Genting Hong Kong last week placed an order for a total of10 newbuildings for its various cruise brands at the Lloyd Werft Group shipyards in Germany that it owns.
The €3.5 billion deal is the latest in a series of large scale ship orders that have propelled the numbers of vessels on order and their combined capacity to an all time high.
We think that the cruise industry is arriving at a watershed. Either the demand growth will have to accelerate so that the market can absorb all the new supply, the huge majority of which involves increasingly large contemporary market ships, or a crisis unforeseen in the sector will unfold.
The industry is placing great expectations that continue, rapid demand growth in China will continue and that this market will employ a large part of the new tonnage on order. It may well do so.
Development of the demand for any product tends to follow an S-shaped curve. At first, a new product meets little demand, which comes from primary consumers keen try new things, and costly marketing efforts mean that it does not generate profits.
After a while, when awareness of new the product increases and sales volumes pick up also among the less adventurous, the demand for it rapidly accelerates. At some point, this will peter out and the product will either wither away or restart the cycle after a revamp.
The Chinese cruise market is at the moment experiencing the stage of rapid acceleration in demand. The question is at what point of that stage it is.
Should the demand growth fall short of the expectations of the lines that have ordered new tonnage, the entire industry could run into unprecedented problems.
Cruise lines now order contemporary market ships of about 200,000 gross tons. Only a few years ago, the figure was about 160,000 gross tons. The ships being ordered now have capacity of 5,000 passengers or more. Few ships built before the year 2000 could take 3,000 passengers.
If it becomes necessary to start reducing capacity by selling for scrap older vessels, two or three of them will have to go to equal the capacity of a single newbuilding entering service.
In container and dry bulk shipping, expectations that Chinese manufacturing growth would remain at very high levels resulted in a wave of newbuilding orders. Large dry bulk carriers known as Capesize cost more than $100,000 per day to charter before the outbreak of the financial crisis. Earlier this year you could have one for about $500 per day.
The cruise industry calls itself supply driven. Although yield management and marketing measures can keep ships full, they do not guarantee returns on invested capital.
We think that the cruise industry is either a) on the threshold of an unprecedented period of growth or b) heading towards an unprecedented oversupply of tonnage.
The longer the good times roll in any industry, the more convinced industry executives tend to become that this is what they will do in the future as well and the greater risks they are prepared to take as a result.
Odo Maritime Research, in cooperation with Cruise Business Review, will publish Global Ocean Cruise Market Analysis & Forecast 2016 in June.
This will be the second issue of the bi-annual report, which will study and analyse the recent development of the cruise industry in terms of fleet growth deployment of tonnage, various aspects of the newbuilding sector and the financial performance of the industry.
The pdf format report will comprise about 120 pages and feature a large number of graphs, charts and other visual forms of presentation of information, which makes it easier for readers to form a comprehensive picture of the industry than if lots of text had been used.
To pre-order your copy, please send an email to us at This email address is being protected from spambots. You need JavaScript enabled to view it.
