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A new build quandary

Has the threat of inflation and rising raw material costs created a win-win or a lose-lose scenario?

With order books full and anecdotal evidence suggesting that new build prices have increased 10-20 per cent over the last six months already, it creates a fascinating environment for those buyers who are considering stepping into a new build project. If prices continue to rise and delivery times continue to stretch ever further beyond the horizon, are buyers better served to pay a premium price for an ongoing project than they are commissioning an entirely new project?

Prices, generally speaking, are increasing. Firstly, the most basic economic laws dictate that shipyards should be putting up their prices, add to this the fact that raw material costs, notably aluminium, steel and teak, have skyrocketed and that subcontractors are also putting up their prices, it has created somewhat of a perfect storm. Furthermore, the continued threat of inflation has made pricing projects that may not be delivered until 2025-2027 extremely difficult. Assuming demand remains high, however, we can assume that the longer the delivery time, the higher the price is going to have to become in order to account for all the aforementioned phenomena.

One can imagine a scenario where, for the sake of argument let's choose a round number, a superyacht has been contracted for €100million and it is being delivered in 2022. Due to the various reasons stated above, an equivalent new project with an estimated delivery date in 2026 may cost €120million (€20 million price increase chosen arbitrarily to highlight the point). Buyers may now be thinking:

I can spend €120million on a new project that I won’t get to use until 2026, or I can offer to buy the in-build project with a value of €100million for €120million. The original owner makes a very healthy €20million profit, I pay the exact same price that I would have done, but I take delivery of the project in 2022.

Depending on the perspective, this could be seen as either a win-win or a lose-lose situation for the buyer and seller. On the one hand, the buyer reduces their build time dramatically and doesn’t spend any more money than they otherwise would have done, as well as the seller receiving a healthy sum of money. On the other hand, the buyer is paying way above the initial sales price and the seller is short a superyacht.

Regardless, shipyards and sellers are now in the enviable position where they are able to take far greater control of the sales prices, assuming of course that most people have their price.

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How much are new build prices likely to increase?

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