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Canadian shipyards seem to be living from
order to order--and those orders could get even scarcer unless
the Canadian government listens to industry pleas for a rational
federal shipbuilding policy. As explained
below, such a policy is in the works.
Meanwhile, one yard whose future looks
secure for some time yet is the only Canadian yard on the Great
Lakes, Port Weller
Dry Docks, in St. Catherines, Ontario. In June, it christened
CSL Niagara. This is the largest-ever Canadian ship built for
the Great Lakes-St. Lawrence and a good example of the type of
work of which Canadian yards are capable. The newest member of
the Canada Steamship Lines fleet, Niagara is the first of three
ships to be rebuilt and rehulled by Port Weller as part of a
C$100 million fleet reinvestment program by CSL. The keel of
the hull for the second of these vessels was laid just minutes
before the Niagara's christening ceremony.
 At 740 ft in length, 78 ft in width and
48 ft in depth, building the CSL Niagara required more than 6,000
tons of steel.
An entirely new hull was constructed, and joined to the engine
room portion of the existing J. W. McGiffin.
The Niagara is the first ship to be built to the St. Lawrence
Seaway's new maximum-size allowances, and features the most up-to-date
self-unloading system available, unloading its cargo at rates
up to 6,000 tons per hour.
The remaining two vessels in the C$100
million contract are scheduled for delivery in 2000 and 2001,
ensuring work for approximately 300 Port Weller Dry Docks employees
on a year-round basis for the duration of the contract. CSL holds
options on two other ships with Port Weller Dry Docks for delivery
in 2002 and 2003.
Port Weller's parent, Canadian Shipbuilding
& Engineering Ltd., is using Sener's FORAN as a tool to streamline its
design and production process. Madrid-headquartered Sener is
supplying FORAN V40, the latest version of its well known CAD/CAM/CIM
system for ship design and production, to Port Weller. The recent
agreement includes the whole FORAN System and is being applied
initially to: Fairing, Naval Architecture, Hull Structure and
Build Strategy.
Last November, CSE completed a $6 million
dollar project to enhance Port Weller's steel cutting, welding
and fabrication capabilities, consisting of a plasma arc cutting
machine with beveling capacity, robotic profile cutting and welding
lines and a semi-automatic production panel line. Sener is also
responsible for the supply of production links with these new
production capabilities.
NEEDED: A LITTLE HELP FROM OTTAWA
Canada's shipbuilders
are at what could be a turning point. After years of industry
attrition and faced with a shrinking orderbook, management and
unions have come together in an alliance to develop a joint strategy
paper for revitalization of the industry.
The alliance is made up of:
- the Marine Workers Federation of the CAW
(The National Automobile, Aerospace, Transportation and General
Workers Union),
- the Shipyard General Workers' Federation
of British Columbia and
- the Shipbuilding Association of Canada.
Its strategy document is a blueprint for a national shipbuilding
policy. Many of its elements bare a strong similarity to U.S.
national shipbuilding policy. The difference is that the Canadian
policy has yet to be endorsed and funded at the federal level.
The policy proposals also include one innocent-looking
provision that could prove to be as big a bombshell as the one
that exploded when the Shipbuilders Council of America decided
that the international shipbuilding subsidy playing field could
do with a little leveling! It's a modest proposal for an "international
social clause."
Meanwhile, the strategy paper was embraced
by this year's annual meeting of provincial premiers, who added
large chunks of it to the wish list that they handed Ottawa.
The provinces have good reason to be concerned
about the fate of shipbuilding. Total industry sales have fallen
by one half since 1991 and employment has declined from 12,000
workers in 1990 to about 5,000 at present. According to the alliance,
this has cost Canadian governments some $70 million a year in
lost tax revenues, without counting in taxes lost because of
falling employment in supply and spin-off industries.
On the face of things, Canadian shipyards
would appear to have a lot going for them. The industry, according
to the strategy paper, thanks to the now-ended Canadian patrol
frigate program, has automation and system integration skills
that are world class. It has the ability to develop, design and
build specialty vessels for niche markets. Some major yards have
world class facilities for modern and efficient ship production.
On the labor relations front, says the
alliance, "new contracts incorporating more flexible labor
rates are the norm."
Value-added per worker in Canadian shipbuilding
has increased by about one quarter since 1986 and charge out
rates are claimed to be "competitive" and comparable
to the U.S. and Japan. Average total hourly labor costs are some
U.S. $5 an hour lower than in the U.S., one half those of Germany,
40% lower than Japan. What's needed is a national policy. Here's
what's on the wish list the alliance has presented Ottawa:
Provision of an improved export financing
and loan guarantee program similar to the Title XI program in the United States. Because the financing of
a ship is the most important part of the competitive picture
in selling ships, and to counter particularly unfavorable short
term and high interest rates, the alliance suggests a program
applicable to Canadian owned and foreign owned vessels constructed
in Canada. The program would include a Canadian government guarantee
of private sector debt financing, fixed interest rates comparable
to those available to large and financially strong corporations,
long-term amortization (i.e. 25 years) and financing up to 87.5%
of a project's cost. Vessels eligible for this program would
include, but not be restricted to, commercial vessels.
