CSE seeks funding and labour costs cuts

Canadian Shipbuilding & Engineering Ltd. (CSE) will seek government money, cut labour costs and restructure before resorting to a sales process if necessary, the monitor overseeing its bankruptcy protection said in court documents.

CSE was formed 20 years ago by the merger of the shipbuilding and repair divisions of two of Canada’s biggest private shipping companies, Canada Steamship Lines and what is now called Upper Lakes Group Inc. Peter Cairns, president of the Shipbuilding Association of Canada, said CSE illustrates the struggles of a Canadian industry that is competing with low wages and government subsidies abroad. “We have a tremendous amount of work that we know is coming down the pipeline,” he said, adding that without better policies or tax treatment there will soon be no shipbuilding industry in Canada.

CSE sought bankruptcy protection earlier this month and is asking an Ontario judge to extend it until 13 October.

It suspended operations at its shipbuilding and repair facility, known as Port Weller Dry Docks, in St. Catharines. CSE also has a division called Canal Marine in St. Catharines and a plant in Thunder Bay. In recent weeks, CSE ? which has a history of receiving government funding ? has been seeking financing from the federal and Ontario governments, and has been in discussions with Export Development Canada, which is likely to be the shipbuilder’s biggest creditor in its restructuring.

According to documents filed by RSM Richter, the court monitor in the case, CSE’s real troubles began in early 2005 when it signed contracts to build two vessel hulls for Hoekman Cargoships BV, for 4 million euros each, and five short sea ships for Carisbrooke Shipping Ltd., for $10.4 million euros each.

The problem was that CSE “did not have experience building short sea ships and hulls of this nature,” according to the documents. CSE realized it would lose money on the first few projects, but hoped it would pay off once it learned how to profitably build the ships.

But it “substantially” underestimated the costs of the first hull, which it delivered last month. It took more labour than expected and CSE decided it likely wouldn’t make any money on the remaining projects. Management estimated that CSE would need new funding of about $16 million to finish the rest of the ships.

Now Carisbrooke wants to make claims and cancel three of its shipbuilding contracts. CSE officials flew to London earlier this month to meet with Carisbrooke and the two sides are still trying to reach an agreement.

The court monitor has not yet started to market the company because it is still trying to restructure. “If these efforts are successful, there may not be a need for a marketing process,” the monitor said.