During a webinar chaired by The Superyacht Group's Chairman, Martin Redmayne, Camper & Nicholsons International (CNI) brought together a renowned panel of industry experts to provide their advice for owners and owners' teams who are currently engaged in contracts with shipyards and that have expectations for delivery that are likely to be impacted by the crisis, as well as exploring what the next moves might be for clients looking to buy in a potentially distressed market. Redmayne was joined by Fabio Ermetto, Chief Commercial Officer at CNI, Jay Tooker, Senior Partner at Holman Fenwick & Willan (HFW) and Mark Cavendish, Director of Sales and Marketing at Heesen.
Speaking broadly about the market Ermetto explains that CNI has “seen very positive energy over the past few days,” and explains that while Italy was hit hard by the pandemic, that shipyards are now resuming operations and daily contact is being made to ensure projects are underway, which bodes well for the industry at large.
“We have not suffered any delays yet, and we have managed to keep schedules correctly running for all boats that are sold.” - Mark Cavendish, Director of Sales and Marketing - Heesen
From Heesen’s perspective, Cavendish supports this positive outlook. “We are faring well under the circumstances. We took drastic actions early on,” he says, referring to the need to comply with social distancing and the various health and safety directives that have become the new normal for businesses globally. “We have not suffered any delays yet, and we have managed to keep schedules correctly running for all boats that are sold.” Nevertheless, he concedes that some realigning of schedules and priorities for speculative boats is required in order to meet the requirements of owner-backed projects.
“We have also been surprisingly active. Contract negotiations are still ongoing, and new enquiries are even coming in, which is quite heartening,” comments Tooker. “[Heesen] sent out a notice of a potential force majeure arising very early on, in order for owners to know that this situation was developing that may well lead to a force majeure delay. Fortunately, so far that’s all that’s happened and we haven’t had to take it to another stage,” added Cavendish, whose main predicted stress for shipyards as a whole is the maintenance of production so that there continues to be minimal impacts on the owners.
There has been much speculation in recent weeks as to whether or not the post-COVID-19 will bring about a buyer’s market with aggressive negotiators on the hunt for a great deal in a distressed market place.
“There may be one or two deals, but shipyards with a strategy and order book have no reason to lower prices..." - Fabio Ermetto, Chief Commercial Officer - CNI
“We definitely expect it, but what I think will happen is when we return to market the ‘bottom feeder’ may want to buy a boat with a 50 per cent discount, but this situation will very quickly dissolve,” commented Ermetto. “There may be one or two deals, but shipyards with a strategy and order book have no reason to lower prices.” Bluntly addressing the thought of applying discounts to vessels, Cavendish comments, “If you sell a boat at a 50 per cent discount, it hasn’t cost you 50 per cent to build so it’s just [financially] suicidal."
“There is a big difference between buying something on the second-hand market and buying something from scratch that’s got to be built,” explains Tooker. “Buying something on the second-hand market is all well and good because you’ve got a deal that you know is going to be over and done within a matter of weeks, you know what you’re going to be buying, you see it there, you get it surveyed, you negotiate a price and you come away boasting about how good a deal you’ve got.
"It’s a false economy to think that you’ve won anything or scored any points at all at the moment you’ve signed the contract because if your price is too low the shipyard may not be there throughout construction..." - Jay Tooker, Senior Partner at Holman Fenwick & Willan
“However, when you sign up to the construction of a yacht, you’re buying into a long-term relationship before you’ve got anything to show for your money – maybe two years, three years or five years some cases. It’s a false economy to think that you’ve won anything or scored any points at all at the moment you’ve signed the contract because if your price is too low the shipyard may not be there throughout construction. What I’ve seen in a few cases over the years are those buyers that go in at very low prices and end up having to terminate the contract, take possession of the yacht, and complete it themselves. They end up paying the real cost of what the yacht should’ve been (and more)."
While resorting to bargain hunting in the new build sector post-crisis was quickly ruled out by the panel, they agreed that the industry will still be able to make successful sales in the wake of the virus.
"The fall out will not be anything like it was in 2008 when there was a significant loss of money right across the board, as well as the impact of people not wanting to be seen buying large expensive toys like yachts. The worlds rich will want to come back and do what they do." - Mark Cavendish, Director of Sales and Marketing - Heesen
“Like all these things there’s going to be winners and losers. Aviation is, unfortunately, a big loser, and there are not that many privately held airline companies,” comments Cavendish. “However, the fall out will not be anything like it was in 2008 when there was a significant loss of money right across the board, as well as the impact of people not wanting to be seen buying large expensive toys like yachts. The worlds rich will want to come back and do what they do."
“I’ve seen no indication from the owners that we’re building for at present that they wish to delay, pull-out, change, or postpone – nothing whatsoever,” adds Cavendish. “We actually embarked on sea trials for one owner today!”
Tooker explains that in the wake of the 2008 global financial crisis a number owners, especially those involved in building superyachts at the smaller end of the spectrum, namely the 30-45m segment, stepped away from projects, referring particularly to those individuals with bonuses who look to spend money quickly.
“However, for the larger end of the market, there were people who very much still wanted to buy yachts, but felt they couldn’t place an order while laying off staff. You also had other people who pulled back for economic reasons,” Tooker he continues. “Then there were other people who thought, ‘I’ve got lots of cash, there is nothing to invest left, so if I’m going to watch my investments go down and into the red, they may as well do it on the aft deck of a yacht. So long as people have the expectation that life will get back to normal, as I’m sure it will, people will want yachts as they always have."
Overall, the outlook for the superyacht industry remains positive, notwithstanding that there will, without doubt, be some disruption in the short-term. Nevertheless, provided that the desire to yacht does not diminish and that the markets rebound in due course, the long-term impact on the superyacht industry should be negligible, especially where the larger size segments are concerned.
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