Finnish news sources have said that Carnival Corporation & plc, the world’s largest cruise shipping group, is in talks with Meyer Turku shipyard for three newbuildings. Should this happen, it could accelerate removal of older ships from the Carnival group fleet and demolition of old units worldwide, said Robin Farley, leisure industry analyst at UBS in new York.
The US-UK group currently has four (not three as stated earlier) 184,000 gross ton ships on order at the yard and the rumoured fresh orders that neither party has confirmed or denied, would likely be delivered in 2024-26
Withdrawal rate of older tonnage is likely to accelerate, which will bring down increases when netted against ship deliveries. Industry capacity that is at least 35 years old will go from 3,700 berths in 2016 to 10,000 by 2020, which will likely lead to higher withdrawals.
Carnival recently took a write down of about $400 million of some assets, which Farley believes may prepare them for sale to a secondary market, which could ultimately represent between 1% and 2% of North American capacity
“We think there are further opportunities for capacity to be laid up in secondary markets, as there are ships in the European discount cruise market that were built in the 1980s that if ultimately replaced by older tonnage sold out of North America could represent more than about 3% of North American supply today,” she said.
“The timing of this potential new order highlights a key point in understanding cruise supply trends: it doesn't matter that order books today are at record levels, because ships are being ordered further in advance than historically, so what matters is when they are delivered, and gross capacity in North America is set to grow on average of 5% over next two years, in line with 10 year CAGR of +5%,” she said in a research note.
Typically, a ship with 3,000 to 4,000 berths delivered mid-year could add roughly 40bps of North American capacity increase annually for 2024-2026.
“While capacity is historically a concern for investors, we believe there is some misunderstanding in the marketplace about the rate of supply growth, the rate of supply removal, and the historic rate of demand growth in cruising. See for more detail here on three key main points: (1) Supply growth is in line with historic rates; (2) Withdrawal rate of older tonnage is likely to accelerate, which will lower growth when netted against ship deliveries; (3) Demand growth also matters, not just supply growth,” Farley noted
Capacity growth will seem to "accelerate" in 2018 over 2017 before decelerating back down in 2019, but 2018-19 it is set to grow on average at 5%, in line with 10 year average.