Before the pandemic, shipyards specializing in cruise ships had the largest order book in their history, driven by strong demand, but already burdened by increasingly higher costs from suppliers, subcontractors, etc.
Article from CruisesNews magazine no. 61 – June 2022
By Arturo Paniagua
However, the landscape has changed. Shipyards are facing project delays, postponed deliveries, and a crippling five-year drop in new orders as the cruise industry attempts a slow recovery from the coronavirus crisis. At the end of 2019, shipyards were operating at full capacity, with backlogs of cruise ship orders, which they even expected to increase if shipowners exercised the options included in the contracts.
Shipyards were bidding for the next generation of cruise ships with ever-increasing passenger capacities, exemplary environmental facilities, large and powerful main engines, and increasingly varied and sophisticated leisure activities, on ships that should be delivered no earlier than 2025.
But the coronavirus pandemic particularly affected the cruise industry, which went into freefall, with its fleets moored and shipowners facing the worst crisis in their history, seeking liquidity to survive.
Shipowners have had to make difficult decisions: some have scrapped their oldest vessels, which have ended up in the scrapyard. The Costa Victoria, the Costa NeoRomantica, the Sovereign, and the Monarch, among others, followed this path.
Other shipowners sold their vessels at low prices, resulting in record sales, with eighteen cruise ships sold in 2020, compared to nine in 2019. Holland America, part of the Carnival group, sold its four smallest ships, P&O sold the Oceana, RCI sold the Majesty of the Seas and Empress of the Seas, etc.
VesselsValue calculated that the total value of the global cruise fleet fell, in the first year of the pandemic, from $170 billion to $130 billion, a decrease of $40 billion.
It's important to remember that shipowners are not obligated to place new orders, and if they do, it's due to confidence in the product, the market, and the economic situation. In a context where their own leverage and rising raw material prices are not exactly favorable factors, it can lead to high construction costs for cruise ships, which can delay or even cancel new orders. Therefore, it is essential for current cruise ship builders to remain competitive.
The shipbuilding market remains an oligopoly dominated by European shipyards, with Asian builders making only a marginal contribution. Only China State SB Corp. has ventured into cruise ship construction, as a series of six expedition vessels for Sun Stone, the seventh of which was canceled due to losses incurred on each delivery. Its subsidiary, Shanghai Waigao Shipbuilding, with assistance from Fincantieri, is the only Asian shipbuilder to have undertaken the construction of cruise ships exceeding 100,000 GT: two sister ships of the Costa Diadema for Carnival Corp., ordered in 2016 but not yet delivered.
Plummeting New Cruise Ship Orders:
The first months of the pandemic brought cruise ship construction to a near standstill. Then, in the summer of 2020, shipyards continued working at a slow pace on existing orders, most of which were delivered in 2021, while the start of construction on subsequent ships was delayed. Work continued on ordering and planning all subcontractor deliveries—engines, thrusters, systems integration, auxiliary equipment, etc.—in order to begin construction of these new ships.
The shipyards focused on their existing order book and put aside their commercial activity of seeking new orders, both from existing and new customers.
Shipyards do not expect new contracts for new series of cruise ships until 2025, when they will be virtually out of work; and the build options included in existing contracts will not become firm orders.
However, there have been no major cancellations, apart from the last vessel in Sun Stone's X-Bow series in China, but the options to build new vessels included in existing contracts have not materialized. This will have a considerable impact on the financial health of the shipyards, which had made significant investments in facilities, when the current order book is depleted, particularly in Europe.
According to broker BRL Shipping Consultants, at the end of 2020 there were 135 cruise ship construction contracts, 24 of which had been signed in the first quarter of 2020, just before the Covid-19 crisis exploded.
It should be noted that only 19 cruise ship construction contracts were signed in all of 2019, and 32 in 2018. In other words, the pandemic cut short a trend in 2020 that could have been historic in terms of new cruise ship contracts.
It also implies a certain stability in the pace of construction of new cruise ships, mainly due to the existing oligopoly.
Before the pandemic, the order book had remained stable over the previous three years, but it will obviously decrease as ships are delivered to owners, in the absence of new orders. Interestingly, in 2021, with part of the fleet idled, 25 cruise ships were delivered—a very high number, exceeding both 2019 (24, but without the pandemic) and 2020 (17, with shipyards and cruise lines paralyzed for several months). This figure of 25 ships increased due to delays in the delivery of vessels that were due in 2020, such as the Costa Toscana.
