By ZHUANG Jian, XU Ning, CHU Yanmo

 

In a few years, will China surpass the U.S. to become the world’s largest cruise market?

Speakers enthusiastically discussed this very topic at the interactive session of a high-end tourism industry forum in early October, taking place at the Marriott Delta Hotel in Baoshan District, Shanghai.

Colin Au, the President of Genting Group, was the first to give an answer.

“It will take three decades,” he said. 

According to Au’s estimate, the Chinese cruise market is growing at 10 percent each year, and the growth rate of the U.S. market remains steady at 4 percent. With the current five-fold gap, China will be able to call itself the largest source of tourists to the global cruise market by 2049.

Pierfrancesco Vago, executive chairman of the board of the Mediterranean Shipping Cruises Group (MSC Group), believes that China will surpass the United States in 2030 due to its larger population.

When the host put the same question to Michael Bayley, the President of Royal Caribbean International Cruises Ltd., he half-jokingly replied. “2029.”

This may sound like an effort to ingratiate the cruise industry its Chinese hosts, but the strategic investments international cruise giants are making in the Chinese market are concrete and lasting.

In the next two years, all three top cruise companies plan to deploy their newly built super-tonnage luxury cruise ships to China. To be precise, ships will be deployed to Shanghai’s Wusong Cruise Port. The port is a 10-minute drive from where the forum took place.

In 2020, the MSC Group will send the 172,000t Bellissima to Shanghai. This 316-meter ship can accommodate a maximum capacity of 5,686 guests.

In 2021, Genting Group’s “Global Dream” will also dock in Wusong Cruise Port. It has a GRT of 225,282t. In the same year, the fifth Oasis-class ship of the Royal Caribbean will also sail to Shanghai. This ship will bring the capacity to another level, with a gross tonnage of close to 230,000t.

The arrival of Bellissima, Global Dream and Wonder of the Seas will refresh the history of Wusong Cruise Port one by one. Until then, the largest cruise ship docked at the Port is a 165,000 GRT vessel.

Wusong Cruise Port has been in operation for a mere eight years, but it has quickly become the number one cruise port in Asia and the fourth in the world. In the past few years, more than half of China’s cruising tourists embarked on their journeys from this port.

Wusong may be young, but it’s already become a witness to the rapid growth of the Chinese cruise market.

Last year, the number of cruise passengers in China reached 4.87 million.  That’s ten times what it was in 2011. Although the growth rate of the Chinese cruise market has slowed in the past two years, no one doubts its potential for continued growth.

However, in this prosperous marketplace, there is little domestic capital.

Most of the luxury ships cruising on the Chinese coast are owned by foreign companies. Of the 15 mega cruise ships that have based their home port in mainland China, only three are owned by domestic cruise companies.

Although China has long been the world’s largest shipbuilding country, mega ships are built primarily in Europe. As of August this year, Fincantieri, Meyer and Chantiers de l’Atlantique had captured more than 80 percent of the world’s orders for large cruise ships.

A handful of Chinese endeavors are trying to change that.

Shanghai Waigaoqiao Shipbuilding Co., Ltd (SWS) is located 20 kilometers east of Shanghai Wusong Cruise Port. This 20-year-old shipbuilding base is one of the best shipyards owned by China State Shipbuilding Corporation Ltd. (CSSC). It is also the only company in China with an annual shipbuilding capacity exceeding 8 million DWT.

On October 18, SWS officially launched the construction of the first domestically built mega luxury cruise ship. The 135,000t vessel is scheduled to be delivered in the second half of 2023. It will have 2,125 cabins and can accommodate 5,246 guests at a total construction cost of $770 million (about 5.4 billion yuan).

Taking its maiden voyage into the arena of cruise ship construction, CSSC chose a safe route. It has formed joint ventures with international companies to introduce sophisticated ship design and construction technology into China.

At the beginning of this project in 2012, CSSC started selecting partners and finally narrowed it down to two companies: the Italian Fincantieri Group (Fincantieri) and the American Carnival Corporation & PLC (the Carnival). The former is the world’s largest cruise shipbuilding company, while the latter is the world’s largest cruise operator.

It took more than three years of negotiations, for CSSC to sign a joint venture agreement with Carnival for cruise operations. After another two years of negotiations, CSSC, Carnival and Fincantieri signed a binding memorandum of agreement for the building of two new ships with an option for four more (the “2+4 Plan,”)

WANG Yanguo, deputy general manager of CSSC Cruise Technology Co. Ltd. (CSSC Cruise) said, “The international market of cruise construction and operation is oligopolistic, tech-intensive and capital-intensive. We need to adopt a global perspective and vision in our exploration to develop a cruise industry with Chinese characteristics.”

CSSC Cruise, as the only platform enterprise of CSSC’s cruise arm, is the primary responsible party and undertakes cruise ship research and development, cruise operation and supply chain construction. As the Chinese shareholder, it has established joint ventures with Carnival and Fincantieri, respectively.

CSSC Carnival Cruises Co., Ltd. (CSSC Carnival) is the operator of the first domestic luxury cruise ship; CSSC Fincantieri Cruise Industry Development Co., Ltd. (CSSC intention) is responsible for the design of the cruise ship.

