Mitsubishi backs out of the cruise ship business

Back in the bad old days when it seemed Detroit couldn’t make a quality car for love or money, auto companies in Japan gobbled up market share in the U.S. and gave consumers a good ride.

I remember in the 1970s and 1980s the outcry was that Japan was going to dominate the U.S. and world economies.  When Japanese interests bought a few trophy properties, like New York’s Rockefeller Center, you would have thought the sky was falling.

So it was notable last week when Japan’s Mitsubishi Heavy Industries threw in the towel on its ambitions to build large cruise ships, essentially admitting that it didn’t know how to do the job at a profit.

Mitsubishi has racked up losses on two ships it is building for Carnival Corp.’s AIDA Cruises brand, one delivered this year, one scheduled for next spring. The company is $2.3 billion in the hole on the two ships, due mainly to cost overruns and delays in the construction.

“We thought we could somehow manage it, but it showed us that we need a stringent decision-making process and risk management,” CEO Shinichi Miyanaga told Reuters News Service at a press briefing in Tokyo.

The company, whose predecessor built ships for the Japanese navy in World War II, will stick to smaller ferries and medium-sized passenger ships in the future.

The decision shows just how sophisticated and complex it has become to build large cruise ships, a business now dominated by two companies, Italy’s Fincantieri and Germany’s Meyer Werft.

To build cruise ships at a profit, those companies have developed high tech steel cutting facilities, rigorous scheduling protocols, and most importantly, a skilled workforce and a network of capable subcontractors throughout Europe.

U.S. yards can’t or won’t match those advantages, so only a few small cruise ships are built here.

There’s now a lot of noise about China’s rise to world economic power, charges of currency manipulation and the like, even as China partners with Fincantieri to develop its own cruise ship capabilities.

But as the Mitsubishi example shows, certain countries are good at some things and not others. And no country has a sustainable economic advantage in everything over time. Like it or not, trade between countries is needed in a modern economy, and actually beneficial, in this case allowing companies in Japan and the U.S. to concentrate on what each does best.

As long as the rules are transparent and equal for all sides, consumers are better off when the best companies win.