What you need to know
The growing market for larger vessels and the emergence of domestic demand offer hope for the industry.
Taiwan has long been an important producer of yachts and sailboats, though it is only recently that recreational boating has finally begun to catch on.
One in every three new yachts sold in the United States between 1977 and 1981 was made in Taiwan. In 1987, the island exported 1,755 vessels worth US$190.8 million. Over 100 yacht-builders operated in Taiwan during that period, even though regulations initiated in the martial-law era made it illegal for Taiwan residents to own leisure craft until 2010.
After the initial boom came two busts. Between 1986 and 1992, the NT dollar appreciated 58% against the US dollar, substantially raising the cost of Taiwanese vessels in their most important market. At the beginning of 1990, in addition, the U.S. government imposed a luxury tax on yachts and private airplanes. And like other manufacturing enterprises in Taiwan, boat builders faced rising land and labor costs. By 1994, dozens of boatyards had gone out of business.
Taiwan’s yacht sales rebounded to US$323.5 million in 2008. But exports crashed in the wake of the global financial crisis, bottoming out at US$144 million in 2010. Since then, the industry has clawed its way to slightly better health.
According to U.S.-based yacht magazine ShowBoats International, in 2015 Taiwan was the no. 6 builder of yachts in the world, behind Italy, the Netherlands, Turkey, Britain, and the United States. In 2014 – when Taiwan’s exports totaled US$172 million – the country ranked no. 7.
Two Taiwanese companies appeared on the magazine’s 2015 list of the world’s 30 leading yacht builders. Ranked according to total length of new builds the previous year, the Horizon Group was no. 10 (up one spot from 2014), while Ocean Alexander was no. 14 (up from no. 22).
“These rankings show the quality and technology of Taiwan’s yacht manufacturers has gained international recognition,” says Hsueh Po-yuan, chief of the Marine Industries Section of the Kaohsiung City Government Marine Bureau. Both Horizon and Ocean Alexander are based in Kaohsiung.
Yet many of the 39 yacht-building member companies of the Taiwan Yacht Industry Association (TYIA) continue to struggle. “There’s been a shakeout in Taiwan,” says Johnny Chueh, head of sales at Ocean Alexander, which does business in the United States as Alexander Marine International. “Two companies – we’re one, Horizon is the other – generate 80% of Taiwan’s yacht-building revenue. The smaller yacht makers are fighting over the other 20%.”
Chueh argues that if Taiwan’s yacht builders are to thrive in the face of rising costs, they must build ever-larger yachts. “As you go upmarket, your track record and brand become increasingly important,” he says. “Price isn’t the main factor determining purchasing decisions.”
He attributes Ocean Alexander’s success to never having built yachts for other companies. “From day one, we worked on our own brand. That has given us a deep understanding of customers’ needs and trends. Also, we’ve been among the first in the world to introduce certain technologies to yachts, such as resin vacuum infusion, aerospace electrical systems, and aerospace-grade paints.”
“Two companies – we’re one, Horizon is the other – generate 80% of Taiwan’s yacht-building revenue.
In 1980, Ocean Alexander sold 29 yachts with an average length of 45 feet. In 2000, it built 25 yachts averaging 62 feet each, and in 2010 the output was 10 yachts averaging 74 feet. The number of boats sold in 2015 was the same as 2010, but the average size had increased to 92 feet.
“We’ve seen a reduction in units, but a steady growth in revenue,” says Chueh, whose father, the late Alex Chueh, founded the company in 1977. “For the price of a single 90-foot yacht, you can buy 20 45-foot vessels.”
Longer boats are invariably wider and taller, and larger boats tend to have more expensive fittings, he points out. “In recent years, none of our boats have gone to Taiwan customers. Most of our sales have been to the U.S., with 10% to 20% going to Europe.”
When Boat International Media Ltd. published its 2016 Global Order Book in late 2015, Ocean Alexander was working on 35 yachts, the largest being a 155-foot vessel for delivery in 2018. The smallest were 85-foot boats.
According to the same source, Horizon was building 21 yachts. Only one other Taiwanese company had more than three projects underway: Kha Shing Enterprises Co. Ltd., with seven orders.
Kha Shing, which trades as KSE / Monte Fino Yachts, was the world’s no. 9 yacht builder in 2004. As recently as 2013, it ranked no. 17. Kha Shing, which like Horizon and Ocean Alexander is based in Kaohsiung, also renovates old yachts.
Whereas Ocean Alexander has continued to focus on the U.S. market, Horizon responded to the challenges of the late 1980s by seeking customers in other parts of the world. “After 1989, we started to target the European, Australian, and Asian markets,” explains John Lu, Horizon’s CEO.
