Report 7 Acknowledgments 7
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The Senate Standing Committee on Foreign Affairs, Defence and Trade Blue water ships: consolidating past achievements December 2006 © Commonwealth of Australia 2006 ISBN 0 642 71736 2 Printed by the Senate Printing Unit, Parliament House, Canberra. Members of the Committee Core Members Senator David Johnston, LP, WA (Chair) Senator Steve Hutchins, ALP, NSW (Deputy Chair) Senator Mark Bishop, ALP, WA Senator Alan Ferguson, LP, SA Senator John Hogg, ALP, QLD Senator Marise Payne, LP, NSW Senator Russell Trood, LP, QLD Participating members who contributed to the inquiry Senator Judith Adams, LP, WA Senator Andrew Bartlett, AD, QLD Senator George Campbell, ALP, NSW Senator Concetta Fierravanti-Wells, LP, NSW Senator Glenn Sterle, ALP, WA Senator Ruth Webber, ALP, WA Secretariat Dr Kathleen Dermody, Committee Secretary Ms Lisa Fenn, Principal Research Officer Dr Richard Grant, Senior Research Officer Ms Pamela Corrigan, Research Officer Ms Angela Lancsar, Executive Assistant Standing Committee on Foreign Affairs, Defence and Trade Department of the Senate PO Box 6100 Parliament House Canberra ACT 2600 Australia Phone: + 61 2 6277 3535 Fax: + 61 2 6277 5818 Email: [email protected] Internet: www.aph.gov.au/Senate/committee/fadt_ctte/index.htm iii Table of contents Members of the Committee iii Acronyms and abbreviations xi Main finding xv Executive summary xix CHAPTER 1 INTRODUCTION AND CONDUCT OF THE INQUIRY 1 Referral of the inquiry 1 Terms of reference 1 Conduct of the inquiry 2 Submissions 2 Public hearings and site inspections 3 Overseas delegation 3 Structure of the report 7 Acknowledgments 7 Part I Background—developments in the shipbuilding and repair industry overseas and in Australia 9 CHAPTER 2 CURRENT TRENDS IN NAVAL SHIPBUILDING 11 The experience overseas 11 Falling demand, increased capability 12 New shipbuilding model 13 Globally integrated production systems 14 A new 'heavy industry' sector 15 A protected industry 16 Major shipbuilding economies 17 The United States 17 Europe 20 The United Kingdom 23 South Korea, Japan and China 25 Segmentation in the shipbuilding industry 26 Current trend—growing complexity in the construction of naval vessels 27 Building in modules 28 Modern construction and the challenges for the prime contractor 30 Developing and retaining a skilled workforce 33 Peaks and troughs in demand for naval vessels 35 Conclusion 37 CHAPTER 3 A BRIEF HISTORY OF AUSTRALIA'S NAVAL SHIPBUILDING INDUSTRY 39 The early years of naval vessel construction and repair in Australia 39 Shipbuilding challenges—the experience of the 1960s, 1970s & early 1980s 41 Problems with Defence specifications—the DDL destroyer project 42 Problems with foreign acquisition—the FFG 01–04 project 43 Problems with foreign design and Australian construction—HMAS Success 45 Developing a modern, efficient naval shipbuilding industry 46 The Australian Frigate Project 46 Naval shipbuilding as a platform for a competitive local defence industry 49 Conclusion 49 Part II Australia's capacilty to produce large naval vessels 51 CHAPTER 4 AUSTRALIAN NAVAL SHIPBUILDERS 53 The prime contractors 53 ASC and the Collins-class submarines: high achievement and high risk 53 Tenix and the ANZAC class frigates: on time and on budget 60 Thales Australia (ADI) 66 Summary 71 The aluminium shipbuilders—Austal and Incat 71 Summary 75 The Air Warfare Destroyer (AWD) and Amphibious Ship (LHD) projects 75 The future of the primes 79 Conclusion 80 CHAPTER 5 SME SUPPLIERS 81 Supply network in Australia 81 Steel fabrication—an example of Australia's capability 85 Tasmania and its supply chain 86 Committee view 90 SMEs and their contribution to the industry 90 Value adding 90 Gaps in capability 93 International companies filling a void 94 Overseas companies—fostering local industry 96 Overseas companies—technology transfer and indigenous innovation 97 Committee view 99 vi Overseas companies meeting special requirements 99 Conclusion 100 CHAPTER 6 INFRASTRUCTURE 103 Investment in infrastructure 104 Overview of shipyards in Australia 106 Infrastructure and the lead naval shipyards in Australia 107 The Australian Marine Complex at Henderson in Western Australia 107 Osborne in South Australia 112 Older shipyards 115 Williamstown in Victoria 115 Garden Island in New South Wales 119 The Cairncross Dry Dock in Queensland 121 Overall infrastructure development in Australia 122 Infrastructure needs for the AWDs and LHDs 125 Capacity to meet the challenges of an AWD and LHD program 126 Through-life costs 129 Infrastructure outside the shipyard 129 High wide load corridors 129 Committee view 131 CHAPTER 7 WORKFORCE AND SKILLS 133 Introduction 133 Skilled labour shortages 133 Naval shipbuilding—workforce demand 135 Sustainment workforce 137 Other industry sectors—competition or support? 