Analysis: Chinese shipbuilders tap rising cruise demand, rattle European rivals

Viking Line Abp

25/07/2017 24:00

* State yard CSSC building China's first luxury cruise ships 
    * German, French shipyards concerned about industry shift 
    * Cruise shipbuilding is key "Made in China 2025" objective 
 
    By Brenda Goh 
    SHANGHAI, July 25 (Reuters) - European shipbuilders' 
dominance in the $117 billion passenger ship industry may come 
under threat as Chinese rivals move into the sector to tap 
booming local demand for cruise holidays. 
    China's government has earmarked cruise shipbuilding as a 
major objective in its "Made in China 2025" programme to upgrade 
its domestic manufacturing and support jobs at its shipyards, as 
domestic demand for cruise trips increases 30 percent a year. 
    This push into the higher-value cruise vessel sector is 
rattling European yards, leaders in an industry that requires 
sophisticated supply chains to make and fit out complex luxury 
liners. Some European shipbuilders fear China could come to 
dominate the cruise ship market, much as it has done in cargo 
ships over recent decades. 
    "This is a state objective that threatens to cause 
tremendous distortion in competition," said Reinhard Luken, 
chief executive of the German Shipbuilding and Ocean Industries 
Association (VSM), which represents German maritime firms such 
as shipbuilders Meyer Werft and Meyer Turku. 
    "There are almost endless resources available if China has 
set a goal." 
    Still, learning how to build cruise ships will not be easy 
for the Chinese, given the complex web of suppliers needed to 
furnish items from luxury carpets to soundproofing, industry 
experts say. 
    Japan's Mitsubishi Heavy Industries  7011.T  quit building 
European cruise liners in October after its losses on two 
vessels for cruise operator Carnival Corp  CCL.N  topped $2 
billion.  urn:newsml:reuters.com:*:nL4N1CO2HL 
    "It's a hotel on the sea, (and) requires at least a few 
hundred suppliers," said Lin Li, general manager at Lloyds' 
Register's Greater China marine and offshore business 
development department. 
    China's shift into the cruise sector also comes as global 
demand for cargo ships has collapsed, shuttering scores of 
Chinese yards. 
     
    EUROPEAN EXPERTISE 
    At the Shanghai Waigaoqiao Shipbuilding yard  600150.SS  at 
the mouth of the Yangtze River, China State Shipbuilding Corp 
(CSSC) has brought in European advisers, including Italian 
shipbuilder Fincantieri  FCT.MI , to help it learn how to 
compete in building cruise ships.  
    It has also attracted foreign suppliers such as Finland's 
Wartsila  WRT1V.HE  to set up local joint ventures. 
    "Fincantieri has brought a few hundred workers here, and 
CSSC has sent technical staff to England for training," said 
Alan Mong, a CSSC employee, during a recent media tour of the 
yard. 
    CSSC's order for two cruise ships, which will be able to 
carry up to 5,000 passengers, is part of a $1.5 billion deal 
signed in February with Carnival and Fincantieri. That deal, 
three years in the making, also includes an option for four more 
ships.  urn:newsml:reuters.com:*:nL8N1G73RW 
    Fincantieri was encouraged to help China by Carnival, its 
biggest customer, which is itself pushing to develop China 
cruise lines, said two industry executives familiar with the 
local market. They asked not to be named as they didn't want to 
jeopardise business relationships. 
    They said Carnival was told by the Chinese government it 
could only grow in China's cruise market - projected to be the 
world's second largest after the United States by 2030 - by 
helping the domestic industry develop. 
    CSSC did not respond to Reuters' request for comment. 
China's Ministry of Commerce declined to comment, saying it was 
a company matter.  
    Carnival said it encouraged Fincantieri to participate in 
the shipbuilding project, but noted its own plans to launch 
China's first domestic cruise line with CSSC and China 
Investment Corp were negotiated independently. Fincantieri said 
it got into the Chinese market "based nothing more than on an 
analysis regarding the business opportunities from the great 
potential of the market." 
     
    DISCOUNTS 
    Other Chinese yards are following suit, offering discounts 
of up to 30 percent, and earlier delivery, to win orders from 
Western cruise lines. 
    In March, China Merchants Industry Holdings agreed a deal to 
build up to 10 vessels for Miami-based SunStone Ships, and 
Xiamen Shipbuilding Industry Co won a 194 million euro ($222 
million) order from Finland's Viking Line  VIK1V.HE  in April 
for a 2,800-passenger cruise ferry. 
    "We were surprised at the number of interested yards," said 
Viking Line's CEO Jan Hanses, saying he received interest from 
six Chinese yards, including Guangzhou International Shipyard, 
Yantai CIMC Raffles and AVIC Weihai Shipyard. 
    "Competition is always good... If the European yards are 
left without competition they will stagnate." 
    European yards currently have 68 cruise ships on order up to 
2025, according to data from industry publication Seatrade 
Cruise, comfortably ahead of other regions. 
    But Nathalie Durand-Prinborgne, a representative for labour 
union Force Ouvrière's section at shipbuilder STX France, said 
there are fears that French shipyards could eventually abandon 
the cruise market to the Chinese, as they did with LNG tankers. 
    Because of technology transfer concerns, she said the union 
opposes Fincantieri's proposed takeover of STX France, which 
employs 2,600 people at the western port of Saint-Nazaire. 
    "In allying itself with the Chinese, Fincantieri not only 
shot itself in the foot, but also fired into ours," she added. 
    And Raoul Jack, principal consultant at PFJ Maritime, an 
adviser to Chinese yards entering the cruise market, says it may 
be futile to try and stop the shift. 
    "Every yard is looking at the markets that are the most 
buoyant," he said. 
    ($1 = 0.8757 euros) 
 
 (Reporting by Brenda Goh, with additional reporting by 
Guillaume Frouin in NANTES and SHANGHAI Newsroom; Editing by Ian 
Geoghegan) 
 ((brenda.goh@thomsonreuters.com; +86)(0)(21 6104 1763; Reuters 
Messaging: brenda.goh.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA CRUISE/SHIP