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Australian Policymakers Face a Trade-Off Between Paying a Price Premium and Benefiting from Broader Economic Development

• The Australian government must choose among three options: build the naval surface ships on Australia's acquisition list entirely in-country, build them partially in-country and partially overseas, or have them built at shipyards overseas. Each strategy carries costs and risks.
• Our examination concludes that domestic production of naval ships in Australia currently carries a price premium — estimated to be between 30 to 40 percent compared with similar ships built abroad.
• The premium to build in Australia could be lower than the 30 to 40 percent range if Australia adopts a continuous build strategy to avoid rebuilding an industrial and management capability with each new ship program, starts with mature designs at the onset of production, and minimizes changes during production. With such measures (and a cultural shift in industry toward continuous improvement), we can envision this premium being cut in half.
• Our examination of shipbuilding's economic effects suggests that there may be economic benefits associated with shipbuilding, especially when it occurs in areas that would otherwise have slack in their labor forces. The benefits are unclear and are largely dependent on broader economic conditions in Australia.

In 2015, the Australian government will produce a new Defence White Paper to outline revised and refined defense objectives. As it prepares the new report, a basic question facing the government is whether Australia should buy ships from foreign shipbuilders or support a domestic naval shipbuilding industry. This question is complex, containing many facets and issues that often center on cost trade-offs and economic considerations, but that also touch upon important national and strategic concerns.

At the request of the Australian Department of Defence's 2015 White Paper Enterprise Management team, the RAND Corporation has been analyzing the capability of the shipbuilding and ship repair industrial bases in Australia to meet the demands of current and future naval surface ship programs. The analysis in this report aims to help Australia's defense policymakers in three ways: first, to gain an understanding of the capacity and associated costs of Australia's naval shipbuilding industrial base to successfully implement the country's current acquisition plan; second, to gauge how alternative acquisition requirements, programs, build strategies, quantities, and related costs and schedules might affect the capacity of that industrial base; and third, to measure the economic effects of the industry throughout Australia. RAND researchers provide detailed findings from both public and proprietary data and from surveys of industry representatives, and they offer recommendations to Australian policymakers.

• Chapter One

  Introduction

• Chapter Two

  Australia's Naval Shipbuilding and Ship Repair Industrial Bases

• Chapter Three

  Australian Department of Defence's Planned and Projected Warship Acquisitions

• Chapter Four

  Using Indigenous Australian Industry to Address the Short-Term and Longer-Term Gaps in Naval Ship Demand

• Chapter Five

  Benchmarking Australia's Naval Shipbuilding Industry with Comparable Overseas Producers

• Chapter Six

  Examining Economic Pros and Cons of Australian Government Investments in Various Naval Shipbuilding Enterprise Options

• Chapter Seven

  Conclusions and Recommendations

• Appendix A

  Shipbuilding in Australia: A Brief History and Current Shipyard Production Facilities

• Appendix B

  Shipbuilding Model and Assumptions

• Appendix C

  Sensitivity Analysis

• Appendix D

  Exploring the Option of Producing Offshore Patrol Vessels

• Appendix E

  Survey of Australian Shipbuilders and Ship Repair Industries