{"id":24610,"date":"2017-11-15T18:07:51","date_gmt":"2017-11-15T23:07:51","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/i-wouldnt-trust-them-to-build-a-canoe-where-to-build-the-australian-navy\/"},"modified":"2017-11-15T18:07:51","modified_gmt":"2017-11-15T23:07:51","slug":"i-wouldnt-trust-them-to-build-a-canoe-building-the-australian-navy","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/i-wouldnt-trust-them-to-build-a-canoe-building-the-australian-navy\/","title":{"rendered":"\u201cI wouldn\u2019t trust them to build a canoe\u201d: Building the Australian Navy"},"content":{"rendered":"

A $90B commitment and a choice between domestic or overseas production<\/em><\/strong><\/p>\n

The Australian Government plans to spend $US89B procuring nearly 40 new warships and submarines in the next 20 years, representing a doubling of the Government\u2019s annual capital investment in the Australian Defence Force [1]. However, the Government faces a choice; should it commission the construction of these ships in Australian shipyards and support the local economy, or should it reduce the cost of the vessels by 40% by constructing them overseas or purchasing the them \u2018off-the-shelf\u2019 [2].<\/p>\n

The economic implications of this choice are stark. Construction of the ships and submarines in Australia would support the beleaguered Australian shipbuilding industry, protecting 7,950 existing jobs and creating several thousand more over the next 20 years [2]. Alternatively, sourcing these vessels overseas could save up to US$30B [2], equivalent to US$3000 per Australian taxpayer, though this gain would be mitigated by the public costs associated with the likely collapse of the Australian shipbuilding industry.<\/p>\n

Political considerations also loom over this decision. Historically, the current governing party has indicated it is open to overseas procurement of Navy vessels, while the primary opposition party has expressed \u201cresolute opposition\u201d<\/em> to an overseas build [3]. The prior submarine program, the Collins Class<\/em>, was constructed in Australia and was delivered late and over-budget, as well as being beset by technical issues that have at times resulted in the operational availability of the fleet being half that of comparable countries\u2019 navies [4]. These issues have substantially dented the credibility of the Australian shipbuilding industry.<\/p>\n

Committing long-term to a shipbuilding industry in Australia<\/em><\/strong><\/p>\n

The rise of isolationism as a political movement has put significant pressure on the Australian Government, resulting in a sharp shift in both policy and rhetoric. At the end of 2014, while arguing in support of procuring the submarines from overseas, the Australian Defence Minister stated that he \u201cwouldn\u2019t trust [government-owned shipbuilder] ASC to build a canoe\u201d<\/em> [5]. Yet, in 2016, the same Government announced it was launching a $US35B program to build the 12 submarines in Adelaide, Australia. The Australian Prime Minister announced that the submarines \u201cwill be built here in Australia \u2026 with Australian jobs, Australian steel, and Australian expertise\u201d<\/em>, and that the Government now held the view that \u201cevery dollar we spend on defence procurement as far as possible should be spent in Australia\u201d<\/em> [6].<\/p>\n

\"\"<\/a>
An illustration of the forecast demand gap in 2018-20 before the build timeline was adjusted [2]<\/figcaption><\/figure>This announcement came alongside consistent reports of competing tenders that offered Japanese-made and German-made alternatives and would carry a cost of $15B-$18B, a 50% saving on the selected bid [7].<\/p>\n

The Government\u2019s preference for domestic manufacture has continued for ongoing tenders. In March 2017, the Government announced the launch of a $US27B tender for the construction of the next generation \u201cFuture Frigate\u201d that specified the location of the build as Adelaide, Australia [8].<\/p>\n

Further, in the absence of private sector demand, the Government has adjusted the planned construction timeline for the Navy warships over the next 10 years to eliminate a predicted demand gap or \u2018valley of death\u2019 in 2018-20. Smoothing the utilization of Australian shipyards avoids the loss of over 1,000 jobs in 2018-2020. [9].<\/p>\n


\nMaking the best of a domestic situation<\/em><\/strong><\/p>\n

The Australian Government has committed to supporting the domestic shipbuilding industry for at least the next 20 years. However, there are several steps it can take to minimize the overall cost to the taxpayer and preserve flexibility for sourcing vessels in the future.<\/p>\n

    \n
  1. Leverage predictable demand to reduce Australian shipbuilding cost<\/li>\n<\/ol>\n

    The Australian Government should engage in a continuous-build strategy where predictable demand allows a \u201cregular drumbeat\u201d of the same type of ship to be produced in a facility. This will maximize the learnings gained from the first ships produced and increase efficiency over time.<\/p>\n

      \n
    1. Avoid short-term over-expansion of the Australian shipbuilding industry<\/li>\n<\/ol>\n

      The cost-premium of domestic production is not equal across all ship types [2]. Accordingly, the Government should seek to utilize the existing domestic shipbuilding capacity to build ships where the cost premium is lowest (e.g., amphibious ships) and build other vessels overseas. This will avoid a short-term over-expansion of the domestic shipbuilding industry that would enhance the political imperative to protect it, and tie the hands of future governments.<\/p>\n

        \n
      1. Explore labor reform in the Australian shipbuilding industry<\/li>\n<\/ol>\n

        The primary driver of the 40% cost premium of Australian shipbuilding is high labor costs compared to other developed countries [2]. Given the lack of competitiveness of the industry on a global stage, the Government should seek to reform the labor and union agreements in place at the Australian shipbuilders.<\/p>\n

        Questions for the class<\/em><\/strong><\/p>\n