Shipyards specializing in cruise ships currently have the largest order books in history, with reasonable prices due to strong demand, but also with significantly higher costs. The supplier and subcontracting market, in particular, is currently overheated, and its price levels may be excessive. It's important to remember that shipowners are not obligated to place new orders, and as soon as they feel prices are too high, they can postpone or cancel new orders. Therefore, it is essential for current cruise ship builders to maintain competitive pricing.
Article from CruisesNews magazine no. 51 – December 2019
In Europe, many new shipyards entering this market are building small cruise ships (a booming segment); and the first contracts have already been signed with Chinese shipyards. Even the Chinese government indicates that entering the cruise ship construction business is a strategic objective for its shipyards.
This increase in cruise ship building capacity in China would disrupt the supply and demand balance and destroy the market not only for existing shipyards, which would suddenly have ample construction capacity and fewer orders, but also because there is a high probability that too many cruise ships would be built, saturating the market and causing a drastic drop in prices.
Until now, this limited shipbuilding capacity was also beneficial for shipowners because the cruise market grew at a maximum of 5-7% annually. Shipping companies could plan long-term without the threat of overcapacity. Furthermore, it prevented the entry of new players, other shipowners, into the cruise tourism market.
Another risk is government intervention. The new Chinese competitors have strong government backing, while among European shipyards, some are state-owned and others are 100% private, but in both cases, they are ineligible for direct subsidies.
MV Werften is Genting Hong Kong's exclusive private shipyard, which will build all of its new ships in the coming years.
A prime example of the cyclical nature of the market is expedition ships. There were virtually no orders for 20 years. But suddenly, a huge backlog has emerged, and many small cruise ships will enter the market in the coming years, perhaps causing at least temporary saturation.
Meyer Werft
Meyer is a German family-owned company that ranks second among cruise ship builders. It has two shipyards in Germany: the main one in Papenburg (which builds ships from 20,000 to 180,000 GT) and a smaller one in Warnemünde, which specializes in river cruise ships up to 15,000 GT, and sections of megacruise ships for the group's other shipyards.
In 2014, Meyer's market share grew significantly with the purchase of the Turku shipyard (also specializing in cruise ships) from the Finnish state, representing the largest acquisition in the sector in the last decade. At that time, nothing foreshadowed the explosion of the cruise ship construction market at the end of the decade. Meyer Werft simply opted to expand its traditional business and acquire facilities that allowed it to commission ships exceeding 200,000 GT, something unfeasible in Papenburg, and is now reaping the rewards of that gamble.
Meyer Werft is led by Bernard Meyer, representing the sixth generation of the Meyer family. The smooth transition to the next generation has already begun. His eldest son, Jan Meyer, heads the shipyard in Turku, while his second son, Tim Meyer, manages the one in Papenburg. The third son, Paul Meyer, is the CIO of all three shipyards and all companies within the Meyer Group. This family business has built 49 cruise ships in Germany since 1986 for almost all the major cruise lines: RCCL, Carnival, NCL, Disney, etc. Only MSC Cruises is not among its clients.
Since 2006, it has built two cruise ships per year in Papenburg, with some years seeing three ships delivered, such as 2012 and 2013, when it delivered vessels to Disney, Aida, and Celebrity. In 2019, it returned to that production pace, delivering ships to Royal Caribbean, NCL, and Saga Cruises.
This situation is reflected in its current order book, which includes 3,000 GT river cruise ships, 50,000 GT smaller vessels, and 180,000 GT or larger megaships. Meyer Werft currently has no expedition ship orders, having chosen not to enter that market. One of this shipyard's strengths is its expertise in LNG propulsion. It is the only one with two LNG-powered vessel references, which will undoubtedly be a common feature of cruise ships in the future… and has thirteen more in its order book, between Papenburg and Turku.
Cruise ship construction requires highly specialized skills. It needs a workforce from all sectors. This segment of shipbuilding requires multi-skilled personnel to conceive, design, build, and test such complex vessels.
The Turku shipyard has 47 ships in the current cruise fleet, with deliveries dating back to 1972 when it operated as Wärtsilä O/Y. Its long-standing clients include Royal Caribbean and Carnival, and its golden age was in 2000, 2002, and 2003, when its two shipyards (at that time it also built ships in Helsinki) delivered three cruise ships. The Lehman Brothers crisis hit this shipyard particularly hard, and after the delivery of the Allure of the Seas in 2010, it did not build another cruise ship until 2014, when it delivered the Mein Schiff 3. Only the intervention of the Finnish government prevented its bankruptcy.
