Ottawa’s decision to slash a 25% tariff on imported cargo ships, tankers and ferries is a “double-edged sword” for B.C. ship owners and shipbuilders, according to one of the province’s largest shipyard and fleet operators.
“The way the 25% duty was set up in the past was really a penalty for ship owners,” said Jonathan Whitworth, CEO of the Washington Marine Group (WMG). “It wasn’t an incentive for them to build in Canada.”
WMG operates Seaspan, Seaspan Coastal Intermodal, Vancouver Drydock Ltd., Vancouver Shipyards Co. Ltd. and Victoria Shipyards Co. Ltd.
Whitworth said a better use of the tariff would be to incorporate it back into the industry as an incentive for shipyards and ship owners.
Waiving the tariff on imported vessels longer than 129 metres resulted in BC Ferries receiving $119.4 million in duties it previously paid Ottawa when it imported four Super C-class ferries built in Germany between 2007 and 2009.
BC Ferries consequently plans to reduce fares 2% effective October 18 and allocate $20 million to upgrade key ship repair and maintenance assets in B.C.
Whitworth pointed out that BC Ferries is now receiving taxpayer subsidies from the provincial and federal governments.
“If you’re going to take taxpayers’ money … you should put it, at the minimum, back into Canadian, or in our case, British Columbian shipyards.”
He said WMG’s four new tugboats don’t qualify for duty remission. The company recently signed a contract with Istanbul’s Sanmar Denizcilik Shipyard to build the vessels.
“People may try and draw similarities between BC Ferries and Washington Marine Group building offshore,” he said. “The two main differences are we don’t receive subsidies from the federal or provincial governments, and, secondly, we have competitors. If we don’t get the lowest cost operating asset, our competition will.”
Whitworth pointed out that BC Ferries has no competition in its ferry passenger service. “They should have different drivers in what are the criteria for building new vessels. If you’re taking money from provincial and federal levels, you should be looking at reinvesting in the province for your new vessels.”
Whitworth said there are few large commercial vessels that qualify under the former import duty category being built in Canada.
“There are lots of smaller vessels and different vessels that don’t apply for this remission. … I don’t see that there’s going to be this mad rush to try and get savings.”
Whitworth was unable to reconcile the tariff decision with the national shipbuilding procurement strategy announced in June.
According to the federal government, that strategy includes large and small ship construction, and repair, refit and maintenance projects.
It promised to establish “a long-term strategic relationship with two Canadian shipyards for the procurement of the large ships – one to build combat vessels, the other to build non-combat vessels.”
Whitworth said that removal of the 25% duty has not really affected WMG’s vessel procurement plan because most of the work it does through Seaspan would not have qualified.
“For most of the ship owners and shipyards that build smaller vessels, this hasn’t changed anything.”
But George MacPherson, president of the BC Shipyard General Workers’ Federation, said Ottawa’s decision to waive the duty is “a terrible disservice to the industry coast to coast” and has opened the door to ship owners and the federal government to go offshore and not pay a penalty for taking work out of the country.
“It’s a terrible, terrible mistake by the federal government.”
MacPherson added that BC Ferries’ “super ferries” – the Spirit of British Columbia and the Spirit of Vancouver Island – were built in the province in the early 1990s. “Those would now be built offshore. It’s vessels that we have built in the past. It’s vessels we can build. The legislation was initially designed for vessels that could not be built in Canada. Clearly, what they’re saying now is that it doesn’t matter if they can be built in Canada; if it’s over a certain size, they can go. That’s wrong.”
Allied Shipbuilders’ president Malcolm McLaren said it was “quite unusual” for the federal government to grant duty remission to BC Ferries so long after the original deal was done. The import duty decision, he added, is another step in the evolution – or devolution – of Canada’s domestic shipbuilding industry. “If we went back to the 1940s, there were 255 ships built in Vancouver in a four-year period. We certainly don’t do that anymore. The ability to build freighters and big bulk carriers – it’s lost.”
But Chuck Strahl, federal minister of transport, infrastructure and communities, said, “The duty relief will accelerate the renewal of the Canadian marine fleet … and help replace aging vessels with cleaner, safer and more efficient ships.”
According to the federal government, stakeholders had said duty costs on imported vessels were passed on to Canadian producers and users through increased shipping rates.