One of the more negative influences of the extended recession on the cruise industry has been the disruption of the crucial capacity/construction equation which has moved the industry onwards and upwards for over two decades.
The basic premise of cruising has always been to build new ships and then fill them. This is in sharp contrast to cargo shipping, where you prove the demand first and then build. But if the credit market remains very tight or almost non-existent, as now, fewer ships are built and the whole operation is scaled back.
There were no completely new cruise ship orders in the final quarter of last year or the first three months of 2012, confirms Peter Wild, a leading analyst of new cruise ship contracts. The only addition to the order book came from confirmation of an already-known option by Royal Caribbean for a second 4,100-berth Sunshine ship with Meyer Werft in Germany.
Last year RCL embarked on a US$300 million programme of refurbishing and remodelling older ships in order to incorporate some of the features found on new vessels like the 223,000-ton, 6,300-berth Oasis and Allure of the Seas. Asked when the market would see another original ship of that size or larger, Harri Kulovaara, Royal Caribbean’s head of newbuildings, who spent the best part of a decade on these two giant vessels, says time will tell. But, given the current state of the economy “it is unlikely to be soon,” says the Finnish-born naval architect. He has indicated in the past that the intention was only ever to build two of these huge ships.
At Carnival Corporation, Bo-Erik Blomquist, executive vice president, construction, says the corporation and its subsidiary brands have seven new ships scheduled to enter service between 2013 and 2016. “This is on pace with our company-wide objective of introducing two or three new ships a year,” he adds. “As we have said, we expect industry capacity growth to slow and we will continue our intensive efforts in expanding emerging markets around the world. It is our belief that a favourable supply and demand balance should have a positive impact on our ability to grow our business.”
The future prototype vessel alluded to at MSC Cruises by managing director Domenico Pellegrino is speculated by the construction market to be a ship of 150,000 tons and more than 4,000 berths with a value of US$920 million. There may be two vessels of this size. Emilio La Scala, head of MSC’s technical department, says specialist cruise shipbuilders in Europe face challenges both from the orders slowdown and real and perceived competition from Asian yards. “But 24 new ships with a combined capacity of 67,000 passengers and total worth of over €12 billion (US$16 billion ) will be delivered in the period from 2012 to 2016,” he says. The pace of orders may have slowed, but these figures give shipyards in Europe reason to remain cautiously optimistic, in his opinion. The STX shipyard in St Nazaire lost the only new order around in recent months to Fincantieri when river cruise specialist, Viking, switched its first two ocean-going vessels to Italy, probably because of financing problems.
Throughout this barren period for new orders in the first three months of 2012 there were also few deliveries so the order book actually rose by one ship to 24, worth US$15.8 billion, at the end of March. But Wild points out that with no fewer than six deliveries to the market during the second quarter of the year, orders will have to come at a faster rate to maintain the order book. “In present circumstances this seems unlikely,” he says. And there is little comfort on this score to be had from Peter Stokes, the ship finance expert at Lazards. He says the credit market is even worse now than it was with no sign of loosening up. “Because of this, cruise lines may have to move some way towards the cargo ship model by wanting more proof of demand before they build new ships,” he says.
The six new ships delivered in the second quarter represent a quarter of the vessels in the total order book and have added more than 16,000 berths to the global cruise fleet. In many ways even more interesting than the list of firm orders is the speculation about contracts which may or may not see the light of day. One such which has attracted recent attention is a 55,000-ton, 800-berth luxury ship which has long been attributed to Regent Seven Seas but never confirmed. Now Regent president and CEO, Mark Conroy, confirms the line is close to ordering the ship which is priced at US$550 million by market sources. It would be Regent’s first ship order for nine years and is likely to go to Fincantieri’s Sestri facility.
Viking Ocean is said to have an option for a third 1,000-berth ocean vessel at Fincantieri at US$400 million, the price of the first two.
Word also seems to have leaked out from a supplier that there is an option for a second 3,600-berth vessel for P&O Cruises; the first is due in 2015 from the same Italian yard and is worth a shade over US$800 million. She will be the largest ship in the P&O fleet. James Duiguid, commercial director of Saga Shipping, hinted at a European Cruise Council meeting that his company wanted to order its first purpose-built ship. But this was quickly denied by the company.
Including the possible MSC ships, there are a total of 11 orders pending to varying degrees of expectation. If all were confirmed exactly as speculated, they would add about 22,500 berths to the global fleet and over US$7 billion to the order book.
But there seems to be much doubt whether a reported US$1.1 billion residential ship, the Utopia, built by Samsung Heavy Industries in South Korea, will ever set sail on schedule next year with 190 condominiums on board. The contract was undertaken by Samsung late in 2009, but is now reported to have been shelved. No reason is given, though financing must be favourite as an obstacle to progress.
One area which has been commanding much more attention of late has been the river cruise market, which is thought to have over 1 million passengers every year, even though figures are much less well collated than for ocean cruising. As well as its ocean-going ships, Viking – one of the world’s biggest operators to be found in the European, Russian, Chinese and Egyptian markets – has ordered a series of 12 new vessels to add to its Longship fleet, due over the next two years as part of a reported US$250 million fleet expansion. When all are delivered they will take the Viking fleet to 31 vessels. They are being built at the Neptun shipyard in Rostock and have 95 cabins each. Six will be delivered this year and the balance next. The Boston-based Vantage Deluxe World Travel Group has taken delivery of the first of four 221-berth vessels being built at the De Hoop shipyard in Holland at a total cost of US$120 million. These new vessels will operate on the Yangtaze, Mekong and Amazon rivers and are being marketed to Americans. Further deliveries are due next year and in 2014.
For some lines, refurbishment has always been a viable alternative to newbuildings. The latest example of this, just completed in May this year, was a US$140 million investment undertaken by Celebrity Cruises to incorporate features from its Solstice-class ships into four Millennium vessels, now at least 10 years old. The entire programme was completed in less than two years with each ship in dry dock for just three weeks to complete the work.
Parent company Royal Caribbean’s US$300 million budget for refurbishment of some of its older ships has already been over 50 per cent spent for work on two Australian market vessels, Rhapsody and Radiance of the Seas (US$74 million combined); Grandeur of the Seas, US$48 million; and Splendour of the Seas, US$35 million. The vessels have been worked on at shipyards in Singapore, Canada and Spain. All these ships are at least 10 years old. But a refit and reworking has also been booked for the much younger Independence of the Seas, built in 2008, for March next year.