Furthermore, Turku had experienced numerous ownership changes in the past, resulting in no investment in its facilities. Consequently, between 2014 and 2018, it was only able to build one medium-sized cruise ship per year, all identical to the TUI AG Mein Schiff 3 prototype. However, Meyer invested in Turku's production facilities, installing a new 1,200-ton capacity, 120-meter-high gantry crane in 2017, along with new sheet metal cutting workshops and new welding halls, incorporating twenty years of experience from Papenburg. This investment enabled Turku to increase its construction capacity from one medium-sized cruise ship (100,000 GT) to two per year in 2019: the Mein Schiff 2 and the Costa Smeralda. Meyer also had to adapt to the differences between the two shipyards: the most noticeable being that Papenburg has two covered dry docks, while Turku's single dry dock is open-air. The integration of subcontractors was also different.
However, both had a high degree of modularization, a strong emphasis on process efficiency, quality, and meeting delivery deadlines, not only at the end but also at the intermediate stages.
The Warnemünde shipyard, Neptun Werft, supplies cruise ship engine rooms to the Papenburg and Turku shipyards as complete floating sections, which are towed from the Baltic city. The Meyer Werft Group currently employs around 7,600 people, a number expected to grow to 8,500 by 2022. That year, Papenburg will be capable of delivering approximately 400,000 GT/year, while Turku will also reach that figure. Meyer Werft's order book consists exclusively of cruise ships, although in recent years it has delivered several ferries and LNG tankers. Given the cyclical nature of shipbuilding, and the slowdown in cruise ship construction following the Lehman Brothers crisis, Meyer believes the current pace of orders can be sustained for several years, given the current demand for cruises and their excellent value for money, thanks to the shipowners' highly efficient business model. A key difference compared to other shipbuilding markets is that capacity is limited. This ensures there won't be an oversupply of cruise ships in the coming years, unlike what happened in other sectors such as container ships or oil tankers a few years ago.
A shipyard is a fusion industry, which must work with specialists from all over the world, and will only have its own subsidiaries or joint ventures in a few dedicated areas.
The operational integration of the group's shipyards is another unstoppable process. The best-known example of this integration is the floating engine rooms being built at Neptun Werft in Warnemünde, Germany, for the nine Helios-class LNG-powered ships ordered by Carnival Corp: three for AIDA and two for P&O in Germany; and two for Costa and two for Carnival Cruise Line in Turku. All are designed on a common platform, the world's first fully LNG-powered platform, developed jointly by the design teams in Papenburg and Turku. All their engine rooms are being built at Neptun Werft. This integration process has worked very well and will continue in the future.
Fincantieri
is an Italian state-owned shipyard, 71.6% controlled by Fintecna, an Italian government-owned company. It has been listed on the Milan Stock Exchange since June 2014. Fincantieri's results in 2018 were excellent. To begin with, it achieved record revenue of €5.5 billion, a 9% increase over 2017. Its profit, or EBITDA, reached €414 million, a 21% increase over 2017, with a margin of 7.6% (6.8% in 2017). The order backlog for that year reached €8.6 billion, totaling 27 vessels, 14 of which were cruise ships for eight different clients. The order for two ships for TUI was particularly significant, as it marked the first time the Royal Caribbean group had commissioned a vessel from Fincantieri.
Fincantieri's global order book also reached a record high, totaling 116 vessels of all types, with a total value of €33.8 billion, representing a 29% increase, including options. In 2018, Fincantieri delivered 35 vessels of all types, built at 15 different shipyards. In the first nine months of 2019, Fincantieri's revenue grew by 10% (€4.25 billion, €2.6 billion of which came from cruise ship construction), and EBITDA was 2% higher (€287 million). The Italian shipbuilding giant employs 19,274 people, according to its latest annual report, 45% of whom are based in Italy and 38% in the rest of Europe.
Cruise ships built by Fincantieri currently make up around 25% of the existing cruise fleet, with 88 active models. However, their Achilles' heel is their dependence on orders from the Carnival group: from 2000 to 2010, they built a total of 37 cruise ships, 34 for the North American cruise giant, and only three for other shipowners: the relatively small Fram, Le Boreal, and Silver Spirit. Fincantieri and Vard have built 96 cruise ships since 1990, 69 of them for Carnival Corp., with a total cost exceeding €32 billion.