“During the early 1990s, more than half Horizon’s output went to Europe, but sales to Australia and Asia have increased steadily since 2010,” says Lu. “In 2015, the U.S. accounted for over 60% of our sales volume, with Australia being the second largest market. Since our establishment, about one in three orders have come from repeat customers,” he adds.
Since 1995, when Horizon built its first 80-foot vessel, it has delivered more than 190 “megayachts” that size or larger. It is now the only Asian member of the Superyacht Builders Association (SYBAss). The company has also completed over 580 smaller motor yachts.
Horizon has invested more than US$10 million in R&D, brand marketing, staff training, and the renewal and expansion of its facilities since 2008, says Lu. He credits the Taiwan International Boat Show (TIBS) – held first in 2014 and again in March this year in Kaohsiung – as having helped the industry develop Asian markets, as well as boost domestic interest in yachting.
What is true for motor yachts is also true for sailboats. Joy Huang, general manager of Ta Yang Yacht Building Co., Ltd., which specializes in 37- to 64-foot blue-water sail yachts, says: “For sailboats, the pivot was back in the early 1980s. Previously, our key sellers were all under 40-feet, but then cheap small boats made in Taiwan became uncompetitive.” Thereafter, European companies dominated the market, she adds.
Ta Yang, which takes OEM contracts as well as making yachts under its own Tayana brand, has delivered more than 1,400 boats since 1973. But its first local sale did not occur until last year. Huang attributes this breakthrough to the Taipei Sailing Centre, which has helped introduce Tayana boats to the Taiwanese market.
Tee Tzer-Yu, managing director of Amal Yachting Ltd., concurs that Taiwan’s boatyards are best off focusing on larger vessels and that the local market is becoming significant. Unlike most of the companies promoting vessels at the 2016 TIBS, Amal does no manufacturing. Established in 2014, it sells two Italian yacht brands and Swedish-made powerboats.
“Taiwan’s yacht-builders are able to offer very attractive retail prices, but overseas boatyards have an advantage when it comes to vessels smaller than 30 feet,” explains Tee. “Their methods are more like car production lines. This means shorter lead times, and the quality is stable.”
“Our mission is to help create a yachting lifestyle in Taiwan,” says Tee. “All our clients are here in Taiwan, but all the boats we sell are imported.”
Taiwan-owned vessels can be seen in places like Bisha Port near Keelung and Horizon City Marina on the waterfront beside the Kaohsiung Exhibition Center, venue of the TIBS. The marina has 10 berths for vessels up to 58 feet in length, plus side-tie slips for vessels as long as 200 feet. “As a leading boatyard, the Horizon Group sees itself as having a responsibility to develop yachting in Taiwan,” says Eve Kung, who has been managing the marina since it opened in November 2014. “Boosting yachting activity will ultimately will boost Horizon’s sales. We now have 15 long-term lease owners, all Taiwanese.”
“Good marinas are key if people are to enjoy yachting,” she adds. “We want to set good examples in marina construction and management, especially as all the other marinas in Taiwan were built by the government for fishing boats. We run this marina as a long-term business, and we’re looking for suitable sites to build more marinas.”
Building supersized yachts is not the only way Taiwanese boat makers are trying to distinguish themselves from competition at home and abroad. Ting Hai Shipbuilding Co. Ltd. has been making conventional vessels with diesel engines since 1981, but now specializes in solar-powered and diesel-electric hybrid boats.
The roof of the 100% solar-powered Ting Hai III consists of a 5kW photovoltaic (PV) array. The vessel can carry 42 passengers and two crew. The company delivered its first hybrid boat last year, and has since sold a total of four, all to customers in Taiwan. Each can cruise almost silently at 6 knots for approximately 12 hours.
“We’ve built 15 solar boats since 2010, of which one was sold to the Philippines in 2014,” says Ting Hai spokesperson Jenna Kuo. “Electric boats are about 30% more expensive than normal boats of the same size, mainly because of the high price of lithium iron phosphate batteries. We use these because they have a longer lifespan and better performance than other rechargeable batteries.”
Low running costs offset the high initial costs. “Our solar boats consume no fuel, but how much money an operator saves in the long run depends on how much the boats are used,” explains Kuo.
Another exhibitor at the 2016 TIBS is enthusiastic about oceanic applications of PV technology. Tainergy Tech Co. Ltd., a Taoyuan-based maker of PV equipment and power storage systems, stumbled across the maritime market in 2014. “A customer asked us if we made any flexible PV modules, as he wanted to install a solar cell on his boat for recharging equipment,” recalls Lee Yu-chou, director of Tainergy’s new business development division.
“When we supplied some of our products to him, he told us there’s a lot of potential in the yacht/boat market. We then started to research this market, and we found it’s quite sizable. So far, we’ve made sales to maritime customers in Vietnam as well as Taiwan,” he says.
