Bottlenecks and quality control
Is the current new build performance sustainable? How might a lack of capacity impact key deliverables?
With abounding positive news stories coming out of Cannes and the big five production/semi-custom manufacturers touting how wonderful their huge order books are, is there a risk that the new build market is running smiling, headlong into a bottleneck? Capacity, much like money, does not grow on trees and when one considers the new build markets generally decreasing deliver figures over recent years, how equipped is the sector to account for a sustained and steep increase in demand? Furthermore, with orders now stretching uncharacteristically far into the future, how many of the booked slots will genuinely materialise into contracts and builds when global conditions inevitably shift once again.
Far be it from me to criticise the industry when, after a number of years of difficult market condition, it has finally strode back into its pomp. However, if the market’s performance in the mid-to-late 2000s, and the subsequent crash, taught us anything, it is surely that the industry’s long-term prosperity is reliant on sustainable enduring growth, not an overreliance on boom periods to balance out the busts.
One well-known shipyard recently announced that its order book increased three-fold compared to the last season to €1.2bn, growing €900m, of which €508m was booked in the last 90 days. Similarly staggering results have been posted by all of the market’s top production/semi-custom shipyards and shipyard groups, which is, of course, a positive thing when one considers the number of existing and new clients that are interested in remaining in or engaging with the superyacht market. However, how sustainable and/or realistic can these growth figures truly be?
Speaking with SuperyachtNews as part of the Digital Dialogues series, Jan-Jaap Minnema, senior sales broker at Fraser, voiced concern about the propensity for opportunist buyers, who perhaps never had a legitimate intention to take a project to completion, to start selling slots or otherwise pulling out of build slots.
“The shipyards are completed booked,” commented Minnema. “No matter which shipyard, whether it is Italian, Turkish, Dutch, German or otherwise, no matter what size or where you go, they are fully booked. I have heard that at certain shipyards they’re just selling slots for the sake of having slots available. It is difficult to say whether this is sustainable, but if everyone is selling this much product, you have to consider the number of subcontractors and contractors required to complete the works. [Without established subcontractors] it becomes hard to control the quality of your product. Plus, from the owner's perspective, if the delivery is three or four years down the line, how can the yards guarantee that the client is getting the quality that they are selling?"
Equally, various commentators have suggested that, to a certain extent, the excellent order figures have been somewhat buoyed by impulse purchasing because of the emotional strain and positive financial conditions created by the COVID-19 pandemic. Is there a risk, because of the extended build times created by excessive demand, that impulse buyers will renege on orders, contracts or slots when global conditions return to normal or, otherwise, a new challenge presents itself in the not-so-distant future?
“On the one hand, everybody is very happy about the huge order intake…but then it starts. It is like with everything, if you send a brochure to someone, that is not a sale, it is just one part of it all. That is the same for the shipyards, getting an order is one thing and getting an unhappy client and the quality that you are selling out, is another thing,” continued Minnema.
It is wonderful that the new build market is experiencing such a significant influx of activity, but the market must be realistic in its growth strategies. Failing to complete the promised works on time or to the required quality standards is not a model for long-term prosperous growth. If this demand is here to stay for the foreseeable future, like some commentators have suggested, perhaps some shipyards would do well to focus on their pricing and margin rather than the number of units in their order book.
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