The company resulting from the Fincantieri/Chantiers del'Atlantique merger will have more than 50% of the cruise ship order book.
The crisis at the beginning of this decade led to a reduction in deliveries to just two cruise ships in 2013 and 2014, and three in 2015. However, the company has recovered its pace, delivering five ships between 2016 and 2018, and four in 2019. Its order book includes 37 cruise ships of all types, representing 3,794,338 GT and 88,318 berths. Fincantieri holds approximately 38% of the global order book.
Its supremacy in cruise ship construction is based on having several production centers: Monfalcone and Marguera for large ships; Genoa for medium-sized ships; and Ancona for small ships. Castellammare di Stavia and some Croatian shipyards build modules for these factories.
The Monfalcone shipyard, near Trieste, was founded in 1908. It was the birthplace of legendary vessels, such as Pullmantur's Oceanic and the Eugenio C. Fincantieri, which has invested heavily in its facilities. In 2008, during its centenary celebrations, Fincantieri began a restructuring and modernization program, which doubled the capacity of the prefabrication hall in just eight months and included the installation of two 1,000-ton capacity gantry cranes. It builds ships up to 170,000 GT and has delivered 39 cruise ships to date.
On October 29, Fincantieri delivered the Carnival Panorama in Marghera, with Italian Minister of Infrastructure and Transport Paola De Micheli in attendance. It was the 29th cruise ship delivered by Marghera since 1991, representing a significant economic impact. Between 2016 and 2019 alone, Fincantieri purchased approximately €9.4 billion worth of equipment and services in Italy, of which €1.3 billion (14%) went to the Veneto region. In 2020, Pemamek will deliver a hybrid laser system for thin plates, which will improve the shipyard's productivity, as part of a €150 million modernization plan extending to 2023.
Chantiers de l'Atlantique/Fincantieri merger. The European Commission is concerned that the deal could reduce competition in the global cruise ship construction market.
Ancona began building cruise ships in 2009. In ten years, it has delivered ten ships of up to 50,000 GT. And as a sign of its success, it has signed contracts for another ten that it will build in just five years, until 2025, all for shipowners in the "upper premium" sector, such as Viking Cruises, and luxury, such as Regent and Silversea.
The Sestri shipyard (Genoa) was a leading shipbuilding company for many decades as Ansaldo. Ships like the Rex and the Michelangelo were built there until its integration into Fincantieri in 1993. Between 2003 and 2018, it delivered only ten cruise ships. Its problem is that it's too large for a 50,000 GT premium vessel and too small for a megaship. The Virgin Cruises order for a 110,000 GT vessel (the maximum size it can build) has revived its operations. Its future depends on a new 400-meter dry dock project, scheduled for completion in 2024. Once finished, Sestri Ponente will be able to build ships of up to 170,000 tons, thus securing its future.
Fincantieri's International Expansion – Vard Acquisition:
Fincantieri purchased three shipyards located on the Great Lakes in the late 1990s to build warships for the U.S. Navy. It has no involvement in cruise ship construction.
In 2013, Fincantieri acquired a 50.75% stake in the Norwegian shipbuilding company Vard, a leader in the offshore market listed on the Singapore Stock Exchange, with the aim of diversifying its activities in that sector. The drop in oil prices led to the collapse of Vard's business, from which it has only been able to recover by reinventing itself as a world leader in exploration cruise vessels. In 2018, after a lengthy takeover bid, Fincantieri completed the acquisition of 100% of Vard, which was delisted and fully integrated into the Fincantieri group, seeking synergies and improved coordination.
Vard builds cruise ships under 20,000 GT in its European shipyards (hull in Romania and armament in Norway), and ships under 5,000 GT in Vietnam. In 2018, it delivered two cruise ships, and in 2019 this number reached five, all belonging to the booming expedition cruise segment.
Its main client is the French holding company Artemis, owner of Ponant and Paul Gauguin Cruises, which recently ordered two ships for the latter brand.
During the presentation of its third-quarter results on November 9, Fincantieri reported lackluster results for Vard, causing its share price to fall by 5.6% on the Milan Stock Exchange. Vard continues to suffer from the crisis in the offshore sector (where revenue fell from €475 million to €392 million in the first nine months of 2019, while EBITDA went from a loss of €4 million to a loss of €75 million), and from the costs of entering the cruise ship construction sector. Vard will close two shipyards (Aukra and Brevik) in Norway and focus on strengthening its Tulcea shipyard in Romania for the cruise market.