Tainergy makes solar panels that flex and fold, and weigh just over one kilogram. Conventional solar panels have to be mounted, and fixed in place with screws, Lee explains. A flexible module, on the other hand, can be moved to better catch the sun’s rays, or stored below decks.
There is a thriving two-way trade in yacht equipment between Taiwan and the United States. Each week, California-based Aegis Marine International Inc., established in 1992, ships a cargo container of American-made components to Taiwanese yacht makers. The company also sends Taiwan-made fittings to its affiliate, Magna Marine Inc. (MMi), which stocks and distributes them to yacht dealers and owners throughout North America.
Many yachts built in Taiwan for American clients incorporate equipment from the United States for two reasons, neither of which stems from any perception that made-in-Taiwan items are inferior, says Judy Su, president of Aegis and MMi. “First of all, if the equipment breaks down, it’s easier to get replacement parts. Secondly, any items originally from the U.S. are duty-free when exported back to the U.S. as part of a complete yacht. That’s why Taiwan boat builders supply a ‘foreign equipment declaration’ each time they sell a yacht to an American customer. Using American equipment is a way to save some money,” she says.
Among the members of the TYIA are 42 companies that, instead of building yachts, supply marine equipment and materials. Two of them, Tyrone Marine Hardware Co. Ltd. and Quinn Marine Hardware Co. Ltd, were founded by George Jien and are now run by his son, Quinn Jien.
“At first, my father supplied mostly stainless steel fasteners to local shipyards, as well as some imported hardware,” says Quinn Jien. “About two decades ago, he noticed an increase in demand for high-quality stainless steel hardware, and at that time switched from being a supplier to a manufacturer. Although our companies have always focused on marine hardware, we also make stainless steel hardware for other applications.”
“All of our products are made at our Kaohsiung factory, and the most successful ones went through a lot of R&D and multiple revisions before mass production,” says Jien.
Although he says finding suitable workers is “an ongoing struggle,” and that “price is always a huge factor when we’re trying to seal a deal,” Jien has no plans to move part of the business overseas. “We don’t want to risk our reputation for quality by shifting the manufacturing line to another country, simply to save on labor,” he explains.
“Kaohsiung’s mayor has been quite supportive of the yacht industry, but if the government wants to maintain or even improve Taiwan’s manufacturing industries, the educational and industrial infrastructures must be revised,” says Jien, who thinks Taiwan can learn something from Germany in this regard.
Land and labor costs are not the only factors to have caused Taiwanese yacht builders to consider producing boats in China. Given their appetite for luxury goods, China’s super-rich should be a lucrative market. However, one industry figure who wishes to remain anonymous says his company closed its China boatyard as “demand never materialized – there was lots of hype, but no significant sales.”
Ocean Alexander’s Chueh says he does not worry about competition from Chinese-owned yacht makers. “Some Chinese companies have bought European brands or yacht-builders, but they’re still losing market share because they tend to focus on production costs and thus end up cheapening the product,” he notes.
In Chueh’s opinion, Taiwan’s government cannot take credit for the industry’s success. “In Taiwan, most waterfront land is controlled by the national or local government. They offer annual leases, but no long-term leases. This hinders long-term planning. It’s a problem for the industry, and it’s the main reason why this year we began manufacturing in Florida,” he says. “We’re one of just two yacht-builders with manufacturing sites on two continents. The other is Bénéteau SA, which makes sail and motor boats in France and the U.S.”
The central and Kaohsiung City governments have a plan that could resolve some of the problems local yacht-builders face. By creating the South Star Yacht Industry Park, they hope to do for Taiwan’s yacht companies what the Hsinchu Science-based Industrial Park did for the IT sector. By bringing shipyards and suppliers of marine hardware closer together, providing the larger facilities needed for the construction of megayachts, and resolving the land issues mentioned by Chueh, the park’s supporters – among them the TYIA – say it will boost operating efficiency and create jobs.
The park’s 110-hectare site in Kaohsiung’s Xiaogang District was selected in 2010. The first phase of development should have been completed by the end of 2013, with a second phase ready two years after that. But so far no companies have relocated, and industry figures have described the project as “on permanent hiatus” and “in reality, dead.”
According to Kaohsiung City government’s Hsueh, however, the project has only been delayed due to the expense of relocating residents of Dalinpu, a village at the proposed site of the park. “It’s a question of coordinating the relevant units, and balancing economic development with environmental considerations,” he says.
“As of spring last year, 15 yacht builders were expressing a firm interest in moving to South Star Park. Later last year, the Marine Bureau took the initiative to visit each of the 17 yacht builders located in Kaohsiung City to discuss their interest in moving,” states Hsueh. “Given the global trend for megayachts, and since some local companies still face issues relating to long-term land leases, we believe there’s still a great need for this project, and widespread willingness among yacht companies to cluster there.”
(Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei.)
First Editor: Edward White
Second Editor: J. Michael Cole