Cruise ships are a very profitable sector of the shipbuilding industry

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Cruise ships are a very profitable sector of the shipbuilding industry


Golden Princess, a cruise ship from the United States that can accommodate up to 3,800 passengers, sails across the Mediterranean. [JoongAng Ilbo]

As home to seven of the world’s top 10 shipyards, Korea swept nearly 40 percent of the global orders from shipping companies worldwide this year.
But due to high sales, domestic shipbuilders such as Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering believe they will be tied up with their increased workload for the next three and a half years.
The world’s largest shipbuilder, Hyundai Heavy Industries, announced that its third-quarter profit more than doubled from over a year earlier.
According to Hyundai, net profit grew to 434.7 billion won ($473.8 million) in the July to September period from 210.7 billion won a year earlier.
With high profits, however, the nation’s shipbuilders are starting to turn their eyes toward the cruise market because it’s the one remaining high-yielding market.
In the past, Korean shipbuilders have specialized in manufacturing very large crude carriers, container ships and liquefied natural gas carriers.
As China starts to aggressively invest in this area, however, some experts say that Korea is likely to be challenged by its supersized neighbor within 10 years when it comes to technology.
Some forecasts even say there is a high chance that China, which has a bigger market, will outdo Korean shipbuilders in the number of orders.
Domestic shipyards, which are suffering from skyrocketing labor costs on home soil, are starting to prepare for a rainy day by exploring a new market that can create more jobs and bring more money in the future.
They have found an answer: Expensive cruise liners, which cost between $500 million and $1 billion. Each cruise liner costs $5,500 per ton, seven times higher than a very large crude carrier, known as a VLCC, which usually costs $800 per ton.
The future of the cruise industry looks bright. Last year, cruise companies ordered ships worth $10 billion, which account for 9 percent of the world’s ship market.
In addition, as more Americans and Europeans start to embrace this type of travel, cruise passengers are increasing by 10 percent every year.
Cruise itineraries are also changing. Now passengers go on “cruise vacations,” during which the ship becomes more like a floating luxury hotel.
Over the course of several days, the ship takes passengers around to different destinations.
At each port of call, passengers can disembark and go sightseeing by renting a car or participating in an organized excursion.
When they finish their tour for the day, they board the ship and continue their journey.
Cruises to Alaska during the summer are particularly popular among Americans, and the Caribbean becomes a sought-after destination during winter.
Cruise itineraries can range from just a few days to more than 15 days, and costs can range from several hundred to several thousand dollars per person.
Much of a cruise vacation’s popularity is attributed to its luxurious amenities. In fact, a cruise liner is quite different from most other passenger ships.
A cruise ship is decked out with high-quality cabins, theaters, lounges, nightclubs, swimming pools, sports and other recreational facilities. In short, a cruise ship is a combination of a hotel, resort and passenger ship.
Until now, the cruise market has been dominated by European shipbuilders.
After Korea and Japan took the biggest share of the shipbuilding market, European companies such as Italy-based Fincantieri, Norway-based AKER Yards ASA and Germany-based Meyer Werft gave up doing business in manufacturing VLCCs.
Instead, they poured all their money and efforts into cruise liners. This is why European shipbuilders have done their utmost to protect the cruise market from other foreign competitors.
For local shipbuilders, the technical barriers to building cruise liners are not that hard to overcome.
Since cruise ships are intended for humans, not cargo, shipyards only have to reduce noise and turbulence for the convenience of passengers, which does not require very advanced technology.
The biggest task at hand for local shipbuilders is how to decorate a ship’s interior.
“The most important thing is to make the inner part as sophisticated as possible. It has to be a hotel that floats on water,” said Jang Hak-soo, a manager in the passenger development department of Samsung Heavy Industries.
Take one Japanese shipbuilder, for example, which ordered a cruise liner from a European company a couple of years ago.
The project ended in failure because the owner of the ship used only expensive European materials to decorate the interior, and the project remained in the red. To prevent such outcomes, domestic shipbuilders should give priority to manufacturing quality interior designs that can compete with luxurious European styles.
Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering have already hired top-notch art designers and interior design experts.
The Korean government also realizes the importance of the cruise market and has started to nurture companies to produce raw materials for cruise ship interiors.
Local shipyards have set a goal of receiving orders for cruise ships starting in 2010.
In preparation, domestic shipyards are currently building passenger ships before they officially start making cruise liners. Some local shipbuilders have already taken action. STX Shipbuilding has bought 39.2 percent in AKER Yards ASA, the world's second-largest cruise ship builder, to become the company’s biggest shareholder.

By Sung So-young Staff Writer []
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