![COLUMN | Canada loses control of its shipbuilding budget: Seaspan, Davie and Irving turn up the heat on Ottawa [Offshore Accounts]](http://media.assettype.com/bairdmaritime%2Fimport%2Fwp-content%2Fuploads%2F240129-Offshore-Accounts.jpg?w=480&auto=format%2Ccompress&fit=max)
The sentiments of American singer-songwriter Teddy Swims on his single Lose Control seems a most appropriate soundtrack for Canada this week, especially as it comes from his debut album, the wonderfully titled I've Tried Everything But Therapy (Part 1).
We have project blow-outs, schedule blow-outs, and some massive delays to report in Canada. Shipbuilding is a miserable business, with razor-thin margins for commercial yards. However, for strategic shipyards in the west, particularly those deemed militarily necessary, it can be very lucrative. Canada has tried everything but building ships (Gasp!) abroad.
If you are Scottish and you are tired of the ongoing Ferry Fiasco, which has seen hundreds of millions in taxpayer funds blown on two ill-fated and long delayed ferries under construction at the financially troubled Ferguson Marine shipyard on the River Clyde, here's some good news: you are not alone.
At a time when the navies of the western world are struggling to fend off the Houthi attacks on shipping in the Red Sea and the Gulf of Aden, news from Ottawa shows how weak the shipbuilding capacities of the west have become. The US and its allies have aspirations to ensure freedom of navigation for commercial vessels across the globe, but evidence is mounting that their ability of building both civilian and military vessels has become sorely degraded.
From Canada, The Ottawa Citizen reported that the cost of building two patrol ships for the Canadian Coast Guard has jumped by over CA$500 million (US$371 million) in less than a year. Originally, the project budget for the two Arctic and Offshore Patrol Ships (AOPS), whose first steel was at Irving Shipbuilding in Halifax, Nova Scotia last August was CA$1.6 billion (US$1.19 billion). By this month, it had risen to CA$2.1 billion (US$1.56 billion) – the sort of abrupt price rise at which even Ferguson would blanch.
The sad saga of these two as yet unbuilt coast guard vessels is only the tip of the iceberg in a Canadian public shipbuilding programme characterised by willful profligacy in the name of protecting national interests. The are forty million Canadians. Like the Scottish taxpayers on the hook for the Ferry Fiasco, those forty million citizens are at the mercy of a few thousand shipyard workers and their employers whose interests are deemed to be aligned with the national interest.
The Canadian Navy had already built four similar patrol vessels of the Harry DeWolf-class that were delivered from 2020 to 2023 from Irving. The fifth vessel in the series was launched at the yard late last year and the keel was laid for a sixth, the future HMCS Robert Hampton Grey, in August. The ships are 103.6 metres long with a beam of 19 metres and a design draught of 5.7 metres. All eight vessels are designed with Polar Class 5 ice classification and are diesel-electric, with four MAN diesel generators aboard. The intention of building eight similar AOPS vessels, six for the navy and two for the coast guard, was to drive down costs. The recent budget increases suggest that this has not happened, however.
The AOPS contract is part of Canada's National Shipbuilding Strategy, the multi-year procurement program that divides federal shipbuilding work between the nation's three largest and most important yards: Seaspan in Vancouver, Irving in Halifax, and Davie Shipbuilding in Quebec. These yards have now reached the status of "too important to fail," a shipbuilding accolade usually associated with vast cost overruns and outrageously bad value for money.
Australians looking at how their own AUKUS nuclear powered submarine construction is going to play out should look at what is happening in Canada and be very afraid.
Once you commit to domestic construction of "strategic national assets" in a shipyard with only the taxpayer as its sole or main customer, the national interest is quickly hijacked by the economic interests of a small coterie. Scotland learned this the hard way at Ferguson, Canada is learning it now, and Australia probably has to wait until the 2030s when its nuclear submarines will inevitably hit similar issues.
Lest you might think that this is a one-off problem specific to Irving, evidence from British Colombia suggests otherwise.
The Canadian House of Commons government operations committee also examined the cost for the Offshore Oceanographic Science Vessel (OOSV), which is being built for the coast guard at Seaspan. The latest figure shows that the cost of vessel, which is due to enter service in 2025, has jumped to CA$1.28 billion (US$951 million), up from an estimate of CA$966 million (US$718 million) in 2022. With a cost blow-out like that, who needs the Houthis to raise inflationary pressures?
