A host of legal concerns facing the cruise industry today – ranging from fire safety standards to shipbuilding subsidies, lawsuits/claims, and environmental restrictions – were presented at the recent Cruise OP ’92 conference in Ft. Lauderdale.
Marketing executives meanwhile rehashed old material discussing the perils of discounting, while at the same time saying that their early booking programs do not constitute discounting, and that there is no such thing as industry overcapacity. Instead, they said the industry suffers from under demand.
Restricted Growth
Most of the legal concerns affect the cruise operators primarily in their pocketbooks. In addition, the new IMO fire safety standards could also change the face of the fleet. According to Bob Dickinson, Senior Vice President of Sales and Marketing for Carnival Cruise Lines, and keynote speaker, the degree to which owners will retire tonnage will be one the factors restricting growth to eight million passengers by the year 2000, rather than the 10 million predicted by many in the industry.
In the meantime, Dickinson said that while 10 percent growth is predicted in 1992 for a total of 4.4 million passengers, the yield per passenger has been steadily declining industrywide over the past few years.
“This is a trend we have to change; Dickinson said. He noted that this should be accomplished by changing the message from price incentives to the deslrability of cruising.
“Discounting is like being on drugs,” Dickinson said. “It’s a short term fix,” he continued, and added that “it’s clear to me that the industry is suffering in the long-run.”
He noted that in Carnival’s case, while the line carried 950,000 passengers in 1991, approximately 135,000 were repeat passengers. Thus, there were 15 percent less first-time passengers who Dickinson called “new cruise advocates” to spread the word of the desirability of cruising. He cited that the cruise industry is only two percent of the entire travel market. Therefore, according to Dickinson, “We have underdemand, not overcapacity.”
Ways to encourage real growth were cited by Dickinson, including discouraging rebating by travel agents and emphasizing seminars which teach agents how to sell rather than just be “order takers.”
“Facing Reality”
Karine Armstrong, Vice President of Marketing for Royal Caribbean Cruise Line, acknowledged that the industry has of late been charged with selling based on price and not product. She responded that “we’re in this business to make money. We can’t ignore the reality that consumers want the most for their money.”
Armstrong continued by pointing out that “a cruise is not a necessity. We can’t afford not to push price along with the product benefits.”
Armstrong also said that there have been “mountains and valleys” of capacity over the years which have been key in deciding which lines survive and which do not.
As far as discounting is concerned, she said that the line has been “overwhelmed” by the success of its Breakthrough Rates, which reward passengers with the highest discount the earlier they book. Armstrong said that tariffs and yields are increasing and that the first quarter bookings for 1993 are ahead of 1992.
Armstrong said that the industry as a whole “has to get realistic about brochure tariffs” so that lines don’t scare potential passengers away with high rack rates which will inevitably be discounted anyway. This, she said, would help tap new demographic markets, both domestically and in Northern Europe and Japan, which she said is a necessity for future industry growth.
Legal Issues
Legal issues were at the top of the agenda; those discussed included the upcoming SOLAS fire safety standards put in place by the IMO; foreign shipyard subsidies; the Clay Bill which is aimed at extending U.S. labor laws to foreign-flagged ships operating out of the U.S.; the high cost of insurance for operators due to the large numbers of passenger and crew claims and lawsuits; environmental issues affecting refrigeration and trash disposal; the ramifications of the Americans with Disabilities Act (ADA); and this past year’s Federal Maritime Commission (FMC) findings on self-insurance and bonding ceilings.
The IMO’s new fire safety standards were discussed by both Captain Thomas Thompson, U.S. Coast Guard, Chief, Marine Technical and Hazardous Materials Division, as well as Ron Weightman, Principal Surveyor for Det Norsk Veritas; their comments appear in the fire safety article in this issue.
The two sides of the subsidy issue were discussed by John Stocker, President of the Shipbuilders Council of American (SCA) as well as Jack Estes, President of the International Council of Cruise Lines (ICCL). Stocker outlined the decline of naval and commercial shipyard contracts in the United States over the past ten years due to the downturn in military spending and the elimination of subsidies to U.S. yards in 1981.
