Flourishing cruise sector buoys European yards

The 168,800gt 'Spectrum of the Seas' takes shape at the Papenburg premises of Meyer Werft.(credit: Meyer Werft)
The 168,800gt 'Spectrum of the Seas' takes shape at the Papenburg premises of Meyer Werft.(credit: Meyer Werft)
Global-class cruiseship to be built for the Genting Group by German subsidiary MV Werften (credit: MV Werften)
Global-class cruiseship to be built for the Genting Group by German subsidiary MV Werften (credit: MV Werften)
Bastion of French shipbuilding, and set for Italian control, the Saint-Nazaire yard will again be known as Chantiers de l’Atlantique (credit: STX)
Bastion of French shipbuilding, and set for Italian control, the Saint-Nazaire yard will again be known as Chantiers de l’Atlantique (credit: STX)
The 154,000gt 'MSC Seaside', a product of Fincantieri’s Monfalcone yard (credit: Fincantieri)
The 154,000gt 'MSC Seaside', a product of Fincantieri’s Monfalcone yard (credit: Fincantieri)

Europe’s top echelon of shipbuilders have record orderbooks through an unerring drive on the cruise vessel market, writes David Tinsley.

Notwithstanding the unassailable global lead in merchant vessel production held by eastern Asia’s industrial powerhouses, European shipbuilders have consolidated the region’s pre-eminence in the construction of cruise vessels and development of related technologies.

European yards’ cruiseship workload is at unprecedented levels. In conjunction with orders for other types of high added-value, technically-complex and outfitting-intensive newbuilds, Europe now commands the highest proportion of aggregate commercial shipbuilding contract value of any region worldwide. For 2017, the value share amounted to 27%.

Seemingly inexorable growth and solid returns in cruise shipping continue to generate major fleet investments, with leading players undertaking tonnage replacement as well as far-reaching capacity development, while more recent entrants implement rapid build-up programmes. The sector displays a dynamism that stimulates customer demand through innovative designs, itineraries and service offerings, expanding the market both in established fields and new areas.

Cruiseship companies have typically championed and driven advances in interior design, onboard facilities, propulsion, engineering and environmental technologies, resulting in continual improvement in service levels and operating economics.

Contrary to the general situation in mercantile shipbuilding, surging demand for tonnage is to some extent beset by limited yard capacity, given the small number of shipbuilders with the requisite know-how, physical resources, supply chains, and proven contractual performance and quality standards. Concerns in this regard, coupled with business expansion strategy, have led to major inward investment in the German shipbuilding industry in recent years by Malaysia’s Genting Group.

MARKET SHIFTS

Cruiseship construction in Europe is dominated by the Fincantieri Group, STX France (recently rebranded as Chantiers de l’Atlantique), the Meyer Group, and Genting’s MV Werft. A new wave of consolidation is in the offing, as Fincantieri awaits final authorisation to acquire majority control of STX France. Other, smaller European yards are entering the fast-growing market segment for expedition-type and ultra-luxury, smaller cruise vessels.

While the South Korean and Japanese challenges to the European position have receded, China’s determination to add large, luxury cruise vessels to its increasingly diversified shipbuilding output must eventually widen the sourcing options available to owners, and give new dimension to competition for the top flight of European shipbuilders.

Fincantieri’s recently strengthened agreements on cooperation with the industry in China testify to the expansion-minded Italian group’s business strategy, and promise new openings for European specialist suppliers. But the pacts also play to the long-term aspirations of the Chinese, to become world-class builders of luxury vessels for the international market, over-and-above the immediate objective of satisfying rapidly growing domestic demand.

Having secured a majority holding in the Norwegian-headquartered Vard Group and its international network of yards five years ago, Fincantieri is driving a major new stage of integration of the European shipbuilding industry through a share purchase agreement with the French government for the acquisition of 50% of the share capital of STX France, which has reverted to its former name Chantiers de l’Atlantique. Subject to final go-ahead from the anti-trust authorities, the deal would also see Fincantieri obtain a 1% loan of shares, giving the Italian side 51% operational control of the Saint-Nazaire yard.

The combined influence of the Italian and French shipbuilders will be considerable. Although the naval sector is a target market for both, along with other spheres of high added-value production, the prospective union has particular implications for the cruiseship domain. The value of the commercial vessel shipbuilding orderbook at Saint-Nazaire, currently exclusively based on large cruise vessels, is among the highest in the world for a single shipyard. At the same time, Fincantieri’s  workload is reckoned to have reached a record €32 billion (US$37.2 billion) by the end of July, boosted by a new influx of cruiseship contracts.

