The fall of the NZ Super Yacht Industry
Note:
Super yachts are custom build yachts over 80ft LOA plus
INTRODUCTION
The last ten years have not been fortunate for some of New Zealand’s super yacht facilities. The decline started in about 2004-2005, when shipyards one by one started closing their operations. First to close was the newly established New Zealand Yachts Ltd in Whangarei, followed by Sovereign Yachts in Hobsonville, and then Sensations Yachts in Henderson, Marten Marine Ltd in Pakuranga, Vaudrey Miller Yachts NZ Ltd in Henderson and Kelly Archer quietly disappearing from Albany’s premises. One of the last to leave the market was Fitzroy Yachts in New Plymouth and most recently after many golden years Alloy Yachts International fell victim to...
To what? What went wrong? Each case might be different and each case perhaps deserves a separate investigation but surely there must be a common denominator? Let’s consider several factors (external and internal), which may have affected the NZ super yacht industry over the last 10 years.
EXTERNAL FACTORS
Global Order Book (GOB) 2015
World production of super yachts (79 – 250 plus ft) since 2007 has oscillated between 692 and 777 with the exception of 2009 when 1008 yachts were delivered. Prediction for this year (2015) is delivery of 734 yachts, one yacht down from the previous year. Quoting a 2015 ShowBoats International report, the Global Order Book (GOB) is down by one order from last year but higher in total length under construction. The total length of builds in this year’s GOB increased by 374 metres due to the large projects on order. Sailing yacht orders account for 12.1 percent of the market. Italy leads the pack by far having 20,474 m total length of builds on order, followed by the Netherlands with 4,270 m and Turkey with 3,005 m. It is expected that the boat yard and maritime industry will grow by about 2-3% this year. Quoting a report by Boat International Media “The fluctuating marketplace, a surprising cool-down in BRIC countries’ economic growth and an uneven economy in Europe could keep a foot on the brakes for an industry otherwise poised for growth”. So, why haven’t orders come New Zealand’s way?
Exchange Rate (ER)
The exchange rate is the first to blame for the fall in orders of super yachts in New Zealand. Leading to mid-2014, the exchange rate wasn’t very favourable indeed but we have to remember that it is to a certain extent a double edged sword. It is unfavourable for us when we want to sell (export) but favourable to us when we need to buy (import). However the exchange rate fluctuates all the time and companies do not close their doors each time the exchange rate is unfavourable. Only bigger crisis such as GFC in 2007-2008 can make a difference, but it didn’t. Notice this: global orders jumped from 777 yachts in 2007 to 916 in 2008 and to 1008 in 2009. So, can we blame the exchange rate for the misfortunes?
US$ per 1 NZ$
http://www.xe.com/currency
2/08/2015
Cost of living
Cost of living comparison (mid-2015) based on: http://www.numbeo.com/cost-of-living/compare
Indices Difference
Consumer Prices in Auckland are 88.76% higher than in Ankara
Consumer Prices Including Rent in Auckland are 127.52% higher than in Ankara
Rent Prices in Auckland are 338.38% higher than in Ankara
Restaurant Prices in Auckland are 113.42% higher than in Ankara
Groceries Prices in Auckland are 123.42% higher than in Ankara
Local Purchasing Power in Auckland is 36.70% higher than in Ankara
Indices Differences
Consumer Prices in Auckland are 97.63% higher than in Gdansk
Consumer Prices Including Rent in Auckland are 112.87% higher than in Gdansk
Rent Prices in Auckland are 159.49% higher than in Gdansk
Restaurant Prices in Auckland are 100.50% higher than in Gdansk
Groceries Prices in Auckland are 153.10% higher than in Gdansk
Local Purchasing Power in Auckland is 16.81% higher than in Gdansk
Indices Difference
Consumer Prices in Auckland are 68.73% higher than in Qingdao, Shandong
Consumer Prices Including Rent in Auckland are 91.45% higher than in Qingdao, Shandong
Rent Prices in Auckland are 179.63% higher than in Qingdao, Shandong
Restaurant Prices in Auckland are 154.94% higher than in Qingdao, Shandong
Groceries Prices in Auckland are 50.14% higher than in Qingdao, Shandong
Local Purchasing Power in Auckland is 148.79% higher than in Qingdao, Shandong
Indices Difference
Consumer Prices in Auckland are 11.22% higher than in Pisa near Viareggio (Italy)
Consumer Prices Including Rent in Auckland are 18.56% higher than in Pisa near Viareggio (Italy)
Rent Prices in Auckland are 40.26% higher than in Pisa near Viareggio (Italy)
Restaurant Prices in Auckland are 17.30% lower than in Pisa near Viareggio (Italy)
Groceries Prices in Auckland are 30.40% higher than in Pisa near Viareggio (Italy)
Local Purchasing Power in Auckland is 39.89% higher than in Pisa near Viareggio (Italy)
Indices Difference
Consumer Prices in Auckland are 4.08% higher than in Amsterdam
Consumer Prices Including Rent in Auckland are 2.40% lower than in Amsterdam
Rent Prices in Auckland are 14.82% lower than in Amsterdam
Restaurant Prices in Auckland are 21.04% lower than in Amsterdam
Groceries Prices in Auckland are 32.69% higher than in Amsterdam
Local Purchasing Power in Auckland is 14.74% lower than in Amsterdam
From the figures above it is clear that the cost of living in New Zealand is higher than in many other maritime centres.
