Christensen Shipyards embraces rapid change to weather recession

By Gordon Oliver, Columbian business editor

Published:

 

Joe Foggia, president of Vancouver’s Christensen Shipyards, deals with some of the world’s toughest customers — people who expect the company to deliver the most beautiful, luxurious, and technically advanced yachts for the open seas. He takes pride, then, that Christensen’s customers keep coming back.

“We have 18 repeat customers,” he says, pointing to a photo near his desk of him standing with six of those customers. “That’s unheard of in this industry.”

Once confident his industry was recession proof, Foggia learned a hard lesson in global economics in recent years, as the company laid off 80 percent of workers and halted construction on a second shipyard in Tennessee after spending $16 million there. A low point came last summer, when the shipyard told its suppliers it would be late in its payments because of a short-term cash flow problem.

The company weathered the storm by embracing rapid change — not an easy task for a manufacturer of products that take 28 months to build. In 2009, it launched a sister company, Renewable Energy Composite Solutions LLC, to manufacture components for the wind and wave industries. That same year, Christensen forged a business alliance with Ocean Alexander, a Taiwan yacht builder in need of an American partner to bolster its stature.

It helped during the lean years to have support from deep-pocketed Tennessee investor Henry Luken. The cable entertainment network owner had dropped by the shipyard during a cruise to Alaska in the late 1990s and had purchased a half-finished yacht on the spot. Foggia and his stepfather, shipyard founder Dave Christensen, took on Luken as half-owner in 2003.

Most important, in Foggia’s view, was the company’s restructuring 18 months ago, applying the principles of lean manufacturing to a complex workplace that includes finish carpenters, stone-workers, metal smiths, and upholsterers. Foggia now believes the shipyard can operate at full capacity with about 250 employees — less than half its pre-recession peak employment. That’s good news for the shipyard’s bottom line, but is reflective of the larger challenge of the U.S. economy as companies find ways to return to full productivity with fewer workers.

Foggia, 42, sees the shipyard as having a strong foundation as it moves toward full recovery. The company now employs 175 and currently is hiring about 10 new workers a week, at $17 to $24 per hour. No date has been set to open the company’s second shipyard, on Tennessee’s Tellico Lake, which will create a couple hundred more jobs, but Foggia predicts that expansion within the next year.

“The last few years have been really tough, for sure,” says Foggia, a powerfully built man who has headed the company since 2000. “Moving into other areas of manufacturing has made us more adaptable to anything.”

Global demand soft

The shipyard’s recovery comes at a time when worldwide demand remains soft for super yachts — a ratified category of the world’s largest yachts, those that require on-board staff and are at least 80 feet long. By one measure, 2008 was a banner year for the industry, with 261 super yacht deliveries, including 14 of the world’s 100 largest yachts. But yacht makers have seen a dramatic drop in new orders worldwide — 80 super yachts were ordered in 2009, 105 last year, and so far 48 this year, according to industry source Boat International.

Christensen is working on five yachts: three 120-footers for Ocean Alexander; a 164-foot yacht for Luken; and a renovation of an existing yacht for a customer Foggia describes as the owner of a nursing home chain. (The company is cautious about providing information about buyers, having faced a lawsuit from golfer Tiger Woods on claims that it had failed to keep its agreement not to disclose his identity. Christensen and Woods reached an out-of-court settlement for an undisclosed amount, reported in some media accounts to be $1.6 million. Foggia won’t comment.)

‘Early adopters’

Because the industry’s buyers typically have vast financial resources, they are the ultimate “early adopters.” That creates opportunities for innovation that rarely exist in normal consumer markets. After all, the price of a typical Christensen 164-foot yacht runs from $32 million to $40 million, and the upper end of that range pays for plenty of amenities.

Embracing technology and innovation have been key to the company’s success, says John Cohen, a broker at Merle Wood & Associates, a yacht sales firm based in Fort Lauderdale, Fla. For example, Christensen is one of only a few companies building hulls out of composite materials, which dampen noise and cool the ship while being three times stronger than steel. (Foggia tells story of a runaway 25-foot boat that rammed into the side of a parked Christensen yacht in Monaco, smashing the small boat to bits and leaving barely a dent in the yacht.)

The company is a leader in advanced navigation devices, including a GPS-guided system that holds a stilled boat in place without an anchor, and advanced boat stabilization devices.

“They started out in the early days under Dave Christensen with fiberglass yachts of 90 to 100 feet,” says Cohen. “Joe Foggia is taking it to a whole different level.”

On a shipyard tour, he points to a large protrusion from the front of a boat, a device called a bulbous bow that alters the boat’s wake to improve fuel efficiency. Such bulbs are widely used on large ships, but Christensen was the first to apply the technology to a yacht, improving fuel efficiency by 5 percent, Foggia says.

Even owners of the grandest, most consumptive of luxury items are influenced by society’s push for reducing carbon emissions. A recent news report describes a 24-year-old British ship designers attempt to create the world’s first carbon neutral yacht, a 58-footer that would be powered by the sun and built of sustainable timber. Foggia sees a growing interest in sustainability and energy efficiency among yacht customers, and he sees a potential convergence between the yacht company and its renewable energy sibling. But innovation is hampered by the fact that the potential market for green-yacht technology is small.

“The technology needs to catch up, so it can be applied to the yacht industry in a user-friendly fashion,” he says.

New vs. used

Still, Christensen’s customers, including a younger generation of successful entrepreneurs, recognize the value of their yacht as investments that could bring a healthy return. The finest yachts often sell used for more than their original purchase price, filling a demand among people who aren’t willing to wait out a two-year construction period. He recalls one a phone call from one prospective buyer, an older man who was considering whether to buy new or used. When told it would take 28 months to build a new yacht, the man said, “I don’t even buy green bananas.”

Buyer restlessness is certainly good for business — Foggia notes that some customers suffer “two-inch-ism” and want new yachts larger than others on the seas. John Rosatti, among Christensen’s high-profile buyers, is a prolific yacht owner who, Foggia says, has purchased about 18 yachts in the past three decades. Rosatti, who has made fortunes in auto sales and waste management industries, owned a Christensen yacht, Nice N’ Easy, for six years, selling it recently for $1 million more that its purchase price. Last fall, he purchased another Christensen yacht, christened Remember When, sailing it for months with friends and family. Now that yacht, which cost $35 million, is up for sale at $39 million.

“Some people like to buy and sell; some people like to hold,” says Cohen.

Challenges

The company still faces challenges. It’s appealing a court ruling last year in a breach of contract lawsuit filed by former customer Yacht West Ltd.

Renewable Energy Composite Solutions, the sister company, remains small, representing just 5 percent of revenue. Foggia wants to build that to as much as half of the company’s revenue.

Foggia is optimistic, and his focus on lean manufacturing is the reason. He’s already applying what he’s learned to the Tennessee plant. Instead of duplicating every aspect of the Vancouver shipyard operations at the Tellico Lake site, Christensen will have most of the work done in Vancouver.

“I never used to think this, but now I think America could lead again in manufacturing if it adapted lean,” he says. “I’ve drank the Kool-Aid.”