How is Chinese shipbuilding going to take advantage of the opportunities and deal with the challenges of the cruise segment? As part of the Generations roundtable series, ABB Marine & Ports has gathered a group of shipbuilders and specialists in Shanghai to search for the answers.
Azipod® propulsion system will power China’s first ever home-grown cruise ship, due for delivery in 2023 
Alf Kåre Ådnanes, Louie Xie
The domestic cruise industry in China seemed poised to take off in 2016, posting record growth. Following a decline in 2017, the industry acknowledged the need to rethink and regroup. Now, optimism is back and China’s first domestically built cruise ship is on order. What does this mean for the Chinese operators and builders? What are China’s biggest challenges in the domestic and global cruise markets? And can China compete at the top level with European builders and operators?
Moderator Wenhua Xing, chairman of the Shanghai Society of Naval Architects & Ocean Engineers (SSNAME), was optimistic in his opening remarks to the roundtable discussion.
“Cruise is considered one of the pearls in the Chinese shipbuilding industry. China is bullish on cruise, both the consumer market and shipbuilding, despite the recent downturn.” The big question for both segments, he asked, is how to make money.
“Many yards want to move into cruise. China State Shipbuilding Corporation (CSSC) and Carnival have announced plans to build in China, and Shanghai Waigaoqiao Shipbuilding Co (SWS) has plans to enter the market in partnership with Fincantieri. More and more people want to travel overseas as well, and we believe many of these will want to travel on cruise ships.”
The potential of China’s huge consumer market speaks for itself, Wenhua Xing pointed out, but there is still a need for caution. “We need to learn from historic losses in Japan when they attempted to build their first cruise ships. Cruise is different, and the vessels are different. Everything, from the philosophy, to supply chain management, to construction in the cruise industry is unfamiliar territory in China.”
Yet China is developing rapidly as a shipbuilder, he pointed out, and despite the challenges, they see great opportunities. “China may be emerging as an industrial power, but can we really build cruise ships?”
Cost is key
The first response came from Keyi Hu, technical director at the Jiangnan Shipyard.
“There are four major challenges for Chinese yards. First, we need to meet the standards and specifications. The second issue is meeting quality requirements. The third is controlling cost, and the forth is ensuring on-time delivery.”
Specifications, he believed, would be the easiest of the requirements to accommodate. “We can simply copy other models. Chinese yards have the capacity to deliver on quality, especially as we have strict requirements to work by.” But delivering on time and cost could prove to be more difficult, he said.
“These are the biggest challenges. Tickets are sold before the vessel is delivered, so not keeping to the schedule has big consequences, in fines or other penalties. And the portion of low-end work in cruise is not as big as in traditional shipbuilding, so our margins are much tighter.”
Even more significant for cost, he said, is the need to use many suppliers, most of whom are located in Europe, making it expensive to source from China.
He acknowledges that China is building increasingly more sophisticated vessels, but not in the luxury segment. “Most Chinese luxury suppliers are in real estate, and what works on a skyscraper may not work on a ship. And when we can find them locally, the cost is very high. We are well established in the cargo vessel segment, but to adapt and specialize to cruise requirements is a new challenge.”
Vacation, not transportation
China Classification Society (CCS) Shanghai branch director Shi Chen believes China is prepared for this market technologically. Lack of experience with cruise specifications, however, is an issue, as well as cooperation with suppliers.
He said that looking at previous standards or fixed designs is of little help, as these do not apply directly to cruise. To move forward, he said, China needs cooperation and joint discussion between owners, operators, builders, classification societies and equipment suppliers – preferably before the ship is designed. “We need to keep the discussion going throughout the building process, adjusting and improving the design and construction as we go along.”
The key questions that need to be addressed, he believes, include the style of the cruise, and which routes the ship will be trafficking. “This is very different than traditional shipbuilding, and we are still dependent on Europe for their experience in the field. Also China does not have the investment apparatus for cruise, or investors with the knowledge of the industry.”
He notes that the outbound cruise market is still growing, despite the recent downturn. “Penetration is still very low and the population is big, so there is a lot of potential. For a while, cruise was a novelty and everyone was eager to try it. But even then many used it as a way to buy tax-free goods. They spent more on duty free than on a ticket to Korea or Japan. That is not cruising. We still do not know how to enjoy cruise as a destination by itself.” The Chinese are gradually adopting their own version of the European model, he believes, with a focus on cruise as travel, not just as “tax-free transportation”.
“The Chinese have more time and money now, and there is a natural development in awareness, but Chinese customers need time to adapt. The long-term trend will be toward more cruise, when we begin to see it as a vacation, not just transportation.”
Defining a new niche
Despite these trends, Shi Chen believes that true acceptance of cruising in China will depend on more than the changing mindset of customers. “European builders keep to European customs, but Chinese guests don’t want to lay in the sun or sit in the library. Different cultures have different habits, and that means different markets with different needs.” This, he believes, is one key reason why the competition between European and Chinese builders will not be a significant issue in the long term.
“Everyone knows the major yards are full, with orders through 2025. This opens up opportunities for Chinese yards. Even if there may be surplus capacity in the future, those ships will not be suitable for the Chinese market. On the contrary, our market will grow on its own terms. It will probably not be highest end luxury, but somewhere between three and four stars, economical and comfortable. First, we must control cost. Then we can grow the idea that cruise is a part of enjoying a better life.”
Strength in numbers
Hudong Zhonghua Shipbuilding Group Co. Ltd. general manager Jun Chen took the opportunity to present the case for China cruise by the numbers: “China has a big population. If just two out of one hundred people take only one cruise per year, that would mean 20-30 million people on cruises annually. To cover this, seven or eight ships would need to be built a year. The numbers are very strong. There will be a big demand, even with limited interest.”
Understanding the values
Though the numbers may be strong, the key to unlocking the market, Jun Chen proposed, may be through a better understanding of Chinese values. “Wealth is growing in China, so the number of people cruising should grow, but it has to grow on Chinese terms.”
But he warns that simply copying the European experience will never float on the Chinese market. “The Chinese have a saying that food is the basis for life. Europeans seem okay with the same kind of food for one or two weeks on a cruise, but Chinese people hope for a new experience with each meal. This requires kitchens with equipment suitable for Chinese cooking. Once this is resolved, we can combine Chinese food traditions with the cruise experience.”
He believes another focus might be on beauty and health care. “Young Chinese women can spend money on a spa or the gym, not only travelling and shopping. Having a whole month of beauty treatments could be very attractive.” Young men, on the other hand, like to work out. “A man with a big belly could return from a cruise more fit, a stronger man. These new demands for cruise experience will define cruise ship design and building in China.”
Rounding off
Wenhua Xing summed up the discussion with a confirmation to the speakers. “We all agree that the market needs to mature. Chinese people still do not have a full understanding of the cruise concept, but I agree that the market potential is huge. The main thing is to understand cruise as a relaxing and enriching experience.”
ABB Marine & Ports managing director Juha Koskela added his support for efforts to grow the cruise market in China: “Chinese builders have chosen the right approach. They want to team with experienced suppliers, designers and builders in order to build up their own knowledge. Following this path, I think China is capable of meeting their future cruise demands.”
