Good morning. These days, if business leaders aren’t talking about tariffs or pipelines, it’s often big guns. Canada’s push to spend billions more on its military is creating a gold rush for companies that make defence hardware. More on that below, but first:
Up first
In the news
Oil: Ottawa’s designation of the proposed Alberta-to-B.C. pipeline as a project of national interest is the starting point for what will likely be intense consultations with Indigenous communities along the route.
Trade: Canada’s Minister of International Trade met with his U.S. counterpart for the first time since trade talks broke down in August, but neither side gave any indication of progress toward an agreement.
Jobs: The CEO of Cleveland-Cliffs Inc. said Ottawa’s potential lawsuit against the American steelmaker makes no business sense, promising that laid-off workers will be called back if the trade war ends soon.
Ontario Shipyards Inc. operates the Port Weller Dry Docks in St. Catharines, Ont. At right, the company’s crews repair the Northen Venture, a 155-metre self-discharging bulk carrier. At left, the company overhauls the Canadian Coast Guard’s 88-metre CCGS Terry Fox.Edward Burtynsky/The Globe and Mail
In focus
The Canadian shipbuilding underdog
Hi, I’m Jeff Gray, and I usually cover the Ontario Legislature for The Globe and Mail.
A while ago, I noticed that the Ford government had taken a shine to a company called Ontario Shipyards Inc., going so far as to set up a special fund for the shipbuilding industry and giving the firm grants from a controversial provincial skills-training program.
I was more interested in the broader context around the company: Billions of new dollars are set to flow to rearm the military, as Canada and its allies seek to meet their NATO targets. And Ontario Shipyards appears to have convinced the province to back its bold vision to revive naval shipbuilding in Ontario – a vision that involves gearing up to compete with Canada’s long-established (and more politically connected) players.
Reporting the October cover story for the Report on Business Magazine took me to St. Catharines, Ont., to see the Port Weller Dry Docks. That’s where the company’s chief executive is gambling he can bring the construction of large military combat ships back to the Great Lakes for the first time since the Second World War.
I was thrilled to learn that the magazine’s photo director, Clare Vander Meersch, had convinced renowned Canadian photographer Edward Burtynsky to take the pictures for us. (You can read ROB Magazine editor Dawn Calleja’s note about snagging him for the gig here.)
He fixed his lens on the massive, but rundown and underused, dry docks, which Ontario Shipyards hopes to turn into the birthplace of a new fleet of homegrown, 100-metre-plus long, state-of-the-art navy warships – if the stars align.
The dry docks are breathtakingly large (big enough to accommodate ships more than 700 feet long) and the whole place has an industrial, steampunk vibe. The setting was perfect fodder for Burtynsky, famous for his sweeping landscapes depicting humanity’s impact on the Earth.
The facility is just one piece in the puzzle for CEO Shaun Padulo, who was at times guarded and other times surprisingly loose-lipped as he laid out his plans, which have involved wooing the provincial government of Doug Ford for cash help (done) and navigating the rough political seas of military procurement in this country (a work in progress).
Northern Venture, seen from the air at the Port Weller Dry Docks, is a ‘River Class’-size vessel capable of transiting shallow waters and docks.Edward Burtynsky/The Globe and Mail
While the navy already has a series of massive new ships in the works, it has also floated the idea for a new fleet of vessels it calls corvettes. No, not the sports cars, but swift and lethal warships for patrolling Canada’s coastal waters or hunting for hostile submarines near Arctic ice cover.
No money has been committed; no plan has been finalized. But Padulo, potentially with the help of a group of Canadian and international partners that include Italy’s massive shipbuilder Fincantieri and its Canadian subsidiary, Vard Marine Inc., thinks winning this contract is an attainable goal.
The odds look long at first glance. Ontario Shipyards was passed over for the National Shipbuilding Strategy, with Quebec’s Davie admitted instead. That shipyard, plus those of Halifax’s Irving and B.C.’s Seaspan, have a massive head start and are already building big navy and coast guard ships. (Foreign giants are also circling.)
But Padulo’s pitch is simple: These established players are all too busy to build these new corvettes both quickly and domestically – and Ontario deserves a piece of the action.
Back at Port Weller, things don’t look so simple. It has been a long time since anyone built a ship from scratch here. The parking lot is rutted and choked with weeds. Offices for the company’s current staff are housed in a wing of a larger complex that has been left derelict for decades. But Padulo, who has hatched an unconventional plan to get the navy’s attention, doesn’t seem fazed.
“We walked in and were like, ‘What are we doing?’” he told me on a tour of the site this summer. “But we saw an opportunity here.”
I look at his plan, and what those in the know think of his chances, in the full story. I hope you’ll take some time to read the piece and appreciate Burtynsky’s images, which portray the immensity of the shipyard – and its potential.
Charted
The insolvency split
Canadian insolvencies have rebounded to prepandemic levels, but something fundamental has changed. Consumer proposals now account for almost four-fifths of filings, dwarfing bankruptcies. Hanif Bayat analyzed the shift.
Quoted
Diversification is harder than it looks when the same short list of counterparties sit behind the equity book, the debt book, and increasingly the infrastructure supporting both. Power, chips, cooling, land, leases and financing often route back to the same handful of economic actors.
— Christopher Sheldon and Tal Reback, KKR & Co. Inc. credit market experts
Issuing hundreds of billions of dollars worth of debt to build out AI infrastructure isn’t worrisome on its own, but investors must be aware of the interconnectedness between all of the companies raising money.
Up next
More files we’re following
Transaction: Rogers Communications Inc. completed its $4.35-billion acquisition of the final stake of Maple Leaf Sports & Entertainment and handed responsibility for its media division to MLSE CEO Keith Pelley.
Numbers: We’re expecting the release of Canadian auto sales data for September.
Morning update
Global markets were mixed as wild volatility in bond and currency markets eased ahead of key U.S. jobs data that could shape expectations for the Federal Reserve’s next policy move.
Wall Street futures were in positive territory, while TSX futures followed sentiment higher.
Overseas, the pan-European STOXX 600 was up 0.98 per cent in morning trading. Britain’s FTSE 100 edged down 0.05 per cent, Germany’s DAX advanced 0.97 per cent and France’s CAC 40 gained 0.65 per cent.
In Asia, Japan’s Nikkei closed 0.94 per cent lower, while Hong Kong’s Hang Seng fell 2.6 per cent.
The Canadian dollar traded at 70.22 U.S. cents.
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