The megayacht sector in the United States is struggling. Yards are operating under capacity and contracts for new construction are virtually non-existent.
Trinity Yachts, based on the Gulf Coast with facilities in Gulfport, Mississippi and New Orleans, Louisiana is one of the premier custom yacht builders in the region and the country as a whole, and is feeling the negative effects of the bad economy as strongly as anyone else. The conversation I had with its vice president, William (Billy) Smith, was enlightening, to say the least, and his remarks were refreshingly candid. What follows is an analysis of the US megayacht industry, in the words of one of its biggest players.
“Most of the companies building yachts, frankly, have no good news to report,” he told me. “They have very little work in the yard. They’re almost empty.”
These were some of the first words out of Smith’s mouth during the hour we spoke, and yet they echoed a sentiment that he’d repeat over and over throughout our conversation. The megayacht industry in the United States, in terms of new construction, is on the brink.
“The new construction yacht market in the US continues to be non-existent for all intents and purposes,” he continued. “Yes, it is thanks in part to the recession that hit in 2008, but it goes far beyond that. The country may be in a recession, but the custom yacht building industry is in a depression,” he concluded. “That’s all there is to it.”
On Diversification and New Technology
“You can canvass US yards and see how many [new construction] contracts they’ve had in the past two years,” Smith said. “It’s not enough to sustain a shipyard. Any shipyard.”
Trinity, he went on, has had some luck on their side in staying busy. In 2005, in response to a devastating blow to operations dealt by Hurricane Katrina, they purchased the Gulfport facility, keeping workers employed by moving yachts under construction to the new location as they repaired New Orleans. Part of the Gulfport deal involved signing a five-year non-compete agreement to keep them out of the military and commercial sector. In the fall of 2010, that contract expired.
“Basically, in 2011 we were able to diversify,” Smith said. “We were able to pick up contracts in the military and commercial offshore and commercial inland. We were able to go back to our roots; after all, we entered the yacht business in 1988 as a way of keeping our under-utilized yards busy and now we are going back to what we used to build.”
These contracts mean that Trinity is able to retain a lot of their highly-skilled workforce and keep the operation going until contracts for new yachts pick up. And by the sound of it, it’s pretty exciting stuff.
“As we speak, TY Offshore is building six 90’, 45-knot fast patrol vessels for Kuwait,” Smith said. “We have four, 302-foot by 64-foot diesel-electric, dual-fuel offshore supply vessels. These are the first LNG powered vessels built in the US. This is stuff that is beyond what the yachts currently require. We already delivered two 100’ Azimuthing Stern Drive tugs in 2011 and are also building ten 300’ by 54’ double skin oil barges.”
Most of their commercial fleet is operating in the Gulf of Mexico. The 302-footers represent the new generation of offshore supply vessel.
“By being able to burn LNG,” Smith explained, “they basically take out 99% of the emissions that everybody is worried about with diesels.”
One of Trinity’s advantages in breaking out into other sectors is the availability of new technology that can go from one to the other. While LNG is limited to the commercial sector currently, it’s not because they can’t—or won’t—use it in yachts.
“We have one guy talking about it now,” Smith said. “[European builder] Lürssen has delivered a couple of these diesel-electric superyachts,” he went on, “and we have a lot of other technology that is sitting on the shelf that we do for the military or we do for the oil and gas industry that is available to the yacht owners.”
Smith believes as the yachts continue to grow in size, LNG and other maritime technology will become increasingly common. But the real point of Trinity’s diversification lies simply in their ability to make adjustments in order to remain open for business.
On Refits and Repairs
Another side effect of the US megayacht industry’s “depression,” as Smith calls it, is seen as a good thing. While the yard has seen only a few contracts for new builds in the past several years, the refit and repair business at Trinity has picked up.
“Typically if guys aren’t buying new boats, they’ll continue, hopefully, to take care of their existing boats,” Smith says.
While Trinity can normally handle about four to five new builds at a time—at full capacity they employ a workforce of some 1000 to 1200 skilled laborers; nowadays that number is down to 650—they currently only have one on the line, a 154-footer, at their New Orleans yard and a 120’ and 167’ in the Gulfport yard. There are also two 167’ yachts that are immediately available with 18-month delivery due to owners defaulting.
“It’s like, ‘well okay, we’ve got these guys, let’s go do some refits,’” Smith said. “We had a lot of carpenters, interior guys, painters and outfitters available. In the past year and a half, we’ve had the 150’ Carpe Diem II come back to the yard for a big refit. We had Vita, which was purchased, and she’s now known as Pipe Dreams. She came to the yard for a major refit and extension. And then we had Cocktails, which was formerly Chevy Toy. She came in for about a six-month total makeover … you walk into the interior and you cannot believe it is the same boat.
