Superyachts are more expensive than a piece of jewelry and most pieces of art or real estate writes Laurent Perignon, but the subject of costs and how the luxury yacht industry operates has long been kept a secret – a virtually taboo subject to discuss.
More often than not, even for those in the know, the industry is like a lifestyle seen from the distance, like a yacht on the horizon. Yet it is changing, and here are some of the keys to understanding how it works.
The 24m (80') benchmark
Thirty years ago, a yacht bigger than 20m (70') was classed as a Superyacht. In those days, there were far fewer harbors and berthing was a real problem, even without the yacht building explosion that was to come. The first million dollar used superyacht was sold by Camper & Nicholsons Yachting in the 1960's, but it was a rarity. With a marked increase in yacht orders and the growth of wealth in the 80s and 90s, a new benchmark gradually emerged where a minimum length deemed necessary to join the superyacht league became 24m (80').
The benchmark now serves as an indicator, separating companies dealing with yachts under 24m (80') and those concerned with vessels above that length. You can further separate players from those that rent yachts to those that charter superyachts, and from builders of production-only yachts to builders of semi-custom yachts.
Only superyachts above the 24m (80') mark may require external yacht management services, whereas those under are usually managed by the captain or skipper. However, with increases in yacht size, some commentators believe the benchmark needs to shift to new heights, or rather longer lengths, as they become increasingly focused on yachts of 30m (100') and above.
What's a superyacht?
You may think you know what a superyacht is but they can be defined by a combination of elements: by her type of hull – all yachts are traditionally of 'female' gender – and whether she is a production, semi-custom or fully custom vessel.
Production yachts are manufactured in larger series, based on standard designs for both the exterior styling and interior fittings. As when ordering a car, one may opt for certain colours and optional equipment, yet the basic components and arrangement are a given. This reduces production costs and the final price of the yacht. It is, to a certain extent, an economical approach to yacht ownership.
Custom yachts, as the name suggests, are designed and manufactured specifically to the requirements of a future owner, by the designer and naval architect, inside and out. They take much longer to develop, engineer and manufacture and are likely to be the larger – usually above 45m (140') – where the impact of the "made-to-measure" cost is supposedly less visible. But with no real limit to what can be executed.
The general assumption that a yacht costs $1 million a metre above 50m (165') may not necessarily work for custom yachts. The truth is that the cost per additional metre on any custom yacht tends to be exponential rather than linear, with strong variations from one to the next. A large yacht with a given waterline length can have one, two, or even three accommodation levels above the main deck, with a huge impact on price.
Semi-custom yachts are a compromise. While the hull is based on a set design, the rest of the yacht is adapted to the requirements of the owner, from the type of engines to the number of cabins, to the materials used in the interior styling.
There are great variations in the options that shipyards offer when it comes to semi-customisation, which in turn induces great variations in the final price. However, sometimes it is the other way around: the price is set and includes a range of options that will not affect the end figure; in such cases, the line between "production" and "semi-custom" is less obvious.
When asking anyone outside the yachting industry how many yachts above 24m (80') are floating the seas, estimations may vary from a couple of thousand to a few hundred thousand, but very few can hazard even a rough guess. In fact, superyachts above 24m (80') numbered around 3,800 at the end of 2007.
Distribution by size
There are about 1,310 superyachts, or 34% of the fleet, between 24m (80') and 30m (100'). Yachts between 30m (100') and 40m (130') account for the largest share of the superyachting playground, with over 1,500 or 40%. Yachts between 40m (130') and 50m (165') account for slightly less than 15% of the fleet, standing at 550 yachts.
Yachts over 50m (165'), account for the remaining 11% of the fleet. Interestingly, out of these 420 yachts, 40% (190) stand above the 60m (200') mark, with the top 100 yachts being over 65m (215').