For 2022, the projected number of ships to be delivered is 21, increased by the delays of ships that should have been delivered in 2021, such as the Disney Wish, but decreased by other ships whose delivery has been postponed to later years, such as Cunard's Queen Anne. Some of the ships delivered this year will be placed in a warm lay-up position, such as the Resilient Lady. In 2023, the figure remains at 22 ships delivered by the shipyards, assuming that the Global-Class ship, which is almost finished at MV Werften, is completed that year for its new owners.
In 2024, there will be a drastic reduction in cruise ship production, with only 13 new vessels being launched that year. In 2025, this figure drops to 10, practically half the deliveries of each of the first three years of this decade. In 2026, only four ships from the current order book will be delivered, and in 2027, just two. The need for new orders is urgent.
Large series of ships:
Shipyards build ships in large series to save on design and development costs. Winning the contract for the first ship in a series is crucial, as it generates work for years to come.
For example, Fincantieri has built six sister ships to the Royal Princess, the first in the series, which was delivered in 2013. The sixth sister ship, the Discovery Princess, was delivered in 2020. The fifth ship in the series, the Enchanted Princess, was the 100th cruise ship built by Fincantieri in the last 30 years and the first delivered in 2020 after the pandemic. This 145,000 GT series can accommodate up to 4,610 passengers in 1,830 cabins. In other words, a single prototype has provided work for a single shipyard for more than seven years.
The new Princess Cruises series will be larger, at 175,000 GT and capable of carrying 5,300 passengers. To date, only two ships have been ordered, which will be the first in the Princess fleet capable of using LNG. These ships will be delivered in 2023 and 2025.
On June 15, 2015, Carnival Corp. announced a contract to build four 180,000-GT Helios-class ships with Meyer Werft shipyards in Turku and Papenburg for the Costa group (two for Aida and two for Costa). These were the first LNG-powered ships for the Costa group, with a unit cost of $1 billion. On September 8, 2016, Carnival expanded the contract to include four additional ships: two for Carnival Cruise Lines, to be built in Turku, and two for P&O, to be built in Papenburg. On February 27, 2018, Carnival ordered a third ship of the same class for Aida, which will ultimately be delivered to Carnival Cruise Line. The last of these nine ships, the Jubilee, destined for Carnival Cruise Line, will be delivered in 2023. The 2015 contract has thus provided work for Meyer Werft for eight years at two shipyards.
Meyer Werft
is a German family-owned company that ranks second among cruise ship builders. It has two shipyards in Germany: its main shipyard in Papenburg (which builds vessels 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 mega-cruise 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 government. Meyer Werft simply invested in facilities that allowed it to order vessels exceeding 200,000 GT.
Meyer Werft currently has the shortest order book of any shipyard. It is currently building two series: the LNG Helios ships for the Carnival group, the last of which will be delivered in 2023; and the Disney Wish trio for Disney, the last of which will be delivered in 2025. This means that a shipyard accustomed to delivering two mega cruise ships a year, along with one medium-sized ship, will now deliver one mega ship and one medium-sized ship starting in 2023, which will obviously have a negative impact on the shipyard's revenue.
This family-owned company has built 60 cruise ships in Germany since 1986, including its order book. Its clients include all the major cruise lines: RCCL, Carnival, NCL, Disney, etc., except MSC Cruises.
In 2019, it delivered three ships to Royal Caribbean, NCL, and Saga Cruises. In 2020, 2021, and 2022, the shipyard reduced its production to two ships. From 2023 to 2025, Meyer Werft will also deliver two ships, one large and one medium-sized. The shipyard has no orders after 2026.
The effects of the coronavirus crisis on the cruise market have caused substantial losses for Meyer Werft in Papenburg in 2020, estimated at around €70 million. This figure contrasts sharply with the €17 million profit in 2019. In 2018, profits reached €51 million. Although Meyer Werft does not publish its results for 2021 as it is not publicly traded, rumors have circulated that losses have exceeded €100 million.
The Meyer Group's other shipyard is Meyer Turku. In 2021, the shipyard posted revenues of €1.08 billion, virtually the same as the previous year, but with losses of €17 million. CEO Tim Meyer commented that “the period of exceptional measures lasted much longer than expected. The effects of the pandemic, such as restricting the movement of people and materials, significantly impacted our operations. However, despite these challenges, we were able to maintain our production and processes. In the spring of 2021, we launched a transformation program in Turku and Papenburg to increase our efficiency and ensure a reasonable level of profitability. Our customers are seeing growth in the market after the pandemic, and our shipyard has an order book extending to 2026. Our focus will increasingly be on sustainable shipbuilding.”.
