Final Evaluation of the Structured Financing Facility — Final Report

3.0 Findings (continued)

3.2 Performance (continued)

Finding: The program supported the creation of domestic and foreign demand for new-builds, conversions, refits and modifications in Canadian shipyards. The SFF-funded projects provided 38% of Canadian industry revenues between 2007 and 2009. In addition, the program helped Canadian shipyards remain competitive in international markets, and, in some cases, was a determining factor in whether projects would proceed in Canadian shipyards.

The SFF supported purchases from both domestic and foreign buyers. Of the eight projects that received SFF funding since 2007, four were with domestic buyers for a total of approximately $11 million and four were with foreign buyers, totaling approximately $7 million.

The SFF also contributed to the creation of demand by helping Canadian shipyards remain competitive in international markets. An analysis of four SFF project files (for which foreign bid information is available) demonstrates how the SFF helped reduce the gap between domestic and foreign supplier pricing (see Exhibit 3.2 below).

Exhibit 3.2: Comparison of Bids for Four Projects Inclusive of SFF and Duty Effects

Project	Canadian Bid ($M)	SFF Savings ($M)	Canadian Bid Net of SFF ($M)	Best Foreign Bid ($M)	Import Duty ($M)	Foreign Bid With Duty ($M)	Relative Cost: Foreign vs. Canadian
Source: SFF project data files
#1	$44.500	$4.984	$39.516	$37.825	N/A	$37.825	-4.3%
#2	$47.800	$7.170	$40.630	$37.600	N/A	$37.600	-7.5%
#3	$10.000	$1.500	$8.500	$7.353	$1.838	$9.191	8.1%
#4	$22.936	$3.440	$19.496	$18.666	$4.667	$23.333	19.7%
Total	$125.236	$17.094	$108.142	$101.444	$6.505	$107.949	-0.2%

Not considering the SFF or duty costs, the Canadian bids were higher than the foreign bids. Taking into account the SFF support and import duty, the gap was closed considerably. In two cases, net prices were lower with Canadian suppliers than with foreign suppliers. Import duty was a major factor in keeping the Canadian bids competitive (see box below). For the other two projects, the foreign bids were lower by 4.3% and 7.5%. Nevertheless, the projects were awarded to Canadian shipyards. This suggests that the price gap does not need to be closed entirely for Canadian shipyards to win bids. In one case, the need for local ongoing fleet support motivated the buyer to pay a premium to keep some shipyard work within Canada.

A review of available project summaries revealed that SFF support was a determining factor in whether work would proceed in Canadian shipyards for the following projects: Traverse d'Oka, Neptune Seismic, BC Ferries (Quinsam and New Westminster), Nordane, and Groupe Océan.

Work supported by the SFF also represents a significant share of total Canadian industry activity. A comparison of SFF supported work with industry statistics from Statistics Canada revealed that between 2007 and 2009, the SFF-supported projects accounted for 38.0% of industry revenues (NAICS 336611) and 21.0% of industry exports.

In terms of the type of work supported by SFF-funded projects, East Isle constructed four new ocean-going tugs with ice-class hulls and state of the art z-drives. Both purchasers noted that in the absence of the SFF, they would have purchased these tugs elsewhere (likely Chile). The yard's previous experience in constructing of such vessels would not have been sufficient to offset the price differential. Importantly, with the purchase of multiples models of a ship type, the yard is able to take advantage of the learning curve effect (the first ship is the biggest challenge, with less return on investment, than for the last one built).

Two SFF-funded projects during the period of review involved refits and modifications of BC tugs. The refits were undertaken to meet stricter regulatory requirements (fire protection, life saving requirements), upgrade accommodations, upgrade accessibility, and, perform extraordinary maintenance on steel, electronics and mechanical systems. Numerous innovations were introduced throughout the refit process, including project management innovations.

There were two SFF-funded conversion projects during the period of review. One project involved the conversion of two barges into self-propelled ferries; the other was for the conversion of a trawler into a seismic survey vessel. The former project reported design innovations that will improve access for inspection and maintenance, reduce assembly time and reduce the risk of work accidents.

Finding: Given that the renewed program is fairly recent and shipbuilding projects are typically longer term, it is difficult to conclude if the current program is contributing to ongoing demand. However, there is some evidence that the SFF has been successful in this regard.

The extent to which the SFF has contributed to ongoing demand in terms of new-builds, conversions, refits and modifications can be measured with reference to yards that had projects previously funded, essentially a comparison over time.

Two groups may be distinguished in taking this time-comparison approach. The first group would be those yards that through previous SFF support are now self-sustaining, having established key capabilities and a competitive advantage. The second group is yards that were previous recipients of SFF support that continue to participate in the SFF program.

Previous SFF Recipients

In 2005, with the aid of SFF contributions (under previous SFF terms and conditions), Victoria Shipyards (VSL) obtained a contract with the Holland America Line to undertake a major dry dock refit of four cruise ships. Through successful completion of these projects, VSL has now become known as a shipyard of choice for major upgrades and modifications to cruise ships. VSL subsequently has undertaken similar projects.

The SFF contributions were critical in helping VSL win foreign flag cruise ship contracts. The expansion of VSL's client base is a reflection of its established reputation as a high quality, competitive North American shipbuilder and repairer of sophisticated vessels. VSL continues to secure bids in this market that would not have been possible without the SFF support. The company has also secured navy and coast guard contracts, which can capitalize on infrastructure and training investments. Thus, a successful niche market was created and maintained.

Ongoing recipients of the SFF

Two shipyards (one large, one medium) have built a number of tugboats for both domestic and foreign buyers with help from the SFF under previous and current terms and conditions of the program. They have established solid reputations for delivering quality work on advanced technological products on time (modern tugboats incorporate extremely complex technology). Without the expertise developed from previous SFF-supported work on tugboats, buyers indicate that such projects would not have been awarded to those Canadian shipyards.