Fincantieri-Chantiers de l'Atlantique Merger
But Fincantieri's flagship acquisition was STX France, the name of the Saint-Nazaire shipyards when the takeover process began in 2017, or Chantiers de l'Atlantique, as they are known today. Fincantieri has been trying to gain control of these French shipyards since 2017, following the bankruptcy of the South Korean group STX Offshore & Shipbuilding.
In 2018, Italy and France agreed that Fincantieri would control 50% of the shipyard, with the remaining shares held by the French defense group Naval Group and local companies. Following the closing of the transaction, an additional 1% of the shares would be "transferred" to Fincantieri. However, the deal stalled after France and Germany requested that the European Commission (EC) examine it. On January 8, 2019, the Commission accepted this request. And on October 30, the European Commission (EC) announced the opening of an investigation into the transaction.
Chantiers de l'Atlantique had a turnover of 1.6 billion euros in 2018, three times that of 2014, and double that of 2011 & 2012. For the first time, it exceeded 3,000 workers.
“Cruise demand is booming worldwide. Chantiers de l'Atlantique and Fincantieri are two global leaders in this sector. Therefore, we will carefully analyze whether the proposed transaction would negatively affect competition in cruise ship construction, to the detriment of millions of Europeans who spend their holidays on cruises every year,” stated European Commissioner for Competition, Margrethe Vestager.
The European Commission warned today that the acquisition could eliminate Chantiers “as a significant competitive force in an already concentrated and capacity-constrained market” like the cruise ship industry. Brussels said it had identified “significant barriers to entry” in the market related to the complexity of cruise ship construction, citing infrastructure requirements and the engineering and design skills needed. Preliminarily, Brussels indicated that it is “unlikely” another company will fill Chantiers' position, which would “significantly” reduce competition and could lead to higher prices, less supply, and little incentive to innovate in cruise ship construction.
The Commission has also preliminarily determined that major customers would not have “sufficient purchasing power to offset any risk of price increases” resulting from the transaction. Brussels indicated that Chantiers de l'Atlantique and Fincantieri (which together hold more than 50% of the cruise ship order book) have decided not to submit commitments during the initial investigation, and the Commission now has until March 17, 2020, to make a decision.
The figures are stark: Meyer and Fincantieri, along with Chantiers de l'Atlantique, would account for more than 90% of the current order book. What could this duopoly mean for the future? It seems other shipyards may enter the fray, both European, like MV Werften in Germany, and Asian, such as Chinese companies. Furthermore, in recent months, the two main shipyards in Korea, China, and Japan, respectively, have merged in a seemingly unstoppable consolidation process within the shipbuilding industry, making a European Commission veto of Fincantieri's acquisition unlikely. With this acquisition, the Italian giant could build vessels exceeding 200,000 GT, beyond the capabilities of all its current shipyards, and gain experience in LNG propulsion, another of its weaknesses.
Shipyards are veritable holding companies with numerous subsidiaries, either wholly owned or partly owned by the parent company, and dedicated to specialized operations such as ship design, cabin manufacturing, air conditioning systems, interior armament, turnkey piping system production, painting, etc.
Finally, this operation is not the only one between Fincantieri and its French counterparts. A negative decision on this merger would jeopardize the industrial alliance signed between the two countries in October 2018, with the creation of a 50/50 joint venture between Fincantieri and the French Naval Group, called NAVARIS, to build warships. Fincantieri is the largest shipyard in Europe, and the bulk of its capital is held by Fintecna, which in turn is controlled by the Italian state. Naval Group (formerly DCNS) is France's semi-public shipbuilder. Specifically, 64% belongs to the French state and 35% to the French firm Thales, with the remaining 1% held by various other actors. What logic would it have for the European Commission to allow an Italian-French giant in defense, and veto a similar operation in cruise ship construction? The political impact of the Commission's decision is enormous.
Chantiers de l'Atlantique
is a French state-owned shipyard that currently employs around 3,000 people and had an annual turnover of approximately 1.65 billion euros in 2018. Its business plan aims to reach a turnover of 2 billion euros by 2022, with a workforce of 3,200-3,300 employees at that time.
Its origins date back to the late 19th century, and legendary ships such as the Normandie and the France have been built in its slipways and docks. It is one of the most prolific cruise ship shipyards, to the point that fifty-one ships in the current fleet have been built in its slipways since 1984.