Distribution by age
About 2,000 yachts were built before 2000. Out of these, about 900 yachts were built before 1990 and 1,100 built between 1990 and 2000. While the fleet doubled between 1990 and 2000, it close to doubled again between 2000 and 2007. In fact, 2008 is bound to be the turning point of another doubling in the number of yachts on international waters, a sure sign of the constant yet faster increase in the production of superyachts over the past few years.
The outside world generally considers only two key players in superyacht building: the shipyards, which build the yachts, and the owners, who buy them. However, brokers account for a large part of the business, and are an essential, albeit often overlooked, factor in the development of the superyacht industry.
In most cases superyacht builders/shipyards operate directly, or through subsidiaries, and very seldom sell via a network of dealers, although they sometimes rely on distributors, particularly in the smaller end of the market. Given that the market above 24m deals mainly with semi-custom or custom yachts, each and every yacht manufactured is a unique example, 'made to measure' partly or in full, to the requirements of a given client.
Not only does this imply higher costs than for production yachts, but it also underlines why most shipyards are seldom in a position to sell semi-custom or fully custom yachts directly to prospective buyers. There are a few reasons for this.
Very few people other than highly experienced owners take the risk of buying a yacht they are expected to 'complete' without the external, objective advice of an expert.
The level of investment is such that it is preferable to commission an expert, and often a series of experts, to provide the relevant advice in order to ensure the yacht will meet the future owner's requirements, from interior to exterior design, technical to engineering aspects, and from price to potential resale value.
In general, brokerage houses receive a commission of around ten percent of a deal for sales and purchases of pre-owned yachts. Generally, when owners want to sell existing yachts, they sign an agreement with a brokerage house who will then market the yacht.
The principle of such exclusive marketing agreements is key to understanding how the superyacht industry operates.
Firstly, the level of investment required to market a yacht to a worldwide audience is far higher than in many other industries with similar broking practices. Additionally, a yacht may take a long time to sell, requiring constant and additional investment in her marketing. Thirdly, the broker is appointed by an owner in order to protect his or her assets and interests. It is therefore essential that the broker be given full confidence. And, of course, there is a necessity for the broker to ensure that the owner gets the best return on his or her investment when marketing the yacht for sale.
Sales commissions are generally split between the selling broker and the buying broker. This split does not include the possible involvement of third parties that are commissioned, charge referral fees, or claim a share of the overall commission, on a case per case basis and prior agreement, depending on their level of involvement in the deals signed. Commission practices within brokerage houses differ from company to company, and sometimes even from broker to broker. This depends as much on the fact that some companies have salaried brokers while others are independent agents, like in real estate.
When it comes to brokerage deals with a shipyard, the level of commission is lower. This is simply because there is normally only one broker involved, since the shipyard represents itself in the deal. Commissions may vary, upon negotiation, but the benchmark is 5% (and is likely to be lower for larger yachts than for the smaller range).
Yacht management services
Having one's yacht placed in the hands of a yacht management team is like hiring an audit or consulting firm to ensure that all operations, accounts and ashore support services are carefully taken care of – with professionalism and objectivity.
From day-to-day administration to crucial issues of certification, licence, classification status and flag status requirements, this has meant the challenge of managing a superyacht has become as complex as running a business. In addition, the constantly changing international regulations and legal obligations have resulted in the need for professionals that can provide continuity, integrity, resources and a collective depth of experience to an owner and his or her yacht and crew.
There are now several yacht management agencies around the world, both independent and within the larger brokerage houses, specialising in all these concerns.
These teams therefore provide an essential link between the owner, his or her captain and crew, and the various regulatory bodies that are involved in superyacht operations, from the flag states to the class agencies and those in charge of the main codes of practice, such as the Maritime and Coastguard Agency (MCA) Code of Practice; the International Safety Management Code (ISM); and the International Ship and Port Facility Code (ISPS).
For any commercially operated yacht, compliance with these statutory international regulations and operational laws is a fundamental requirement and captain, crew, owners and charterers alike must adhere to the stipulations of the relevant codes.