Defence Policy Review 2016: Striving for an intelligent, cohesive and sustainable marine industrial policy

OTTAWA, June 16, 2016 /CNW Telbec/ - The National Shipbuilding Strategy announced by the previous government was meant to be a panacea for both the shipbuilding industry as well as the Canadian Armed Forces and Canadian Coast Guard who urgently needed a fleet renewal program. Unfortunately it has failed to deliver to industry, the end-user and the Canadian taxpayer. As much as we would like to believe that the problems we are facing, five years on from the beginning of the program, are simply 'teething problems', they are in fact deeply rooted in the origins and design of the program.

In 2009, the Canadian Marine Industries and Shipbuilding Association (formerly the Shipbuilding Association of Canada) submitted the Canadian Shipbuilding Procurement Policy Resolution which was endorsed by all shipyards in Canada. It provided a clear recommendation on how to renew Canada's fleet. It was based on the utilisation of all Canadian shipyards by matching shipyards to the individual shipbuilding programs based on the relevant specific experience, capacity and capability they had in building the required classes of ship. This critical aspect was, on the whole, ignored under the National Shipbuilding Procurement Strategy.

What is worse, commercial ships (such as ferries and oilfield services vessels) which are due to operate in Canadian waters are now being built offshore. The National Shipbuilding Procurement Strategy, as it is designed today, is harming and not helping the shipbuilding industry. The industry needs more than a short-term economic stimulus to eradicate the boom and bust cycles of yesteryear.

Government shipbuilding work must be spread throughout the industry to provide a baseline of work while all shipyards concurrently develop their skills and capabilities to compete in the international and commercial shipbuilding markets.

Anyone can build a ship for two, three of four times what is would cost in other parts of the world, but does that create a sustainable industry which will contribute to the nation's Gross Domestic Product in the long-term? Naturally, there comes a point when the economic benefits of building in Canada are outweighed by the cost-savings achievable from building in developed shipyards offshore. And if there is no exit strategy for the industry, why bother plowing taxpayer funds unnecessarily into it?

That said, the Canadian Marine Industries and Shipbuilding Association and its members are convinced that with the slight changes to the current program, which are inevitably needed, there can be a winning solution for all stakeholders.

It's time to create a sustainable, useful and economically viable industry for the benefit of all Canadians, whether they are building ships, serving in them or paying for them. In the context of the Defence Policy Review 2016, Canada's shipbuilders are making three recommendations that will create a winning solution for all stakeholders:

• Create a sustainable marine industry by introducing cohesive maritime policy across the board
• Expedite innovative industry solutions to urgent requirements and continue to seek commercial solutions to federal ship requirements to provide value to the taxpayer
• Reduce taxpayer costs and expedite fleet renewal by increasing shipbuilding capacity in Federal Government programs

Recommendation 1: Create a sustainable marine industry by introducing cohesive maritime policy across the board

To create a sustainable marine industry in Canada, a wider strategy is required which takes into account all aspects of the supply chain and the country's maritime requirements. A shipbuilding policy focused solely on governmental ships is not enough to create a competitive and sustainable industry. Unless a wider policy is introduced, the National Shipbuilding Strategy will be reduced to a short-term economic stimulus and when the low-risk, 'cost-plus' government work dries up, the industry will fail to adapt to and compete in commercial and export opportunities. History has shown this to be the case, time and time again.

To understand what is possible, Canadian policy makers must look abroad to other nations that have developed themselves as leaders in the marine industry. In these successful maritime nations, two common denominators stand out. 

Firstly, the creation of 'Maritime Clusters'. That means a concerted and coordinated effort by the government to develop key capabilities and understanding throughout the entire maritime value chain. From education to science to business, it means forging connections between everyone involved in the maritime industry. Countries such as Norway, Holland and Singapore demonstrate how a coordinated focus on all aspects of the maritime industry can lead to significant increases to a country's Gross Domestic Product. It means understanding and promoting a hub of capabilities in everything from marine technologies to ship finance and crewing.

But it needs focus and the focus each Maritime Cluster takes is often a derivative of the local challenges it faces and the subsequent opportunities they create.

Norway, with significant oil reserves, has focused on the oilfield services market and has become a world leader in those technologies. Holland has focused on coastal dredging and offshore construction due to its geographical challenges – it has exported its knowledge worldwide and these technologies are now a key Dutch export.

