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Naval Shipbuilding In Canada. Why Canada need s 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.

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Naval ShipbuildingIn Canada

Why Canada needs a National Shipbuilding Procurement Strategy

November 2009


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Outline

Naval Shipbuilding in Canada

The Challenge of Geography

The Challenge of Cost

Strategic Requirement of Federal Fleet


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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)


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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)


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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)


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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


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Best Intentions

The fleet plan of 1910:

1 Boadicea Class

Medium Cruiser

4 Bristol Class

Light Cruisers

6 River Class

Destroyers


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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


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WW I, interwar, and WW II Ship Projects


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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.


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Post-Cold War Ship Projects


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Canada’s Ocean Estate

TERRITORIAL WATERS

EXCLUSIVE ECONOMIC ZONES

UNCLOS CLAIMS AREA


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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


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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


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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


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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 - ?


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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


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Uncertainty

UNCERTAINTY

Materials

Escalation

Major Components

Markets

Labour

Risk


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Cost Escalation Rates for Battle Force Ships1950-2000

Source: 2006 RAND Report: Why Has the Cost of Navy Ships Risen?


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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


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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


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A Case for Load-Levelling


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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


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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


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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


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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: )


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Questions


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