Pandemic foils expected big year for ship deliveries

Pandemic foils expected big year for ship deliveries

Before the Covid-19 crisis, 24 cruise vessels were slated to
debut in 2020, possibly setting a record for ship deliveries.

Only five months into the year, with cruise operations
suspended indefinitely and many lines putting ships in both short- and
long-term layup, those deliveries as well as those in the long-term order book
are in question.

It’s hard to imagine that any cruise line wants
to take on more capacity right now, and they may not have to because most of
the yards where cruise ships are being built are in Europe, where coronavirus
surged before becoming a global pandemic. The largest ones, such as Italy’s Fincantieri, Germany’s Meyer
Werft and France’s Chantiers de l’Atlantique, had to either close temporarily
or slow down production, some as early as March.

While none of those yards has released estimates regarding
the full impact of those closures and slowdowns on ship delivery schedules,
Fincantieri said in an earnings release on May 14 that its first quarter
production had decreased by 20%. And several major cruise lines have said they
expect ship delivery delays or identified ships that are already pushed back. 

Royal Caribbean Cruises Ltd., Carnival Corp. and Norwegian
Cruise Line Holdings have all said in regulatory filings that they believe the
impact on shipyard operations will result in delivery delays. 

Princess Cruises’ Enchanted Princess, which Fincantieri was
supposed to deliver in June, has been delayed indefinitely.

P&O Cruises’ Iona was supposed to enter service in May,
and Meyer Werft has not set a new delivery date. 

Crystal Cruises said the launch of the first ship for its
Crystal Expedition Cruises brand, the Crystal Endeavor, has been rescheduled by
the MV Werften shipyard in Germany, from August to Nov. 14.

Celebrity Cruises’ Celebrity Beyond, originally set for a
handover in 2021, has been delayed indefinitely by Chantiers.

Financial relief for cruise lines 

While these delays would normally be costly for cruise lines
and create headaches in terms of cancellations and rebookings, this year, they
might offer the lines temporary financial relief at a time when they are
struggling, said Walter Nadolny, professor of marine transportation at the
State University of New York Maritime College. 

“The way the payments are structured, it’s going to be
stretched out a lot more and actually give the lines a little bit of breathing
room on that,” he said. “There was a lot of new construction slated for 2020.”

And given that most cruise lines say their return will be
gradual, with some ships coming on before others, nobody will be looking to
take on new tonnage. 

“The best solution really is, less ships will be better,”
said Peter Shaerf, managing director of AMA Capital Partners, an investment
banking firm focused on the maritime sector.

According to Shaerf, some cruise lines might try to defer or
delay orders on which construction hasn’t started. He said the lines might try
to swap a new ship with a contract for a refurbishment project.

Carnival Corp. CEO Arnold Donald suggested that delays and
cancellations are being negotiated with shipyards already.

“We are working with the yards  —  they
are our partners  —  to look at the schedule going further out, to
see the extent of delays and should any of the ships be canceled or just pushed
out further,” Donald said. “We’re in dialogue and working in partnership with
them to resolve it.”

And while such decisions might financially harm the
shipyards, Shaerf said, they are part of the extended network of industry
stakeholders that will have to take a hit. 

“A restructuring involves bringing all the stakeholders
together,” he said. “The shipyards, too, are very much part of the equation.”

Fincantieri said last week that “the business strategy is
now focused on reassessing dates, to avoid any cancellations of acquired
orders, in full collaboration with clients.”

Both this year and last were going to be record-setting in
terms of ship deliveries, many from small lines targeting the upscale
expedition sectors. Given the uncertainty of cruising’s rebound, some of those
companies might want to scale back, Shaerf said. 

“Some cruise lines with six or seven ships on order, are
they better off canceling the last three?” he said. 

Out with the old, in with the new

A delay in ship deliveries will slow down years of cruise
industry expansion. But some industry leaders believe it will be part of an
overall culling of cruise fleets as a result of the pandemic. 

“Under that mantra of ‘don’t waste a crisis,’ some cruise
lines might take the opportunity to sunset some of their older tonnage,” said
Alex Sharpe, CEO of Signature Travel Network. 

Sharpe said that by deploying the newest ships in the fleet,
which “have just been stunning at every level,” they will command higher
pricing, even if it’s only in the beginning as part of a staggered rollout. 

“This could ultimately help their financials,” he said. “Their
average per diems will go up by retiring some of the older [ships].”

Nancy Trejos contributed to this report.

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