Note: Comparison of Auckland with Bodrum & Marmaris in Turkey or Pisa near Viareggio in Italy is not 100% appropriate. However it suggests, that the concentration of maritime business in Auckland is not in our favour.
Outflow of expertise from NZ
It seems that as far as outflow of expertise goes the greatest losses are being suffered by yachting sports and the industry associated with these sports. So, an outflow of expertise from NZ should not have a direct effect on a super yacht production, although there is not much data available on this subject.
Communication, remoteness and climate
These days, in the era of internet, e-mails, skype, conference calls etc. communication should not pose a problem. In fact being about 12 hours ahead of Europe and 19 hours ahead of the West Coast of America and 16 hours ahead of New York helps with communication. E-mails sent to London at 5 pm NZ time, get answered during the day in London and means we receive replies early next morning NZ time.
Remoteness might pose a bit of a problem. Whoever has flown at least once from Europe to NZ knows what I mean. Even flying first class is tiring and leaves you with jetlag.
Although the New Zealand summer can be really pleasant, a winter visit can be rather wet. However it is still warmer than in Europe or Northern America. However the Mediterranean climate offers great weather pretty much throughout the year.
Not many countries, and not many cities (except Bodrum & Marmaris in Turkey, Viareggio in Italy and Gdansk in Poland) can enjoy such a high concentration of yachting expertise as Auckland; but maybe not for long. High rates and demand for prime land are pushing the maritime industry further out from Westhaven and Viaduct Basin, away from the CBD and causing dispersion.
Refits and brokerage
With a growing fleet of super yachts comes also an increase in demand for refits and rebuilds. Prestigious yards are actively targeting and developing this area, including Royal Huismen, Feadship, Mondo Marine, Pendennis, Trinity, Lurssen and RMK. It was noticed that from 2011 there were less and less second-hand boats available on the market therefore creating bigger demand for new builds.
INTERNAL FACTORS
How about internal factors such as: leadership & management, business acumen, QA & QC, marketing, technical skills and expertise, project management, negotiation, business process management, availability of skilled human resources, access to technology etc? How have these influenced NZ’s position on the international super yacht market? It seems NZ (as whole, as a country) has all it takes to be amongst the industry leaders and we have already proved this. Yet, looking individually at each of the mentioned companies, they weren’t able to sustain and collapsed prematurely. Of course, there is always room for improvement but how much improvement is needed and in what areas?
CONCLUSION
Boat yards and the maritime industry are growing, and demand for new builds are not really slowing down. Auckland has a unique concentration of maritime industry helping in exchange of ideas, and this helps. We have the expertise and the know–how. We can’t just blame the exchange rate for our misfortune! So, why aren’t orders coming New Zealand’s way? Is it only because we are a bit more expensive than others?
Let’s treat this article as an invitation to an open discussion. Your comments and observations will be greatly appreciated.
One thing is to shut down the operation and close the company but another thing is to know, when to do it, how to do it and be prepared for it. More about exit strategies will follow in my next post.
Tomek M. Glowacki
