Bangalore: Enlarging its shipbuilding capabilities, Larsen and Toubro Ltd (L&T) plans to look for orders for constructing passenger cruise ships at its proposed facility at Kattupalli in Tamil Nadu.
If successful, L&T could grab market share from dominant European shipyards, though existing players note that it won’t be easy for India’s biggest engineering and construction firm.
New focus: L&T’s shipyard at Hajira, Gujarat. The company will have to go in for a tie-up with an established European player for building cruise ships, an L&T official says.
Since 1980, European yards have delivered at least 97% of all cruise ships worldwide.
The Mumbai-based company has said the proposed Rs3,000 crore shipyard complex, set to become operational by December 2010, will have facilities for commercial shipbuilding including very large cargo carriers, specialized cargo ships for liquid and gas, defence vessels, offshore platforms and floating production-cum-storage facilities for the oil and gas sector.
“From my point of view, it will be very difficult to catch up with the European players in building cruise ships,” said Reinhard Luken, secretary general, Community of European Shipyards Association, a body that promotes the interests of the European shipbuilding and ship repair industry.
“The entry barriers to the production of cruise ships are very high due to technical and commercial risks. Companies in several nations, including the US and Japan, have in the past tried entering this field with no or limited success and stepped out,” Luken said in an email response.
Cruise ship construction requires large infrastructure with hundreds of specialized suppliers, and a single project might employ as many as 800 subcontractors.
Yards typically assume significant risks as they take full responsibility for the performance of the suppliers, who account for up to 85% of the vessels’ total cost, Luken said.
None of India’s 27 yards has the capability or expertise to build cruise ships.
“However, India could certainly become quickly an attractive destination for the cruise industry. If the cruising market would grow fast, I would assume that this could also create opportunities for European and Indian shipyards to cooperate,” Luken said.
L&T appears game for such cooperation.
“The technology for building cruise ships is different. We will have to go in for a tie-up with an established European player for building cruise ships,” said an L&T executive, who didn’t want to be named.
The cruise ship construction industry is currently dominated by four shipyards in Europe that have maintained an 84% share of the market since 2002. Italy’s state-owned shipbuilder, Fincantieri, is the market leader with 34% of the market, followed by Norway’s Aker Yards with a 20% share.
Germany’s Meyer Werft and French firm Atlantic Container Line have a 15% share each.
According to the Cruise Lines International Association, 34 million people could take a cruise vacation by 2015, up from the existing level of about 15 million. With prosperity improving fast in emerging markets such as China and India, there will be vast long-term business opportunities for the cruise industry.
The cruise ship construction market has grown by almost 10% a year for over a decade. With demand for new cruise ships built in Europe increasing, these yards may have little option other than to expand their production facilities, which is a costly and time-consuming operation.
“Another option lies in forming alliances with foreign shipyards with spare capacity such as those in Asia and the US,” said Luken.