It is not clear to me why or how the ship can possible cost so much. The OOSV will be about 87.9 metres long and has accommodation for 34 crew and 26 scientists, a total of sixty, which is a critical cut-off number under the Special Purpose Ships Code. A similar sized hull for offshore supply service with diesel-electric power and accommodation for sixty passengers and crew would cost around US$40 million, as demonstrated by the recent orders by Hercules Supply in China.
This isn't entirely fair, as the Canadian Coast Guard ship will be brim-full of oceanography equipment and features Ice Class, a drop down keel, and a roll stabilisation system as well as a large hangar extending over two decks high, so that winches can deploy various pieces of scientific equipment directly from the side of the vessel.
However, I am confident that if you asked Subsea7 or New Solstad to order and supervise a similar sized light subsea support and remotely operated vehicle vessel with Ice Class, it would not cost more than US$220 million with the cranes, gantries, and ROVs included, even if it was built in a NATO member state.
This raises the question of what exactly the remaining (checks calculator) US$730 million has been spent on by Seaspan.
A suitable benchmark would surely be the British Antarctic Survey vessel Sir David Attenborough. This vessel, which was ordered in 2014, narrowly avoided being named Boaty McBoatface and entered service in 2021 at a cost of £200 million (now US$254 million), as per contemporaneous Reuters coverage. Yes, you could buy three Sir David Attenboroughs for the price of one smaller Canadian oceanographic research vessel built in Vancouver.
As we have seen with the ferry fiasco, Britain is no long a great shipbuilding nation, but Sir David Attenborough is a much larger and more impressive ship than the oceanographic research ship Seaspan is labouring to construct at much greater expense for the Canadian taxpayer. The British Antarctic Survey ship is 129 metres long with a 24-metre beam, a Polar Ice Class 4 hull, and Polar Ice Class 5 propulsion with power provided by four Rolls-Royce Bergen B33:45L6A generators. The vessel is capable of carrying two helicopters and 30 crew and 60 researchers (Baird Maritime's review of Sir David Attenborough can be read here.).
If Cammel Laird in Birkenhead can build such a vessel for even twice the price the British paid, it would still be half the price Canadian taxpayers are going to pay.
Similarly, Australia's Polar Ice Class 3 vessel Nuyina, which was delivered from Damen in 2021, cost only AU$548 million (US$347 million). Australia has no pretensions of being able to build any non-naval vessels in any competitive manner, so this result was a relatively good value outcome using a proven yards in allied NATO countries. Ottawa should be copying, but national pride and purported national interest means it won't.
Nuyina is a bigger ship with a higher polar notation than its British equivalent, having a length of 160 metres, a beam of 25.6 metres, and capacity for 117 passengers. The ship was ordered in 2016 from Damen Galați shipyard in Romania, with the design performed by Knud E. Hansen of Denmark. In 2018, the hull was successfully floated in the building dock and towed to the Netherlands for fit-out (Our review of Nuyina can be read here.)
Seaspan had some good excuses reasons for the cost hikes for its oceanographic vessel, with the company citing the impact of Covid-19 on the shipyard, higher general inflation, and that old canard, "global supply chain challenges," which many a wind turbine manufacturer has used at one time or another. It also claimed the fact that the coast guard has now, inexplicably, only just provided the yard with "more information on the final vessel design."
This is an opinion piece, and you can guess what my opinions are on this feeble range of excuses. Either the coast guard or the Finance Ministry needs to harden up and push the yard to perform. Tough love is needed, but politicians both regionally and federally are never going to state the obvious: shipbuilding in Canada is not viable.
Conservative Party MP Kelly McCauley, chairperson of the House of Commons committee on government operations and estimates, told The Ottawa Citizen that costs for the government shipbuilding projects were out of control:
"There is no oversight, there is no accountability on this or the other shipbuilding projects. Taxpayers are on the hook for these endless cost increases and no one seems to care."
Teddy Swims also has another great ballad featuring Maren Morris called Some Things I'll Never Know. I think Premier Justin Trudeau will probably file the causes of these Canadian shipbuilding misfortunes in that category.
