High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
OTTAWA (Dow Jones)–The Canadian government Wednesday awarded C$33 billion (US$32.3 billion) of shipbuilding contracts, the largest in the country’s history, to Nova Scotia’s Irving Shipbuilding and British Columbia-based Seaspan Marine Corp., deals that are expected to create thousands of jobs in the country.
Irving, which owns the Halifax Shipyard, secured the lion’s share–a C$25 billion deal to build combat ships–while Seaspan was awarded a smaller C$8 billion contract for non-combat ships. A third contender, Quebec’s Davie Shipyard, was shut out.
The economy is the big winner from the contracts, according to the Canadian Manufacturers & Exporters. “Beyond the benefits for the winning companies and their workers, the shipbuilding contracts will have profound benefits for the entire economy, coast-to-coast,” CME President Jayson Myers said in a statement. He described it as a “great day” for Canada’s manufacturing industry, saying that hundreds of suppliers from across the country will have a chance to bid for various sub-contracts.
There will be another C$2 billion contract to build smaller ships which will be open to Davie Shipyard and other bidders, but not to Irving and Seaspan, government officials said.
The major contracts are a politically sensitive matter as they determine which regions stand to benefit. A controversial decision in 1986 by then-Prime Minister Brian Mulroney’s Progressive Conservative government to award a fighter-plane maintenance contract to Montreal’s Bombardier Inc. (BBD.B.T) over a more competitive bid from a western Canadian company helped spark the creation of the right-wing, western-based Reform Party–which later morphed into the present-day Conservative Party that’s now in power.
The government of Prime Minister Stephen Harper structured the decision-making for the shipbuilding contracts in such a way as to make it an arm’s-length process. The way the announcement was made further underscores the political sensitivities. Major announcements are typically made by cabinet ministers, but this one was unveiled by a senior bureaucrat from the Public Works department.
Public Works Minister Rona Ambrose said later Wednesday that the government is delivering on its promise to create good jobs across Canada and provide much-needed ships for the Royal Canadian Navy and the Canadian Coastguard, “all through a transparent and arm’s length process.” She said the contracts will create 15,000 thousand jobs annually over the next 30 years. She did not take questions from reporters.
The fact that the Quebec company didn’t get the main contracts can be expected to draw criticism from the opposition parties. The main opposition New Democratic Party holds 59 of the 75 federal seats in the French-speaking province, while the Conservatives have just five.
-Nirmala Menon, Dow Jones Newswires
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