This may be a more dramatic year for shipbuilding than is at first apparent, if no orders are placed before Dec. 31. In that case, this will the first year in recent memory, when not a single new shipbuilding order has been placed.
(Viking Ocean announced its original agreement with STX France in December of 2011, before moving to Fincantieri this spring; in February, Royal Caribbean exercised its second Sunshine option; and in March, MSC took over the ship originally ordered from STX France for Libyan owners. In addition, TUI Cruises has an option for second ship at STX Finland that expires October 28.)
The lack of new orders is not good news for the shipyards that have increased their cruise-ship building capacity over the recent years and are now forced to look at alternative solutions such as building offshore vessels or wind farms, or pursuing cruise ship repair and refurbishment jobs.
Meanwhile, the traditional builders are also facing more competition as Asian shipyards are turning to cruise ships to fill up their overcapacity. The recent two-ship order going to Japan is said to be well below recent building prices in Europe.
The slowdown is driven partially by the cruise lines holding back, waiting for the markets to recover, hoping to see demand catch up with supply, and thus boosting ticket prices and earnings.
Cruise line executives told Cruise Industry News there is much more market potential in North America and Europe and once that manifests itself they will need more ships.
New markets are also developing – in Latin America, Down Under, and perhaps more importantly, in Asia – that will also eventually require more ships.
In addition, while the existing fleet is modern, there are older ships sailing as well that will need to be replaced.
The industry knows all too well that new ships drive demand, commanding higher ticket prices, and have more onboard revenue potential. Plus, they are more efficient to operate. That all adds up to higher earnings.
Given that conclusion, new orders are a question of timing and then a question of price.
Meanwhile, shipyard executives told Cruise Industry News that newbuilding prices have come down, squeezing the yards further to find money-saving efficiencies.
In some cases, sources familiar with certain newbuildings suggested that “efficiencies” may have gone too far, citing local news reports of subcontractors using under-paid labor, and yards buying from lowest cost suppliers.
These are obviously solutions that do not benefit a builder nor a shipowner, which has to be willing to pay a fair price.
Going forward, industry executives are forecasting a building pace of seven to eight ships per year, based on statements made by Carnival Corporation Chairman and CEO Micky Arison and Royal Caribbean Chairman and CEO Richard Fain, as well as the historic building pace of MSC Cruises and Norwegian Cruise Line, plus periodic newbuildings of smaller operators.
So regardless of optimistic or pessimistic forecasts, the industry will continue to build, but at a slower, more controlled pace, which means the successful shipyards will have to meet the shipowners demands or shift course.
At the same time, it would be in the best interest of shipowners to pay a fair price, thus supporting healthy shipyards that can continue to build quality ships based on their expertise and infrastructure of reliable suppliers and subcontractors.
Excerpt from Cruise Industry News Quarterly Magazine: Fall 2012