UNPRECEDENTED BOOKINGS

Firm orders in hand at Chantiers de l’Atlantique entailed 11 large cruise vessels, taking the delivery programme into 2024. With options on ships individually worth €1 billion (US$1.15 billion) for completion in 2025 and 2026, the forward workload is without precedent at Saint-Nazaire in terms both of man-hour extent and monetary worth. LNG-powering systems figure prominently in the orders attracted so far this year, including next-generation, World-class vessels for MSC Cruises, and the fifth in the latter’s series of MSC Meraviglia cruise ships.

Fincantieri signed contracts and options for a total of nine cruise vessels during the first six months of 2018, immediately followed by an intense period of business activity over the course of July when firm orders were concluded for seven ships.

A new customer was acquired in the shape of TUI Cruises, the joint undertaking of the TUI Group and Royal Caribbean Cruises, which signed for two 161,000gt, LNG-fuelled vessels, while Norwegian Cruise Line exercised options on 5th and 6th examples of its 140,000gt Leonardo-series. A memorandum of agreement was entered into with Carnival for two 175,000gt newbuilds to be assigned to Princess Cruises. Powered by LNG dual-fuel machinery, the 4,300-passenger Princess pair will be the largest ships ever constructed in Italy. The July order intake also encompassed a further vessel for Carnival’s prestigious Cunard Line brand.

Consistent investment in its German and Finnish yards and production processes, and a huge, ongoing commitment to R&D, have kept the Meyer Group in the vanguard of the European shipbuilding industry and cruiseship construction. The acquisition in September 2014 of STX Finland and the country’s showcase Turku shipyard, and subsequent capital expenditure there, has been endorsed by results and orders to date. Moreover, close cooperation between the group’s Papenburg, Rostock, and Turku yards has realised synergistic effects benefiting efficiency, quality and capabilities in innovative shipbuilding across the organisation.

While control of its French and Italian peers ultimately rests with the state, Meyer is family-owned and family-run, and has taken steps in recent times to safeguard that status into the future. The cruiseship orderbook extends several years ahead, and is distinguished by an especially high technological level and widespread nomination of LNG-capable power plant.

EMPLOYMENT GUARANTEE

Business in hand at the Meyer Group coupled with market prospects hold out the promise of production continuity into the foreseeable future. For the workforce in an industry traditionally faced with uncertainties, an extra measure of security is afforded by Meyer Werft’s issuing of an employment guarantee up to 2030.

As of early September this year, the company had 250 vacancies in Germany, spanning not only posts for engineers and designers, but also welders, fabricators, electricians, transport and crane drivers. In addition, various information technology (IT) specialists are sought, as Meyer looks to implement a new IT landscape, including the launch of SAP (systems, applications and products) software across the various shipbuilding locations.

The Papenburg yard had 13 cruiseships on order as of September 2018, spanning delivery slots up to 2023 and including three  AIDAnova-class vessels of around 184,000gt for AIDA Cruises, P&O Cruises’ two Iona-class newbuilds, and Disney’s 135,000gt pair, all specified with LNG-capable main machinery. Meyer Turku’s programme extends into 2024, wherein two of the eight newbuilds are 200,000gt behemoths of Royal Caribbean’s ICON-class. The ICON generation represents a further development in environmentally-attuned design, employing LNG as the primary fuel and adopting fuel cell technology and underwater hull air lubrication.

With the focus on strengthening its capabilities in cruiseship construction, and as part of a €200m (US$233 million) yard investment scheme, Meyer Turku commissioned a 1,200t-capacity goliath crane, the largest in the Nordic region, during June 2018.

Genting is ploughing €250 million (US$291 million) into the three shipyards under the aegis of its German shipbuilding subsidiary MV Werften, whose remit is to supply tonnage for the parent’s Star Cruises, Dream Cruises, Crystal Cruises, and Crystal River Cruises brands. One of the elements of the capital plan is a new construction hall at the Rostock-Warnemunde yard, to house a state-of-the-art, automated laser-hybrid, thin steel welding line for block production, plus an outfitting line. This facility is expected to be fully on-stream before the end of 2018. Genting has also established a plant dedicated to the production of cabin modules.

