Covid-19 has thrown a grenade into the superyacht economy, but Andrew MacDowall discovers that in their struggle to survive, companies are emerging leaner, cleaner and closer to to the cutting edge...
As the global economy plunges into its deepest recession since the Second World War, and the Covid-19 pandemic places unprecedented restrictions on how people and businesses can work, the superyacht industry has had to adapt rapidly. Second and even third waves of the virus worldwide are likely to trim a strong rebound seen in mid-2020, and segments including charter have been hit hard. Nonetheless, industry leaders are confident that businesses that have reacted quickly are well-placed to benefit from an expected economic recovery in 2021, which could take global GDP growth to its highest level in a decade.
The pandemic has had a profound impact on the superyacht industry.
Image courtesy of Guillaume Plisson.
First, the bad news. Global GDP is expected to shrink by 3.9 per cent, according to investment bank Goldman Sachs in its October 2020 Global Views report. “The world economy took a huge hit from the coronavirus,” the report states. The impact of the virus and consequent measures to control it across the world, including lockdowns, have led to recessions and surging unemployment in a number of major markets. Goldman Sachs expects the US economy to contract by 3.5 per cent – a more optimistic forecast than the average 4.4 per cent shrinkage predicted by market analysts – while the eurozone will see a drop of 7.9 per cent. Other significant markets for superyachts have also been hit hard, including the UK (with a 9.4 per cent drop in GDP forecast) and Russia (a 4 per cent drop).
A rare bright spot is China, which was hit by Covid-19 early, but has managed to control the virus after the early stages of the outbreak. The Chinese economy is expected to grow by 2.7 per cent, according to Goldman Sachs, though sceptics have questioned the accuracy of official data (and Covid-19 case reporting) from the People’s Republic.
Source: Credit Suisse Research Institute/Global Wealth Report 2020.
“Ours is a business that thrives on people feeling good, but unfortunately there’s currently a lot of collective negativity,” says Michael Breman, sales director of Lürssen Yachts. “Brexit was always a factor, but Covid has overshadowed everything. Generally, clients in yachting don’t take new-build purchase decisions particularly quickly, and that has been exacerbated by the uncertainty. It seems people have decided to defer purchases somewhat. But there’s certainly the hope that as soon as we see light at the end of the tunnel and some realistic confidence in a vaccine, the market will pick up again.”
Most in the industry are upbeat about the prospects in the medium-to-long term. Macroeconomic forecasts are positive: Goldman Sachs expects the global economy to grow by 6.6 per cent in 2021, while the International Monetary Fund forecasts a slightly more modest 5.2 per cent. While noting a slowing of the recovery in the third quarter of 2020, Goldman expects the development of a Covid-19 vaccine to trigger a speedier recovery, supported also by an expected post-election fiscal stimulus programme in the US. “We remain more optimistic about global growth than other forecasters because we view the current cycle as unprecedented,” the bank says.
Source: Credit Suisse Research Institute/Global Wealth Report 2020
Further positive signs for the superyacht market are highlighted by Credit Suisse’s Global Wealth Report 2020. “Given the damage inflicted by Covid-19 on the global economy, it seems remarkable that household wealth has emerged relatively unscathed,” the report’s author, economist Anthony Shorrocks, said on its publication.
The report argues that one of the main grounds for optimism about the outlook is that the global financial sector is much healthier than it was in 2007-08. It estimates that the number of global millionaires reached 51.9 million by the end of 2019, and has changed little since. At the start of 2020, there were 175,690 ultra-high-net-worth (UHNW) adults – defined as having a net worth of more than $50 million (£37.4m) – in the world, up 11 per cent on a year previously. Global asset value dips saw 120 people fall out of this category in the first half of 2020, meaning that there were still 16,640 more UHNW individuals than 18 months before. China alone had 1,330 more UHNW adults by mid 2020 than at the start of the year.
