BUSINESS/ECONOMY

Worldwide storms in the shipyards

D'ARCY JENISH October 26 1987
BUSINESS/ECONOMY

Worldwide storms in the shipyards

D'ARCY JENISH October 26 1987

Worldwide storms in the shipyards

For more than 20 years the MV Wheat King hauled grain from Thunder Bay to terminals in Montreal and other ports in Quebec for export overseas. On the return trips, the 730-foot vessel hauled Quebec and Labrador iron ore to U.S. and Canadian steel mills on the Great Lakes. But last year the ship’s owner, Toronto-based ULS International Inc., sold the MV Wheat King as part of a fleet reduction program. Now the gutted freighter sits at a dock in Amsterdam where it is used as a grain storage barge. The fate of the vessel reflects the depressed state of Canada’s shipping industry.

Since 1981 at least 15 ships have been scrapped, six shipping companies have gone out of business and annual tonnage of freight on the Great Lakes has plummeted by more than 20 per cent since 1980. And the downturn in the shipping industry has been devastating for shipbuilders in British Columbia, Ontario, Quebec and the Atlantic region. Five shipbuilding companies have folded during the 1980s while the survivors are almost completely dependent on government contracts for new ships. And although employment on the Great Lakes freighters dropped by roughly 50 per cent during the slump, 265 marine engineers have been on what may become an extended strike since late September because shipowners are seeking broad contract concessions.

The situation is just as grim outside Canada, with shipping lines and shipbuilders struggling just to survive in many countries. Shipyards around the world are laying off workers and losing money. Likewise, shippers have docked hundreds of surplus vessels, freight rates have fallen with declining volumes, and prices for used ships have dropped sharply. A report released last July by state-owned British Shipbuilders demonstrates the magnitude of the crisis. It said that shipyards had been shut down in Holland, West Germany, France, Italy and Finland. Last April, according to the report, a South Korean shipyard applied for receivership with debts of more than $430 million, while leading Japanese shipbuilders have announced combined losses of $922 million for 1986 and 1987.

British Shipbuilders itself reported a loss of $484 million for the year that ended last March. Indeed, during the past 10 years the British state corporation has cut its workforce drastically, to 6,500 from 50,000. The report also noted that because of the huge surplus in world shipping capacity, freight rates

for some commodities have fallen to one-third of their level six years ago, due mainly to cutthroat competition from Japanese and South Korean shippers. As well, the report said, a good quality, two-year-old bulk carrier now sells for about $6.5 million—roughly a fifth of what it was worth in the heady days of 1980.

One of the major factors behind the overcapacity problem was the fall in world oil prices, according to James Clarke, president of the Canadian Shipbuilding and Ship Repairing Association (CSSRA). Until the early 1980s shipbuilders were still constructing enormous supertankers, capable of hauling more than 500,000 tons of oil, Clarke said. But at the same time, North American and Japanese automakers were designing smaller cars and, through energy conservation programs, governments were encouraging a reduction in the use of oil, which in turn reduced the quantities being shipped from producers to refiners and consumers. Meanwhile, general cargo volumes also declined.

In Canada, the shipping slump is mainly the result of steep declines in shipments of grain, iron ore and coal on the Great Lakes and through the St. Lawrence Seaway. Norman Hall, president of the Ottawa-based Dominion Marine Association (DMA), which represents almost all of the country’s commercial shippers, said that his members moved 93 million tons of freight in 1980, a record year.

But by last year that number was down to 71 million tons, though the DMA members are expected to do marginally better this year.

Last year shipments of iron ore from Quebec and Labrador were six million tons lower than they were in 1980, largely the result of steel mill closures in the United States, said Hall. Canadian shippers have also lost about a million tons per year in American grain shipments since President Jimmy Carter announced an embargo on wheat sales to the Soviet Union in January, 1980. Worldwide grain subsidy wars have led to further reductions in U.S. exports, and U.S. railroad deregulation has diverted much of the remaining grain traffic.

