Cruise Ship Building 2013

| 12.31.12

Where the next generation of ships are being built and how has the economy affected the industry

The Breakaway-Plus will be one of the largest cruise ships in history

When you consider that man has been sailing for literally thousands of years, building passenger ships is a one of the world's most evolved technologies. That is why nations like Germany and Japan, known for cutting edge engineering and technology, are among the leaders in the field. But shipbuilding has become a very competitive business where a single contract can make a billion dollar difference in a shipyard's gross profits for a given year.

Seemingly for the first time since the advent of modern cruising, even though it isn't often said in so many words, there are signs that the cruise industry already has enough capacity to fill consumer demand.

Bernard Meyer, head of the premier Meyer-Werft shipbuilding facility in Papenburg, Germany, recently expressed his concern over shipyard over-capacity. Meyer-Werft is responsible for building such classic cruise ships as all of the Celebrity Solstice-class and the latest Disney vessels; Disney Dream and Disney Fantasy.

Last week Meyer said, "Because of giant over-capacity in shipbuilding, newbuilding prices have plummeted and continue to drop. The shipyard must now confront this big challenge and this involves a consistent reduction of costs and a continuous increase in productivity."

Are you planing to sail a new ship in 2013? Tell us here: Cruise Forum

While Meyer is specifically referring to over-capacity is in the number of shipyards, it suggests over-capacity in the number of cruise ships since the number of European shipyards has not increased. Five years ago there was plenty of business for all five of the major European shipyards; Meyer Werft in Papenburg Germany, the STX shipyards in Finland and France, and the Fincantieri shipyards in Monfalcone and Genoa, Italy.

Whether or not the cruise industry is over-built or just at full capacity depends on whether the economy slips back into recession - and there are already many indications that it already has. If there are more staterooms to fill any given day or week than there are buyers then it is very hard for the cruise lines to raise prices.

Somewhat ironically, however, the drive to build new cruise ships has not completely disappeared. The current under-utilization of European shipyard facilities means a lot of competition to capture the small amount of remaining business. So, whether or not the cruise industry needs them, it is a great time to negotiate a good price to build a new cruise ship.

Just late last week a last-minute change in shipyards by Royal Caribbean for the order to build its third Oasis-class vessel; taking the order away from the Finland STX shipyard and handing it to the sister STX shipyard in France at a price point substantially lower than the cost of either of the two preceding Oasis-class vessels, indicates that even with individual ship orders coming in priced between $600-million to a billion dollars per vessel, the shipyards are willing to build these ships at next to no profit at all.

The first Oasis-class vessel cost $1.4-billion, the second one (Allure of the Seas) cost $1.2-billion. The Finland-based STX shipyard balked at building the third identical ship for $1-billion; especially since the government of Finland was asked (by the shipyard) to guarantee the loan for Royal Caribbean to pay for the ship, something the Finnish government did agree to do with the first two ships.

The fact that Finland would pass on that order, even though it is the most qualified yard for this new vessel (having built the first two identical ships) indicates that Royal Caribbean was in the driver's seat concerning that order. The only apparent incentive Finland had to take that order was to keep its workers employed and off the dole.

Finland passed on financing the third ship, so the order is now in the hands of the sister shipyard in France - now apparently contingent on securing a loan guarantee from France. Although the loan for the previous Oasis ships was guaranteed by Finland, the money eventually came from mostly French and Swedish banks. So now that the ship will be built in France with a guarantee from the French Government and most likely the money will once again come from mostly French banks.

Meyer also pointed out a new source of pricing pressure for the European shipbuilding industry - competition from Japan. Unlike Royal Caribbean, competitor Carnival Corp. is increasingly relying upon Japanese builders; having already ordered two new 125,000-gross ton ships for its Germany-based sister line AIDA Cruises from the Mitsubishi Heavy Industries (MHI) shipyard in Japan. AIDA had been a long-time customer of Meyer Werft in Papenburg.

Carnival Corp. also has a 3700-passenger ship destined for Costa Cruises currently under construction there, and also used MHI Japan to build two 116,000-ton Princess ships; Diamond and Sapphire Princess which were introduced in the mid-2000s.

Notably, however, the all-new Royal Princess coming in June 2013, will be fully constructed at the Italian facility of Fincantieri Shipyards in Monfalcone (near Trieste), Italy; the same shipyard as for the vast majority of Carnival, Costa, Princess and Holland America vessels.

The two all-new ships coming to the U.S. market in 2013 and 2014 from Norwegian Cruise Lines, the Norwegian Breakaway and the Norwegian Getaway; are also coming from Europe, but from the Meyer Werft facility in Papenburg. Norwegian Cruise Line had a somewhat famous falling out with the STX facility in Nantes, France in 2010 during the building of Norwegian Epic. Meyer also won the contract for the largest vessel yet planned to emerge from the shipyard; Norwegian's new "Breakaway-Plus" ship (a working title) which will come in at 163,000-tons making it the second largest cruise ship class in the world after the 220,000-tons Oasis-class ships. That ship should appear in 2015.

Meyer Werft is also currently building the two new "Project Sunshine" ships for Royal Caribbean - two new 158,000-ton cruise ships to arrive in 2014 and 2015. Meanwhile Carnival Corp. in October ordered two new ships for its Holland America and Carnival brands for delivery in 2015 and 2016, respectively - although the shipyards were not named almost all previous ships for these lines have been built at the Fincantieri Monfalcone facility.

More than likely, 163,000-tons is about as large as Meyer Werft, Papenburg, can handle since the shipyard is inside an enclosed facility (said the be the second largest structure in Europe after the Airbus A380 assembly hall near Toulouse, France) and also located on the somewhat narrow and shallow and winding Ems River about 35 miles from the North Sea. The river much be transited by brand new ships before they can enter service. Fortunately, the Norwegian Cruise Line ships do not employ pod technology, but rather have traditional propeller drive assemblies, reducing the draft.

Are you planing to sail a new ship in 2013? Tell us here: Cruise Forum

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