Source: Credit Suisse Research Institute/Global Wealth Report 2020
Michael Farrell, managing director of SEI Private Wealth Management, says that while the well-off have needed to adopt new strategies to defend and grow their wealth, they are still ready to invest in big-ticket assets such as superyachts. “The world is coping with a pandemic that has not only created global uncertainty around health, but also around financial well-being,” Farrell says. “After experiencing a historical bull market, investors are planning for more volatility. Well-prepared investors in a goals-directed wealth management approach are realising opportunities – such as inter-family loans, insurance policies, securities-based lines of credit (SBLOCs) and gifting – that generate cash flow in the current environment. As a result of careful planning, we’re also seeing purchases for luxury goods that align with particular interests and domestic-focused travel. These purchases are within the scope of cash planning and wealth generation.”
Indeed, most of the shipyards and brokers BOAT International talked to when researching this article reported that they had not seen any order cancellations so far this year, even if new sales were slower than usual.
The Chinese economy is expected to grow by 2.7 per cent, despite Wuhan being at the source of the pandemic.
Image courtesy of Pixabay.
“I’ve been constantly speaking with colleagues from other shipyards and brokerage houses lately and I have to say that commercially I have the impression that the overall scenario is quite positive,” says Vasco Buonpensiere, co-founder and sales and marketing director of Italian shipyard Cantiere delle Marche (CdM). “Certainly it is much better than expected in February to March. In our case, I would call 2020 a very positive year for CdM in terms of sales and new clients, in spite of the absence of boat shows and the difficulties in travelling abroad.”
Buonpensiere says that CdM’s focus on explorer vessels, which are designed for long-distance cruising and remote areas, has proved a “sweet spot” during the crisis. The company has also noted the growth in demand from clients who already own a yacht of 60 metres-plus seeking smaller vessels for specific purposes, for example visiting dive spots, ocean fishing or accessing activities such as cycling and skiing in pristine locations on shore. Other yards and brokerages report similar trends. “While larger custom yachts have sold more slowly, the 20- to 30-metre market is on fire at the moment,” says Jonathan Beckett, chief executive of brokerage house Burgess Yachts. “It’s extraordinary, but that’s the way it is.”
The recently launched La Datcha is part of a growing trend for explorer-type yachts.
Daryl Wakefield, president of US yard Westport Yachts, says that the company’s brokerage operations have remained busy throughout the crisis. “We’ve remained focused and powered through,” he says. “Our 112 series just keeps selling. We have had no cancellations and currently we have three yachts under contract construction. “One of the major changes we implemented was modifying the access for getting on and off the vessels,” says Wakefield. “Working according to social distancing guidelines on our size vessels is not easy, but we have increased efficiency and productivity as crews are smaller.”
On the brokerage market, Raphael Sauleau, CEO of Fraser Yachts describes a dramatic year – with a happy outcome. When the virus first hit, he says, “We all went into a very quiet mode, and I think I can speak for the yachting industry when I say everything stopped. We thought ‘oh, boy – that's what it’s going to be in 2020’.”
“Then, when the lockdowns were initially lifted around spring, the sky became clearer again,” says Sauleau. It started with a trickle, but soon started to snowball. “On the sales front especially we saw a clear increase starting from June, to the extent that in June, July, August and September we doubled the number of sales as an industry, versus 2019.”
Daryl Wakefield, president of US yard Westport Yachts, says that the company’s 112 series remains as popular as ever.
Patrick Coote, chief marketing officer and head of Europe at brokerage house Northrop & Johnson, also saw a steady flow of new buyers coming onto the market in 2020. These clients tend to start by acquiring smaller yachts, and thus sales of 24- to 35-metre vessels have been particularly strong – though demand for large sailing yachts has also surged, leading to a lack of available stock, he says.
To an extent, the crisis appears to have galvanised cash-rich would-be buyers, Coote asserts. “We’ve seen strong interest in sales across all size ranges,” he says. “Clients are aware that this situation won’t last forever and the pandemic seems to have triggered something of a ‘carpe diem’ approach. A yacht is a fun and safe way to create great memories. The pandemic has highlighted that life can be uncertain and so buyers who’ve been contemplating a purchase for a while are thinking ‘if not now, when?’.”