According to the tripartite agreement, the first domestically built luxury cruise ship will be based on the original Vista-class ship. This is a relatively mature ship class upon which Fincantieri has built three luxury cruises ships.

While the Italian company takes charge of conceptual design, CSSC Fincatieri will execute the subsequent design development and tailor to the specific needs of the Chinese market.

Such an arrangement has considerably reduced the challenge of building a luxury cruise ship, but the teams still face a lot of pressure to deliver the vessel as planned in four years’ time.

LNG (liquefied natural gas) ships, aircraft carriers and luxury cruise ships are known as the crown jewel of the shipbuilding industry. In terms of technical complexity, construction difficulty and volume, cruise ships are much more difficult than that of the other two.

Building a cruise ship entails putting together over 25 million parts. More than 5,000 kilometers of cable will be used, which is close to the distance between Beijing and Moscow.

Luxury cruise ships contain a large number of interior projects, involving artwork, entertainment systems and lighting design, which differ significantly from the cargo ship and offshore projects that the Chinese shipbuilding industry has been good at.

FAN Qiang, VP of China Classification Society (CCS), said that it is still difficult to provide high-quality products in line with the construction of luxury cruise ships in China. Insufficient capacity is an obvious drawback and needs to be solved.

The Japanese have also faced this challenge. This has caused a failure to construct a cruise ship in Japan. The lack of a local supply chain has led to a serious delay in delivery and a sharp rise in costs.

SUN Changqing, Chief accountant of CSSC Cruise, also warned of the series of time management and logistical problems which may occur when sourcing heavily from overseas. These problems may prevent timely delivery of the ship and require the utmost attention throughout the designing and construction processes.

To make up for these shortcomings, CSSC will consider trying to relying on the capacity and resources of domestic partners, as well as the acquisition of foreign companies, and pursuing foreign companies to establish themselves in China, either in joint ventures or as individual proprietorships.

An important development in this respect is the cooperation between CSSC and R&M group, a German cruise built-in installation company. The two parties plan to work together on cruise built-in services in China and will potentially become a subcontractor for the first domestically built luxury cruise ship.

At present, the construction of such a supporting supply system is still in its infancy. Building a luxury cruise ship usually depends on close strategic partnerships with hundreds of suppliers.

For overseas shipyards with a mature supply chain and expertise in cruise construction technology, it takes about three years to deliver a cruise ship. Important milestones of this process include block construction, keel-laying, float out, sea trials, handover, and so on.

CSSC, which is to build its first mega luxury cruise from scratch, planned for a four-year project. Wang Yanguo, deputy general manager of CSSC Cruise, said: “It looks like a four-year delivery goal is a long time, but we really have to seize the day.”

The first luxury cruise ship will be operated by CSSC Carnival after being delivered in 2023. Before the delivery of this cruise ship, CSSC Carnival will start operating two serving luxury cruise ships and gradually build up its operation capacity. 

The two cruise ships are called “Atlantic” and “Mediterranean”, which were previously affiliated with Carnival. During the China International Import Expo (CIIE) last year, the two parties signed a transfer agreement. It is expected that this transaction will be completed in November.

If the “2+4 Plan” is carried out as intended, CSSC will have a fleet of at least eight cruise ships by 2028, and it will coordinate the operation of the Chinese market with Carnival, one of its shareholders.

At present, the two major brands of Carnival: Costa and Princess Cruises have deployed fleets in China. 

In addition to CSSC, more state corporations are entering China’s cruise market in different roles.

In September, a joint venture called Astro Ocean Cruise launched its first voyage from Xiamen, its home port. It is owned by two state-owned companies, China National Travel Service Group (CTS) and China COSCO Shipping Group.

Astro Ocean Cruise bought a 69,000-ton cruise ship a year ago and renamed it “Gulangyu” after the renovation. As a result, the number of cruise ships operated by domestic cruise companies has increased to three.

This is obviously just the beginning. WANG Gang, deputy general manager of CTS, said that Astro Ocean Cruise plans to expand the size of the cruise fleet up to three to five in a combination of purchases and construction.

The China Merchants Group also proposed similar goals. The global Fortune 500 state-owned enterprise is also venturing to establish a domestic cruise fleet. WANG Hong, deputy general manager of China Merchants Group, said, “We want Chinese people to cruise on luxury ships made and operated in China.”

At the beginning of this year, China Merchants Group signed an agreement to build four 37,000t cruise ships in batches, each costing 2 billion yuan (around 281 million USD).

According to YE Xinliang, deputy director of Shanghai International Cruise Business Institute, the domestic luxury cruise industry is in the incubation period and needs a lot of investment. Only state-owned enterprises with sufficient funding are willing to invest.

“In addition to financial considerations, state-owned enterprises also have to follow the national strategy.” Ye Xinliang added.

Arnold Donald, the Carnival’s CEO, also attended the cruise industry forum mentioned at the beginning of this article.

When asked for his opinion on when China will become the world’s largest cruise tourism market, Donald said the date would depend on the number of ships deployed in the Chinese market, and he believed it would be within 20 years.