A busy year for new contracts and design
William MacLachlan, partner at HFW, reviews 2020 and looks forward to the year ahead…
At the turn of a new year, SuperyachtNews speaks with HFW partner William MacLachlan about the year gone by, the performance of various market sectors, global buyer sentiment and predictions for the year ahead.
He begins, “2020 was a hell of a year. Initially, a lot of time was spent firefighting, dealing with various COVID-related issues, primarily concerning cancelled charter contracts. The MYBA contract did not, at that point, lend itself to the cancellation of charter contracts by charterers for the purposes of COVID and there were some difficulties to be overcome and we had some robust fights, several of which proceeded to arbitration.
“Meanwhile, there was an almost complete stop on sale and purchase (S&P) because you simply couldn’t inspect vessels, move crew or deal with delivery arrangements. On top of this, the financial uncertainty and the belief that there would be bargains to be had once the dust had settled held back many potential buyers.”
As has been widely reported, the brokerage market performed admirably under the circumstances in the second half of the year as lockdown measures and travel bans began to be relaxed. However, while the performance was strong, it was unable to benefit from the typical S&P cycles that see a trough in July and August when clients are using their boats and a spike in activity shortly thereafter during the boat show season.
“There has been a steady flow to the brokerage market in the second half of the year, but we have not seen the usual pattern,” continues MacLachlan. “I think the brokers would say that there isn’t enough quality tonnage on the market and the buyers would say that there isn’t enough tonnage at the right price. People are still holding out for the bargain, but I’m not convinced that there are many bargains to be had, with asking prices by and large being a fair assessment of current values. That being said, we are in a situation now where many of the global elite are as rich, if not richer than they were before COVID and the attraction of yachting remains strong. I anticipate a strong uplift in the brokerage market once this is all over.”
While the brokerage market has been frequently reported on and new build deliveries have continued to be tracked, the performance of the new build market in terms of new contract activity during of the COVID-19 pandemic is lesser-known. The assumption, perhaps, has been that while clients and shipyards are obliged to finance and complete projects, it is unlikely that 2020 would have been a strong year for new contracts. However, according to MacLachlan, the new build market performed well in 2020.
“By and large the yards we regularly work with (whether for owners or the yards themselves) seem to be doing pretty well. Many yards were able to continue construction with very little delay caused by COVID, albeit there were a number of complications to overcome in the early weeks of the European lockdown. If the experience of the HFW yacht team is anything to go by, the future looks positive too, with the team dealing with orders across the full range of European yards, the full range of sizes and across various yacht types,” explains MacLachlan. “We are also seeing a great deal of design activity, which is an incredibly positive sign. Where the designers go, the builders will follow and many designers seem to have more work at the moment than they know what to do with. If anything, this is proof that yachting has an enduring attraction.”
Looking beyond the headline capturing movement of the new build market, MacLachlan predicts that consolidation amongst the industry service providers will continue as economies are sought and owners increasingly favour security of working with market leaders and large houses.
“We will see large service providers, lawyers included, growing their market share at the expense of other market actors. That said, as a counter to this, we anticipate continued competition from small businesses and one-man-bands, be they brokers, lawyers or otherwise but increasingly the costs of doing business and the need for a broad spread of specialism will favour the larger service providers. I believe owners will increasingly realise that this is an industry growing in complexity and that going with the small firm or individual practitioner that you have always gone with may not necessarily be prudent in this day and age,” says MacLachlan.
That 2020 proved to be a strong year for new design and construction contracts indicates that the superyacht market is perhaps more resilient than many have given it credit for. Taking this into consideration, in conjunction with a recovering S&P market and continue service provider consolidation, there are encouraging signs that 2021 could be a busy year for designers, shipyards, brokers, owners and their lawyers.
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