Friday, July 1, 2016

China Steers Towards Cruise Ownership

In International Shipping News 01/07/2016
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The rapid growth in China’s cruise market in recent years has encouraged major international cruise operators to race to accommodate the burgeoning demand in the region. So far, the presence of domestic Chinese shipowners and operators has remained relatively limited, but with China aiming to play an increasingly active role in the cruise industry, is China’s cruise ownership set for a shake-up?
Route Checks
By the start of June 2016, 15 cruise ships of c.37,000 berths were deployed on routes calling at Chinese ports, accounting for 7.3% of the global cruise fleet, up from 0.4% three years ago. The Chinese market is dominated by international cruise operators, with less than 3,000 berths accounted for by domestic Chinese owners, representing 7.1% of total cruise capacity calling in China. There are four domestic Chinese cruise operators, with small to mid-size secondhand ships. Following HNA’s recent scrapping of the 30-year old “Henna” due to age limits, and once Suzhou Taihu’s “Glory Sea” is operational, the Chinese market will comprise three domestic ships.
Far From Smooth Sailing
While Bohai Ferry is a major Chinese ferry operator, the remaining three owners – HNA, Ctrip, and Suzhou Taihu – are travel agencies with no historical experience in operating cruise ships, and have recently struggled to make profits. A lack of product differentiation and issues relating to the “charter sailing” ticket selling model have also had an impact, with greater competition between travel agencies new to the cruise market contributing to low ticket prices. In addition, difficulties in securing young tonnage from international competitors has undermined Chinese owners’ attempts to build their brands. The competition seems to be getting tougher, with a number of global cruise operators planning to increase deployment of large, modern ships in the Chinese market in coming years, which would diminish China’s domestic share barring any new investment (see graph).
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Moving Upwind
However, for domestic investors, the vast opportunities in the Chinese market seem to outweigh the challenges. The central government is encouraging the development of China’s cruise industry, through new terminals as well as greater vessel operation, ownership, design, construction, repair and maintenance. A number of Chinese companies are understood to be looking into investing in cruise ships, including a number of travel agencies, terminal operators and state-backed funds, with local governments keen to benefit economically from the development of new terminals. In the shipbuilding industry, SWS is targeting delivery of the first Chinese-built cruise ship in 2020, whilst the Fujian government has established an investment company with a view to order three ships at Xiamen S.B.
In For The Long Haul?
So, China seems to be embarking on a long voyage to build up its domestic cruise fleet, despite a number of headwinds. Against a backdrop of firm expansion by major international cruise lines in the fast-growing Chinese market, it will be interesting to see whether Chinese owners can keep pace and eventually take a more dominant role.

Source: Clarkson Research Services Limited