It’s possible that I shall make an ass of myself. But in that case one can always get out of it with a little dialectic. I have, of course, so worded my proposition as to be right either way (K.Marx, Letter to F.Engels on the Indian Mutiny)
Saturday, May 13, 2023
Audit Finds Fault With Tender Process for Australia's Frigate Program
The Australian National Audit Office (ANAO) has released a much-anticipated report on flaws in the country’s ambitious program to invest US$30.8 billion in a fleet of new frigates, which will be at the center of its future naval capabilities.
In an audit report of the Hunter-class frigate procurement processes, ANAO contends that Australia might not get value for money due to failure by the Department of Defence (DoD) to conduct an effective tender process for the frigate’s design.
The audit also found that the program has not been effective in delivering on project milestones. The first-in-class vessel is currently running 18 months behind and has been incurring additional costs, due in large part to design immaturity.
“DoD did not conduct an effective limited tender process for the ship design. The value for money of the three competing designs was not assessed by officials, as the Tender Evaluation Plan (TEP) proposed that the government would do so,” found the auditors.
The audit brings to light the challenges that Australia is encountering in its quest to build new frigates for its navy, which currently depends on eight Anzac class warships that are nearing the end of their lifespan. The first-in-class ship, HMAS Anzac, was commissioned in 1996.
Under the new shipbuilding plan, the Australian government is investing US$30.8 billion in a fleet of nine new future frigates, which will be larger than the Anzac class vessels. The Hunter-class frigates will be designed and equipped with a strong emphasis on antisubmarine warfare, including active towed-array sonar.
The government contends that the new warships offer a maritime combat capability that will underpin the country’s security for decades to come. The ships will be designed by BAE Systems and built by ASC Shipbuilding, part of the government's goal to support the domestic shipbuilding industry and create local jobs.
The Hunter class are projected to begin entering service in the late 2020s, replacing the Anzac frigates. Delivery of the final ship is planned in 2044 but is subject to BAE Systems recovering the schedule delay over the life of the project.
Australia's Department of Defence has admitted that the program is running into problems with cost growth.
“As of March 2023, while DoD had advised portfolio ministers that the program is under extreme cost pressure, it had not advised the government of its revised acquisition cost estimate, on the basis that it is still refining and validating the estimate,” the report said.
A case in point is a decision by the Australian government in June 2021 to grant DoD and BAE Systems more time to improve design maturity and develop a contractable offer for the first batch of ships, which increased the contract price by US$286 million.
“Design immaturity has affected DoD’s planning for the construction phase, led to an extension of the design and productionization phase at additional cost to DoD, and diverted approved government funding for long lead time items to pay for the extension and other remediation activities,” stated the report.
DoD has also come under criticism for making milestone payments without all exit criteria being met and extending milestone due dates in response to project delays.
Marine Mammal Bycatch Could Cost Ecuador Access to U.S. Seafood Market
Dolphins off the Galapagos, Ecuador (Gregory Smith / CC BY SA 2.0)
A group of conservation NGOs has called on the Ecuadorian government to prevent whale and dolphin bycatch in its fisheries, warning that it could risk losing the legal right to export to the U.S. seafood market if it does not improve regulation and monitoring. Seafood exports to the U.S. account for about one percent of the small nation's GDP.
A U.S. law enacted in 2016 gives foreign nations until January 1, 2024 to implement the same marine mammal protection standards required of U.S. fishermen. If they do not, the National Marine Fisheries Service is to required to ban their products.
“Ecuador had more than six years to get its fisheries and marine mammal programs up and running in time to show results, but it failed to do so. U.S. fishermen and consumers shouldn’t suffer from that failure; Ecuador's non-compliant seafood should be banned," said Zak Smith, the biodiversity conservation director at NRDC.
Ecuador enacted a fisheries reform law in 2020, but it has no stipulations for marine mammal bycatch, according to NRDC and the Center for Biological Diversity. Ecuador's waters are home to 30 different species of marine mammals, and bycatch is known to affect several dolphin populations - but the extent is not fully known, because the Ecuadorian government keeps no data on this question. Gillnet entanglement and bycatch from artisanal fishing also regularly affect coastal populations of humpback and sperm whales.
"Ecuador’s government needs to build on its new fishing law by tracking and limiting bycatch to save marine mammals and their export fishing industry," said Sarah Uhlemann, international program director for the Center for Biological Diversity. "We’re also worried for Ecuador’s hardworking fishers. If they can’t sell their fish products in the lucrative U.S. seafood market, it will be a huge economic blow."