Sauleau reads the situation in a similar way, “The pandemic is pushing people to maybe rethink their life or re- reprioritise and say, ‘You know what? We need to enjoy life. We’ve wanted to own a yacht for so many years – maybe it's the time.’ I think that for whoever has the means, that the pandemic triggered something, and they just decided to go ahead.”
By the end of the year things were so good, says Sauleau, that, “2020 was the best year ever in the sale of second-hand boats over 24 metres. If somebody had told me that in March, I'd have said it's not possible.”
Shipyards have responded to the problems posed by the pandemic in a number of ways.
Image courtesy of Guillaume Plisson
Nonetheless, some parts of the industry have been hit hard. The first area of the industry to go down was charter, says Sauleau, as lockdowns and restrictions on movements nixed clients’ plans. “The phone started ringing for cancellations or postponements,” he recalls.
Northrop & Johnson expects a 30 per cent drop in charter revenues due to restrictions on travel. This has had a major impact not only on owners who lease their boats, but also on brokers, managers, crew, agents and provisioners. Demand has dried up from the US, the world’s largest yacht charter market, as well as important markets such as Australia due to travel constraints.
But Sauleau says charter brokers were extremely reactive. They added addendums to contracts so both owner and client felt safe, or rebooked charters to 2021. He also notes that demand did return alongside sales in the spring, albeit not to the same extent.
“Charter was a little slower, not because we didn't get any enquiries, but because there was nowhere to go,” he says. “If we can reopen the world by spring, I foresee a strong demand in charter. Now what we face in 2021 is a possible lack of inventory, because we postponed a lot of charters from last year, so many boats are going to be busy with last year’s bookings. That may be a challenge, but it’s a good challenge.”
Fort Lauderdale International Boat Show was one of the few yachting events to go ahead this year.
Given the scale of the economic crisis, and the uncertainty about how quickly the recovery will come, merely standing still has not been an option for superyachting businesses. Many have already become stronger, leaner operations in the years since the 2008 global economic crisis, and benefited from prudent management in the good years of the past decade. But moving quickly was nonetheless imperative for those seeing business slow down, however temporarily.“After years of good trading, we were suddenly missing tens of millions of pounds,” says Beckett. “We were able to operate the business with cash in the bank, which was significant, while taking advantage of government schemes and going through a period of restructuring. There was no time to prepare. We acted quickly and made some very hard, but very good decisions.”
Burgess drilled down into every aspect of its business to see where fat could be cut, making savings in areas as diverse as its car fleet, catering and printing. The cancellation of boat shows and travel to see clients – while on the whole not positive for the industry – also led to savings. By early autumn, Burgess had managed to build up its cash in bank back to pre-Covid levels, restoring its cushion for any further market disruption. Beckett says the company is now “leaner and keener” than ever, and well prepared for an expected rebound in demand.
CdM, which has delivered yachts such as Mimi La Sardine, has managed to sell yachts remotely during the pandemic.
Fraser’s experience will also benefit the company in the long run. “We were all very aggressive in communicating with our client base, which maybe we did better than before,” says Sauleau.
CdM similarly used the crisis as an opportunity to look at its business model. This included developing sales and marketing strategies and targeting new clients. “We decided our strategy right away, in the first few weeks of Covid-19 restrictions. A lot of the new and successful strategies we are putting in place were in fact needed and in the pipeline anyway,” says Buonpensiere. “But without the pandemic we would probably have enjoyed our comfortable success for too long. We probably would have lost some competitive advantage over our competitors if we hadn’t made those changes.” Buonpensiere adds that shifting online worked so successfully that he initially wondered if it was ever necessary to fly hundreds of thousands of miles every year to meet clients. While he will take to the skies again when possible, he will be travelling less than before.
The need for social distancing and quarantine has also affected how shipyards, offices and charters operate on a day-to-day basis.
Image courtesy of Guillaume Plisson.