Chantiers de l'Atlantique is due to deliver ten cruise ships in the next five years, including four vessels of more than 200,000 GT.
It only builds ships in Saint-Nazaire, where it has a one-kilometer-long construction dock (form A&B), one of the world's largest dry docks (form C), a Panamax dock (form Joubert) and the Penhoet armament zone.
Its activity in the 21st century has been highly contradictory. To begin with, it only builds ships for two clients: MSC Cruises and Royal Caribbean. For example, from 2004 to 2010, it built ships exclusively for MSC Cruises, with the sole exception of the Norwegian Epic. It was one of the shipyards hardest hit by the Lehman Brothers crisis: from 2011 to 2015, in five years, it delivered only three ships: the MSC Divina, the MSC Preziosa, and the Europa 2. It only managed to survive thanks to an order for two helicopter carriers for the Russian Navy, which, after the invasion of Crimea, ended up in Egyptian hands.
A partial recovery began in 2016 and 2017, with the delivery of one cruise ship (Harmony of the Seas and MSC Meraviglia) each year. These were also the seeds for the harvest that began in 2018, with two cruise ships delivered each year in 2018 and 2019, both for MSC Cruises and Royal Caribbean.
Over the next five years, it expects to see its turnover and profits grow. Saint-Nazaire is scheduled to deliver ten ships during this period (2020 to 2024), aiming to double its net profit to €50 million by 2022, with a turnover reaching €2 billion.
The intense activity at Chantiers de l'Atlantique in Saint-Nazaire is reflected in its annual figures. France's leading shipyard achieved a turnover of over €1.6 billion in 2018, compared to €1.48 billion the previous year. In 2014, activity amounted to only €557 million. Thanks to a healthy order book, the company saw a significant jump in net profit in 2018, reaching €25 million, compared to €3.8 million in 2017 and just €1 million in 2014. The French shipyard secured orders under challenging economic conditions, including those for the first "Oasis" class vessel for RCCL and the "MSC Meraviglia." However, the long production runs following these prototypes allow for process optimization and increased margins.
These positive results are also due to management improvement plans and investments: for example, a new gantry crane, the largest in Europe, capable of lifting 1,400 tons, was installed in 2014 at a cost of €30 million. In 2018, the 135-meter extension of the pre-assembly area on Form A was inaugurated, and a second, even taller gantry crane, with a capacity of only 1,050 tons, will be installed in 2022. Furthermore, the shipyard receives ship sections built at other shipyards, primarily in Poland. There have been rumors that Navantia might begin collaborating with Chantiers de l'Atlantique to build cruise ship sections in Puerto Real.
Around 900 different companies are involved in the construction of a medium-sized cruise ship.
However, profits remain meager compared to revenue. The established goal is to double net income to €50 million by 2022, with revenue then projected to reach €2 billion. Over the past six years, the company has recruited 1,200 people, representing a net increase of 600 jobs after retirements and departures. The rate of 150 new hires per year is expected to be maintained in the coming years, strengthening the workforce in departments such as locksmiths, welders, and pipefitters. The company recently opened a training school in Saint-Nazaire, which will train 50 new interns annually.
The French shipyard's first available slot would be 2025, a year already partially filled with a "World Class" ship for MSC Cruises, as is 2026, maintaining the pace of two cruise ships delivered each year. In addition to twelve cruise ships, Chantiers de L'Atlantique's order book includes four logistics support vessels for the French Navy (built in partnership with Fincantieri), to be delivered between 2022 and 2029, as well as the construction of substations for wind farms off the French coast: three of these large offshore transformers have already been manufactured for export at the Breton shipyard.
Given this situation, shipowners, especially those focused on large vessels exceeding 200,000 GT, need to act quickly to reserve these available slots at this and other shipyards to expand their fleets. The Saint-Nazaire-based shipyard expects to further increase its order book with new vessels for its existing customers.
Creation of MV Werften by Genting Hong Kong
After exiting its stake in NCL Holdings, Genting Hong Kong bought Crystal Cruises in 2015, and created Dream Cruises in 2016. Both brands needed to grow, but the slots at the shipyards that worked with Genting HK, especially Meyer Werft, were full and the Malaysian shipowner did not want to wait five years to increase its offering.
