Cruise line executives put aside their competitive issues to pull strongly together during the 2012 State of the Industry panel at Cruise Shipping Miami. The innuendo and sniping that has marked discussions in the past and the cut and dried statements were all missing as discussion at the best-attended annual cruise gathering in history centered on three subjects: the effect of the Concordia disaster, the immediate and imminent future of the industry and the possible effects of measures by the North American Emission Control Area (ECA), particularly on the West Coast where ships sail for days in U.S. and Canadian waters.
The group of Reuters and APA reporters in attendance, looking for color on Costa Concordia, got something else as well. It was like echoes of the Alaska situation a few years ago, when Stein Kruse, president and CEO of Holland America Line, laid out the serious impact of the state’s taxes and regulations on the cruise industry, clearly stating that the cruise lines could and would move their ships if it became impossible to operate profitably in Alaska. Alaska lost considerable business, and the cruise lines only changed the flow to move back following the change in restrictions obtained by Alaska’s Governor Sean Parnell, who came to Cruise Shipping Miami in 2010 and negotiated with the cruise lines there.
This scenario was repeated with much wider ranging implications during this year’s panel discussion. Kruse, along with Gerry Cahill, president and CEO of Carnival Cruise Lines, and Adam Goldstein, president and CEO of Royal Caribbean International, warned all facets of the industry that the proposed limits on fuel use by the United States and Canada would have “profoundly negative consequences” for ports, consequences that could limit the current rich choice of destinations and homeports on cruises out of North America that agents can offer their clients. He said the North American Emission Control Area (ECA), which comes into effect in August, becomes almost draconian by 2015, and that, since the cruise industry does its itinerary planning so far ahead, it is already impacting deployment.
Regulations currently allow cruise ships within 200 miles of the North American coastline to use fuel containing 1.5 to 2.5 percent sulfur. ECA would require a reduction of one percent this year and a drop to 0.1 percent by 2015. Among the objections from the cruise lines are the lighter regulations for land-based emissions and that the technology is not yet available for some elements of compliance. Availability of the fuel is also a question; Goldstein said Royal is already trying to source its fuel needs on the West Coast in August.
He added that the amount of time spent in the ECA zone is being calculated for every route and is affecting deployment planning already. Carnival Cruise Lines, which has the highest percentage of American homeports and itineraries, has recently pulled out of Mobile, Ala., influenced heavily by higher fuel costs, and president and CEO Gerry Cahill warned that when 2015 brings fuel prices up another 50 percent under ECA requirements “this will affect homeports, not just destinations.”
The cruise industry is now far more global and not so dependent on North America as it has been in the past. CLIA president Christine Duffy pointed out that in 2000 nine percent of cruise passengers were international, a figure that tripled by 2010. As the cruise lines are sourcing more passengers outside North America, they are sending more and more ships to them throughout the world, a trend that is likely to accelerate as fuel regulations affect the bottom line. Meanwhile, the slowdown in ship construction means that as international business increases, competition for homeporting ships will be stronger.
The stakes are high: Duffy said the cruise industry generated $38 billion in economic benefits to the United States in 2010, and she warned attendees that the United States could lose $1.5 billion and 14,000 jobs after August regulations kick in.
Executives are hoping they can get adjustments to some of the proposed rules.
Kruse stated: “If we can have reasonable dialogue, we may be able to avoid some of the unintended consequences.” But if not, both home ports and destination ports could be affected, Cahill said, noting that if nothing is done and the planned rules go into effect, “There will be more movement of ships.”