By early autumn, CdM had already sold two boats remotely, without ever meeting the client in person. Fraser too, sold some boats via Zoom calls alone: “Not many, but a few,” says Sauleau. Lürssen has launched video conferences and “Lürssen LIVE”, which is modelled on a television news show and showcases the builder’s products to a wider audience. It gives that audience an opportunity to interact with the company now that travel is restricted for the foreseeable future. Burgess is among the companies that has developed video-conference walk-throughs of yachts, with their captains and staff, for potential clients, though Beckett is keen to re-establish face-to-face business – and office working – once restrictions are eased.
The rapid switch to remote working – and remote marketing – has also proved an opportunity as much as a challenge for Northrop & Johnson. “We’ve seen five years of development and innovation happening in the space of six months,” says Coote. “Our marketing approach also had to evolve quickly. The crisis has definitely been a catalyst for an even faster pace of online development and implementation.”
For Fraser, the move to remote working and a more digital approach was not too much of a stretch. “We were kind of ready for it because it's something we've been doing for some time now,” says Sauleau. “It was not a painful exercise like some others may have had, technologically speaking.” They did, however implement a new CRM system, which, “allowed us to be in contact with our customers in a prompter manner, follow up on our leads.”
German shipyard Lürssen has adapted to the challenges Covid-19 presented by operating in multiple shifts.
Image courtesy of Lürssen.
The need for social distancing and quarantine has also affected how shipyards, offices and charters operate on a day-to-day basis. Lürssen has adapted to the challenges Covid-19 presented by operating in multiple shifts, expanding the part of the workforce that can work from home on a rotational basis and dividing the yard into zones that do not intermix. This has allowed the yard to continue to deliver new yachts and refits.
Ensuring safety on charters has been more of a challenge. Some clients have required that the crew and supplies are quarantined offshore for two weeks before cruises start, while many understandably insist on a testing regime. Sauleau suggests that such charter complexities may have persuaded some clients to choose another approach to yachting. “I think one of the trends triggered by the pandemic will be that people who normally charter decided to buy their own yacht, and actually manage the process themselves – make sure they can go on their boat when they want, are sure about the procedures on board etc. That could partly explain why we are having such a rush on sales,” he says.
Leading boatbuilders have already been working towards greater sustainability and the use of new energy technology.
Image courtesy of Pixabay.
One of the more unexpected consequences of the pandemic is that it has thrown the issue of sustainability into sharper relief across a range of sectors. The spread of Covid-19 has highlighted global interdependence and the fragility of the linear economy – as well as our relationship with the environment. This has had a knock-on effect on the yachting industry.
“People have paid lip service to the importance of ‘green’ yachting for many years but suddenly in 2020 sustainability genuinely became the number-one topic being raised by clients,” says Coote. “I think the crisis has also strengthened people’s desire for sustainable materials and fuel-efficient vessels.”
Leading boatbuilders have already been working towards greater sustainability and the use of new energy technology for some time. Lürssen is also undertaking research with several industry partners in the field of fuel cell technology. A test plant is in build at the yard in Lemwerder, which will test a 100kW hydrogen fuel cell, and the energy created will be used to provide sufficient heating and electricity for a shed. This test is done with a view to gathering data on the fuel cells and establishing if and how the technology can be developed for wider use. “It will be 15 to 20 years before we can replace all engines with fuel cells,” says Breman. “We have to be sure to adopt at the right time, but we’re keeping our eye on the ball.”
The crisis may prove a much-needed shock to the yachting industry’s system.
Picture credit: Unsplash
Others see even wider change afoot. Coote argues that the crisis may prove a much-needed shock to the industry’s system, and change its approach permanently as a new generation of buyers comes of age. “I’ve previously suggested that the superyacht industry was on a path of self-destruction, continually promoting ostentation, complexity and extreme cost to a younger audience that cares less and less about such things,” he says. “I think ultimately we’ll look back at 2020 and cherish the ‘reset’ the pandemic brought.”
First, the market must navigate the impact of a second wave of Covid-19 and infections across the world. Thus far, leading boatbuilders and brokerages have managed the recession well and will hope that the strategies they have adopted will carry them through to better times. “I am very encouraged about the future,” says Beckett. “The only question is when that future will start.”
This feature is taken from the January 2021 issue of BOAT International. Get this magazine sent straight to your door, or subscribe and never miss an issue.