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Steel costs for sixth patrol vessel could be steeper
Andrea Gunn (agunn@herald.ca)
Ongoing steel and aluminum tariffs between the United States and Canada will not drive up costs for the first five Arctic and Offshore Patrol Ships, but could contribute to the final price tag for the sixth, the Department of National Defence says.
There have been tariffs in place on imports of Canadian steel and aluminum to the U.S. of 25 per cent and 10 per cent respectively since the end of May. In response, Canada implemented its own dollar-for-dollar duties on steel and aluminum being imported from the U.S. Both the American tariffs and Canadian countermeasures remain in place, even with a new tentative agreement to replace NAFTA.
On Tuesday, Prime Minister Justin Trudeau confirmed the signing of the new trilateral trade deal was not contingent on the lifting of those tariffs.
In an emailed statement, Department of National Defence spokesperson Ashley Lemire said these tariffs will not have an impact on the cost of the first five Arctic and Offshore Patrol Ships (AOPS) being built by Irving Shipbuilding as part of the National Shipbuilding Strategy. Lemire said most, if not all, of the steel has already been purchased for these vessels and none of it comes from the U.S.
“As part of its contract with the Government of Canada, Irving Shipbuilding Inc. is responsible for the procurement of steel used for the construction of the Arctic and Offshore Patrol Ships,” Lemire said in an email. “Irving procured the majority of steel from a foreign supplier who sourced it from Europe and, to a lesser extent, from China. A small amount of steel was procured in Canada.”
Lemire said for the sixth AOPS, which the government confirmed plans to build last week, the department has planned and budgeted for the risk of increased steel and aluminum prices.
Earlier this week a DND spokesperson said buying a sixth AOPS will increase the cost of the $2.3 billion project by about $810 million. Of that, $250 million is set aside for “adjustments” — things like labour rates, inflation, and exchange rates.
Lemire said any additional steel costs will come from that $250 million fund.
David Perry, senior analyst with the Canadian Global Affairs Institute, said the materials needed to build a navy vessel are so specialized that it's not uncommon for governments to do advanced purchases
“There's a limited supply; you can't just go and call it up at the last minute kind of thing,” he said.
Perry said in the case of the AOPS, having a separate fund set aside for potential cost increases — rather than paying the company a higher contract price to assume all the liability for changes in commodity or labour prices — will likely save taxpayers money if costs do go up.
Ian Lee, associate professor at Carleton University's Sprott School of Business told The Chronicle Herald the federal government is lucky to have avoided any major increases with the AOPS.
But, Lee said, if the tariffs remain in place, they are likely to impact future builds either directly or indirectly.
“It's not going to affect the (AOPS) program but it's still a burden on the economy it's going to be passed on through the cost of doing business,” he said.
This is perhaps concerning given the most expensive build of the National Shipbuilding Strategy — the Canadian Surface Combatant — is on the horizon.
But how much that project would be impacted if tariffs remain in place is anybody's guess, Lee said.
“Historically governments have been very, very involved in the shipbuilding industry with subsidies, and offsets and that sort of thing, so it's hard to predict how it might affect future builds,” he said. “It's not a normal competitive market like the stock market or most commodities.”
That said, Lee said there will likely be a big push on the federal government's part to get the tariffs sorted ahead of the upcoming election.
“Generally speaking when you look at the trade agreements that have been signed in the last 10 or 20 years whether it was the original NAFTA, CETA or the TPP, one of the first things and most important things you do is reduce or eliminate tariffs,” he said,
“I think it's going to make it more difficult for Mr. Trudeau and his government to defend this in the fall 2019 election, that's why I think they're going to be working assiduously to try and remove them.”
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Vimy Award Call for Nominations
Do you know someone who deserves to be celebrated? VIMY AWARD CALL FOR NOMINATIONS DO YOU KNOW SOMEONE WHO DESERVES TO BE CELEBRATED? Nominations Now Open for the annual Vimy Award presented at the 30th edition of the Vimy Gala. Established in 1991, the Vimy Award recognizes a Canadian who has made a significant and outstanding contribution to the defence and security of our nation and the preservation of our democratic values. It is normally presented as a lifetime achievement award. Past Recipients Her Excellency Adrienne Clarkson The Right Honourable Joe Clark The Honourable Bill Graham MGen Romeo Dallaire 2020 Distinguished Selection Committee Members Chief Justice of the Supreme Court Richard Wagner Chief of Defence Staff LGen Jonathan Vance Deputy Minister Jody Thomas The award honours the bravery and sacrifice of the Canadian soldiers – comprising the four divisions of the Canadian Corps – who were victorious in the battle of Vimy Ridge in April 1917. The selection committee includes the Chief Justice of the Supreme Court of Canada and the Chief of Defence Staff of the Canadian Armed Forces, as well as industry and academic partners of the CDA Institute and members of the Board of Directors. Do you know someone who; Has made a sustained national or international contribution to Canada's National Security, Defence and/or the Canadian Military during his/her professional career. Serves as an inspiration at a national level within the Security, Defence and Military Community, through their leadership, practices, and accomplishments. Has garnered national and/or international recognition for his/her contributions to Canadian National Security, Defence and/or the Canadian Armed Forces. Is a leader whose achievements will be a source of historic and patriotic pride for generations to come. Nominations Deadline: July 1,2020 VISIT VIMY AWARD PAGE FOR FULL DETAILS VIMY GALA The Vimy Award will be presented at the prestigious Vimy Gala held on November 6, 2020 at the Canadian War Museum, Ottawa, Ontario. The Vimy Gala is a black-tie cocktail and dinner held annually since 1991 in Ottawa to honour Canada's fallen heroes in the context of the Remembrance Day activities held across the country. The Gala brings together active and retired members of the Canadian Armed Forces alongside future officers currently enrolled at the Royal Military Colleges, as well as industry and government leaders and international guests of honour. It will be an evening to remember and to reflect upon the sacrifices many have made for our nation and for the sake of building a more just and prosperous world. It is also a celebration of Canada and men and women who serve. The Gala is also an opportunity for defence professionals to recognize outstanding individuals in our community, whose courage, vision, and achievements inspire us all. To that end, we present the Vimy Award to a Canadian who has made an outstanding, lifelong contribution to our national security and defence and to preserving our democratic values. Past recipients include Her Excellency Adrianne Clarkson, the Honourable BIll Graham, General Rick Hillier, and the Right Honourable Joe Clark,LGen Christine Whitecross and most recently, Richard B. Fadden, O.C. 2019 Richard B. Fadden, O.C Vimy Award Acceptance Speech: 2020 and Beyond: Where Does Canada Fit? ATTEND and/or SPONSOR THE VIMY GALA 15% early bird discounts available The 30th Anniversary Vimy Gala will take place on: November 6, 2020 At the Canadian War Museum, Ottawa, Ontario, Canada. Contact Jennifer Giguere to find out about booking your Vimy Gala table and/or sponsorship at our 15% early bird special (ends July 1st). Please note that individual seating registration will only open in the fall. Gold Sponsors and above will be invited to a "Chairman's Circle" VIP Cocktail with members of the selction committee and the 2020 award laureate. jennifer@cdainstitute.ca CDA INSTITUTE PARTNERS PREMIER PARTNER STRATEGIC PARTNERS OPERATIONAL PARTNER Conference of Defence Associations Institute | 75 Albert Street, Suite 900, Ottawa, Ontario K1P 5E7 Canada