However, the problems are avoidable and should be remedied.
There are some clear problems that bedevil the Canadian National Shipbuilding Strategy and many equivalent programmes across the west.
Firstly, there is a desire in Canada to keep all its three strategic shipyards gainfully employed all the time – these are strategic national assets, after all. This results in some insane decisions, such as the one to split two sistership polar icebreakers between two yards on opposite sides of the country. No commercial owner would dream of building singleton vessels at separate yards, rather than gaining the benefits of experience, economies of scale, and construction optimisation at a single yard, but that is exactly what the Canadian government has done.
It would have made even more sense to contract a yard that had actually built icebreakers recently for another NATO state and to use the same design. The Canadian Coast Guard cannot be so precious that it could not simply copy Nuyina or Sir David Attenborough, which perform almost identical scopes of work and are proven in service, can it?
Er, no, actually it can.
It was with despair that we read on Canada's Public Procurement website that in July 2021, Seaspan's Vancouver Shipyards began work to support the assessment and optimisation of the icebreaker design as well as planning work for comprehensive construction engineering for the polar icebreaker programme. The construction, engineering, and long lead items contracts were awarded in December 2022, but then, last year, the Canadian government entered into an Umbrella Agreement with Chantier Davie to support the construction of the second Polar Icebreaker for the coast guard at that yard in Quebec.
Davie is most famous for its multiple bankruptcies and multiple changes of owner in the last quarter century, and for building Cecon Pride, a vessel with more history than the lead character in the film Poor Things.
The Canadian government noted that "the exact build schedule and cost will be negotiated and finalised during the individual contract negotiations." Yes, that is the sound of another pair of blank cheques being printed in Ottawa.
I think that if an 89-metre-long oceanographic vessel can cost close to one billion US dollars when built in Canada, taxpayers should be bracing themselves for at least double that cost for each Polar Class icebreaker, even though the Australians and the British have built similar ships for considerably less in the last decade.
A decade ago, Canadia's then Public Works Minister Diane Finley was warning on the record that she anticipated the new Canadian icebreaker to cost US$1 billion, and even the CEO of Davie's parent company had stated in public in 2014 that shipbuilding costs typically rose by five or ten per cent a year, so "each year you wait to build the ship, the more expensive it gets."
So true. Unfortunately, Canada has no choice.
Don't get me wrong. Undoubtedly it is time to replace the Canadian Coast Guard Polar Ice Class 4 heavy icebreaker Louis S. St-Laurent, which was commissioned in 1969. Yes, the flagship of the Canadian Coast Guard was commissioned 55 years ago and is still in service!
That is not a typo. Louis S. St-Laurent was originally scheduled to be decommissioned in 2000. However, rather than biting the bullet, the Canadian government decided on a refit to extend the decommissioning date up to 2017. This decommissioning date has subsequently rolled over again due to the complete inability of the government to order and build a replacement, even though one was budgeted in 2008 and was even given the provisional name of John G. Diefenbaker.
In 2021, the Canadian government admitted that Louis S. St-Laurent would be in service until at least 2030, when it would be over sixty years old.
Everyone agrees that the Canadian Coast Guard needs to be able to ensure a year-round presence in Canada's North in support of Indigenous Peoples and other northern Canadians, and to protect the country's Arctic sovereignty from Russian encroachment as well as be able to respond to major maritime emergencies. Russia is behaving aggressively assertively in the Arctic and has much greater icebreaking capability than either Canada or the United States.
Unfortunately, Canada has wasted too much time navel gazing rather than actually building ships to replace its geriatric fleet.
On November 3, 2023, Davie announced that it has finalised the acquisition of the assets of Finland's Helsinki Shipyard, the former Aker Finnyards. The company was latterly owned by Russian oligarchs businessmen Vladimir Kasyanenko and Rishat Bagautdinov, one of whom holds a Belgian passport, and neither of whom are currently sanctioned, according to the Finnish media.
Since Helsinki Shipyard has a proven track record in building icebreakers for Russian shipowning giant SovComFlot as well as expedition cruise vessels, it would undoubtedly be cheaper and more economical to build the next generation Canadian Coast Guard icebreakers in Finland, a NATO ally, rather than at Davie in Quebec.
