Warship building in Australia costs 40% more than overseas

Building naval warships in Australia costs up to 40 percent more than overseas but could decrease with rolling production, an Australian government- commissioned study has found.

In a report to be released on Thursday, the United States-based military research think tank Rand Corporation described Australia' s efforts to build the 50 naval surface ships and submarines it needs in the next 20 years as "ambitious."

It said the economic benefits of domestic shipbuilding remained unclear, however up to 2,000 people could be employed in long-term positions if steady production was implemented.

The government asked Rand in September to review the country's shipbuilding capabilities, compare it to similar shipyards across the world and assess the costs and benefits of government investment in the industry.

The report concluded Australian production needs a "30 to 40 percent price premium over the cost of comparable production at shipyards overseas" but estimated "this premium could drop over time" with lower exchange rates and steady production.

One of the key reasons for the extra cost is the lack of a " continuous build strategy" where production gaps between separate projects occur.

The industry is already on the downward slope of the "valley of death" but it won't bottom out until 2019 when there are no projects and demand drops to zero from the 4,000 workers employed now.

The current timing of planned acquisitions of new vessels and equipment "is likely to produce short-term and long-term gaps in demand for shipyard production, facilities, services and workers," the report said.

"Because construction of the future frigate will not start until 2020 ... there is the potential that demand for workers could fall to zero, with reverberations that may last three to five years after future frigate production ramps up," the executive summary said.

"Without some way to lessen the gap between the end of the [air warfare destroyer] program and the start of the building of the future frigate, the industrial base will have to ramp up its workforce from an almost negligible level to 2,700 skilled personnel in approximately eight years."

The Australian government is currently considering whether to build its next fleet of submarines in Adelaide or overseas. Its defense white paper released later this year is expected to use the Rand report as key advice.