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Viking Line orders new ship from China for 100M euros less than local shipyard

The Finnish firm Viking Line has ordered a new cruise ship from China. The new vessel will serve the cruise operator's Turku-Stockholm route starting in 2020.

Uusi Viking Linen risteilyalus, havainnekuva.
An artist's impression of the new Viking Line cruise ship. Image: Viking Line

Viking Line has commissioned a new cruise ship from China, saying that the price of a Finnish-made equivalent was prohibitively higher. The Viking Line shipping company out of the Åland Islands has a fleet of seven cruise ships sailing to different destinations on the Baltic Sea. The new Turku-Stockholm route ship will replace the M/S Amorella, which is up for sale.

Viking Line CEO Jan Hanses says Xiamen Shipbuilding was able to offer a good price and early delivery date in light of the lack of capacity in Finnish shipyards.

"The only dockyard that would have been able to do this was the Turku shipyard, but they have such a packed order book that they could only offer delivery around 2024. The offer price was also a lot higher than what we got from China. In fact we're talking nearly 100 million more," said chief executive Jan Hanses.

Given that the value of the deal is some 194 million euros, it means that it would have cost nearly 300 million euros to commission the vessel from a Finnish shipbuilder. Viking Line noted that it was also easy to organise financing in China - Finnish and German banks are also on board alongside Chinese institutions.

A new mechanical rotor sail is due to be fitted on Viking's flagship Grace, next year. The new vessel will also have a fuel-saving rotor sail. For fuel, it will use Liquefied Natural Gas (LNG) and will be more energy-efficient than Grace, burning roughly one-tenth less fuel than Grace.

"We have optimised the machinery, the body and reduced energy consumption on the hotel deck," Hanses explained.

The vessel will employ many subcontractors in Finland. For example, the power systems and engineering company Wärtsilä will deliver the vesse'ls engines.

Order piques Chinese interest

Growing numbers of Chinese tourists are visiting Finland, including travelers arriving by sea. A ship order from China has also whetted Chinese appetites to visit Finland, something the company says would not have been the case without the cruise liner order. According to Hanses, the number of Chinese tourists has the potential to grow from 100,000 to some 200,000.

However the new liner will be used for traffic between Turku and Stockholm and will be designed to meet the expectations of Nordic travellers. The interiors will be designed by the Swedish architects Koncept Stockholm, selected from among a host of different contenders. Viking Line said that it chose the firm because it stood out from the rest with its ability to combine Scandinavian levity and playfulness.

Kocept Stockholm was responsible for the interior of the centrally located Scandic Haymarket Hotel near Hötorget city square in downtown Stockholm.

Hundreds of millions in state subsidies for shipping

Last year Finnish shipping companies received some 100 million euros in labour cost subsidies, a slight increase over recent years. The support has ignited heated debate in many quarters.

State aid to maritime transport companies complies with EU guidelines. Finland and 15 other seafaring states in the EU either comply with a net wage model, or they get returns on non-wage labour costs. In the net wage model, shipping companies do not have to pay withholding taxes on behalf of employees or employer contributions. This means that employers do not have to hand over money to the tax authorities.

Currently, Finland, the Netherlands, Germany, France, Ireland, Greece and Luxembourg refund withholding taxes and non-wage labor costs to employers or apply them at a lower rate.

Options: Swedish flag or pack up

Hanses condemned the Finnish refund system, saying that it gives the impression that it is a form of corporate subsidy.

"It would be easier to argue if we too also reflected the basic purpose [of support]m so that we would not pass on taxes on behalf of employees nor pay additional costs," he elaborated.

If Finland were to eliminate state subsidies for the maritime industry and Sweden were to keep it, one option would be for shipping companies to either adopt a Swedish flag or go out of business.

"Of course the latter is not an option," Hanses said.

The Viking Line CEO saud that the state has been understanding about the existing subsidy regime so he is hopeful that it will continue.

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