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2020 July 27

Severe slump of sea cruises

The entire tourism industry is currently in a deep crisis caused by the COVID-19 pandemic. The global cruise shipping is showing a severe slump, the largest one since the Second World War. That consequently entails record low prices in the second market of passenger ships.

The world's cruise fleet numbering over 320 vessels with a capacity of 550,000 passengers had to stop operations and stay idle from April 2020. Businesses focused on 27 million cruise passengers per year collapsed within three months from the beginning of the pandemic in all ports of the world, says cruisemarketwatch.com. It should be noted that the recent decade saw unprecedented rates of cruise shipping development, growth of cruise vessels tonnage and construction of new ships. According to www.statista.com, 37 new cruise ships worth EUR 7 billion were built between 2018 and 2020.

Construction of over 50 cruise ships has been planned by the leading companies till 2025 with the total capacity of cruise fleet to almost double reaching 1 million passengers.

The COVID-19 pandemic was a real shock for cruise operators as the crisis brought global consequences that have known no equals over the recent 70 years.

The 2001 terrorist attack in the USA lead to cruise shipping fall of 30-40% beyond the American market with SARS outbreak in 2003 and 2008 swine flu in China having almost no impact on the industry in the key shipping areas.

As of today, most of global cruise operators, about 85% of the global fleet) are the US companies (Carnival Corporation PLC, Royal Caribbean International, NCL Cruise Holding). Only MSC Cruises and a number of smaller regional operators are registered in Europe. With the appearance of COVID-19 the USA authorities banned cruise companies from taking tourists in the US ports from May 2020. Thus the entire fleet has been laid up.

Amid the pandemic, cruise companies suffer enormous losses, vessels with crews are laid up in different ports worldwide with maintenance and supplies costing hundreds of thousands of dollars per month. Most of newbuildings are financed by credit funds which entails a multiplicative effect in the part of expenses with complete absence of revenues.

Cruise ships for sale

Experts say shares of cruise companies have plunged in the global market by 85-90% over the recent months with large companies facing an unpleasant prospect of bankruptcy.

According to www.businessinsider.com, Carnival Corporation PLC operating a fleet of 130 ships lost $4.4 billion in the second quarter of 2020. Other companies are in a similar situation with financial losses resulting in dismissal of onshore personnel, suspension and termination of shipbuilding contracts and, of course, sale and scrapping of old ships.

A month ago, www.cruiselawnews.com announced the sale of all Pulman Tour ships for scrapping (it is a company of Royal Caribbean Int). According to www.cruisecritic.co.uk, Carnival Corporation Plc sold 13 ships of over 15 years old. Pulmantour Cruises sold two large ships for scrap. Last week media reports announced business failure of Cruise & Maritime Voyages (CMV).

So, the situation in the global cruise market is unique when it comes to opportunities to acquire perfect cruise ships at minimum prices. Some of them (with passenger capacity of 1,500 – 2,000) are offered for EUR 10 million.

Such an attractive price should also be attributed to low price of scrap metal in the global market while cruise companies have to sell ships of 15-20 years old.

Thus, cruise liners built in 1990-2005 can be acquired for $10-15 million, which is 10-15% of their pre-crisis price, say brokers interviewed by IAA PortNews. 

Ferries stay afloat

The situation in the market of ferry service is much better as compared with the cruise shipping as passenger ferries can carry cargo and partly recovered traffic on European routes.

Nevertheless, some operators in Scandinavia are facing serious difficulties amid the crisis since the high season of 2020 has already been lost while operation in the low season brings minimum profit if any. Besides, the largest ferry companies put into operation new ships built in China. It is a fleet of higher capacity equipped with new engines powered by liquefied natural gas (LNG).

For example, Stena Line Ab closed the route of Stena Saga. Ekkoroe Line closed the Birka Line. Cruise ferry Birka Queen is offered for sale. Discounts for such ships can be as high as 50-60% of pre-crises price.  

Russia’s choice

Post-pandemic recovery of the Baltic Sea, Black Sea and Far East tourism industry is being actively discussed in Russia. There is a proposal to have a large cruise ferry built by Russian shipyards although the construction of a ship costing hundreds of millions of dollars can take several years.

However, in the current situation it could be reasonable to look into purchasing of available passenger ship at minimum prices That would save time and money so that by the time of cruise market recovery Russia would have not only full-fledged operators but probably establish a national company for arranging marine tourism from the ports of the Russian Federation.

Sofya Vinarova