipbuilding industry had atrophied since the 1870s. Canada might still have made the transition to new technology, [but] by 1910 she possessed no yard capable of building large and modern ships, especially such specialized ones as cruisers. Not for the last time in Canadian naval history, the government realized that, to build a fleet at home, it first had to build a shipyard.” Marc Milner, Canada's Navy: The First Century, p. 24
Cold War Ship Projects 1Six were transferred to the French Navy in 1954. These ships were replaced by six of the same name in 1956-1957. Note: Other projects included the hydrofoil Bras d’Or and Icebreaker Labrador.
Canada’s Ocean Estate TERRITORIAL WATERS EXCLUSIVE ECONOMIC ZONES UNCLOS CLAIMS AREA
Federal Fleet Navy Generate and maintain combat-capable, multi-purpose maritime forces for employment both at home and abroad Department of Fisheries – Canadian Coast Guard Directly supports the DFO mandate to ensure safe and accessible waterways for Canadians and plays a key role in the sustainable use and development of Canada’s oceans and waterways Transport Canada - Marine Atlantic Provide and maintain an essential line of communication between Newfoundland and Nova Scotia
The Challenge GoC has announced fleet renewal projects for DND and DFO worth approximately $43B in acquisition costs, but two ship acquisition processes were terminated prematurely in 2008 Canadian Shipbuilding Industry has had no substantial large/complex new build orders since the mid-1990s creating a “boom/bust” cycle As a result, Canadian shipyards have not been able to maintain appropriate modern industrial infrastructure, design capacity, marine supply lines, and assured, cost-effective skilled labour Although the “Build in Canada” Shipbuilding Framework was intended to create a robust Canadian shipbuilding capability, this has not been achieved with the “boom/bust” outcome of sporadic Federal Fleet ship acquisition projects
Ship Project Cost & Budget – A Model Note: The red line represents the available budget. Uncertainty Insurance Competitive Process Escalation Liquidated Damages Ammo (CY $) Limitation Of Liability SHIPS (CY $) Foreign Exchange Spares Training Project Management Office Warranty Infrastructure Communications/ Relationship With Industry Etc. Labour Uncertainty State of Shipyards
It’s a VUCA World – In Security & Economy(Volatility, Uncertainty, Complexity and Ambiguity) Nobody could predict the economic situations of the past year: Natural Disasters: Earthquake in China drives spike in escalation of price of steel Piracy: Somalia's status as a haven for pirates has created unprecedented ship seizure activity which is driving cargo shipping to avoid the Suez Canal and navigate around Africa, adding millions of dollars to the cost of materials and commodities Economic Bail-outs: Multi-billion dollar bail-outs in most industrialized nations, unexpectedly triggered by bad mortgages in the US, have created a world recession and market uncertainty for years to come. Energy Prices: $147 a barrel last year, to below $33 a barrel recently, with its impact on steel and other shipbuilding material manufacturing Interest Rates: Jan 03 - 3.0%; Jan 04 - 2.75%; Jan 05 - 2.75%; Jan 06 - 3.75%; Jan 07 - 4.5%; Jan 08 - 4.25%; Jan 09 - 1.0%; Jan 10 - ?
Overseas Markets & Components Cost Uncertainty European New-build Cost Index Major Component Cost Index Source:Peter Kiewit Sons Co., Canadian Shipbuilding Competitiveness, 14 July 2008
Uncertainty UNCERTAINTY Materials Escalation Major Components Markets Labour Risk
Cost Escalation Rates for Battle Force Ships1950-2000 Source: 2006 RAND Report: Why Has the Cost of Navy Ships Risen?
The Impact Uncertainty • Budget established too early – costs changed • Inflation cost of materials • Government imposed risks • Shipyard inefficiency risks Insurance The red line represents the available budget Competitive Process Escalation Liquidated Damages Ammo (CY $) Limitation Of Liability SHIPS (CY $) Foreign Exchange Spares Training Project Management Office Warranty Infrastructure Communications/ Relationship With Industry Etc. Labour Uncertainty State of Shipyards
Strategic Requirement - Renewal Notes: 1. Involves DND ships, and all CCG ships of 1,000 tons or more. 2. While the funding for the DND vessels has been approved within the Canada First Defence Strategy, only 5 out of 29 CCG vessels forecasted for renewal have been allocated funding
Shipbuilding Capacity in Canada Washington Marine Group (WMG): Employment – Low: 200 PY Employment – High: 950 PY Employment – Current: 800 PY • Kiewit Offshore Services • Peter Kiewit & Son • Employment – Low: 2-300 PY • Employment – High: 1,200 PY • Employment – Current: 300 PY • Vancouver Shipyard • (WMG) • Newdock – • St John’s Dockyard • Vancouver Drydock Company • (WMG) • East Isle Shipyard • (ISI) • Nanaimo Shipyard • Groupe Maritime Verreault • Halifax Shipyard • (ISI) • Employment – Low: 600 PY • Employment – High: 1,700 PY • Employment – Current: 450 PY • Allied Shipbuilders • Davie Yards • Employment – Low: 30 PY • Employment – High: 3,500 PY • Employment – Current: 900 PY • Victoria Shipyard • (WMG) • AF Therriault & Son • Seaway Marine & Industrial • Upper Lakes Marine and Industrial • Employment – Low: 5 PY • Employment – High: 400 PY • Employment – Current: 200 PY Major yards in Red • Hike Metal Products Source: Industry Canada, Shipbuilding and Industrial Marine: Industry update, 11 March 2008
What Our Allies Have Done The practices of eight allied countries were examined. All have some type of alliance or strategic relationship with their shipbuilding industry The majority of our allies believe that to protect their long-term national security interests, they must have the capability to construct, sustain, repair and upgrade their naval vessels The work available has caused many to rationalize to a single supplier Canada is unique in its approach, relying predominantly on a competitive, project-by-project, market-driven procurement process to acquire vessels The international environment dictates the need for Canada to establish a long-term procurement strategy similar to the ones employed by our allies
Strategic Requirement Government commitment to a long-term shipbuilding strategy would provide an opportunity to: Take advantage of a long-term planning horizon Provide more predictable work for industry through: Elimination of Boom/Bust More optimal load-levelling Allow for incremental infrastructure improvements Address Labour requirements in order to: Stabilize, grow and renew workforce Maximum benefit of labour learning curve Rebalance risk between industry and Government Thus, could enable redevelopment of world class shipbuilding capability once in place
An Integrated Solution Note: The red line represents the entire budget Uncertainty Insurance Risk Re-balancing (Cost: ) Competitive Process Escalation Liquidated Damages Ammo (CY $) Limitation Of Liability SHIPS (CY $) Foreign Exchange Spares Training Project Management Office Warranty Infrastructure Communications/ Relationship With Industry Etc. Labour Uncertainty State of Shipyards Procurement Strategy (Shipyards [NSPS]; Early engagement of implementation contractor; Better cost estimating; Use of economies of scale) (Cost: )