Carnival Corporation’s expansion into China under the new CSSC Carnival Cruise Shipping (Carnival China) subsidiary will lead to significantly more competition for European shipbuilding in the coming years.
Carnival China has two 133,500-gross ton cruise ships under construction with China State Shipbuilding Corp.
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Carnival Corporation is expanding its presence in the Asian market, with a new CSSC Carnival Cruise Shipping (Carnival China) subsidiary that is building the first of several cruise ships from scratch in Chinese shipyards.
The establishment of the Carnival China subsidiary, and its local shipbuilding program, will provide China with unprecedented access to the latest technical know-how and design knowledge when it comes to cruise ship construction, and may mark the beginning of a shift in newbuild demand from Europe to China.
Carnival China has two 133,500-gross ton cruise ships under construction with China State Shipbuilding Corp., both of which are based on Carnival Cruise Line’s Vista-class. The first is due for delivery in 2023.
Why Carnival is building in China
The joint venture between CSSC and Carnival is an example of China’s Company Law, which requires most foreign businesses to form a joint venture with a local partner in order to expand into the local market.
Through this process, intellectual property flows into China, and because local production is often a requirement of these deals, nascent industries such as cruise ship construction, receive a major in terms of the development of local know-how and expertise.
According to Vox China, “partnerships typically require the foreign firm to transfer proprietary methods, designs, and other know-how to the joint venture firm. The implicit objective of such a policy is to foster the transfer of advanced foreign knowledge.”
China is able to benefit from these regulations as a result of its huge local consumer market, which is too large for most foreign companies to ignore. In terms of the cruise industry alone, 1.9-million Chinese residents went on a cruise in 2019, with the market having experienced 40% growth year-on-year since 2006.
“With access to more than 1.3 billion people, many of them potential consumers, and a flourishing GDP, China represents a global market opportunity that multinational companies around the world continue to exploit,” writes The Conversation.
What this might mean for European shipyards
Europe currently dominates when it comes to cruise ship construction.
Of the 117 cruise ships currently on order through 2027, only 13 of them are specifically designated as being intended for the Asian market, which generally means they’ll homeport in China, the largest cruise market in the region.
All but three of those ships are being built in Europe by one of the large Italian, German, French or Finnish cruise ship builders. Just three shipyards (Meyer Werft, Fincantieri and Chantiers de l’Atlantique) account for 61% of all the cruise ships currently on order.
They’ve achieved this dominance through decades of specialization and the development of local cruise ship building eco-systems within their respective countries that make the designing, construction, assembly, and fitting out of cruise ships cost-effective and efficient.
European shipyards have developed a decades-long pedigree for the construction of large, advanced cruise ships.
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But China has decades of experience in creating similar industrial eco-systems. Shenzhen, a city bordering Hong Kong in the southeast, has evolved as a hub for the electronics industry.
Its manufacturing supply chain is supported by component manufacturers, low-cost workers, a technical workforce, assembly suppliers, and customers. Apple and other major US tech companies take advantage of China’s supply chain efficiencies to keep costs low and margins high.
The ships under construction for Carnival in China are the first domestically built cruise ships in the country, but China State Shipbuilding Corp. is the largest shipyard in the world in terms of revenue and tonnage, and just a few decades ago most of the world’s ships were built in the United States and United Kingdom.
Now that production has shifted to South Korea, Japan, and China, which together account for the vast majority of all new commercial and merchant ships built per year.
Carnival’s new build Chinese ships are closely based on the Vista class.
China therefore has the infrastructure and economies of scale to steadily expand its presence in the cruise ship construction sector, increasing competition for the dominant European shipyards, which face tighter regulations when it comes to workers’ rights, environmental regulations and so on, all of which increase costs.
In the wake of the COVID-19 pandemic, cruise lines will still be looking to expand their fleets and simultaneously replace older ships with more efficient, larger ones. And due to the debts they incurred during the shutdown in 2020, they’ll be looking to do this at the lowest cost possible.
If China can position its nascent cruise ship construction sector as a viable alternative, with the scale and quality required to meet cruise lines’ requirements, there will likely be a shift in cruise ship building from Europe to Asia in the coming decades.
Categories: Cruise Industry, News