This is impossible. Try to imagine the Finns building ships for Canada at a Canadian-owned yard. Unbelievable, right? Who in Ottawa would take away jobs from hard-working Canadian families and give them to Finns?
Well, anyone who ran a rational assessment of the cost-benefit analysis, especially when Canada is running a US$3 billion per month budget deficit, as per November, would make that call.
If Canadians want to pay hundreds of millions of dollars more for the privilege of building their own ships, that is their prerogative, but somebody needs to be brave enough to say that it doesn't have to be that way.
Seaspan proudly announced that this month, it will finish building its first prototype block to Ice Class standards to help the company understand the work needed for the Polar Icebreaker programme. No commercial owner would award an icebreaking contract to a company that was hundreds of millions of dollars overbudget on its existing newbuilds and had never built a similar ship before, and nor would a commercial owner write blank cheques to the yard to compensate for its "supply chain issues."
Canada does exactly this, unfortunately. Its problems are symptomatic of the wider shipbuilding issues in the western countries. Every state wants to maximise its national content and local jobs. The result is an expensive mess, which wastes taxpayers' money and results in massive delays. Unlike Australia's submarines, Canada's polar icebreakers and oceanographic research vessels are not military ships with secret and sensitive weapons or intelligence systems aboard, so not even that excuse washes.
Build them internationally in commercial yards, and get three or four times more bang for the buck, faster and better.
Or risk a Quebecois Ferguson with a bill probably ten times larger.
Yes, I know, Singaporean investment fund Cyan has bought 75 per cent of Scottish standby and fishery protection vessel operator Sentinel for an undisclosed sum. This strikes me as a naked attempt to buy operational track record after buying a windfarm service operation vessel (SOV) from Belgium's DEME last year. Well done to Sentinel's majority shareholder Rory Deans for cashing out.
Two flips across three decades in one family is a great achievement– his father Frank Deans previously sold Nomis and its fleet of 20 emergency response and rescue vessels (ERRVS), 12 anchor handling tug supply vessels (AHTS), one medium-size platform supply vessel (PSV), and one dynamically positioned dive support vessel to Vroon in 2008.
Sentinel operates a fleet of thirteen multirole ERRVs. Let's hope Cyan does better than Vroon with their Deans-acquired offshore business.
I should also be analysing the news that Vard won an order for another cable-layer from cable maker NKT, which is now engaged in a battle for vertical integration with rivals Prysmian and Nexans, both of which have also recently ordered large cable-layers. The yard also received two orders for hybrid powered commissioning SOVs from Windward Offshore. This expands Windward's orderbook to four vessels, as the company executed the options included in the initial two-vessel contract it signed in October 2023. In November, we reported how Windward is owned by two of shipping's biggest names – the Rickmers family and Greece's Diana Shipping.
Everyone wants a piece of wind, it seems.
We also really want to report on the train crash exciting new opportunities provided by the REV Ocean luxury yacht and research vessel, which was renegotiated between the REV Ocean Foundation and the builders in November.
The vessel is many years late and has received significant design modifications since it was ordered in 2017. Norwegian billionaire Kjell Inge Røkke of Aker fame may have succeeded in buying Solstad, but his REV Ocean project has so far delivered few of the scientific benefits he promised when he launched it. In 2018, Tradewinds was reporting that the ship cost US$350 million and was scheduled to enter service in 2021.
What is going on?
With massive delays and design modifications after construction has started, it all seems very Canadian, unfortunately. Who is on the hook and how?
Somebody must know.
Background reading
The 160-year history of Helsinki Shipyards is here.
The Guardian has this excellent explainer video, which sets out why Canada needs a serious Arctic naval strategy, as "controlling the Arctic has long been an ambition of Soviet and Russian leaders… Vladimir Putin is closer than any of his predecessors to gaining control of the polar region. Josh Toussaint-Strauss explores how Russia has managed to circumvent the west and further entrench its claim to the Arctic."
The Canadian government's background paper on its icebreaker programme is here. It shows that the vessel's specifications are almost exactly the same as the design for Nuyina. Prove me wrong.
National Defense has set out the US$21 billion programme to modernise American naval shipyards.