Exclusion of new construction ships
built in Canadian Shipyards from present Revenue Canada Leasing
regulations. Lease financing has
become the predominant method of financing significant capital
items, yet current Canadian regulations make the ownership and
lease financing of a Canadian constructed vessel very unattractive
if not outright uneconomical. The annual amounts of depreciation
that would otherwise be allowed as a deduction from taxable income
have been substantially reduced in lease financings by Revenue
Canada. The effect is to shift depreciation in the early years
to the later years of the useful life of a ship, which counters
the actual economics of owning and operating a ship, and increases
the operating costs of Canadian ships. By excluding Canadian-built
ships from the leasing rules, existing depreciation rates applicable
to ships would apply without restriction and the tax disincentive
of owning or leasing ships would be eliminated. This exclusion
would not eliminate any actual tax on ships or their owners.
This is not a precedent-setting initiative as significant items-office
furniture and equipment, computers, rail cars, etc.-are already
exempt from the existing Revenue Canada Leasing regulations.
Provision of a refundable Tax Credit to Canadian shipbuilders
who contract to build a ship, or contract for conversion with
change of mission, mid-life or major refit in a Canadian yard.
A tax credit equivalent to a maximum of 20% of the cost of construction
of the initial ship in a series, 15% for the second and third,
and 10% for the fourth may be granted. Total construction costs
would have to reflect the market standards in respect of the
ship planned, and eligible costs to be considered in the credit
would include the cost of drawings and specifications, and the
salaries of the employees involved in the construction of the
ship. The alliance states that such a credit could be considered
an extension of an existing R & D tax credit, an extension
tailored to reflect the particular nature of shipbuilding-in
which the first units of a new construction or refit program
encounter very heavy development costs. "By helping to defray
these initial expenses, the refundable credit can facilitate
subsequent production volumes and thus capture the economies
of scale which are so essential to successful shipbuilding."
The credit would be sequestered within the economic entity of
the shipyard itself, not transferrable to other division of the
shipyard owner's business. The credit would apply to most commercial
vessels-including offshore oil and gas facilities, but excluding
commercial fishing vessels subject to financial assistance under
provincial or federal government maritime fishery development
policies-and would be paid only upon completion of the vessels'
construction.
Eliminate the one-sided aspects of NAFTA which allow the
U.S. to sell new or used ships duty free to Canada, yet absolutely
prohibits Canadian access to the U.S. market. Either Canadian-made
ships be exempted from U.S. Jones Act provisions limiting the
import of vessels to the U.S. domestic industry, or Canada must
impose "Jones-Act-like provisions on our own domestic shipping
industry."
Develop an international social clause governing labor standards
in shipbuilding. This provision is in response to the means
by which some private companies can gain unfair or unnatural
advantages over their competitors, without "explicitly"
receiving a financial donation, or subsidy, from a government.
Here, the alliance is referring mostly to companies that operate
in countries such as China and therefore escape social, labor,
and environmental regulations that put most domestic-based companies
at a disadvantage. To counteract rock-bottom labor prices offered
by countries who deliberately repress social and labor rights
in order to maintain a competitive advantage, future international
negotiations on subsidies should add a social clause requiring
participating countries to respect basic social, democratic,
and labor norms.
Add value to Canadian resources. Citing the fact that Canada has long been reliant
on the production and export of natural resources, the alliance
calls for a direct link between Canadian shipping and shipbuilding,
and the companies that produce and export natural resources.
It has been a goal of Canadian economic development policy to
expand resource-based industries so that more value is added
to natural resources, and more and better jobs are created. Yet
this principle has not necessarily been applied to the shipping
industry, a move which could possibly ensure that more Canadians
are involved in constructing, maintaining, and operating the
vessels that carry Canadian natural resources. They claim that
the lack of a coordinated plan between government, oil and gas
developers, and the shipbuilding industry to develop Canadian
expertise and to require Canadian content in offshore developments
has meant that much of the work generated by the industry has
been contracted to foreign yards. "It hardly seems unreasonable,"
states the alliance, "that the companies which extract our
non-renewable subsea resources, commit to a higher level of Canadian
content in the equipment and machinery needed for offshore petroleum
production.
Invest in coastal infrastructure. What the alliance calls
the "recent mania" of government cutbacks has undermined
the quality of coastal infrastructure, including the Coast Guard,
search and rescue capabilities, and transportation support services.
Canada's coastal geography requires major public investments
to maintain the safety, security, and efficiency of maritime
communities. Of course, new public investment would generate
important work for Canadian shipyards.
The alliance emphasizes that these new
initiatives must be taken in conjunction with the policies that
are already in place and working. They call for the retention
of the 25% tariff currently in place. This tariff is an "incentive"
to take aging single-hull tankers in the Great Lakes Fleet off
of the market. Of course, pulling old vessels off of the market
means more work for shipyards-especially if shipowners are persuaded
by other incentives to have their ships built in Canada.
Also called for is the continuation of the requirement by the
Canadian Government to exclusively use Canadian shipbuilders
for renewal, repair, and overhaul of government fleets. They
also call for a continuation of additional Capital Cost Allowances.
These allowances are currently provided in the Income Tax Act
and Regulations for shipowners who construct ships in Canada
and for shipbuilders who make major capital investments in new
machinery, high technology processes and infrastructure. A continuation
of the present Research and Development tax credit system and
the Technology Partnerships Canada program is called for as well.
The alliance warns that the Canadian government cannot afford
to sit on the sidelines as other governments nurture their respective
shipbuilding industries through subsidies, domestic content rules,
strategic investments in new technology, and other measures.
Their policy, they say, would go a long way towards revitalizing
shipbuilding and providing the industry with a new foundation
for investment, productivity gains, and job creation. ML
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