In the meantime, the NGOs believe that some Ecuadorian fishermen are putting their whale and dolphin bycatch to use, cutting it up and using it for bait in fish aggregating devices (FADs). This is an emerging threat to dolphins, and at least six different species are used for this application. This practice should be halted, the groups said.
“The Ecuadorian government must do all it can to ensure that dolphins, whales and sea lions are not used as bait in any of its fisheries, including FAD fisheries,” said Kate O’Connell, marine wildlife consultant with the Animal Welfare Institute.
The Ecuadorian government has also come in for criticism on its mixed approach to shark fishing, which is technically banned in the country's waters. Ecuador takes a stringent approach to foreign fishing vessels with sharks found aboard; however, sharks caught by Ecuadorian fishermen are treated as allowable bycatch, and they are a lucrative part of a mixed-species commercial fishery. This is a common enough practice that Ecuador has become the largest shark-fishing nation in the region.
Inflation Alert
High energy and transportation costs will continue to drive domestic inflation.
(Article originally published in Mar/Apr 2023 edition.)
Inflation is an insidious economic cancer. It diminishes asset values, erodes wages and forces people to assume higher risks in managing their financial lives.
It impacts the value of the U.S. dollar, the world’s reserve currency. It can mean higher commodity prices, higher financing costs and fewer government revenues for social welfare support. A higher-valued U.S. dollar saps the strength of foreign economies, exacerbating hunger and wellness and leaving more people in poverty.
For the last 18 months, the world’s central bankers have struggled to control rampant inflation. Some inflation was caused by Russia’s invasion of Ukraine. Global energy markets were also disrupted, sending prices sky-high. Soaring European natural gas prices and global crude oil prices boosted the cost of living and operating businesses. Companies could raise prices, but workers could only strike for more pay.
Consumers responded by buying less.
Bankers’ inflation playbooks call for reducing liquidity and raising interest rates. Businesses and consumers suffer, reducing economic activity. As painful as this exercise is, it’s the only way to restore price stability. The game plan caused people to lose their jobs as companies needed fewer workers to meet reduced consumer demand. The plan works, but it’s been less effective in the current environment. Why? The pandemic.
COVID Drove Inflation Higher
In 2020, when COVID burst on the scene, governments felt the only way to stop the deadly virus was to lock down economies. This meant governments had to provide financial support to people who lost their incomes. Issuing checks to families to replace their lost income due to lockdowns kept economies afloat but added to inflationary pressures.
People confined to their homes, students attending school via Zoom and workers operating remotely via the Internet all needed additional stuff. Demand for electronics – computers, iPhones, monitors and servers – soared. People needed new furniture to work from home. These goods had to be shipped, which led to congestion at our ports as transportation and distribution networks were stressed unloading and delivering goods to consumers.
Costs soared.
Transportation costs continue to be high as diesel fuel prices remain elevated. Higher diesel prices came with the upturn in crude oil demand following the end of the pandemic. Oil prices were propelled higher by the Ukrainian war. Last December, G7 member countries banned Russian crude oil purchases and now its refined products. The restriction and a price cap on what buyers can pay cut Russia’s petroleum income, undercutting the country’s ability to fund its war with Ukraine.
However, with access to Russian diesel lost, new trade routes were needed. To overcome the disruption ? primarily in unfinished oil – the U.S. turned to other OPEC suppliers and especially to India, where Russian oil is being refined.
While struggling to keep the economy functioning during and following the pandemic, the Biden Administration embarked on an aggressive effort to transition the country to a net-zero carbon emissions power system. The American Rescue Plan Act and the Inflation Reduction Act assured clean energy developers substantial tax credits to encourage new renewable energy projects.
One outcome of these laws has been an uptick in plans for increasing renewable fuel output targeting the air and truck transport sectors that cannot easily be electrified. Biodiesel and renewable diesel for truckers and sustainable aviation fuel (SAF) for planes are mandated by California clean energy rules being adopted by other states.
Government subsidies of $1.00 a gallon for biodiesel and renewable diesel and $1.50 a gallon for SAF are driving the conversion of refineries and the construction of new ones. Importantly, these new fuels require different raw material inputs than a typical oil refinery although their fuel outputs are interchangeable and mixable. These new, clean fuel refineries utilize soybean oil and agricultural wastes, including used cooking oil, as feedstocks to produce their products.
Getting these new feedstocks to the refineries has created new transportation routes, primarily satisfied by inland marine vessels. This has added new demand for the inland marine transportation and Jones Act tanker markets, ensuring a healthy outlook for their businesses.