However, even without the benefit of subsidies, Stocker said that U.S. yards can build commercial and passenger ships competitively. He cited that wages in the U.S. are comparable to those in Japan and lower than in Europe (except for the U.K). Stocker said that the Viking Serenade overhaul exemplified the U.S.’s competitiveness since Southwest Marine Shipyard’s bid was $71.6 compared to $782 from Sembawang Shipyard and $89.3 from Lloyd Werft Bremerhaven.
As for the Gibbons Bill, which passed the House of Representatives this past session but did not make it to the Senate floor for a vote, Stocker said that the bill’s aim was to penalize the foreign governments, not the shipowners. He said that there will be a new bill in the next session of Congress which aims to be more of a compromise from prior legislation.
While Roger Fleming, Counsel to the FMC, spoke primarily about the bonding issue, he did remark that the SCA’s recent petition concerning the Holland America Line/Carnival newbuilding subsidies “was raising a few eyebrows” at the Commission. He said that the FMC has not decided how to proceed with the petition.
Estes said that the Gibbons bill “penalizes shipyards’ potential customers” and that subsidies should instead be a government to government issue. According to Estes, ICCL considers the FMC petition to be “frivolous.” However, as far as policy is concerned, Estes agreed that subsidies should be reduced.
The government’s approach to both the petition and the Gibbons Bill, however, may change drastically once the Clinton administration is in office. Estes said that President-elect Bill Clinton endorsed the Gibbons Bill during his campaign, which Estes labelled “bothersome.”
Labor Law
Estes also provided background on the Clay Bill, which would extend to foreign-flagged ships the Fair Labor Standards Act, governing hourly pay requirements, and the Taft Hartley Act, which protects labor organizations. However, Estes said that the bill has been introduced four times to Congress over the past few decades and that it has never passed.
“It is a classic example of misrepresentation of our industry,” he said, adding that recently ICCL brought a number of Congressmen to Ft. Lauderdale to see crew living conditions and “they were quite surprised” at the quality of the conditions.
“We’re faced with a great deal of misinformation about our industry in Washington,” he concluded. However, he felt that the Clay Bill will probably be re-introduced again next session.
U.S. Jurisdiction
Estes said that the Clay Bill, as well as last year’s ruling that the U.S. Coast Guard can investigate accidents occurring in foreign waters which involve passenger ships primarily marketed in the U.S., are examples of how the U.S. tends to try to rule unilaterly on maritime issues. He said that when any country does this, it does not allow the IMO to work properly.
In response, Captain Thompson said that in the past, the USCG asked lines for feedback on the investigatory power ruling, but no lines responded. Now, however, he said that feedback will be required as a way to allow all parties involved to be “proactive.”
Another problem area cited by Estes is the large amount of user fees that foreign-flagged passenger ships must pay. “The industry has no objection to fees in which we are using the facilities, he said, but objects when the money is going into general government funds.
Estes said that JCCL is going to make the most of the large turn-over in Congress next year by trying to market a program to educate law makers on the large economic contributions the cruise industry makes in the U.S.
Safety: Claims and Lawsuits
Due to the rising number of claims and lawsuits filed each year by crew members and passengers against cruise lines, insurance premiums are becoming a disproportionate part of cruise line budgets, according to Brian Parritt, Chairman of International Maritime Security.
Parritt warned cruise operators that they should take safety precautions not only to avoid catastrophic claims, but also because insurance companies and P & I clubs are startig to scrutinize lines much more before providing coverage. “Litigation awards being made are serious threats to lines’ profitability,” he continued.
According to speaker Larry Winson, of the law flirm Schutts & Bowen, there are approximately 10 to 15 lawsuits filed against Miami and Fort Lauderdale-based cruise lines weekly.
Winson said that this does not take into account the vast number of claims made too. More crew members sue than passengers, according to Winson.
Parritt also addressed safety in terms of ships unknowingly transporting illegal drugs, as well as being targets of terrorism. He said that while there is sympathy for lines found with drugs on board, there is no sympathy for lines not implementing the IMO’s Maritime and Aviation Act which addresses security. He cited the dramatic impact that the Achille Lauro incident had on the cruise industry and that $1.6 billion was claimed by 13 U.S. passengers on board the ship. While the ship carried both Americans and Europeans, only U.S. passengers filed claims.
