Cruise Ships a Beacon for Germany’s KfW in Dire Shipping Market

The Harmony of the Seas (Oasis 3) class ship leaves the STX Les Chantiers de l'Atlantique shipyard site in Saint-Nazaire, France, May 15, 2016. REUTERS/Stephane Mahe

The world’s largest cruise ship, Harmony of the Seas (Oasis 3), leaves the STX Les Chantiers de l’Atlantique shipyard site in Saint-Nazaire, France, May 15, 2016. REUTERS/Stephane Mahe

By Nicholas Brautlecht for https://gcaptain.com

(Bloomberg) — The call of the Caribbean is proving irresistible for Germany’s KfW IPEX, the development bank that funds the shipbuilding industry.

After lending 1.1 billion euros ($1.2 billion) to finance pleasure ships last year, including part of the funding for two new Royal Caribbean Cruises Ltd. vessels built in Germany, KfW IPEX is preparing to fund yet more cruise liners, earmarking a total 2.8 billion euros in new shipping loans this year. More than half of its 16 billion-euro maritime loan book is now devoted to cruise ships.

With passenger numbers rising at an annual rate of 4.5 percent, the global cruise industry is one of the few bright spots in a shipping market awash with debris after eight years of crisis in the container segment. It also offers European shipbuilders an opportunity to steal a march on Chinese competitors, who are still several years behind technologically in this corner of the market, Carsten Wiebers, the global head of KfW IPEX’s maritime industries business, said in an interview.

“We don’t expect the Chinese to reach a standard in the next five to six years that can rival international cruise ship companies in existing markets,” said Wiebers, 53, who has led KfW’s maritime funding for 18 years. “There’s little risk that the cruise industry will see overcapacity, which is a very heavy burden for other shipping segments.”

KfW IPEX’s large exposure to the cruise industry is unique among German shipping lenders, which have traditionally focused on container ships and bulk carriers. By the end of March, Wiebers had increased the cruise share of the bank’s maritime-loan book to 51 percent from 32 percent in 2009, when the global financial crisis had sent the shipping market into a slump from which it has yet to recover.

By contrast, at Norddeutsche Landesbank, which is seeking to diversify while shrinking its 18 billion-euro shipping loan book, cruise ships and ferries have just a 1 percent-share.

At KfW, which boosted its maritime loan book by 10 percent over the past seven years, cruise ships accounted for 30 percent of new shipping loans last year. Commitments included two new liners for Miami, Florida-based Royal Caribbean, which controls about one-quarter of vessel capacity in the North American and European markets. Those contracts are for 12-year terms with a “considerable portion” syndicated with an international banking consortium, according to Frankfurt-based KfW, which declined to disclose further details.

Industry Booming

The industry is booming in Europe, where top shipyards including Germany’s Meyer Werft GmbH and Italy’s Fincantieri SpA are working to capacity to fill orders similar to Royal Caribbean’s $1 billion Ovation of the Seas that has been cruising around Asia, Australia and Europe since its delivery in April.

To lure as many as 4,180 passengers on board, the super-cruiser boasts a capsule on a swivel arm from which guests can view the ship from 300 feet in the air, while others can try the world’s first simulated skydiving experience offered at sea.

“Investment activity has shrunk drastically in all segments of shipping except the cruise industry,” said Wiebers, who is set to take up a new role as KfW’s head of aviation and rail financing next month.

Much of the wider industry’s demise stems from the fact that ship financiers ignored technological advances, lending clients too much money too long for vessels that aged rapidly, Wiebers said. With this in mind, KfW has changed its focus to companies with bigger fleets and corporate structures.

“We practically don’t take any asset risks,” Wiebers said. Almost two-thirds of KfW shipping loans are covered by export credit insurers like Euler Hermes Group, he said.

Chinese Competition

Still, competition for new business from top-tier clients like Danish shipping giant A.P. Moeller-Maersk A/S is getting stiffer, with Chinese peers including Industrial & Commercial Bank of China Ltd. and Bank of China entering the fray, he said.

“The Chinese are financing with terms that are unbeatable for European banks,” in some cases offering loan-to-value ratios of 90 percent and above and repayment periods as long as 18 years to large maritime companies, said Wiebers. European banks typically grant loans with a maturity of 10 years.

Norwegian tanker operator Frontline Ltd., which counts billionaire John Fredriksen as its largest shareholder, secured $328 million from China EXIM Bank in the first quarter to finance eight new vessels with the Asian lender, the company said in May.

With funding opportunities for banks in the wider shipping market still scarce, KfW’s 2016 financing target is ambitious, Wiebers said.

“The industry is undergoing massive structural changes on the shipping and the financing side,” said Wiebers. “All clients are very cautious, even in segments doing well like car carriers.”

Crystal Cruises redeploys new river vessels away from France

The new river cruise arm of Crystal Cruises is delaying plans to deploy two new vessels on rivers in France.

Instead Crystal River Cruises is to increase its presence on the Danube, Main and Rhine, deploying four of its planned new build ‘river yachts’ in the region in 2017 and 2018.

The shift in focus means redesigning and enlarging the company’s two Paris-class river vessels – Crystal Debussy and Crystal Ravel – as Rhine-class boats, and redeploying them east in 2018.

Previously, Crystal Debussy and Crystal Ravel were to travel along the Seine, Rhone and Dordogne rivers in France from June and August 2017 respectively.

No mention was made of recent terrorist incidents in France and the extension of the country’s state of emergency for six months following the deadly truck attack in Nice earlier in July.

The luxury line, which draws a large proportion of passengers from the US, said the change away from France was based on passenger feedback “lauding the itineraries planned in Germany, Austria, Belgium, Amsterdam and Holland”.

