Despite the eurozone instability, overseas markets are rich in potential for U.S. boatbuilders
In recent years, many U.S. boatbuilders have focused on ramping up exports, a trend driven in part by watching competitors offset sagging domestic sales in 2007 and 2008 with robust overseas volume. But just as these companies were poised to explode into the European market, along came the Great Recession.
As the U.S. economy trudges slowly toward recovery, Europe continues to struggle, with the economic fates of Greece, Ireland, just-bailed-out Spain, Italy and others hanging in the balance. The fiscal turmoil in Western Europe — one of the marine industry’s two biggest markets — has taken a toll. Still, experts say, there is reason for manufacturers to keep a close eye on foreign markets.
An alliance between the marine industry and the federal government, part of the Obama administration’s push to increase U.S. exports, should help manufacturers identify emerging markets and provide access to U.S. Commercial Service trade specialists, says Jim Currie, legislative director for the National Marine Manufacturers Association. The Commercial Service is the trade promotion arm of the Commerce Department’s International Trade Administration.
Canada remains a bright spot as the leading importer of boats built in the United States, and it is working with the NMMA to make an industry push with an adapted “Welcome to the Water” campaign. Brazil, one of the prime emerging markets just a few years back, now levies big taxes on boat imports as part of Mercosur, a South American trading bloc that has been trying to make its own boatbuilding companies competitive. However, the country has seen 41 percent growth in imports of U.S. boats between 2011 and 2012, according to the U.S. Department of Commerce.
Europe and Australia, though softer, still are considered well-established markets that were seeing buying activity. Asia, though still in its boating infancy, continues to show signs of growth, and parts of the Middle East reflect a budding boating culture.
For the last two years, Correct Craft president and CEO Bill Yeargin has been traveling the world in an effort to expand the company’s presence in international markets. He has made trips to Asia, Africa, Europe, South America and the Middle East, even sitting in as President Obama signed the U.S.-Korea Free Trade Agreement. “In much of the world, the economy is doing very well,” Yeargin says. “There is a tremendous amount of wealth being generated around the world and many people are just learning about the boating lifestyle.”
Brunswick Corp. CEO Dustan McCoy told investors in May that although it’s difficult to give comparative data on overseas sales, he believes Brunswick is first or second around the world. “We have no idea of what the market looks like outside of the U.S. because, frankly, there are no statistics,” McCoy says.
Several growth opportunities McCoy mentioned in his talk with investors are outside the United States. “We will continue to look for new markets,” McCoy says, “and we think there is opportunity for us outside of the U.S.”
Although it is increasing its presence in more places, Grand Banks Yachts is focusing less on emerging markets, directing its energy instead to areas where sales have already proved strong. “We do feel it’s worthwhile to keep some geographic diversity, and obviously that served us well when the U.S. was hurting,” Grand Banks brand and marketing director David Hensel says. “And we have grown our dealer network over the last five to seven years to places where we haven’t had dealers before, like Croatia, Turkey and South Korea. Some, like Turkey, are more productive than others, like South Korea. But that’s not necessarily a focus for us.”
The strong markets include North America, Australia and Europe, Hensel says.
Greece was still making headlines in early June as trade insurers decided to stop covering exports to the country, leading to concerns about shortages of fuel, raw materials and medicines. Spain continues its effort to reconcile its banking crisis, and in June it became the third European country to require an international bailout (after Greece and Ireland). Officials in Cyprus also have indicated that country might need international help.
Meanwhile, analysts continue to ponder whether the eurozone will dissolve or find a last-minute way to move forward. The news has been unequivocally bad, but regardless of what happens with the currency, no one interviewed believes Europe will cease to exist as a major export market. “Nobody’s going into the next season in Europe with rose-colored glasses right now,” Hensel says.
Nevertheless, Grand Banks has strong European dealers whose clientele consists of high-net-worth people who likely would be less affected by recession, Hensel says. “How much is purchasing going to be influenced by economic factors and how much is going to be influenced by psychological factors?” he asks. “We don’t know how much the situation is going to affect sales [and] we don’t know how the economy is going to play out.”
Until debt markets settle down, European consumer confidence will be affected, Yeargin says. “The European market is hard to predict,” he says. “Every time you think they are getting things fixed, there is a setback. The No. 1 factor that impacts boating sales anywhere in the world is consumer confidence. The news from Europe has people worried and that is impacting boat sales negatively.”