In December 2021, Meyer Turku delivered the Costa Toscana to Costa Cruises. At the end of 2022, another ship for Carnival Corp., the Celebration, will be delivered to Carnival Cruise Lines, followed by the Icon of the Seas prototype in 2023 for Royal Caribbean, and TUI's Mein Schiff 7 in 2024. The average tonnage of the ships in its order book is nearly 180,000 GT, even higher than that of Chantiers de l'Atlantique. Winning the construction of Royal Caribbean's Icon series has made it the leader in mega-cruise shipbuilding.
Meyer Turku's subsidiaries are Piikkiö Works Oy, a cabin factory located in Piikkiö; Shipbuilding Completion Oy, which offers complete deliveries of public spaces; and ENG'nD Oy, an engineering firm specializing in ship and offshore artifact projects based in Rauma.
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. Over the past 20 years, Fincantieri has undergone a profound transformation. In 2002, it operated solely in Italy, focusing on two markets: cruise ships, but only for one client (Carnival Corp.); and defense, building warships for the Italian Navy. In response to globalization, Fincantieri pursued a growth and diversification strategy, mitigating the impact of the cyclical nature of the cruise market and digitalization, while enhancing planning, flexibility, and responsiveness in an unpredictable world of rapid technological development.
2021 was a year of gradual recovery for Fincantieri compared to 2020, amidst the effects of the pandemic and the logistical crisis, achieving results that exceeded even the most optimistic expectations. Revenue reached €6.662 billion, representing a 28.3% increase over 2020. This growth was primarily driven by the shipbuilding division, which delivered a record 19 vessels (eight cruise ships including Vard deliveries, seven warships, and four other types).
In total, more than 16.4 million work hours were completed, a figure that compares favorably with the 15.6 million hours worked before the pandemic in 2019. EBITDA rose to €495 million (up 7.4%), the best ever achieved, thanks to increased production and efficiency, which even offset the rise in raw material prices. Furthermore, in 2021, Fincantieri secured new orders valued at €3.343 billion, although none of these were for cruise ships.
In 2021, Fincantieri delivered the Viking Venus, Valiant Lady, MSC Seashore, Rotterdam, and Silver Dawn. Its subsidiary Vard delivered the Hanseatic Spirit, Commandant Charcot, and Viking Octantis. In 2022, six ships will be delivered: Discovery Princess, delivered in January in Monfalcone, Viking Mars and Viking Neptune, Resilient Lady, Norwegian Prima, and MSC Seascape. Meanwhile, its subsidiary Vard has no cruise ship orders after delivering the expedition ship Viking Polaris.
Between 2022 and 2027, Fincantieri has an order book of 27 ships, the largest in the market. Its average size is 105,600 GT, significantly smaller than that of Chantiers de l'Atlantique and Meyer Werft, indicating its tremendous penetration across all segments, from small luxury vessels to ships of nearly 175,000 GT.
The cruise ships currently in service and those on order represent more than 25% of the current cruise fleet, with 118 active vessels. Furthermore, Fincantieri has reduced its dependence on Carnival, so that of the 27 ships on order, only four are destined for Carnival, nine for NCL Holdings, five for the MSC Group, five for Viking Ocean, two for Virgin, and two for the TUI Group.
Its supremacy in cruise ship construction is based on having several production centers: Monfalcone and Marguera (Venice) for large ships; Genoa for medium-sized ships; and Ancona for small ships. Castellammare di Stavia, Palermo, and some Croatian shipyards build modules for these factories.
Fincantieri is involved in several R&D projects. One of these is GreenCruise (running from 2019 to 2022), which focuses on developing tools, processes, and methods to improve the sustainability of its cruise ships. The project aims to develop technologies, designs, and production processes, as well as create verification and testing protocols for various solutions that can result in safer, more efficient, and environmentally friendly cruise ships.
The GREENSHIP project, running from 2019 to 2022, aims to create a zero-emission vessel. It is an e-learning project for training a new onboard role: the “Emissions Manager,” in response to new IMO requirements.
Vard. No expedition vessels to build.