Canada has its own unique challenges that create a valuable opportunity for the country. We have the Arctic and significant ice-covered waterways. We have more coastline than any other country in the world as well as significant inland waterways. We need ships of all descriptions to navigate these waters from ferries to icebreakers. It's time to stop building our ships abroad and ensure that they are built here at home. With lower labour rates than most European countries, there is no reason why Canadian flagged ships should be built in Europe – especially when many of these ships, especially ferries, are subsidized by the Canadian taxpayer. Contrary to what some believe, building ships does not cost more in Canada.

The United States goes one step further and does not allow any commercial ships to operate between two US ports that are not built in the United States, crewed by U.S. seafarers and flagged in the United States.  This law - the Jones Act - has demonstrated how maritime cabotage can ensure a sustainable and competitive maritime industry.  According to US government figures, the Jones Act contributes $14 billion in annual economic output, 84,000 shipyard jobs and countless seafaring jobs.  The primary reason for the Jones Act is the vital role it plays in both national and economic security.

The National Shipbuilding Strategy is focused on government ships for the Royal Canadian Navy and Coast Guard. That is not a shipbuilding strategy. It is a government procurement strategy and Canada must look at the wider marine industry and policies for building all ships in Canada to ensure a cohesive and sustainable shipbuilding industry.

Recommendation 2: Expedite innovative industry solutions to urgent requirements and continue to seek commercial solutions to federal ship requirements to provide value to the taxpayer

The new government took an important and commendable step towards solving an urgent operational requirement with an innovative, fast-track solution when it sanctioned the Resolve-Class Auxiliary Oiler Replenishment ship in 2015.

The Royal Canadian Navy urgently needed new Auxiliary Oiler Replenishment ships, the National Shipbuilding Strategy was unable to meet the Navy's unscheduled operational need and a solution was put forward. The solution was to convert a containership to provide the capability. The Resolve-Class ship will now be able to perform 95% of what the penned Joint Support Ships will be able to do but at approximately one third of the cost.

Though this is a first for Canada, it is commonplace for international navies and coast guards. The Royal Navy, US Navy, Australian Customs and Border Protection Services as well as numerous other allied nations have opted for commercial solutions to naval requirements. The vast majority of these have been significant successes. HMS Ocean, for example, was built to commercial standards and is now the Royal Navy's flagship. The RFA Diligence, a conversion of an offshore support vessel, has served the Royal Navy in every theater of operation over the past three decades. The RFA Argus – a containership conversion – has also served in numerous combat and humanitarian relief operations.

Canada has current and impending gaps in several marine capabilities as has been evidenced recently through numerous industry and governmental reports such as the Canadian Transportation Act Review. Most notably, these are:

• Arctic / Polar Icebreakers for Arctic sovereignty, scientific and bathymetric studies and search and rescue
• Several inland and coastal icebreakers for the safe navigation of commercial marine traffic
• A need for at least a second Resolve-Class AOR in order to retain sufficient redundancy during maintenance periods, a ship on both coasts and a common platform of a single design for training and interoperability
• A multi-role platform for humanitarian relief and disaster response, border patrol, search and rescue, towage, submarine rescue and diving support, scientific research and forward ship repair

These four vessel classes can be provided through the conversion and application of Canadian technology to existing commercial vessels in one or more of the 26 domestic shipyards across Canada that have not received contracts under the National Shipbuilding Strategy.

The current state of the global shipping and oil & gas markets is dire and many different classes of ship are available at highly affordable prices.

It would be a winning solution for the Canadian Armed Forces, Coast Guard and the greater Canadian shipbuilding industry that has yet to benefit from federal shipbuilding programs and most importantly, for the Canadian taxpayer.

Recommendation 3: Reduce taxpayer costs and expedite fleet renewal by increasing shipbuilding capacity in Federal Government programs

It has been widely reported that the costs of building ships under the National Shipbuilding Strategy have ballooned. In some cases, costs to build a ship under the previous government's shipbuilding strategy are reported to be as much as five times that of what other nation states are paying for similar vessels.

Unless changes are made to reduce the costs of these programs, it is arguable that the economic benefits of building in Canada are heavily outweighed by the possibility of building ships abroad.

There are a number of reasons for the high costs associated with the current programs but the one that is most often cited by the government and the one where there is a simple fix, is inflation. The longer it takes to build a series of ships, the more it will cost. Inflation in the shipbuilding industry has been reported to be as high as 10% per annum. By restricting the construction of Canada's next fleet to only two, relatively small shipyards that are restricted in how many ships they can build simultaneously, the National Shipbuilding Strategy has been plagued by delays.

When compared to the original schedules, every program is years late. And each year of delay, means the budgets are eroded. And when the budgets are eroded, it means that Canada won't be able to afford the number of ships that were originally planned. Then there are other problems in terms of ships being so late that by the time they are ready to be delivered, the design of the ship and the technology onboard risks being obsolete and of the last generation.

