27 MAR 2020 

The global suspension of cruise operations and the reduction in commercial shipping due to the novel coronavirus (COVID-19) have broad ramifications for many business sectors, including the shipbuilding industry. Worldwide, shipbuilders are struggling to maintain their businesses while uncertain over the implications of the current global crisis.

Shipyards working with the world’s navies have mostly been deemed “essential businesses” exempting them from the public safety directives.  Newport News Shipbuilding, for example, is operating with new work rules, relaxed leave policies, more swing shifts, and work from home. Ingalls Shipbuilding in Pascagoula, Mississippi, has made similar efforts, but in Maine, the unions have called for a suspension of work at Bath Iron Works.

Internationally, the shipyards’ fates have largely followed each country’s stage in fighting the virus. Fincantieri suspended production activities at its Italian sites from March 16 to March 29, while in Spain, Navantia reduced its programs to essential activities and asked administrative and office functions to work from home. Chantiers de l’Atlantique in France has reduced work activity starting mid-March, maintaining mostly administrative functions working from home, while Meyer Werft in Germany reports that work is currently proceeding but with restrictions and prevention measures.

As the virus continues to impact the global economy, one of the greatest uncertainties will be on commercial shipbuilding. Faced with significant declines, shippers have canceled sailings and the longer the crisis continues the more likely construction projects will be impacted.

Cruise lines hold one of the largest shipbuilding order books and after suspending operations immediately moved to reduce their near term capital expenditures. Royal Caribbean Cruises said in a March 10 statement to investors, “The Company is pursuing additional actions to improve its liquidity by reducing capital expenditures, operating expenses and taking other actions to improve liquidity by at least a further $1.7 billion in 2020. The company is also planning reductions to the 2021 capital expenditures and operating expenses.” Carnival Corporation & PLC also told investors that it was taking actions including capital expenditure and expense reductions, and it predicted that “the effects of COVID-19 on the shipyards where its ships are under construction will result in a delay in ship deliveries.”

The expectations in the financial community are that the cruise lines will slash discretionary capital expenditures. Wall Street analyst Robin Farley at UBS in her March 18, 2020 report estimated Carnival would lower capital expenditures by $500 million and that Royal Caribbean could delay roughly $1.4 billion in capital expenditures.

A significant portion of the reductions will impact the shipyards, contractors and suppliers.  While the hotel renovation projects can be deferred, some of the ships may still require technical work or dry-docking to meet class society requirements.  Royal Caribbean has put on hold the $165 million revitalization of its Allure of the Seas scheduled to have begun at Navantia and the $110 million project scheduled for the Explore of the Seas due to get underway at Damen Shiprepair Brest (France). Celebrity Cruises also had large projects for the Celebrity Constellation and the Celebrity Infinity. Norwegian Cruise Line has dry dockings scheduled in 2020 for the Pride of America and the Norwegian Epic. A large refurbishment of Oceania Cruises’ Nautica is scheduled for June for which Oceania currently says, “We’re going to remain hopeful and continue to monitor the situation.”

Some of the overhaul projects may have to proceed when the shipyards resume work; as an example, Navantia had commenced the $200 million conversion of the Carnival Triumph into the Carnival Radiance before the yard’s work stoppage. Due to the uncertainty of the timeline for this project, Carnival has begun signing off the crew. Similarly, Windstar Cruises is underway with the lengthening of its Star Breeze, and its second ship Star Legend recently arrived at the Fincantieri yard in Palermo.

Cruise lines have over $8 billion in new construction scheduled for delivery in 2020 and a total order book estimated at over $60 billion over the next seven years. While the construction timing may be impacted, “all the cruise lines use export credit financing when ordering ships, so ship financing is in place for orders over the next five-plus years,” explains analyst Robin Farley. There has been some speculation, however, that the cruise lines might seek to delay projects or that they might even sell some of their construction contracts.

Among the near-term construction projects being impacted, Celebrity Cruises’ Celebrity Apex is reportedly ready for delivery from France’s Chantiers de l’Atlantique. Germany’s Meyer Werft also recently completed the conveyance of P&O’s Iona to Bremerhaven, where according to Meyer Werft final fitting out work is “again proceeding with a reduced workforce and a lot of preventive activities.” Shipyard De Hoop in The Netherlands also recently moved Silversea Cruises’ new Silver Origin for her final stages of construction before sea trials and delivery scheduled for this spring. The other newbuilds due for 2020 will likely be significantly delayed.

China, which is the world’s largest shipbuilder and suffered through months of the virus, is now beginning to restore its shipbuilding operations. China State Shipbuilding Corp. (CSSC) reportedly raised about $718 million early this month by selling short-term debt in order to replenish its working-capital facilities, and it is again proceeding with work. On March 19, China Merchants Heavy Industries (CMHI) in Haimen, China launched Ocean Victory, the latest expedition cruise ship in a series for SunStone Ships. At the same ceremony, the yard also cut steel for another SunStone ship, the future Sylvia Earle.

Like other parts of the shipping industry, the long-term impact remains to be seen in shipbuilding.


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