Finland’s shipbuilding sector sails on new surge in cruise industry

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Ever since the collapse of communications giant Nokia Corp. four years ago, Finland has been struggling to develop an industry that could deliver jobs and growth. It may have finally found one thanks to soaring global demand for an unlikely product: cruise ships.

The cruise industry has been on a tear lately and Finland is riding the wave as demand soars for bigger and better ships. The number of people taking cruises is expected to hit a record 25.3 million this year, up 21 per cent in just five years. The main drivers of this rising popularity have been new interest from millennials and growing popularity for river trips, celebrity cruises and adventure excursions to places such as the Antarctic.

Finland has become a world leader in building these giant leisure vessels, drawing on its long history of boat building. This year, 26 cruise ships are set to come into service with another 17 next year and 22 more in 2019. And many will be built right here in this Nordic country of 5.3 million people.

Nearly 50,000 Finns are employed in the marine sector, with most either working directly for a cruise-ship maker or at one of the more than 1,500 companies that provide a myriad of supplies such as design work, welding, steel processing and outfitting. The port city of Turku, about 170 kilometres northwest of Helsinki, is the epicentre of this activity with a massive shipyard fully booked with orders for new cruise ships until 2024. That's the longest stretch of continuous work the cruise industry has ever seen and the Turku shipyard is set to double its employment in three years.

On a bright day recently, the yard was buzzing with activity as workers at the sprawling Meyer Werft operation put the finishing touches on the Mein Schiff 6, a 294-metre-long ship for TUI Cruise that has 15 decks, 1,267 state rooms and capacity to carry 2,534 people. The Meyer facility recently signed contracts with Royal Caribbean Cruises Ltd. and Carnival Corp. to build the next generations of their ships, which will run on liquefied natural gas and carry around 5,000 passengers.

"We'd like to create Turku as the maritime hub of excellence in the global sense because we have so many players here," said Pekka Sundman, director of the Turku City Development Group. Mr. Sundman said the shipping sector and other industries are growing so fast that the city of 185,000 residents is running into a housing shortage and there are concerns about added pressure on schools, roads and hospitals. "But those are good challenges to have," he added.

It's a far cry from just four years ago, when Finland's shipbuilding industry faced a crisis. In 2013, the South Korean owner of Finland's three main shipyards – in Turku, nearby Rauma and Helsinki – announced plans to pull out of the country after running into financial trouble. For Turku, that was just the first blow. Around the same time, Nokia was in turmoil and eventually sold its once-mighty mobile phone business to Microsoft Corp. in 2014, putting thousands of people out of work in Salo, which is just south of Turku.

The potential loss of the shipbuilding yards was particularly hard to take. Shipping has been critical to this part of Finland for more than 500 years and it has remained a constant source of activity even as Finland evolved from being part of Sweden, part of Russia and then independent. Ironically it was the fallout from years of war with the Soviet Union in the 1940s that provided the biggest modern-day boost to Finland's ship building industry.

The two countries signed a peace agreement in 1944 that allowed Finland to remain an independent country but forced it to pay reparations to the Soviets. Instead of financial compensation, the Soviets demanded products such as ships instead. Over the next decades Finnish shipyards built hundreds of ships for the Soviets, developing an unparalleled expertise. By the time the Soviet Union collapsed in the early 1990s, Finland's builders were among the best in the world and they quickly found customers in the west. And while many shipyards built tankers and container ships, Finland specialized in areas such as icebreakers, ferries and cruise ships.

So when the owners of the country's main shipyards, South Korea's STX, came close to going under in 2013, Turku braced for the worst. "In a way, it was a question of about days or even hours before STX would have gone into bankruptcy," Mr. Sundman said.

The South Koreans found a Russian buyer for the Helsinki yard and unloaded the Rauma facility to the city government. It sold the Turku operation to Meyer Werft, a private German-based company that's among the largest cruise ship builders in the world.

The Finns also re-engineered much of their operations, increasing the number of specialty companies so that every part of the ship can now be made and installed locally. That's been particularly successful in Rauma, a city of 40,000 people about 80 kilometres north of Turku. After the city government bought the local shipyard from STX for €18-million ($26-million), it transformed the area into a hub with a group of small contractors surrounding a main builder called Rauma Marine Construction. It's a flexible system that has allowed Rauma to work on projects as diverse as the passenger component for a Canadian naval supply ship, a ferry destined for Denmark and floating houses in Dubai.

"It was really quite a big step for the city to take this kind of action," said Timo Luukkonen, the managing director of the park.

"But this was really good move and we have been able to create this park and develop some new buildings."

There are plenty of challenges looming. The growth of the cruise ship industry has sparked interest from other players, notably in China, which is keen to build its own ships. There's also the potential for a cyclical downturn as travel tastes change. But for now, companies such as Rauma Marine are just happy to see the shipyard come back to life and jobs return.

Markku Uusitalo has been in the industry for 30 years in Rauma and he's never seen it so busy. "It's been good," said Mr. Uusitalo, senior vice-president of production at Rauma Marine. The city "made the opportunities for companies like RMC to start ship building once again."