It adopted a radical solution: to buy an existing shipyard where it could build its fleet plan. Thus, on July 7, 2016, Genting Hong Kong announced that it was merging the three shipyards in Wismar, Rostock, and Stralsund that it had purchased in Mecklenburg-Vorpommern (a state in the former East Germany) in April of that year, and creating its own shipyard, MV Werften, based in Wismar, dedicated to building the cruise ships its owner needed. It had also bought Lloyd Werft in Bremerhaven in September 2015, but decided to keep it as a repair shipyard. Two of the three MV Werften shipyards had experience, albeit distant, in building cruise ships: Volkswerft GmbH had delivered three ships to Hurtigruten in 1993 and 1994; and MTW Schiffwerft, in Wismar, had delivered three cruise ships at the beginning of the 21st century, including two to Aida, Aida Aura and AidaVita.
Following the fall of the Berlin Wall, East Germany's shipyards underwent radical modernization. MV Werften, for example, had virtually new, fully enclosed construction docks, block shops, and paint shops, valued at over €2.5 billion, enabling it to produce cruise ships protected from the elements. Furthermore, Genting HK invested over €100 million in a laser welding line, a factory for prefabricating cabins, a new section of its covered block shop, and upgraded production control systems. It also hired a new management team, headed by Jarmo Laakso as managing director. At the time, the shipyard employed only 1,400 workers. Plans to expand the workforce began immediately with two campaigns: "250 new colleagues in six months" and "90 vocational apprentices by September 1, 2017.".
Having no prior experience in the cruise industry, MV Werften's industrial plan was very cautious. It first delivered four river cruise ships to Crystal River Cruises in 2017 and 2018. That year was supposed to see the arrival of the 20,000-GT polar cruise ship Crystal Endeavour, the first in a series of three. However, that ship, whose keel was laid on August 21, 2018, in Stralsund with Angela Merkel as master of ceremonies, will now be delivered in 2020.
The main risk for European cruise ship shipyards is the entry into the market of Chinese factories with dumping practices.
And in 2020, the first "Global Class" vessel, at 203,000 GT, will arrive. The construction of this megaship required the building of a 385-meter-long, 99-meter-wide, and 24-meter-high facility in Rostock, housing a semi-automated panel construction line with hybrid laser technology, one of the most advanced in the world, capable of erecting panels up to 25 x 16 meters. This facility, which cost 80 million euros, employs more than 200 people and also houses a block production line and an armament line. After its delivery in the summer of 2018, it was used to construct 80 blocks for the Global Dream. All this work culminated on November 22, 2019, with the transfer of a 216-meter-long mega-section of the Global Dream from Rostock-Warnemünde to Wismar. When it entered Wismar's covered dry dock a day later, it broke a drought of more than sixteen years without a cruise ship being built at that facility. It currently employs 2,400 people.
At full capacity, MV Werften will be able to build two 200,000 GT neo-Panamax cruise ships and one Panamax ship annually. Its workforce will then number 3,100 employees.
New Players in Cruise Ship Construction
While there have been no new entrants in the construction of large cruise ships recently, with the exception of MV Werften, new players have entered the niche of smaller cruise ships. In addition to Vard, several companies have sought to enter this market, taking advantage of the boom in expedition vessels and superyachts.
But while megaships are churned out of large shipyards, small vessels are built in smaller shipyards, with no experience in the sector, and delays are the norm.
Scenic Luxury Tours & Cruises, Hapag-Lloyd Cruises and Hurtigruten have also experienced delays in the delivery of their ships in the last two years.
The most recent example is the Evrima, the first ship in the Ritz-Carlton Yacht Collection, being built at the Hijos de J. Barreras shipyard in Vigo. Instead of setting sail this December, it now appears it will be delivered in June 2020, while the shipyard grapples with the possibility of bankruptcy, insolvency proceedings, or a takeover by Ritz-Carlton solely to complete the vessel.
Another shipowner building a cruise ship is Sea Cloud Cruises. The sailing vessel Sea Cloud Spirit is being built at Metalships & Docks, also in Vigo. Work on this project began in 2008 at the Marín Naval Shipyard, which went bankrupt during the economic crisis. After several years afloat unfinished, it was towed to Vigo, where it is scheduled to be completed by next summer.