Charles Cushing, President of C.R. Cushing & Co. spoke on the subject of safety audits, which he said are necessary in the first stages of design and periodically thereafter. Cushing noted that safety runs the gamut from assurance of clean air aboard ship so as to avoid a “sick ship syndrome”, to the need for more luminescent lighting on exit routes which would show up even in a smoke-filled room, to use of less slippery products aboard such as marble. He also cited the need for contingency plans in case of an oil spill, hurricane, fire, or outbreak of epidemic.
Captain David Whitten, Director of Quality Assurance for Royal Caribbean Cruise Line, spoke on cruise line quality assurance. He noted that an important document for operators is the ISO 9000 Series on Quality Management and Quality Assurance Standards. In addition, he said that the IMO is developing an International Safety Management Code.
Americans with Disabilities Act
Steven Spinetto of the Boston-based architectural firm Eisenberg Anderson Spinetto discussed catering to the needs of disabled passengers. He noted that while the Americans with Disabilities Act (ADA), which passed this past year, has specific design requirements for public accommodations, water borne vessels are not mentioned in the document.
“This does not mean that ships are exempt,” be said. New regulations are being considered for smaller vessels and he felt that rules for larger ships are down the road. But at present, Spinetto said that it is legally ambiguous whether foreign-flagged ships fall under the U.S. ADA.
“However, it is good business” to have facilities aboard to accommodate disabled passengers. He said that the real problem is more pierside than aboard ship, since ports have docks of varying sizes and accommodating wheelchairs may therefore differ in each port. Spinetto also cited the need for education of travel agents and shipboard personnel in order to make them aware of passengers’ specific needs.
There are, though, universal considerations such as having disabled passengers’ cabins on the lifeboat deck in case of an emergency where elevators cannot be used.
Spinetto pointed out that shipboard environments are ideal for the disabled and said that it offers a marketing opportunity to the cruise lines since there are 25 million disabled people in the U.S.
Bonding
Roger Fleming, Counsel to the FMC, reviewed last year’s fact-finding sessions concerning the ceiling for funds to be filed with the commission in the case of non-performance. He said that the FMC found that cruise lines have a good record and that the $15 million cap enacted in 1990 will remain. However, a sliding scale formula will now be used so that smaller earners do not have to post the same bond that large carriers do.
In addition, lines with a five year record of good performance can now self insure and need only a statement of net worth and not a statement of working capital to present to the FMC.
Environmental Concerns
The environmental impact of marine debris was also discussed. Betsey Schraeder, Director, Marine Debris Information Office of the Center for Marine Conservation (CMC), said that while the Marpol Annex V, which restricts ocean dumping of plastics and garbage, has been effective for four years, there was still a record number of reports last year during the CMC’s annual coastal clean-up. Industrywide there were 59 reports which ranged from shampoo bottles to plastic cups, all easily identifiable due to imprinted logos. Schraeder satd that RCCL, Carnival, and Princess Cruises were the biggest offenders, with RCCL attributable for 40 percent of all the garbage found. However, she noted that last year HAL and Premier Cruise Lines were only responsible for two percent of the debris, a drastic change from 18.5 percent and 26 percent respectively in 1988.
However, Schraeder did cite Carnival for installing a better recycling system and thereby lowering the number of employees needed for garbage disposal.
In addition, Captain Thompson noted that the U.S. Coast Guard plans to take stronger action by prosecuting all MARPOL violations and increasing the fines in order to curb dumping in U.S. waters, where the USCG’s jurisdiction has increased from three to 200 miles. He said that while in 1980 the USCG found 30 violations, there have been 88 in the first six months of 1992 alone.
Offering solutions were Jochen Deerberg, President of Deerberg Systems, and John Schuler of Browning-Ferris Industries. While Browning-Ferries collects, transports, and processes recyclable marine garbage, Deerberg develops and installs waste handling systems aboard ship.
Schraeder also said that the “CMC is willing to work with lines to institute new programs and will in turn promote them as green companies.”