In 2013, Fincantieri acquired 50.75% of the Norwegian shipbuilding company Vard. In 2018, after a lengthy takeover bid, Fincantieri completed the acquisition of 100% of Vard and integrated it 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. However, it currently has no cruise ships in its order book, following the delivery of the LNG-powered icebreaker cruise ship Le Commandant Charcot to Ponant, and the Viking Polaris to VikingOcean, both expected in the coming months.
Its main client is the French holding company Artemis, owner of Ponant and Paul Gauguin Cruises, which did not make firm the option to build two ships for the latter brand, in one of the few cancellations that have occurred in recent months.
Chantiers de l'Atlantique
is a French public shipyard that currently has a workforce of around 3,000 people and an annual turnover of approximately 1.65 billion euros in 2018. After the pandemic, it has grown to have a workforce of 3,500 employees and a turnover of 3.1 billion euros in 2021.
It only builds ships in Saint-Mazare, a gigantic shipbuilding complex 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.
It is not expected that pre-pandemic levels of cruise ship orders will recover until the end of 2024, or even 2025.
Since 2016, it has become the leading shipyard for the construction of large vessels, always for two shipping lines: MSC Cruises and Royal Caribbean. In 2020, at the height of the pandemic, it was able to deliver two large ships, the MSC Virtuosa and the Celebrity Apex. A year later, it only delivered the Oceans of the Seas, although this ship officially transferred to Royal Caribbean International in 2022. And in 2022, the MSC World Europa, the first ship of a new class of vessels for MSC Cruises, and the Celebrity Bayon will be delivered.
This resilience in the face of the pandemic and the supply crisis is also the result of 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. In 2022, the second gantry crane, even taller but with a capacity of 1,050 tons, was completed.
Between 2020 and 2027, Chantiers de l'Atlantique is scheduled to deliver 12 ships, averaging 163,000 GT, further solidifying its leadership in mega-ships. However, the French shipyard had available slots starting in 2024-2025. This allowed them to secure one of the few new cruise ship construction contracts: two vessels of approximately 50,000 GT, commissioned by Ritz-Carlton, which perhaps should have been built at the Hijos de J. Barreras shipyard. Chantiers de l'Atlantique thus enters the mid-sized ship segment, a market in which it has extensive experience with the "R" series delivered at the beginning of this millennium, which now sail for Oceania and Azamara, and with the Europa 2, delivered in the mid-2000s. In addition, Chantiers de L'Atlantique's order book includes four logistics support vessels for the French Navy (built in conjunction with Fincantieri), to be delivered between 2022 and 2029, as well as the construction of substations for wind farms on the French coast.
Chantiers de l'Atlantique is also very active in R&D. This past spring, it signed an agreement with Lhyfe to build offshore hydrogen production platforms, the first of which will be inaugurated this September off the coast of Saint-Nazaire. This platform will serve as a prototype. Furthermore, the new MSC World Europa will be the first cruise ship equipped with a 3 MW fuel cell.
Very few new cruise ship orders.
None of the four major cruise lines have ordered any new cruise ships since 2020, the year the pandemic was declared. The world's largest cruise line, Carnival Corp., has eleven ships on order between 2022 and 2025, the year Princess is scheduled to receive its second LNG-powered ship ordered from Fincantieri.
However, the second largest cruise line, Royal Caribbean Group, will receive ten ships by 2026, the year in which the third Icon-class ship will be delivered. If we add the three ships from its subsidiary TUI Cruises (with deliveries scheduled through 2026), Royal Caribbean is the shipowner that will receive the most ships in the next five years, assuming current orders are maintained.
MSC Cruises has an order book of ten ships at two shipyards, extending until 2027, the year it will take delivery of the last ship in the World series from Chantiers de l'Atlantique. In terms of tonnage, this represents the largest order book.
NCL Holdings has ordered nine vessels, all from Fincantieri, with orders extending until 2027, the year it will receive its sixth Leonardo-class ship. Its three operators will receive vessels in the coming years.
Viking Ocean will receive six ships, all from Fincantieri, until 2025, although this number can increase if the construction options associated with the contracts are exercised.
Contrary to that logic, Swan Hellenic signed the contract for the third Vega-class vessel at Helsinki Shipyard on October 21, 2020, in the midst of the pandemic. This ship will be larger than its two sister ships, which carry 192 passengers in 96 cabins, within a Polar Class 6 hull. This vessel will be delivered in 2023.
Shipyards should focus on their current order book, as it is highly unlikely that any new construction contracts will be signed in the coming years.