The declining volumes of freight moving on the Great Lakes has also adversely affected the St. Lawrence Seaway link to the Atlantic. In 1986 two-way traffic dropped to 47.4 million tons, the lowest level since 1963 and significantly below the record of 66.2 million tons set in 1979. As a result, the seaway has posted operating losses totalling $37 million since 1980. The waterway has also been plagued by some severe operating problems, such as the 24-day closing of the Welland Canal between Lake Erie and Lake Ontario that stranded 150 ships late in the 1985 shipping season because a lock wall collapsed. Ottawa responded by committing $175 million to refurbishing the canal over a seven-year period.

Most shipping executives now say they are confident that the industry has hit bottom, but at the same time they say that shipments of grain and iron ore are unlikely ever to recover to their peak levels of 1980. “There won’t be any need to build ships on the Great Lakes for many, many years,” said Jack Leitch, chairman of ULS International, which has scrapped six vessels, including the MV Wheat King, in the past two

years. But Paul Martin Jr., president of Montreal-based CSL Group Inc., owner of Canada Steamship Lines Inc., the country’s largest shipping company, said that the cutbacks in the industry are not over. “There has been a great deal of rationalization in the Great Lakes shipping business, but there is more to come,” said Martin.

In order to survive, almost all the companies are selling older, less efficient ships, cutting their crews and looking for concessions from the unions that staff the vessels. George Miller, general

manager of the Canadian Lake Carriers Association, which negotiates on behalf of the shipowners, said that the Seafarers’ International Union of Canada recently agreed to give up monthly premiums and hourly bonuses worth $5,000 to $6,000 per employee annually, which can cost the industry $1 million per season. Employees who run the engines and boilers—members of the Canadian Marine Officers Union—balked at making such concessions and went on strike on Sept. 28. But the companies have generally kept the ships running with replacement workers.

With the shipping industry in a slump, shipbuilders have become increasingly reliant on government orders

for ships to survive. The last new Great Lakes freighter was completed in 1983, and there has not been a freighter order placed since then, said David Gardiner, president of St. Catharines, Ont.-based Misener Shipping. Nationally, CSSRA president Clarke said that the Canadian shipbuilding industry began 1984 with orders for 17 ships weighing a total of 167,600 tons, 115,600 tons of which were private sector contracts. This year the orders totalled just 39,500 tons, with the federal government responsible for 37,900 tons.

As a result, West Coast shipyards, which have employed up to 3,000 workers during the past decade, currently have only about 800 on their payrolls. The one positive development on the West Coast is a tentative contract with Versatile Pacific Shipyards Inc. to build the $320-million Polar 8 icebreaker, which is expected to recieve final cabinet approval next year.

On the East Coast, the six surviving shipbuilders face an equally bleak future. Halifax-Dartmouth Industries Ltd., which employed 1,500 in the mid1970s, went into receivership in December, 1984, was rescued by a Halifax consortium and now employs a mere 80 people. Saint John Shipbuilding Ltd.,

controlled by industrialist K.C. Irving, now has 900 hourly workers building two Canadian Forces patrol frigates. That work is the result of a $5-billion contract for six frigates that Ottawa split between Saint John Shipbuilding and builders in Quebec in 1983. Now the federal government is preparing to award a second frigate contract worth about $2.5 billion.

For the shippers and shipbuilders who have survived the downturn of the past six years, the worst may be over. But tough decisions lie ahead. Federal

authorities have hinted that they think there is still too much capacity in the East Coast shipbuilding industry, and one or more of the yards may still have to close. Shipowners must decide whether to order new ships or refurbish old ones if a solid recovery takes hold. And Canadian shipping companies are taking their first tentative steps in the transoceanic trade. But given the difficulties encountered since 1980, it will likely be some time before either shippers or shipbuilders undertake any bold or costly new ventures.

-D'ARCY JENISH with ROSS LAVER in London, PAT ANNESLEY in Vancouver, RICHARD KELLY HEFT in Toronto, MARC CLARK in Ottawa and RALPH SURETTE in Halifax

D'ARCY JENISH

ROSS LAVER

PAT ANNESLEY

RICHARD KELLY HEFT

MARC CLARK

RALPH SURETTE