The delivery of the Scenic Eclipse was delayed several times until it was finally delivered in September 2019 by Uljanik Shipyard in Croatia, due to multiple reasons including strikes, financial scandals, management layoffs, and frozen funds. Its delivery could only be unblocked last February when the ship's owner, Glen Moroney, invested in reviving the shipyard, along with other Croatian investors and Fincantieri. The order for a sister ship facilitated the operation. A very similar case to that of Barreras. Another Croatian shipyard, BrodoSplit, exhausted the patience of Star Clippers, which refused to take delivery of the Flying Clipper this summer after two years of delays.
Hurtigruten also had to acquire the Norwegian shipyard Kleven to complete the Roald Amundsen. Delivery was more than a year late. Even Vard, Fincantieri's subsidiary, delivered the Hanseatic Nature to Hapag-Lloyd late, leading to the cancellation of several cruises.
Damen Shipyards, another shipyard with extensive experience in the naval repair sector and a world leader in tugboat construction, had secured an order from SeaDream Cruises to build its SeaDream Innovation at its Romanian shipyard. However, this order was cancelled in early December—perhaps because there were only 18 months left until delivery and the steel cutting hadn't even begun?
But that's the fate of small ship owners: relying on inexperienced shipyards, because otherwise they have to wait five years for an available slot at an experienced shipyard. Generally, small shipyards are unaware of the complexity of building a cruise ship. Obtaining a prototype fully approved by the flag state maritime authority and the classification society takes much longer than expected, because numerous stability calculations must be performed in the event of flooding or a collision. And every time you make adjustments to one of these calculations, it affects the others and also the ship's functionality. Weight is often a common obstacle. Furthermore, small ships are usually prototypes, rather than series of vessels. Carnival, MSC, or Royal Caribbean always build series of ships; they will order five, six… even eight sister ships of the same class. Once the calculations are approved and the design accepted, it's much easier to plan for the future.
Another challenge for new shipyards is attracting workers with experience in cruise ship construction. If you're a new shipyard undertaking a project on a scale larger than any you've done before, you'll likely need many trades and professions you're not used to managing; these people work much more effectively and efficiently in a shipyard that only builds cruise ships.
All the trades related to interior finishes are critical. They come into play in the final phase of the project. And if the owner discovers that the quality isn't what they expected, the shipyard doesn't have much time to correct it.
Asian Shipyards: The Latent Threat.
The entry of Asian shipyards into cruise ship construction has been a common thread over the last twenty years. However, Korean shipyards never ventured into this segment. And their Japanese counterparts, after several failed attempts, seem to have lost interest in this market. Mitsubishi, for example, built eight cruise ships between 1990 and 2017, but after the disastrous results in the construction of the sister ships AidaPrima and AidaPerla, with years of delays in their delivery, it decided to withdraw from that market.
But China is a real threat. In Japan and South Korea, attempts to enter the cruise ship construction market were led by private shipyards that, after a proper risk analysis, either decided not to enter this segment, or withdrew when they started building cruise ships and lost money.
In China, institutional support is so strong that they don't need to make money for decades by building cruise ships.
However, in China today, it is the government itself that has a long-term strategy for entering this market, and the shipyards that implement this policy are controlled by that same government. Therefore, in China, the situation is completely different, since institutional support is so strong that these shipyards don't need to make money for decades by building cruise ships. They only have to reach the strategic objective with the full support of the government, but without achieving the results expected of a company operating in a free market, without subsidies. In this context, Fincantieri's collaboration with China Shipbuilding Corp. is certainly inexplicable.
How do European shipyards defend themselves? They are all extremely customer-oriented, with a focus on long-term business relationships, coupled with a strong commitment to innovation to consistently offer the best and most efficient solutions for shipowners. Ultimately, innovation, along with high quality and exceptional on-time delivery reliability, will be key success factors. Furthermore, European shipyards have expensive but highly efficient, motivated, and innovative workforces, and this should be the backbone of their future success.
The two main Korean shipyards, Daewoo and Hyundai, and the two largest shipyards in China, China State Shipbuilding Corp. (CCSC) and China Shipbuilding Ind. (CSIC), will complete their respective merger processes in the coming months.
Large mega-cruise ships are being built in Europe in shipyards dedicated solely to this type of vessel, offering virtually no other product. These ships require highly specialized infrastructure and a highly skilled workforce. Therefore, it is quite logical that a shipyard successful in this market would not only specialize its entire organization but also all its subcontractors and partners around this type of ship. Furthermore, due to the long delivery times and the extended orders placed by cruise lines, it is quite difficult to have other products in the same shipyard's portfolio, sharing available slots.