So, the idea of restricting the shipbuilding capacity available for federal large ship construction and stretching the shipbuilding program out over decades is a double-edged sword. Guaranteeing work for the shipyards is, in theory, a positive step but it comes at a significant cost to the Navy, Coast Guard and the Canadian taxpayer.

More importantly, coming back to an early theme in this paper and as has been seen previously in Canadian shipbuilding programs, shipyards become so overburdened by government work that they fail to adapt to the commercial realities of the highly price-competitive international and domestic shipbuilding industry. Saint John Shipyard, the primary yard during the building of the Canadian Patrol Frigate, was forced to shut down when it found itself uncompetitive when attempting to build commercial ships.

We can learn from lessons in other nations where the building of hulls and ship sections is spread throughout numerous shipbuilders and metal fabricators across the country before assembly and outfitting at other locations in order to expedite the delivery of ships, spread regional benefits and reduce the inflationary effect of delays. This modern production assembly method has been used in most international shipbuilding programs and is also adopted in other industries, such as aerospace. This solves, to a large degree, the deleterious effect which inflation has on the budget and consequently the number of ships that can be delivered within it.

By adding increased shipbuilding capacity to the penned programs and spreading work more evenly across the country, for example for the future Canadian Surface Combatants, it will allow shipyards to use government contracts to provide a stable base of work for their facilities, but without overburdening them to the point that they can not take on the commercial shipbuilding work for which they must become competitive in prior to the end of the government shipbuilding programs.

The Canadian Marine Industries and Shipbuilding Association calls on the Federal Government to act swiftly to rectify the National Shipbuilding Strategy and introduce the measures needed for the sake of all Canadians.

END

Image captions from the report:
Canadian seafarers: an essential part of our marine industry

Creating a Maritime Cluster means training and retaining skilled marine industry workers throughout the supply chain. The Seafarers International Union of Canada (SIU) has been dealt a particularly hard blow by the substitution of Canadian seafarers onboard domestically trading ships by foreign temporary workers. The SIU predicts that 2,100 Canadian jobs have been lost despite 25 percent of Canadian seafarers being unemployed.

Canadian icebreaker gaps: a threat to Canada's economy, sovereignty, environment and national security

Over the past year, both government and industry associations have highlighted the severe gaps in Canada's icebreaking capability and the risks it presents for Canada as a safe, secure, trading nation. The Canadian Shipowners Association and the Shipping Federation of Canada have made repeated pleas for multiple new icebreakers to be acquired by the government to both replace and supplement Canada's existing, aged fleet.

Earlier this year, the Canada Transportation Act Review by the Honourable David Emerson made a clear recommendation for the government to commence expedited procurements for icebreakers to serve both Canada's North as well as its inland waterways. The report emphasised that the National Shipbuilding Procurement Strategy had failed to meet Canada's needs and that alternative solutions must be found without hesitation.

With 26 shipyards throughout Canada available to provide solutions to this significant capability gap, the Canadian Marine Industries and Shipbuilding Association implores the government to act swiftly in responding to Canada's icebreaking needs.

Modern production assembly methodology: lessons from abroad

Pictured is the Type 702 Berlin Class fleet auxiliary vessel which is the same design penned to be used for the Royal Canadian Navy's Joint Support Ships. FGS Bonn, which was launched in 2013, was built by a consortium of Germany's four leading shipyards. The hull, deckhouse, outfitting and engineering and system support were each given to a different shipyard. The final cost was one third of what the Joint Support Ship has been estimated to cost under the National Shipbuilding Procurement Strategy. The Royal Navy in the UK used no less than six shipyards to build each of its new aircraft carriers.

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Notes to editors:

About the Canadian Marine Industries and Shipbuilding Association (formerly the Shipbuilding Association of Canada)

The Canadian Marine Industries and Shipbuilding Association (CMISA) exists to support and promote the interests of the Canadian shipbuilding, ship repair and industrial marine industries.

We are a national organization that represents the interests of Canadian companies involved in:

• Shipbuilding and ship repair
• The fabrication of offshore marine structures and components
• The manufacture and distribution of marine equipment, electronics and power distribution systems
• Ship design and marine engineering
• Marine systems integration, project management and logistics support

SOURCE Canadian Marine Industries and Shipbuilding Association

Visit our website at www.cmisa.ca or contact us at: C.M.I.S.A., 222 Queen Street, Ottawa, Ontario, K1P 5V9, Tel: [phone], Fax: [phone], [email protected]