July 27, 2016

Australia Shouldn't Build Shortfin Subs and Australia Should Forget Exporting Them


Few countries have truly efficient defence industries. Efficient countries usually need:

1.       A large domestic arms market (eg. the US, Russia and China) and

2.       a stable arms export market which owes much to the international political power of the 
          exporter (especially the Soviets/Russia and the US, how otherwise could the US have 
          continually forced the F-35 on Canada?) or

3.       Mainly a highly efficient and stable arms export market (eg. South Korea, Spain, to an 
          extent Sweden) or

4.       Specialised needs to meet constant national threats (eg. India and Israel in conventional
          weapons and even more in their nuclear weapons.) but

5.       For other countries there are ongoing debates about clearly inefficient defence industries 
          (amounting to massive central government subsidies) versus arguments of defence self-
          reliance and "nation-building". Australia has not attempted to build the latest 4th or 5th 
          generation jetfighters, so why build the latest large warships?

Australia lacks points 1 to 4 but 5 fits it well, as the following article illustrates.


"Productivity Commission: Building submarines in SA is 'a return to bad old days of protectionism'

…the Productivity Commission has now said without a better product to justify the extra cost of building submarines at home, "productive resources (labour, capital and land) are diverted away from more efficient uses".

In other words, the billions of extra dollars spent on building submarines in Australia instead of buying them from Germany, Japan, or France could be better spent on developing the industries of the future.

…South Australia, with its heavy reliance on old-world industries, has long been a problem child for politicians of all persuasions.

With the Government having bitten the bullet and allowed the heavily subsidised car industry to walk, the $50 million bailout of Arrium to keep its Whyalla steelworks open shows the political reality of keeping voters happy will trump painful structural change.

In its latest report on Trade and Industry Assistance, the Productivity Commission said the 30 per cent cost premium to build submarines in South Australia is "a major step back from the historical reduction in using Government procurement preference as industry policy".

[30% is a vast underestimate – more like the build-in-Australia price will be 100% higher than the build in France price!]

"It's hardly surprising that the state with the most protectionism — South Australia — also has towards the highest unemployment rate, some of the lowest growth and is a significant net recipient of Government subsidy," said Simon Cowan, research manager at the Centre for Independent Studies.

"It's literally just a small niche industry being protected to the tune of billions of dollars a year. It just doesn't make sense from any perspective other than how do we try to shore up votes in Adelaide."

According to its research, the Productivity Commission said the effective assistance being given to the companies who will build Australia's next generation submarines is "higher than the peak historical levels recorded for the automotive and textiles clothing and footwear industries prior to the significant economic reforms of protection".

…However the Australian Industry Group, which represents the manufacturing sector, said the submarine deal is not protectionism but nation building…” See WHOLE ABC Article.


The main relevant document is the Australian Government Productivity Commission, Trade & Assistance Review 2014-2015 (Productivity Commission Annual Report Series) at http://www.pc.gov.au/research/ongoing/trade-assistance/2014-15/trade-assistance-review-2014-15.pdf - see mainly pages 36 to 38 on submarine building cost premiums. 


New submarine selling countries find it is difficult to break into the submarine export market. Submarines are high cost, specialised products that frequently need to be tailor-made for each customer country.

A country usually needs an already proven reputation that it can maintain subs as they age in terms of ongoing advice/expertise for overhaul and ongoing spare parts availability. I understand that there were problems in the ongoings for the Collins.

As with the Collins (Australia entertaining the notion of selling 2 to New Zealand?) certain submarine building Australian Defence Ministers will imply Australia can build and export Shortfin submarines or at least be a regional hub for DCNS Scorpene parts. 

-   This is unrealistic because of licensing and intellectual property restrictions and realities.

-  Also Australia would be competing in Shortfin selling against the Shortfin experts DCNS of

-  France would remain the main place where the original submarine parts and spare parts are

-  Also Australia would be competing against the world’s most successful submarine seller -
   Germany's TKMS and against the TKMS designs that South Korea builds.

-  Russia is also a low cost builder of repute, and 

-  China is becoming a serious low cost competitor.



MHalblaub said...

