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Cruise vessels forecast and COVID-19 impact on the industry
16 April 2020Dalibor Gogic
Pictures of stranded passengers on cruise vessels with the
COVID-19 outbreak and port authorities refusing some of those
vessels access to ports across the world is something that many
people will remember the cruise industry by this year. The majority
of cruise operators have ceased operations amid the coronavirus
outbreak, and our AIS data suggests that a large
number of vessels have spent the majority of their time moored or
anchored. The percent of total time not moving has jumped from an
average of 20% to more than 60% for vessels larger than 10,000
gross tonnes.
Similarly to other travel and leisure segments the operators
laid off many of their people and seized their operations, as ships
remain empty and idle. This is certainly something that the
industry is trying to avoid, as idle vessels do not bring money in.
There will be mounting pressure on the cruise companies, and many
will probably look to get access to additional credit lines until
the situation stabilizes.
This will be a difficult year for the cruise industry, certainly
when safe more aggressive price cuts for cruise holidays are
expected to follow which will hopefully encourage passengers back
on board. Much will depend on the shape of the recovery curve for
the major economies that are expected to be hit by recession this
year. Particularly bad news for the industry is that the recession
is expected to hit the two most important markets Europe and the
US. The share price for cruise operators reflects the current
situation, but the industry is expected to survive, although the
margins will definitely suffer.
A large orderbook and intensification of competition on
economies of scale expected to continue
Following fleet expansion programmes set up during last few
years, the newbuilding orderbook swelled to about half of the
capacity of 22 million gross tonnes. This type of expansion seems
to be almost unbelievable for any shipping segment, although the
orderbook is going to be delivered over a longer period of time,
compared with the traditional commodity fleet.
Intensification of competition on economies of scale seems to be
a way to go for the cruise industry at the moment. This raises some
concerns for the future and profit margins for the industry that
competes on lowering prices and affordability of cruise package
holidays. We downgraded the fleet forecast growth this year, as
some deliveries seem to be pushed to next year. The industry is
highly driven and highly sensitive to disposable income, and any
looming recession, may be a potential threat for an industry that
seems to be losing competition on economies of scale.
Long-term, incremental growth for the industry is expected to be
coming mostly from emerging markets, namely China. US and
Western/North European markets still remain a major source of
demand for the cruise market industry, with the US being by far the
largest. The major risk factor for fleet profitability and further
growth remains the fleet orderbook, which stands at an incredible
47% of current fleet capacity. Recently growing bunker prices,
started to cool off in the meantime, but risks of an escalating
trade war added concerns to the health of the global economy.
Posted 16 April 2020 by Dalibor Gogic, Principal Analyst, Maritime & Trade, IHS Markit
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