Fincantieri seeks its fortune on the silk road
Like Marco Polo in the fourteenth century, Italian shipbuilder Fincantieri has been treading the long road to China. Now, writes Gavin Lipsith, a burgeoning cruise market is in its sights.
Last month Italian cruise and naval shipbuilding group Fincantieri signed contracts to participate in the building of the first large cruiseships in China – more than three years after announcing the establishment of a cruise shipbuilding business in the country. That timeframe is not as long as it sounds given the careful planning needed for an entry into a notoriously challenging market, the intricacies of negotiating with China’s monolithic state entities (including China State Shipbuilding Corp) and the famously long-sighted (and consequently unhurried) perspective of the country’s politicians.
For Fincantieri, the entry into China’s cruise market cannot come soon enough. This is, potentially, the source in the world for cruise passengers. As Fabrizio Ferri, CEO, Fincantieri China told class society RINA’s annual magazine Seaview last year, the Chinese cruise passenger sector reached 2.1 million passengers in 2016 and is now the second biggest after the US. Comparing China’s 1.4 billion citizens with the penetration rate of the US market (3%, or around 12 million people) – and taking account of growing wealth in Chinese ‘middle classes’ - there is clearly much room for growth.
It was in July 2015 that Fincantieri agreed to form a joint venture with China State Shipbuilding Corp (CSSC) to support the growth of the Chinese cruise industry. In September 2016, during the annual China Cruise Shipping and International Cruise Expo, the company signed a memorandum of understanding with China State Shipbuilding Corp (CSSC), Carnival Corp and CIC Capital to build two new cruise ships for the Chinese market.
The joint venture between Fincantieri and CSSC will act as prime contractor for the construction at Shanghai Waigaoqiao Shipbuilding (SWS), a CSSC yard. That includes granting a technology license of the ship model platform and providing technical and project service support to SWS throughout the shipbuilding process. The ships will be of the Vista class currently operated by Holland America Line, P&O Cruises, Cunard Line, and Costa Cruises, but redesigned to cater for Chinese passengers. The 11 Vista ships currently operation feature diesel-electric propulsion with ABB Azipod thrusters, 11 decks and a length overall of 290m. Originally the understanding included an option for two more ships; this has been increased to four in the final, US$1.5 billion contract. The first delivery is expected in 2023.
Perhaps part of the three-year wait was down to the formation of the ordering party, Carnival’s Chinese venture. The orders were finally signed on the same day that the venture, named CSSC Carnival Cruise Shipping, was formed. The new China-based cruise company plans to operate its own fleet to serve Chinese cruise guests by the end of 2019, and to this end will buy two existing ships from Carnival subsidiary Costa Group. The first of these ships, the 85,861-tonne, 2,210-passenger Costa Atlantica, is scheduled to be transferred to the new Chinese cruise line by the end of 2019. Sister ship Costa Mediterranea will be transferred at a date to be announced, with the new vessels arriving in 2023 and 2024.
Building China’s first big cruiseships – Miami-based SunStone Ships is building four 104m loa vessels at China Merchants Heavy Industry (Jiangsu) Co – is a big challenge. Cruiseships are notoriously complex to build given their extensive superstructures, piping and electrics. There are high profile recent examples of how a new yard can go wrong with debut cruise projects. In many cases problems can originate in the shipbuilder’s supply chain, which according to Fincantieri can account for 71% of the value of a cruiseship contract.
Fincantieri has been laying the foundations for its supply chain for as long as it has been planning its Chinese foray. In May last year it signed an understanding with CSSC and Shanghai City’s district of Baoshan, aimed at creating a cruise ship industrial park. dedicated to cruise activities, as well as providing other shipbuilding and maritime facilities.
As well as developing China’s cruise specialism, the project also aims to develop the entire Baoshan region. The district is China’s largest commercial and cruise port, representing the most developed region of the country in the cruise sector. Baoshan hopes to build on this by providing financing, tax, commercial and administrative benefits as well as land for development – with attracting foreing companies and partnerships a key ambition.
Fincantieri believes this project could help in the establishment of its Italian supply chain in China, as well as attracting other necessary companies to participate in its cruiseship building projects. Last month it signed contracts with Baoshan and CSSC to begin implementing the idea.
FIncantieri’s partner in China also has a role to play in developing the supply chain. CSSC already has a host of relationships with marine technology providers, either as purchaser for newbuild or repair projects, or as a licensed manufacturer – examples include Wärtsilä, WinGD and MAN Energy Solutions. And the company has already begun selecting ‘preferred suppliers’ for the cruise project. Last month it took advantage of the Chinese International Import Expo (import – not the export fairs more regularly associated with China) to name Wärtsilä as such a partner.
Supply chain is just part of the project. Fincantieri’s Chinese-built cruiseships will also need service and support facilities in the country. In March 2015 it signed a cooperation agreement with repasir and conversion specialist Huarun Dadong Dockyard (HRDD). The following year the partners signed a comprehensive agreement bolstered the collaboration, including the joint technical management of ship repair, dry-docking and conversion work on cruise liners.
Justifying the signing with HRDD, Fincantieri noted at the time that at least 13 cruiseships operated by foreign companies regularly sailed in Chinese waters. That number is set to grow even without China’s own ambitions, as is the demand for the on-site services the shipyard venture offers. And HRDD’s location near Shanghai’s cruise terminal make it particularly suitable for cruise ship projects.
As the Baoshan project shows, Fincantieri’s entry to China is intended to be symbiotic – as well as providing access to a booming market for the shipbuilder, it is also intended to benefit the development of the market itself.
“Supporting the cruise industry will help upgrade the country’s shipbuilding capabilities in general, an aim outlined in the ‘Made in China 2025’ plan,” Ferri told RINA’s Seaview publication. “The government also sees cruising as a way to push up internal private consumption and create a more sustainable GDP structure. That’s why it’s important, firstly to become a preferred partner of the Chinese government, and secondly to widen our vision to encompass all aspects of cruising and not just building, converting and repairing the ships.”
Travel, they say, broadens the mind. Ferri’s viewpoint sees Fincantieri taking a far wider approach to the cruise market in China than it ever has elsewhere. If that happens, the group could even end up passing new business opportunities, first developed by its fledgling Chinese unit, to its worldwide operations. The long road will, in that case, have been worth the effort.
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