McCoy says Brunswick also has seen a slowdown in European sales. Still, in 2010, Europe remained the leading importer of American boats, accounting for 28 percent of the export pie, Currie says. That is the most recent year for which the NMMA has data, and Currie suspects Canada has since overtaken Europe. Those 2010 data show Canada only 1 percentage point behind Europe, at 27 percent of U.S. exports.
“European sales really buoyed us in 2009 and into 2010,” Hensel says. “We have seen strong European sales throughout this recession. Now that U.S. sales are starting to trend upward, European sales have flattened. But we’re still getting some sales in Europe. It’s not at the boats-per-month rate that we had before 2009 or so, but it hasn’t been bad, either.”
When assessing a country’s export potential, manufacturers should consider the infrastructure in each country, John Vanderwolf, an international economist for the U.S. Department of Commerce, told manufacturers during a National Marine Export Initiative webinar. The partnership between the NMMA and the Commerce Department will give marine manufacturers an edge, he maintains.
“With dwindling resources, we decided to look at sectors where we could benefit the most,” Vanderwolf says. “Why was recreational transportation selected as a national export initiative sector? Because the potential for growth is high, and the firms are medial to small and have a high impact on new jobs. So we’ll have a greater percentage of government resources that are available.”
U.S. boatbuilders have a $500 million positive trade balance each year, but most of the country has a negative balance, Currie says. That was another reason for the federal government to support the industry. “The beauty of this arrangement we have with the Commerce Department is they have people who specialize in these markets and know these markets,” Currie says. “They do have country-specific experts.”
Cindy Squires, the NMMA’s chief counsel for public affairs and director of regulatory affairs, told webinar participants there is a great need in the marine industry for market research, particularly on a global scale. Manufacturers interested in learning more about a specific market should ask.
Last September, tariffs on foreign-built boats jumped from 20 to 35 percent in Mercosur countries, which also include Argentina, Paraguay and Uruguay. Despite the hike, exports increased there by 40 percent between 2011 and 2012. “That proves that Brazil is still a strong market to get into,” Vanderwolf says. “The Brazilian market is growing through the roof.”
Brazil is on track to become the world’s fifth-largest economy by 2014, surpassing France, Britain and possibly Germany, Vanderwolf says. There are 200 million consumers with purchasing power and the per-capita income is twice that of China. Additionally, an infrastructure exists for pleasure boating that is only growing, Vanderwolf says. Even though 60 percent of boating occurs in Brazil’s southeastern region, the northeast is showing faster growth and provides a big opportunity for U.S. boatbuilders.
The NMMA’s Canadian presence has grown in recent months. “We’ve hired a full-time person in Canada who’s going to allow us to get year-round coverage,” says Carl Blackwell, the NMMA’s vice president for marketing and communications and marketing manager for Discover Boating. Already some of the Discover Boating ad spots are paying off, he says.
In 2009, 26 percent of boat exports were to Canada, Currie says. In 2010, it was 27 percent. The economic troubles in Western Europe may have pushed Canadian sales ahead of those to Europe, he says.
The weaker U.S. dollar has boosted sales to Australia — another solid market, Currie says. Some builders say Australian business has been spotty, but the national economy has held up relatively well during the global recession. Also, U.S. boatbuilders are gaining market share because of a favorable exchange rate, Vanderwolf says.
Holland, Turkey, Japan
Despite the chatter about China, there is little infrastructure to support boating and the GDP is still very low, despite growing wages.
The Netherlands is a good place for some builders to begin because the people know English very well, it is the 16th-largest economy in the world and it is a portal to the rest of the European market, Vanderwolf says. “It’s the eighth-largest market exporter for boats and parts,” he says.
Even though Holland now has a financial crisis of its own, experts believe it is a “blip and not a long-term structural problem that we see in other countries,” Vanderwolf says.
Turkey is another area with potential, he says. With the world’s 18th-largest economy and 5,000 miles of coastline, the country is poised for boating growth, Vanderwolf says. “It’s a strong market for megayachts, so companies can expect to face competition there, but there are not as many smaller boat manufacturers,” he says. Small-boat builders and parts manufacturers have a big opportunity in Turkey, he says.
Since the tsunami, Japan has committed to building more coastal infrastructure that is friendly to recreational boating instead of just the fishing industry, Vanderwolf says. That gives U.S. boatbuilders a huge opportunity to break into the world’s third-biggest economy.
In 2011, sales increased substantially and Japan became the 11th-largest export market for U.S. boats and parts, Vanderwolf says. “Many marinas were fishing-oriented, but they see now that recreational activities have far greater [revenue] potential than fishing,” he says. “They have even improved their trailer laws.”
This article originally appeared in the July 2012 issue.