18 April 2015
Government-commissioned report highlights concerns about gaps in demand between defence acquisitions, when demand for shipbuilders ‘could fall to zero’. The report said it may be difficult for Australia to sustain more than one domestic shipbuilder of large warships in the short term (photo : Aus DoD)
Building naval warships in Australia costs 30% to 40% more than it does in comparable overseas shipyards, a government-commissioned review has found.
The government asked the US-based military research thinktank Rand Corporation to review Australia’s shipbuilding capabilities and the costs and benefits of government investment in the industry.
In a report to be released on Thursday, the company noted the Department of Defence was in the early stages of its “ambitious” effort to procure up to 50 naval surface warships and submarines over the next two decades. Up to 15 of these vessels would be large surface ships such as air warfare destroyers, landing helicopter docks and future frigates.
The report’s executive summary – which has been distributed to media in advance – said 7,950 people were working in shipbuilding and submarine and ship repair last financial year. About half of those were employed by the government-owned shipbuilder ASC.
The report examined the issue of gaps in production – sometimes referred to as the “valley of death” – that would occur as companies reached the end of their work on the air warfare destroyer and landing helicopter docks.
The timing of planned acquisitions of future frigates, offshore patrol vessels and new submarines “is likely to produce short-term and long-term gaps in demand for shipyard production, facilities, services and workers”, it said.
“Because construction of the future frigate will not start until 2020 ... there is the potential that demand for workers could fall to zero, with reverberations that may last three to five years after future frigate production ramps up,” the executive summary said.
“Without some way to lessen the gap between the end of the [air warfare destroyer] program and the start of the building of the future frigate, the industrial base will have to ramp up its workforce from an almost negligible level to 2,700 skilled personnel in approximately eight years.”
The report examined options such as beginning construction of the future frigates before 2020, building a fourth air warfare destroyer, or building patrol boats and offshore patrol vehicles in the major shipyards to bridge the gap.
But it notes “there is no stated requirement” for Australia to have a fourth air warfare destroyer.
The report said it may be difficult for Australia to sustain more than one domestic shipbuilder of large warships in the short term “but if the national decision is to have two shipbuilders, adequate productive work must be assigned in the workforce demand gap”.
The document suggested Australian naval shipbuilding tended to be more expensive than in Italy, Japan, South Korea, Spain, the UK and the US.
Production in Australia “involves a 30% to 40% price premium over the cost of comparable production at shipyards overseas”, it said.
But it noted such a comparison “can be significantly influenced by foreign exchange rates” and “this premium could drop over time, however, with steady production drumbeats and mature designs”.
Apart from the cost comparison, the executive summary made three other findings:
The economic benefits of a domestic naval shipbuilding industry were “unclear and depend on broader economic conditions” but the industry “could potentially employ more than 2,000 people in long-term positions”.
Controlling critical production offered wider strategic benefits and flexibility, avoiding dependence on foreign sources, enabling ship alterations and modernisation and supporting local suppliers.
Sustaining a naval shipbuilding industry would require “a continuous build strategy” and matching the industry base structure to demand.
The Rand report is expected to inform the Abbott government’s defence white paper.
It will also fuel public debate about domestic production at a time when the government is considering how to acquire the next fleet of submarines.