As a result, “the company has elected to delay its entrance into the French river cruise market, choosing instead to prioritise its offerings in the German/Austrian region in order to meet travellers’ demand for those experiences”.

Chief executive and president Edie Rodriguez said: “Unlike an ocean-going ship that can accommodate a change in itinerary with short notice, a river ship operates within more confined parameters and is unable to re-route easily.

“We are listening carefully to what travellers are telling us and have concluded that the best way to anticipate, meet and surpass their expectations is by making this move earlier rather than later.”

The line is offering a series of compensation packages to people who have booked 2017 voyages on Crystal Debussy and Crystal Ravel including on board credits and future cruise credits worth up to $1,000.

No details were given of how many bookings the line has received for the sailings in France.

The new design places the vessels as part of the line’s 106-passenger Rhine-class series currently comprising Crystal Bach and Crystal Mahler, which are due to enter service June 18 and August 29, 2017 respectively.

Crystal Debussy and Crystal Ravel are now due for maiden voyages in April 2018 and May 2018 respectively with detailed itineraries to be announced shortly, the company said.

They will be increased in size from 110 metres to 135 metres, the maximum size permissible on the Rhine, Main and Danube. The increased length allows for the addition of a swimming pool with a sliding glass roof and more large suites.

The move follows the recent launch of the line’s first luxury river cruiser, Crystal Mozart.

 

‘I choose to live’

Arnie WeissmannThe inaugural cruise of the Regent Seven Seas Explorer departed Monte Carlo, Monaco, early on the morning of Bastille Day. I was in Nice, France, two days before and, one week later, flew out of the city.

During the cruise, I found that every European port where the ship called was crowded (in the case of St. Tropez, vastly overcrowded). Flags flew at half-mast, but otherwise Europe’s sunny holiday season appeared, on the surface, to proceed undimmed by the terror attack in Nice.

And during that week, I mingled with 600-plus travel advisers, media, cruise line executives and invited guests aboard the ship. Their responses to the incident in Nice were insightful; for the most part, they’re sophisticated executives with experience in the cycles of travel disruption.

My first conversation was with Walter Revell. That name may not be familiar even to travel agents who loyally book the lines of Norwegian Cruise Line Holdings (NCLH) — Regent, Norwegian and Oceania — but he has had a hand on the tiller of NCLH and its predecessor entities for the past 23 years. As the longest-serving director and, today, chairman, he has a unique perspective on the past, present and future of travel and cruising.

We lunched with our wives at a small restaurant off Piazza San Michele in Lucca, Italy, just hours after we learned about the Nice tragedy.

Out of 7 billion people on Earth, he said, “point zero, zero, zero, zero, zero one” is going to be deranged enough to heed a call to kill scores of innocent people.

The link between extreme mental instability and the threat of violence positions terrorism in a context that doesn’t completely remove the political and religious aspects, but puts the scope of the threat in rational perspective.

Those very few unstable individuals, Revell continued, should hardly be the ones to “govern, ruin or rule” our travel choices.

NCLH’s CEO, Frank Del Rio, cast it slightly differently but again brought a sense of scale to the issue.

“It would be easy to say that if you don’t keep traveling, the terrorists have won,” Del Rio said. “You can say that at 30,000 feet, but how do you communicate that to the individual who is sitting in front of a travel adviser, wanting to take a trip somewhere? It’s very difficult to take something that’s so emotional, so personal, and turn it into a statistic. But we need to remember: It’s never absolute. It’s not that no one is traveling. After the Paris attacks, air arrivals were down 11%. Hotel nights were down 20%. It’s not down 95%, it’s down 20%.”

His comments reminded me that even in the dark days after 9/11, air travel was still at 80% of pre-attack numbers. The problem for travel-related businesses is, of course, that depending on operating margins, a 20% drop in traffic can easily spell the difference between viability and bankruptcy.

“It’s in the margins,” Del Rio agreed, “but we’ll boost it up to where it needs to be.”

Van Anderson, co-founder of the host agency Avoya, had yet a different perspective, framed within the broader profile of life and risk.

“You have to be aware of risk, no matter what you do,” he said. “Some choose to surf, dive and bungee jump. We all make choices, and you have to do what makes you comfortable. Even having gone through Nice the day before that horrific tragedy, and after what happened in Orlando, I’m not hesitating one bit to travel this summer with my grandchildren to Orlando.”

Anderson continued, “I don’t think we live in a more dangerous world. It’s just a world that’s more aware of the dangers. So we have to choose, by ourselves, with our friends and families, what we’re comfortable with.

“I don’t travel because I’m trying to beat terrorists,” he concluded. “I travel because I enjoy it. Life is about making choices. I choose to live.”

All three perspectives are thoughtful, astute, complementary and can help in counseling clients.

I will add one more perspective.

Summer may be the high season for travel within Europe, but we’re also concurrently in the quadrennial high season of politics. The recent terror incidents, though in aggregate statistically representing only a small risk, are amplified by political agendas, and clients of travel advisers might be susceptible to politically motivated arguments that will inhibit the desire to travel.

Revell’s, Del Rio’s and Anderson’s perspectives could help blunt those arguments. I hope so.

But I’ll point out that small scale can be deceiving. History often turns on events that involve relatively few participants but whose impact is outsize:

The Boston Tea Party. The siege of the Alamo. Rosa Parks.

These incidents became pivotal because they represented the hopes and desires of great numbers of people.

I find it hard to conceive, however, that the slaughter of innocent people represents anything but a perversion of theology or a philosophy that appeals only to the sickest among humanity.

If politicians present this as an existential threat, I believe they’re acting cynically to replace rational thought with purely emotional, fear-based responses.

But there’s also an emotionally resonant appeal to keep traveling, even in the face of terror. Anderson said it succinctly: “I choose to live.”