SunStone Ships is unique in the cruise ship industry. Usually operators own their ships, but SunStone is purely a tonnage provider and charters out its vessels. It is also the largest provider of small cruise ships in the world, in terms of tonnage.
Its niche is firmly in the expedition sector, with the company’s ships covering some of the most remote areas in the world, such as the Antarctic, Arctic Canada, Alaska and Greenland, and warm water areas such as South America and the South Pacific. In 1990, Niels-Erik Lund, SunStone president and chief executive, founded a passenger ship management company, International Shipping Partners Inc (ISP). In 2004 this company changed strategy to concentrate on the expedition cruise market with two ships, Island Sun and Island Sky, then gradually built up the fleet. In 2012 ISP was sold to a German private equity firm, and Mr Lund formed SunStone Ships as a company representing vessel owners with the responsibility of commercial management of the vessels. It currently has ten vessels, consisting of nine cruise ships and one ropax ferry. It has the largest fleet of cruise ships in the exploration sector, which are on a mix of charter contracts. Many are long term – five years – some are for two or three years, and others are placed on seasonal contracts.
Explaining the company’s strategy, Mr Lund told Passenger Ship Technology: “The small expedition ship market has always been very fragmented. There are no big owners. Rather, there are small operators of just one or two ships. So we feel that we make a difference for ourselves and these companies by owning and managing a fleet for different operators. The operating costs are lower and more efficient as we gain economies of scale through operating a fleet and we can go in and get better insurance and better crew, better purchasing power for spare parts and consumables and train the crew better. Companies that charter just one or two of these ships get all the benefits that are achieved by being part of a fleet.”
While remaining firmly in its exploration cruise ship niche, SunStone is making some changes to its strategy. One major change is that having always bought second-hand ships, the company is now planning to build two cruise ships for the first time, and to make newbuilding the main way in which it grows its fleet. Called Project Unlimited, the plan has been in the pipeline for a few years, and Sunstone has now also developed a specific Polar newbuilding project. The company expects to place the order with a shipyard within the next three to four months, and expects the vessels to be completed within two years.
The reason for the move to newbuilding is simple: the exploration cruise sector has run out of options. Mr Lund said that when ISP entered the expedition cruise market, there were 46 ships in this niche, defined as having capacity for 50-250 passengers, and being fully ocean-going cruise standard expedition ships. That number has now dropped to 34.
Mr Lund said: “The market has fallen as ships are getting older and being scrapped. The average age of the global fleet is more than 28 years old. So we see a huge potential for bringing in newbuildings. Furthermore, there are no second-hand vessels that we can buy. There are a few very old ships that we are not interested in. So I do not see us expanding with second-hand ships. We will expand our fleet with newbuilds.”
The last ship that SunStone bought was Ocean Endeavour in 2014.
The need to expand the fleet is urgent because the exploration market is strong and growing quickly. Mr Lund explained: “We believe the market is growing because of demographics – more people have money and time, and they cannot see the parts of the world that we cover unless they take a cruise ship. I also do believe that the cruise industry is creating the passengers for us, because if you have been on big ships in the Baltic and the Mediterranean, for instance, and the children have now left home, you have time and money and you want to see other parts of the world on smaller ships.”
He also singled out China as a major force on the market. “China is huge in this cruise sector. Our charterers sometimes have ships that are full of purely Chinese passengers. This is something that was not seen five years ago.”
The first two ships that Mr Lund said he hoped to order soon are just the tip of the iceberg. The plan is to build two ships a year for the next five years.
Mr Lund was not able to release many details about the new ships, as the orders have not yet been placed, but he alluded to the fact that they would have lots of new features, and be energy efficient and “as green as can be.” He also said that they would be built to Safe Return to Port standards, even though this is not required for ships of this size. “We go to the most remote parts of the world and so I find it surprising that ships in these areas do not have to meet this requirement,” he commented. “We want to build to this standard because we want to be as safe as possible.”
The newbuilds will be built to the highest ice-class (1A Ice class) and will run on marine gas oil (MGO), as do all of SunStone’s ships. They will also be built to meet the requirements of the new International Code for Ships Operating in Polar Waters (Polar Code), which is expected to enter into force next year.
When the new ships are built SunStone intends to charter them out, as it does the rest of its fleet. Mr Lund said that the company was already close to agreeing long-term charters for them.
Once the newbuilds join the fleet, SunStone will scrap some of its older ships. Its oldest is Sea Adventurer, which was built in 1975. It was completely refitted in 2001 including new lounges, cabins and public spaces. But Sea Adventurer can be viewed as not too old for this sector of the cruise market – as Mr Lund remarked, some ships date back to the 1950s and 1960s.
The age of the fleet means that an active refit and refurbishment programme is essential. “We are constantly refitting. We do this between seasons. For example, we have 60 days to drydock before we start on the Artic itinerary. We always choose European shipyards – in Spain, Germany, Poland, Sweden or Norway – as this fits with the ships’ relocation journeys, going from south to north,” Mr Lund explained.
SunStone is taking Sea Spirit out this spring in order to fit a new restaurant and a new lecturer lounge and Ocean Diamond will also be drydocked in order to replace one of the cabin decks. Sea Adventurer is undergoing a major refit next year as it will have its main and auxiliary engines replaced.
As well as providing tonnage to charterers, SunStone also provides technical and hotel management services through its associated companies Cruise Management International and CMI Leisure. “Small operators in this niche do not have the correct crew. For example, they do not have the right ice masters, and do not have the technical knowledge. We can provide all this.”
A specialised crew is crucial when it comes to manning cruise ships in the exploration sector. Singling out an example, Mr Lund said: “The challenge is that we cover very remote areas. We often do not see a port for 21 days. From a technical point of view, we have to be able to fix everything ourselves, for the entire season. Even in port, the areas are still very remote and you cannot buy anything. This also means that you need the right people on board – engineers, plumbers and electricians.”
SunStone has undergone some changes in this respect. Until the end of last year, its technical and commercial operations had been managed by FleetPro Ocean and FleetPro Leisure. In October 2015, four of the owners of the SunStone fleet, including Mr Lund, bought out FleetPro Leisure, the cruise ship hotel management company, and renamed it CMI Leisure. The same owners also formed a new technical company, Cruise Management International. This company took over all the contracts for Sunstone’s fleet from FleetPro.
In addition to the daily operation of these vessels, Cruise Management International will be busy with major upgrading work that is being carried out as part of a planned fleet-wide upgrade programme. With the International Safety Management Code (ISM Code), the International Ship and Port Facility Security Code (ISPS Code) and the Maritime Labour Convention (MLC) certifications in place, the quality department will focus on having the ISO 9000 quality management and ISO 14000 environmental management systems in place within the second quarter of this year. Cruise Management International will also use key performance indicators, including reducing off-time hire, keeping insurance claims below 60 per cent of annual premiums and reducing port and flag state deficiencies, in order to check and validate performance with goals.
The launch of the two companies marks the end of a turbulent time for SunStone with regard to FleetPro, which is being wound down and closed. Mr Lund explained: “For most of 2015 the FleetPro organisation did not live up to our expectations for how our fleet should be managed.” However, SunStone has put this difficulty behind it and has started 2016 on a strong footing with Cruise Management International and CMI Leisure.
SunStone Ships certainly has big plans and developments underway in a sector that is growing strongly. Asked if the company was keen to expand into other sectors, Mr Lund commented: “We will stick to this niche. It is growing, and we are the biggest in the world in it.”
Indeed, with so many developments afoot in a growing and dynamic market, there are more than enough opportunities for SunStone to expand further.