Fierce competition, fueled by a depressed shipping industry and large government subsidies, is creating a shrinking family of shipyards.

In the late 1970s, there were from 50 to 100 shipyards capable of building cruise vessels over 5000 GRT. Today, there are about 10 to 20, according to a recent report by Fearnleys.

The Fearnleys report showed the international distribution of yards active in the cruise industry as follows: Germany, 4; Scandinavia, 2; Belgium, 1; England, 1; France, 1; Holland, 1; Italy, 1; and Spain, 1. Of these, only Wartsila (Finland), Jos. L. Meyer (Germany), Chantiers de l'Atlantique (France) and Fincantieri (Italy) have cruise projects on order (CIN 2/18/87).

Subsidies May Cause More to Fall Away

Large government subsidies are primarily responsible for the demise of many yards, according to several shipyard executives interviewed.

"Competition is very fierce," said Martin Saarikangas, executive vice president of Wartsila. "With only three or four new vessels entering the market annually, there is not enough business to support all of the yards."

Subsidies may also cause some yards to fall away, Saarikangas added. "When some governments are granting subsidies as high as 60 percent, many yards simply cannot compete."

Wartsila does not grant subsidies, and instead, competes on quality, design and productivity, Saarikangas said. "This has caused us to be more innovative and cost-efficient."

Four cruise projects are currently underway at Wartsila-for Aloha Pacific Cruises, Carnival, NCL and RVL. Options for a second ship for NCL and RVL are pending.

Michel Garguet, manager of project development at Chantiers believes that subsidies are "a kind of drug. Once they are introduced into the system, they are hard to get rid of," he said.

According to Garguet, every shipyard grants some type of subsidy. "Some may be hidden, but there are many schemes through which yards can indirectly subsidize projects," he said.

Garguet added that the cruise industry is becoming increasingly important to the shipyards, and that a number of outsiders are trying to come in. A lack of expertise in shipbuilding will prevent many from succeeding, he said.

Garguet sees the future market dominated by a few yards, with some smaller yards gaining prominence from time to time.

Under contract at Chantiers are Windstar's Wind Song and Wind Spirit, RCCL's Sovereign of the Seas and Sitmar's unnamed 1400-passenger vessel.

Dutch Yard Finds Niche

Erik Schultz, sales manager for Damen Shipyards, a private corporation based in Holland, said innovation and productivity, not subsidies, are the keys to success. "Subsidies breed laziness and forego innovation."

In the absence of subsidies, the company has developed cost-efficient production methods, including designing new outfitting buildings to reduce weather-related delays and the subcontracting of component parts, Schultz said. Darnen also has been innovative in arranging low interest loans.

According to Schultz, Darnen has the capacity to build ships up to 350 feet in length, and has remained profitable by establishing itself in this niche. Lifeboats and tender vessels, the most recent being the Explorer Starship's Baby Starship, and ships for coastal and river cruising are its specialty.

The company owns five yards in the Netherlands.

Other Active European Yards

In Germany, Jos. L. Meyer is building Royal Cruise Line's Crown Odyssey and Lloyd Werft is refurbishing the QE2.

In Italy, Fincantieri has been awarded the contract for a new 1400-passenger ship for Sitmar, with an option for a second. Aalborg of Denmark, Union Naval of Spain and Boelwerf of Belgium also are active, but do not have any cruise contracts at this time. All are said to be leading contenders for Crown Cruise Line's new ship.

Far Eastern Yards Vying to Enter

The Japanese and Korean yards are eager to enter the cruise industry, but most spokespeople do not believe they will be successful.

"I don't think they can come in," said Garguet. "They do not have the experience, and the yen is too strong for them to compete."

According to Schultz, "the Far East is not a real threat. Costs are much higher there, as much as 10 to 15 percent. Most of the equipment for cruise ships is manufactured in Europe so a large percentage of their costs are from imported goods."

Kozo Ezaki, vice president of ship sales at IHI, Inc., a Tokyo-based shipbuilding concern, said the situation in Japan "is very bad. Every shipyard badly needs a new contract, but the strength of the yen makes it very difficult to get a dollar contract."

According to Ezaki, the yen is up almost 50 percent over last year. In addition, the Japanese government does not grant subsidies, creating another obstacle.

Ezaki said the Japanese yards are very excited about Mitsui OSK's recent announcement of its plans to build an 18,000-ton luxury cruise ship for the domestic market because it will be a yen contract. IHI, Mitsubishi and NKK are the major contenders.

Ezaki is not sure there is a Japanese market for the ship. "The Japanese do not like to sit on a ship for many days - they like to keep active. But their mentalities are changing as things become more Westernized."

Donald Murata, vice president of NKK America, Inc. is more optimistic about Japan's ability to compete. Noting that NKK will deliver a "luxury passenger ferry'' for North Sea Ferries later this month, he said that "we are technically qualified to build cruise passenger vessels, and even though we have to overcome the financing obstacle, we can still compete. We are slated to receive the tender for Holland America Line's new ship soon."

Murata also is optimistic about the domestic cruise market. "The younger generation in Japan is making more time for leisure, and I think they will be taking cruises. They won't be the longer type, but there will be an interest for the seven-day cruises."

Joint Japanese Bid For the Phoenix

According to Murata and Ezaki, IHI, Mitsubishi and NKK are considering the possibility of making a cooperative bid for the Phoenix project.

"The cost and volume is too much for one yard to handle so we are hoping that something will come about from a joint effort," Murata said.

NKK also has teamed up with a Norwegian architect to design the Swath, a 4,000-passenger catamaran, resembling a floating hotel.

Australia Builds First Cruise Ship

Carrington Slipways Pty Ltd recently delivered the Lady Hawksbury, the first domestic passenger vessel built in that country for the inbound market. According to Richard Miller, marketing director of the yard, the ship reflects the "opening of a whole new market in Australia."

Operated by Captain Cook Cruises, the Lady Hawksbury is sailing two- and four-day river cruises from Sydney. She accommodates 32 passengers in 16 cabins, and has a swimming pool, restaurant and several bars. She is approximately 230 feet long and has a draft of about three-and-one-half feet, Miller said.

Americans and Japanese comprise the majority of the passengers, according to Miller. He believes the interest in river cruising in Australia is a natural extension of the increased tourism to the area, and sees great potential for growth in this area.

Other passenger vessels designed by Carrington Slipways include a 105-foot catamaran, with 3 decks of passenger cabins, a dining room, and lounge; a 1100-passenger ferry; and a 238-passenger hydrofoil vessel.