On March 31, 2021, Meyer Werft signed a contract with the Japanese shipowner NYK Cruises to build a 51,950 GT vessel with a capacity of 744 passengers, scheduled for delivery in 2025. The vessel will be able to use LNG as fuel, and its design will be based on the two ships delivered to Saga Cruises in 2020/2021. The ship will be named Asuka III and will replace the Asuka II. Continuing its pursuit of new contracts, on July 30, 2021, Meyer Werft announced that the Njord, a residential ship, would be built in Papenburg, also scheduled for delivery in 2025. The 80,000 GT vessel will feature 117 private apartments for residents and 16 suites for guests, in 20 different configurations, ranging from 116 to 800 square meters.
And finally, last March, The Ritz-Carlton Yacht Collection placed an order with Chantiers de l'Atlantique for two cruise ships, due for delivery in 2024 and 2025. They will be named Ilma and Luminara. They have a gross tonnage of 46,750 GT and will cost around €400 million each. Their design places particular emphasis on sustainability, including a propulsion system that can run on LNG but can be modified to use other fuels in the future. The contract includes two additional construction options.
The failure of new shipyards in cruise ship construction
Another effect of the crisis has been the disappearance of the new players that had appeared in the cruise ship construction market.
In the field of large ships, the only new entrant in recent times was MV Werften, whose bankruptcy and subsequent sale to the Thyssen group are the best proof of its failure, despite the generous aid from the German Administration, both federal and regional.
In the small cruise ship sector, amidst the boom in expedition vessels and superyachts, several players had entered the market. Vard currently has a completely empty order book, perhaps because this segment is still absorbing the additional tonnage added in recent years, although it remains active in the construction of high-tech vessels. In this area, a recent example of failure is the construction of the Evrima, the first ship in the Ritz-Carlton Yacht Collection, which was supposed to be completed at the Vigo shipyard Hijos de J. Barreras. Initially scheduled for delivery in December 2019, then in June 2020, the shipyard filed for bankruptcy. Finally, the ship was completed in Cantabria, at the Astander shipyard, and will begin sailing this summer of 2022.
Another Spanish shipowner that built a cruise ship is Metalships & Docks, also based in Vigo, which delivered its vessel in 2021. Construction began in 2008 at the Marín Naval Shipyard, which ultimately led to its bankruptcy. After several years afloat unfinished, it was towed to Vigo, where its outfitting was completed in 2021.
The delivery of the Scenic Eclipse was delayed several times until it was finally delivered in September 2019, more than a year late, by Uljanik Shipyard in Croatia. Its delivery could only be unlocked when the ship's owner, Glen Moroney, invested in reviving the shipyard, along with other Croatian investors and Fincantieri. An order for a sister ship facilitated the deal. A very similar case to that of Barreras, but Scenic has a second sister ship under construction at that shipyard, something Ritz Carlton did not do.
Another Croatian shipyard, BrodoSplit, exhausted the patience of StarClippers, 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.
The disappearance of MV Werften
: Genting Hong Kong acquired Crystal Cruises in 2015 and created Dream Cruises in 2016. To ensure the growth of both brands, Genting HK adopted a radical solution: purchasing an existing shipyard in which to build its fleet. Thus, on July 7, 2016, Genting Hong Kong announced the merger of 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 the creation of its own shipyard, MV Werften, based in Wismar, dedicated to building the cruise ships its owner required.
He had also bought Lloyd Werft in Bremerhaven in September 2015, but decided to keep it as a repair shipyard.
Following the fall of the Berlin Wall, East German shipyards were modernized, with new construction docks, block workshops, and other facilities valued at over €2.5 billion. In addition, Genting HK invested over €100 million in new infrastructure, including a laser welding line and a factory for prefabricating cabins.
However, MV Werften's results were not as expected. It first delivered four river cruise ships to Crystal River Cruises between 2017 and 2018. That year, the 20,000-GT polar cruise ship Crystal Endeavour, the first of a series of three, was supposed to follow. However, that ship was delivered in the summer of 2021, almost three years late, and was the only one in the series.
And in 2020, the first "Global Class" vessel, a 203,000 GT ship, was supposed to have been delivered. However, that milestone was not met, and at the time of the shipyard's bankruptcy, it was 80% complete. Construction of the vessel was halted, but it was already more than two years behind schedule. Now Thyssen needs the covered construction dock for its submarines, and the liquidators of MV Werften want to sell it, with a strong possibility that it will be finished at another shipyard.