“We’ve had some of these owners that have recognized the fact that it is a buyer’s market and, rather than wait two years for new construction, they buy an existing boat, bring it back to us and have us change it into the style that they want,” said Smith. “They feel they save time and money by this process.”
In fact, most of the time a repair is actually more profitable for Trinity because their lower labor rates compete well against the higher rates of the South Florida yards and particularly against European yards. The refit business is not only picking up at Trinity, but according to Smith this is a common theme throughout the industry.
“What you’re seeing is a yard doing whatever they can to stay in business, to keep their workforce intact. You don’t find these guys on street corners. It’s highly skilled work they’re doing. It takes a long time to build up a workforce and you have to hang on to them. So we’ll do whatever we can to keep them busy while we’re waiting for the market to turn around and pick up.”
On the Causes of the Megayacht “Depression”
“In September of 2008 when the recession hit, we had 24 yachts under contract,” Smith told me. That was, of course, at the height of the bubble that was about to burst for a lot more than just the yachting market. “And that was at an average size of about 180 feet. So, yeah, [we’ve lost] a lot of work.” There were too many speculative builds, which led to an oversupply of yachts, which depressed prices. Banks have tightened up their lending requirements for yacht construction also.
Smith was quick to point out that while the US yachting industry is in rough shape, the fire hasn’t spread to the rest of the world. In fact, some of the European yards—many of which are building some of the largest yachts in the world, at well over 300 feet—are doing just fine.
“Most of the good European yards are doing well. [The yacht owners] are Russians, some Middle East and, very discreetly, very quietly, a couple of Americans.”
And therein lies the current problem. American owners, while looking to buy “Made in America”—Smith is keen to note that the megayacht industry is one of the few remaining in the US that can compete with China and globally—are simply not interested in the media firestorm that would accompany such a high-profile purchase.
“You’re not going to see many Americans order yachts in this political climate,” he said. “There is class warfare, the attack on the rich. They just don’t need it. They can simply go overseas and do it.
“We had one multi-billionaire who we were talking to that would love to have built a yacht, and would have probably built a yacht in the US. He quietly bought an existing boat. He’s still yachting, but the 300 guys he would have employed to build a new yacht did not get that work.”
With that, Smith brought up the subject of the “ripple effect,” the undeniable idea that a large yacht generates a large amount of work. Smith echoed the general conservative economic ideology which, thanks to the 24-hour news cycle can get wildly overblown. But he’s pretty convincing when talking in terms of the megayacht industry specifically.
“You’re seeing the multiplier,” he said. “These boats are constantly spending money. There is money spent when they’re built, and there is money spent when they’re repaired. And as long as those boats are in operation, they’re employing people and buying goods and services. Things that people don’t even think about,” he continued.
Amy Halsted, Trinity’s press liaison who has been involved in the yachting industry herself for over twenty years, added that “If you were to buy a Vincent Van Gogh painting, you’d just have the transaction and the shipping of that painting to your home wall. With a yacht, the amount of employment and economic impact of a single Trinity yacht—that’s lost on the public, in terms of the blue-collar guy having a job, and the crew person having a job. And the guys on the dock fueling, the people who supply the flowers, the day workers and technicians who take care of audio-visual, communications, security, diesel engines, exterior paint, air conditioning systems, etc. These are all high paying jobs.”
On What the Future Holds
“We want jobs in America,” stressed Halsted. “Right now they’re building boats in Europe, and we have fabulous boat builders here.”
Both Smith and Halsted said that yachts are simply not in the same category as other luxury items when it comes to economic impact. A diamond doesn’t generate much beyond its initial sale and resale. Even a pricey piece of real estate can’t compete with the ongoing influence of a big yacht.
“It’s not about the rich yacht owner,” said Smith, who has, shall we say, a conservatively optimistic view of the yacht industry in the United States. It’s fairly apparent talking to Smith that he believes the problem won’t be solved until the political climate changes. While some politicians, in his mind, are focused on the rich, he sees it differently, sees it more as a matter of perspective and the classic notion that “one person can ruin it for the whole group.”
“There is an award called the Horatio Alger award,” Smith told me. (www.horatioalger.com.) “Have you ever heard anybody talk about that recently?” It was obviously a rhetorical question. “We used to hold up these guys that were self-made as heroes, and guys to emulate. Now, you get a guy that’s made money – if you listen to some of the politicians, he must have stolen it or he must be doing off the backs of the workers he’s abusing or he must be a crook or something. There must be something this guy did to make that kind of money.”
That attitude, the negative reaction to success (and truth be told, it’s not all false), in a nutshell, represents the essence of Smith’s idea. His views—and he’s incredibly passionate about them—apply far beyond the bounds of the megayacht industry and touch on the highly fragile and even philosophical nature of the modern economy.
“It’s jobs,” he said. “These boats float. They can float to Florida or they can float away from Florida. What do you think is better?”