Jones Act Fleet Struggles to Meet Demand
A recent webinar had three U.S. shipping company CEOs discussing the changing nature and challenges facing the domestic marine industry that will lead to higher transportation costs in the future, embedding higher prices in the economy. The Jones Act was enacted in 1920 to support the domestic shipping industry following World War I and requires any cargo traveling by sea between two U.S. ports to sail on an American-owned ship, built in the U.S. and with a majority of its crew being U.S. citizens.
This legislation is controversial as it’s perceived to be a protectionist trade practice outlawed by international trade rules. It’s also accused of being inflationary since international vessels are cheaper to build and operate. But the Jones Act is the law of the land, and its benefits – in terms of national security and supporting the domestic maritime industry – far outweigh its costs.
Meanwhile, the domestic petroleum industry has been shrinking refining capacity, necessitating increasing volumes of finished products being shipped around the country. Additionally, the U.S. has shifted from being primarily an oil-importing to an oil-exporting country, and that has created new shipping routes.
Journeys have lengthened as a result. For example, more Gulf Coast refined products are being delivered to California, necessitating the dedication of three to four tankers as roundtrips last for 30 to 40 days. This ties up capacity and crews, boosting fleet utilization but adding to costs.
Another factor has been the growth of the domestic petrochemical industry. While much of this expansion has been along the Gulf Coast, more petrochemical plants are now scattered around the country, primarily situated on rivers that facilitate the delivery of raw materials and the shipping of final products. That has further added to the demand for Jones Act vessels.
Rate Hikes Needed to Support Fleet Expansion
With new fuel markets, increased refined volumes being shipped to markets lacking sufficient refining capacity, and a growing domestic petrochemical industry, Jones Act fleets are highly utilized. Given projections for these trends to continue, one expects shipping companies to be building new vessels. However, none are being built according to the CEOs. Why? Because vessel charter rates aren’t high enough to generate acceptable financial returns for building 30- and 40-year life assets.
When asked why no one was building new barges, tankers and ATBs, Kirby Marine CEO Christian O’Neil rattled off the cost of components needed and how much they have increased in price in the past couple of years. To build a 30,000-barrel tank barge, the 200 percent increase in the price of plate steel has nearly doubled the barge’s cost from a few years ago. O’Neil pointed out that paint costs have increased by 25 percent, oil filters are up 125 percent, wire for electronics is 30-40 percent higher and communication radios cost 130 percent more.
Moreover, if Kirby were to build a new inland towboat, it would need to install Tier 4 engines that are more fuel and emissions-friendly but would add $1 million more to the unit’s cost than by using Tier 3 engines. O’Neil suggested that inland barge rates must increase by 30-40 percent to trigger the ordering of new marine equipment.
Even so, new units wouldn’t arrive for 9-12 months. Given the construction time and inflation’s uncertainty, would barge owners demand even higher rates as a hedge against future cost increases or would they demand longer contract times for financial protection?
Coastal tankers face other cost pressures. New tankers will be subject to International Maritime Organization rules on carbon intensity in fuels. There are no propulsion systems currently available that meet these new IMO rules. With tankers having 40-year lives, building one with an engine that may be ruled out for failing to meet the new fuel rules means risking rapid obsolescence with serious financial risks.
That risk is in addition to the uncertainty about their demand. These tankers haul gasoline, diesel and aviation fuel supplies that have an uncertain demand outlook given the net-zero emissions mantra – another potential obsolescence risk. Both conditions will add to inflationary pressures.
Operators are also concerned about inflation’s impact on operating costs. Future changes in regulations for equipment and the operation of vessels could lift costs. What new rules will govern regulatory-mandated drydockings, further adding to operating expenses?
Shrinking Supply of Mariners
And what about the need to attract American mariners to crew the new vessels and replace retiring crew members? This has become a significant challenge. One CEO suggested the maritime industry needs to reach down to sixth graders with an educational program about careers in the industry. No one has started such an effort, but if the Jones Act fleet grows it will need more crew and maritime officers. A primary inducement would be higher wages.
High inflation rates will eventually abate as central bank policies take effect. But until something changes, the U.S. is looking at higher energy and transportation costs boosting future inflation.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.
Unions Protest AUKUS Nuclear Sub Base Plans at Port Kembla
Courtesy Mich-Elle Meyers / Maritime Union of Australia
Last weekend, thousands of activists rallied in Port Kembla, Australia to protest the establishment of a nuclear submarine base for the joint U.S.-UK-Australian sub project, better known as the AUKUS agreement.
