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Refurb market could blossom into $3.2bn business

With the number of newbuilds down and age of fleets up, the revitalization market is increasingly important to yards and operators.

Short time frames and higher costs mean more pressure, and yards that are flexible, nimble and innovative will benefit both in new construction and refits.

Based on about a half million berths in the industry within the next few years, the ship service market has the potential to reach $3.2bn, Carl-Gustaf ‘Calle’ Rotkirch, chairman & ceo, Grand Bahama Shipyard, told a Cruise Shipping Miami session Wednesday.

‘That’s quite a big business,’ he said. ‘The projected volume for services is constantly growing.’

Within the last 12 months, eight orders for new ships have been placed. The number is certainly a recovery from ‘quite a bit of gloom and doom’ in 2008 and 2009, Rotkirch said.

While the cruise market is healthy, owners are delaying or softening their building programs, said Fincantieri chairman Corrado Antonini. European shipbuilders have no alternative but to pursue their niches, he said. Innovative design and green products are keys to survival. But there’s also a market for refurbishment.

Various statistics were offered on the age of the fleet, ranging from a weighted average for lower berths of 8.9 years to an average overall of 17 years with 28% over 15 years old.

Like the population itself, ‘we have a kind of Baby Boomer generation in the cruise fleet as well,’ Rotkirch said.

And that’s where flexibility comes in.

‘Material, equipment and manhour costs are not going down,’ said Jacques Hardelay, gm STX France. They are being squeezed by the shipowners and suppliers, and they need to modernize yards and improve efficiency. Refits are good news.

STX has three newbuilds on order, including one for Libya’s GNMTC, due for delivery in 2012. ‘The situation is not easy,’ Hardelay said in response to a question about the turmoil in Libya. He didn’t know if they would complete the contract.

Owners understand yard price pressures, said Peter Fetten, svp Corporate Ship Refit, Carnival Corp. & plc: ‘Guess what, our prices are under pressure every year as well.’

Daily refit costs have gone from $1m a few years ago to $2m today, ‘and I’m sure in a short period of time, they will be at $3m,’ he said.

‘Why don’t you look at revitalization a little bit more,’ Fetten suggested to yards, emphasizing timely turnarounds. ‘There’s no way we cannot deliver the ship on time when 5,000 passengers are waiting on the pier.’

‘We pick yards with one thing in mind—logistics, logistics, logistics,’ he said.

‘Retrofit is a key part of going forward,’ according to Kevin Douglas, vp technical projects – newbuild, Royal Caribbean Cruises Ltd.

‘We have to spend large amounts of money in a very short period. The pressure to get a ship back on its itinerary and earning money is absolutely huge,’ he said. There’s little margin for error.