Dear Pete,

At first I can't see a reason for excessive costs building submarines in Australia.

Excessive costs are not related to build the steel hull down under and fit the equipment in. The excessive costs are related to building Australian made (engineered) parts. I count the control and combat system as such a expensive nonsense.

Excessive costs can only occur in case the company building them is owned by Australia itself. Best case would be a foreign company building the submarine in Australia. Australia has not to bother about the companies loses in case of late delivery and related charges.

Exporting submarines? Start simple with cars or better bicycles.


Peter Coates said...

Hi MHalblaub

One's observations can partly be based on the problems with the Collins of developing a first of class design at almost the same time as putting it in production.

Industrial mix of "too many cooks" has already become obvious with Australia's current major and comparable shipbuilding fiasco - the Hobart Class Air Warfare Destroyer - again being built in Adelaide again by ASC and others.

In addition to DCNS and ASC a French propulsion subcontractor will need to understand the major problems. Combat system will probably be won by Lock Mart but will still involve Raytheon and other major US and foreign partners. Federal Government, State Government all stirring the pot.

Sheltered workshop.

The insides of the Shortfin SSK will have many new innovations compared to the Barracuda insides - especially for the Shortfins whole propulsion system, fuel-water tanks, balance-buoyancy.

For the difficulty of attributing costs and subsidies see pages 36 and 37 of http://www.pc.gov.au/research/ongoing/trade-assistance/2014-15/trade-assistance-review-2014-15.pdf

For the complexity of goods and services inputs see page 38 of http://www.pc.gov.au/research/ongoing/trade-assistance/2014-15/trade-assistance-review-2014-15.pdf

Also I've read somewhere that it will cost Australia 300% more to gear up to to make the plate submarine steel in Australia than using the steel already being made for Barracudas in France.

And this is being positive :)


Froggy said...

The submarines market : articles from France

1/ The Who's who (old article but not so bad) :

2/ More and more blue water submarines

3/ The AIP competition (not so old article)

4/ The next competition (very very important) is the norway competition, who'll be the winner ?
Article without pen but with a french flag :

5/ Today, australia isn't a competitor, wait and see.
Today, australia need USNavy help to choose a submarine.
The next step is to launch the new australian submarine.

After all, why australia couldn't sale submarines in the future ?

Peter Coates said...

Thankyou "Froggy" a la France, for those links.

I will read them and then report back to you.



Peter Coates said...

Hi "Froggy"

I'm currently reading https://www.frstrategie.org/publications/defense-et-industries/marche-des-sous-marins-d-attaque-conventionnels-un-etat-des-lieux-des-competiteurs-2-5 (using right-click mouse, Translate to English)

It is a long and excellent analysis of the international (conventional attack SSK) submarine market. It also comes with a very good map (dated around 2014-15) on current attack submarine orders.

I'll discuss some major points from it after I finish.



Anonymous said...

Hi Pete,

One of the points made was needing a large arms market. I recall someone a little while ago mentioned diesel subs are a bit better in shallower waters than nuclear subs, and the US could do with some diesel subs which can be used closer to home, so the nuclear ones can be freed up for overseas deployment. Sorry I don't have the link. Was it your site?

Do you think there's any likelihood the US could be pursuaded to buy, say, ten subs(the more the better though), from their ally, Australia? Aussie subs would have the advantage of very long range, if nothing else. The subs won't start being built for many years, so there's time for the diplomats to work their magic.


Peter Coates said...

Hi Adrian

The US won't be buying small, conventional subs, because the US:

1. is developing SEAL Delivery vehicles (SDV) (effectively battery powered, very small subs) and UUVs that can operate from an SSN or SSGN 100km from shore, then move close to beaches

2. the limited fully underwater duration of conventional subs make them indiscrete - hence at a major disadvantage - especially against the US main opponents - which are the subs of the Russian and Chinese navies

3. If the US ever wanted to build conventional, diesel powered subs, it would build its own. TONNAGE wise the US still builds more subs than any other country (including China and Germany)

Australia has no economic advantages over other submarine building countries (especially Germany and France) so Australia selling subs to anyone is highly unlikely.