The $250 billion program will see Australia acquire nuclear subs and related technology from the United States and Britain over the span of the next three decades. Port Kembla has been identified as a top candidate for basing these new subs on Australia's eastern seaboard. In 2027, long before the Royal Australian Navy's first nuclear subs are delivered, the UK Royal Navy and the U.S. Navy will begin rotating their own subs through Australian naval bases as part of a newly-created "Submarine Rotational Force West." The partners have been at pains to emphasize that the persistent presence of foreign subs at Australian naval bases is not a foreign basing agreement, a taboo concept in Australian defense policy.
Local opposition is centered on fears that a base for nuclear-powered submarines could deter investment in new renewable-energy industries in Port Kembla. The area is traditionally focused on coal mining and steelmaking, two particularly carbon-intensive activities. But green entrepreneurs and regulators have hopes that it could be turned into a hub for renewable industry - for example, hydrogen-fueled blast furnace operation - if enough investors can be attracted. Arthur Rorris, head of the South Coast Labour Council and a member of the governing Labor Party, told The Guardian that nuclear-powered subs would get in the way.
"That is why we are asking the federal government: rule it out, take it off the table and say that it will never be a nuclear base. Until that happens, economically and industrially, we have a major and unacceptable problem," he said. "We’re at the point where we’re able to get the fruits of all that work, now they want to turn this place into ground zero."
The pushback from within its own rank and file has led the Labor government of Anthony Albanese to pause the selection of a final site for an east coast base for now, though the plan to build one at some location along the coast remains intact.
Port Kembla's quaysides have seen anti-war protests before, and this history is well-remembered by local unions. In the late 1930s, longshoremen at Port Kembla refused to load iron cargoes intended for Imperial Japan's steel mills, which were feeding the ongoing invasion of China and powering Japan's military buildup. The dockers were years ahead of the Australian government, which reached a similar decision and declared war on Japan in 1941.
“They have picked the wrong town to try to base their nuclear subs. Port Kembla is a union town with a long history of anti-war struggle," said New South Wales Green Party Senator David Shoebridge, speaking to a leftist Australian news outlet. "They are trying to kill off an amazing future for Port Kembla as a green and renewables' hub."
Tokyo MOU Reports Previously-Undisclosed Cyberattack in 2022
The Tokyo MOU, the international body that coordinates port state control across the Pacific region, reports that it likely sustained a damaging cyberattack in July 2022, two months before it launched a concentrated inspection campaign.
In its annual report, the Tokyo MOU said that its inspection database, APCIS, sustained an "extremely unfortunate" and prolonged outage beginning in July. The likely reason was a cyberattack, according to the agency, and it took down access to the full system for several weeks. Restoration of data was achieved, but it took several more months.
The disruption caused serious difficulties for national port state control agencies, as well as commercial users of the database. The data maintained by the Tokyo MOU is used by port officials to select ships for inspection, and non-government users can also access it to check up on ships' backgrounds.
It is extremely unfortunate that the Tokyo MOU PSC database, APCIS, suffered an outage in July 2022 due to the unforeseen reason, likely a cyber-attack.
"Taking the lesson from this incident, the Tokyo MOU will pay higher attention to the matter of cyber-risks and take all possible measures to enhance cyber security to prevent [a] recurrence," the agency said in a statement.
Though it was just disclosed this month, the attack on the Tokyo MOU database actually came before a string of well-publicized cyber incidents affecting maritime organizations.
On Christmas Day, the Port of Lisbon sustained a major cyberattack, which took down the port's website and its internal computer systems. Hacking gang LockBit claimed responsibility for the incident and demanded a $1.5 million ransom. The group claimed to have stolen the port's financial reports, audits, contracts, cargo manifests, crewmember information and other sensitive data.
On January 7, class society DNV was forced to take its ShipManager vessel operations software offline due to a cyberattack, shutting down access for an estimated 300 customers and 7,000 ships around the world. The desktop version of this software (the version used aboard vessels) remained functional, but all online cloud computing features were shut down.
Last month, the ports of Halifax, Montreal, and Quebec sustained a major “denial of service” attack, which took their external websites offline. A pro-Russian hacking group claimed responsibility for the attack, which did not affect the ports' internal data or day-to-day operations.
Quebecor reports $120.9M Q1 profit, down from $121.4M a year ago
The Canadian Press
Quebecor Inc. reported its first-quarter profit attributable to shareholders fell to $120.9 million compared with $121.4 million in the same quarter a year ago.
Revenue for the quarter totalled $1.12 billion, up from $1.09 billion in the same quarter last year.
On an adjusted basis, Quebecor says its income from continuing operations amounted to 59 cents per share, up from 54 cents per share in the first three months of 2022.