138 Transferability of skills 141 Workforce mobility—geographic issues 142 Skill sets 145 Trade skills sets 145 High-end skill sets 147 The AWD and LHD builds 154 Workforce and skills initiatives 158 Federal government—skilling Australia's defence industry 158 State government initiatives 159 Overseas migration 162 Conclusion 164 CHAPTER 8 INTELLECTUAL PROPERTY 167 Negotiating in a global market 167 Benefits of IP access 169 Australian IP development 171 Conclusion 172 vii Part III Productivity of the Australian shipbuilding and repair industry 175 CHAPTER 9 THE COMPARATIVE ECONOMIC PRODUCTIVITY OF THE AUSTRALIAN SHIPBUILDING INDUSTRIAL BASE AND ASSOCIATED ACTIVITY WITH OTHER SHIPBUILDING NATIONS 177 Difficulties in comparing the productivity of shipyards in Australia and overseas 177 Quality of available data 178 A protected industry and distorted data 179 Data on Australian productivity 181 Australian shipyards, the construction of commercial steel ships and niche capabilities 181 Australia's record in the construction of naval ships 183 Factors influencing productivity in Australia's shipbuilding and repair industry 186 Costs and economies of scale 186 Costs in meeting Australia's unique requirements 189 The costs of customising a ship for Australian conditions 192 Fluctuations in work flow 193 Impediments to export trade 195 Comparative labour productivity 195 Summary 196 Conclusion 197 CHAPTER 10 THE COMPARATIVE ECONOMIC COSTS OF MAINTAINING, REPAIRING AND REFITTING LARGE NAVAL VESSELS THROUGHOUT THEIR USEFUL LIVES WHEN CONSTRUCTED IN AUSTRALIA VICE OVERSEAS 199 Background 199 Through-life costs 199 The ACIL Tasman estimate 203 Conclusion 206 CHAPTER 11 ECONOMIC BENEFITS 209 Broader benefits accruing from an in-country build 209 Quantifiable evidence of wider economic benefits 210 The Minehunter and ANZAC studies 210 Critiques of the ANZAC and Minehunter studies' modelling 213 Employment growth and broadening the industrial base 214 Contributing to an innovative and productive industrial base 215 viii Disadvantages of building overseas 219 Defence's assessment of these benefits 222 Conclusion 222 CHAPTER 12 THE STRATEGIC IMPERATIVE 223 Defence capability and the national interest 223 Australia's unique strategic requirements 224 The relationship between defence capability and an indigenous naval shipbuilding industry 227 The relationship between defence capability and an indigenous naval ship maintenance and repair industry 231 Connection between shipbuilding and maintenance, repair and upgrades 233 Conclusion 237 CHAPTER 13 OVERALL ASSESSMENT OF AUSTRALIA'S SHIPBUILDING AND REPAIR INDUSTRY INCLUDING COMMITTEE'S MAIN FINDING 239 Part IV The role of governemnts 243 CHAPTER 14 THE ROLE OF DEFENCE IN AUSTRALIA'S NAVAL SHIPBUILDING AND REPAIR INDUSTRY—INFORMING INDUSTRY 245 Australian industry—an informed provider 245 Premiums for local builds 247 Industry involvement 249 Conclusion 254 CHAPTER 15 STRATEGIC PLANNING 255 Assisting industry improve productivity 255 SMEs 255 Infrastructure 256 Committee view 257 Competition and collaboration 258 Committee view 259 Skills 259 Committee view 259 Summary 260 Managing demand fluctuations 260 A strategic plan 265 Committee view 267 Strategic planning—Defence Capability Plan 268 Committee view 270 ix Summary 271 CHAPTER 16 273 DEFENCE—AN INFORMED BUYER 273 Strategic analysts 273 Technical specialists 273 Project managers and leaders 276 Conclusion 280 BIBLIOGRAPHY 283 ADDITIONAL COMMENTS – SENATOR MARK BISHOP 285 APPENDIX 1 Public submissions 289 APPENDIX 2 Additional information, tabled documents, and answers to questions on notice 291 APPENDIX 3 Public hearings and witnesses 295 APPENDIX 4 Site visits in Australia 301 APPENDIX 5 Delegation program to the Republic of Korea and the United States of America 303 APPENDIX 6 Extract containing a summary of main issues and points for discussion from a discussion paper published by the committee on 25 August 2006 305 APPENDIX 7 Naval ships built at Cockatoo Island, Balmain and Williamstown dockyards; repair and upgrade activities at Garden Island (1912–1945) 323 x Acronyms and abbreviations ADF Australian Defence Force ADI Australian Defence Industries AECA Arms Export Control Act 1976 AFP Australian Frigate Project AIDN Australian Industry and Defence Network Inc. AII Australian Industry Involvement AiG Australian Industry Group AIMTEL Pty Ltd Aerospace, Industrial and Marine Technology Pty Ltd AMAS Australian Minesweeping System AMC Australian Marine Complex AMEC Australian Marine Engineering Corporation AMECON Australian Marine Engineering Consolidated Limited AMWU Australian Manufacturing Workers Union ANAO Australian National Audit Office AOR Auxiliary Oiler Replenishment ship ASC ASC Pty Ltd,