FIVE-YEAR PLAN

The five-year production plan laid down for MV Werften over the 2016-2021 period embraces river cruise vessels, polar-going cruiseships, and two 204,000gt, Global-class cruiseships for delivery in 2020 and 2021. The latter will be assigned to Dream Cruises brand, and will each cater for 5,000 passengers. Beyond 2021, the Malaysian group is looking to double output of large vessels from Germany.

Vessels in the “polar expedition” or “explorer” cruise category constitute a booming segment. Demonstrating the faith that companies have in the prospect of growing volumes in polar cruising, Genting has commissioned construction of a new generation of 25,000gt ice-classed vessels specifically for that market, undertaking the entire project in-house through MV Werften. Crystal Endeavor is scheduled to give first form in 2019 to an initial batch of three such ships for Genting’s Crystal Cruises brand.

Compelled to find new outlets for its design and construction expertise in the wake of the downturn in the offshore market, its longstanding primary business sector, the Norwegian-headquartered Vard Group’s diversification strategy has been endorsed and highlighted by inroads into the small, ultra-luxury and expedition-type cruiseship segments.

Having shown its mettle with the on-time delivery in June of Le Laperouse, the first 10,000gt Explorer-class vessel for the Breton company Ponant Cruises, Fincantieri-owned Vard has this year augmented its workload with fifth and sixth Explorer newbuilds for Ponant, plus two ships of unspecified size for Viking Ocean Cruises, and a third 16,000gt, 230 passenger-capacity polar expedition cruise vessel of the Hanseatic series for Hapag-Lloyd Cruises.

Vard’s international network comprises five shipyards in Norway, two in Romania, one in Brazil and one in Vietnam. For cruiseship production, hull construction is being effected in Romania, with outfitting undertaken in western Norway. Industrial synergies have been developed throughout the wider organisation whereby Vard’s Romanian facilities are supplying hull sections for newbuilds at Fincantieri’s Italian shipyards. At the same time, Fincantieri is providing key components and technical assistance from Italy to VARD for contracts to build expedition cruise vessels.

EXPEDITION PIONEERS

A pioneer in expedition cruising and adventure travel, US-listed Lindblad Expeditions, has looked to Norway for the design and construction of a vessel capable of navigating deep into polar regions. Main contractor Ulstein Verft has placed the building of the hull with the Crist yard in Poland, and is to complete and deliver the newbuild from its Ulsteinvik premises in western Norway during the early part of 2020. Besides the very high ice class and twin Azipod electric propulsion, a core feature is the Ulstein’s proprietary X-BOW form, providing greater fuel efficiency and improved passenger comfort in rough seas. Lindblad’s deal includes options on second and third vessels.

Hurtigruten’s project for two, 530 passenger-capacity expedition cruiseships, meanwhile, has seen delivery dates being pushed back, reportedly due to the complexity of the vessels in conjunction with liquidity problems experienced by Norwegian shipbuilding contractor Kleven Verft. First-of-class Fridtjof Nansen was originally expected in July 2018, but is now due next May, while handover of the second ship, which had been foreseen for the summer of 2019, has yet to be confirmed.

In June this year, it was announced that a liquidity solution had been arrived at whereby the Hurtigruten-owned KVE Holding would take over 100% of the shares of Kleven Verft and associated companies Kleven Maritime Contracting and Kleven Maritime Technology, injecting some NOK600 million (US$73 million).

European shipbuilding’s capacity for cruise vessel projects has gained dimension this year through the creation of a partnership between Genoese construction and conversion specialist T.Mariotti and Damen Shipyards Group.

The ambitious Dutch organisation, whose international network now encompasses 35 yards after the purchase of the Mangalia complex in Romania from Daewoo, had earlier identified the cruise sector as one of its next targets. The formal announcement of Mariotti Damen Cruise as the operating title and common brand for the new venture was accompanied by the signing of a letter of intent with ultra-luxury cruise line Seabourn for two expedition-type vessels. The 23,000gt newbuilds, each accommodating 264 passengers, are due in mid 2021 and mid 2022, respectively.

One of the strongest cards in the hand of those European shipbuilders focused on luxury passenger ships is a well-developed supply chain, encompassing not only hardware and technology but also outfitting contractors possessing the requisite craft skills. The complexity and time demands of such projects test shipyard management and logistical planning to the extreme. Architectural and interior design innovation in Europe is also an important contributor to the quality and commercial appeal of European-built ships.

Analysts suggest that demand for newbuild vessels will remain strong due to forecasts for the sustained growth in the number of people taking cruise vacations and the potential in the Asian market, particularly China, while the industry itself spurs business through its continually expanding offering and capacity.

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