The result matched the average analyst estimate for the company's adjusted profit, while the average estimate for revenue was $1.10 billion, according to estimates compiled by financial markets data firm Refinitiv.
Quebecor's Videotron subsidiary completed its acquisition of Freedom Mobile in April for a total purchase price of $2.85 billion.
This report by The Canadian Press was first published May 11, 2023.
SNC-Lavalin's services in high demand amid clean energy transition: CEO
Iva Poshnjari, The Canadian Press
SNC-LAVALIN GROUP INC (SNC:CT)
32.490.86 (2.58%)
As of: 05/13/23 8:54:19 am REAL-TIME QUOTE. Prices update every five seconds for TSX-listed stocks
SNC-Lavalin Group Inc. beat analyst expectations in its first-quarter results and the engineering giant’s CEO attributes the strength to its clean energy transition.
Speaking with BNN Bloomberg’s Amber Kanwar on Tuesday, Ian Edwards, president and chief executive officer of SNC-Lavalin, said the resurgence in nuclear power and need for clean energy infrastructure gas brought government contracts back to the company.
“Where we’ve positioned this company, in the U.S., the U.K. and Canada — these country’s are heavily investing in the renewal of aging infrastructure, investing into infrastructure that commits to a clean energy future and also a clean energy transformation,” he said.
He added that SNC-Lavalin has divested out of oil and gas, and has also put most of the lump sum construction it was used to servicing behind it — making room for its new business model to focus on projects that will aid the world in the production of clean energy.
Edwards noted because it is government contracts fuelling SNC’s business, he remains optimistic about future growth despite an uncertain economic landscape.
“We are in nuclear, we are in the renewable space, we provide services to all of our customers and governments in all of those core geographies and we see very, very, strong demand for the services that we sell,” he added.
As the business expands, he anticipates it will generate free cash flow by next year, at which point conversations about mergers and acquisitions are likely to begin. This will result in the company generating both organic and inorganic growth, he added.
“We see a predictable future ahead from our engineering services business,” Edwards stated.
WSP Global doubles down on green-
tinted expansion
Christopher Reynolds, The Canadian Press
WSP Global continued its years-long expansion this year, acquiring companies and securing contracts with an eye to the growing market for green projects.
Since late January, the engineering firm has completed three more acquisitions in Australia, Switzerland and Quebec, adding 900-plus employees to the payroll.
A fourth pending purchase of Australian engineering outfit Calibre will boost its headcount by another 800 and entrench WSP's prospects as a player in mine rehabilitation, said CEO Alexandre L'Heureux.
"It's built on the 2021 acquisition of Golder" — a 7,000-employee environmental consulting firm based in Toronto — "and aims to further position WSP as a leader in the mining industry's green transition in Australia and across the globe," L'Heureux told analysts on a conference call Thursday.
A global shift toward renewable energy over the next two decades will foster growing reliance on critical minerals as well as a push toward decarbonization in mining, boosting that sector's potential for WSP, he added.
The Montreal-based company is also part of a consortium selected last month to build the $4.9-billion first phase of Calgary's Green Line, a light-rail transit system comprising the largest infrastructure project in the city's history.
WSP has closed at least seven acquisition deals in the past 12 months — including the 35,000-strong British environment and infrastructure business of John Wood Group — and more than 120 since 2006.
Once a boutique firm called Genivar, the 64-year-old company has more than doubled its head count over the past decade, swelling to about 67,100 employees, including an additional 10,900 in 2022.
In its latest quarter, WSP boosted net earnings 18.4 per cent to $112.5 million from $95 million a year earlier. Revenues for the quarter ended April 1 rose nearly 29 per cent to $3.5 billion from $2.7 billion.
However, WSP's rosy financial outlook includes a couple clouds, according to one analyst.
"The quarter was definitely stronger than expected. But organic growth in the backlog was quite low. And you did maintain guidance, which does imply a slowdown in organic growth for the remainder of the year," Yuri Lynk of Canaccord Genuity told the chief executive.
L'Heureux replied that if two recent contracts, including the Green Line LRT, had been included in the quarterly results, the backlog within Canada would have reached double-digit growth rather than falling three per cent.
"So actually I'm not worried at this point at all ... It's more timing than anything," he said.
“We have 2,000 live projects at the moment, so you’ve got to look at the margin evolution over a longer period than 90 days," he added, referring to the adjusted earnings margin of 15.5 per cent, which remained flat year over year.
The engineering outfit has projected revenue growth of 19 per cent this year to between $10 billion and $10.6 billion. It has also forecasted an 18 per cent jump in adjusted earnings.
This report by The Canadian Press was first published May 11, 2023.
