Marine Link
Friday, October 4, 2024

Cruising In The U.S.A.

Issues Affecting Cruise Shipping's Future The cruise ship industry has been driven to new heights in the past year under the impetus of a variety of forces — including steady economic recovery and a growing demand for cruise vacations. The cruise industry's blush of health has led to equally healthy newbuilding activity; a legislative proposal for a U.S. cruise industry; plans for the refurbishment of the only two U.S.-flag cruise ships, the work on at least one of which will be done by Newport News Shipbuilding (NNS); and an announcement heralding the largest cruise ship in the world.

A Steady Swell Of Orders Some have described the newbuilding pace as healthy, others as constituting a spate of newbuilding activity. "I think it's planned expansion based on optimistic and hopefully realistic expectations," saidJackEstes, president of the International Council of Cruise Lines (ICCL), which represents a vast number of world cruise lines. He said he believed the expansion was carefully considered, and "based primarily on a marketdriven analysis." Richard D. Fain, chairman and CEO of Royal Caribbean Cruise Line (RCCL) and also chairman of ICCL, said he wouldn't describe recent newbuilding activity as a "rush" of new ships. "I think there has been a fairly steady flow of orders, but I don't think the orders we've seen are out of line with what we've seen in the past." "Orders tend to be placed in pockets," Mr. Fain explained. Unfavorable exchange rates, for example, can make a country's yards less attractive to owners, a scene perhaps played out most noticeably in Japan's battle against its own distending yen. "I think it's been fairly healthy," said Norwegian Cruise Line Vice President of Sales Jackie Johnson of newbuilding activity. She said the recovering economy certainly affected the number of new orders, but that recent orders were part of a long-range planning process.

A1 Wallack, senior vice president of marketing and passenger services for Celebrity Cruises, agreed the newbuildings had come about to meet expanding demand, but also suggested several other reasons. "We're building with the understanding that the tonnage may not be available to us in the future." Safety: Bad News And Good Part of the reason the tonnage may not be there has to do with the Amendments to the SOLAS Convention in April 1992 regarding fire safety and damage stability on RoRo passenger vessels, which go into effect in October 1994. Overhauling fire safety systems poses an expense few seem to consider outrageous, but the damage stability requirements for existing vessels mean extensive retrofit or retirement for some older vessels which do not comply — and those vessels with less existing compliance will be required to comply first.

Mr. Fain termed the SOLAS requirements "retro-active enforcement." "You build something to a certain standard and then someone says you have to rebuild it," he said. "Some retrofits are significant improvements in safety. Fire detection systems should be a mandatory retrofit." As to the damage stability requirements, he said, "Many of the vessels would be expensive to retrofit. The industry would have to remain quite strong to justify those retrofits." "Anything that requires construction work is good for shipyards and repairers," said Mr. Fain, and even retired tonnage might be good news for cruise ship builders, which would presumably receive orders for replacement tonnage. But while Mr.

Fain did say that all safety measures are worth taking, he hoped the benefits of more expensive requirements were clearly understood, as cruise customers might see them reflected in ticket prices. And conventional wisdom holds that higher prices could impact on the popularity of cruising.

Mr .Estes said the ability to phase out non-compliant tonnage will help the retrofit situation. "There is sufficient opportunity to phase out in most cases," he said, but in others a financial analysis will have to be made to determine the cost-effectiveness of keeping a given ship.

Other recent movements toward greater safety include the International Safety Management Code, a ship operations guide developed by the International Maritime Organization. It is presently voluntary, but may become mandatory if it is incorporated into SOLAS in 1998. Everyone agrees that safety is a good thing as long as it doesn't drive the lines out of business. But according to Celebrity's Mr. Wallack, there is at least one more reason for building new ships: quite simply, passengers expect more — and that affects many aspects of cruising. Older tonnage may not draw passengers like new ships will, another reason lines are building. But higher passenger expectations will also affect the kinds of ships being built.

"We're seeing the age when the world cruise fleet is moving toward purpose-built rather than converted liners," Mr. Wallack said. "We're pushing the marble forward." Next Generation Cruise Ships "Ships are obviously getting larger," said RCCL's Mr.Fain. "The Sovereign ships have inaugurated the age of the megavessel." Sovereign of the Seas is an 880-ft. (268-m) vessel delivered to RCCL by longtime collaborator with RCCL on its fleet needs, Chantiers de l'Atlantique, France, in 1987. It was followed by Monarch of the Seas and Majesty of the Seas, also from Chantiers, which share a length with theSovereign and have even greater tonnage and passenger capacity — 73,941-gttoSovereign's 73,192. Mr. Fain said larger vessels are more economically viable for the owner/ operator and more desirable for the customer. And any time you can please the customer and save the owner/operator money, said Mr. Fain, "you've got a winner." But he did say he couldn't see ships getting much bigger than the ones currently being built.

Mr. Wallacksaid two issues have affected the size of ships: the economic one Mr. Fain mentioned, and those heightened passenger expectations. Bigger cabins as well as a higher level of onboard service and activities — which requires more space to work with — have contributed to increasing ships' sizes. As Mr. Wallack said, some look for Las Vegas in a cruise line, and some look for more luxury. Thos who don't provide either may b missing out on a segment of thi market.

The biggest ship presently on or der is the Princess Cruises vessel t( be built by Fincantieri of Italy, i ship of futuristic design which wil carry 2,600 passengers. At the time of the ship's announcement in earlj April 1994, Princess President Peter Ratcliffe said, "The additional tonnage will enable us to make the new ship unique. We're creating an entirely new cruising experience by offering an unprecedented number of passenger options." The cruising experience seems to be entirely the point. Lines are offering customers different options, thus capturing sub-markets within the aggregate cruise market. The large ships seem to be coalescing into one market segment—one that, as of now, is increasingly popular. "Different vessels are built for different kinds of cruising," said Mr. Wallack, with different levels of luxury and itinerary lengths. That's why more-than-adequate levels of luxury aboard Celebrity's Horizon and Zenith, which are in the 40,000- gt range, are being topped with the line's new 70,000-gt Century series of vessels — the first of which is scheduled for a Christmas 1995 inaugural cruise from New York.

"You want to be able to project what people want Ships have a long lifespan — and you have to consider today's passenger, and passengers ten to fifteen years from now." The Princess vessel will offer such attractions as a virtual reality theater and other interactive technology technology Norwegian's Ms.

Johnson also sees playing a role in cruising's future. Mr. Wallack said he sees such things becoming part of the vacation experience as well.

"We're building some of that into our new vessels," he said. But he said it will be there to support the vacation, not take it over, emphasizing the meals, sights and lifestyle cruises offer. "It will be part of the mix, and an interesting part, but not the only thing," he said. "We don't want our passengers locked in dark rooms, pressing buttons." But if Norwegian implements such technology, it will most likely not be on a newbuilding megavessel, according to Ms. Johnson. She is confident that the next generation of Norwegian's ships will be of moderate size, in the 1,600- to 1,800- passenger range. "The Dreamward and the Windward are exemplary of the next generation of cruise ships," said Ms. Johnson, referring to Norwegian's 624-ft. (190- m), 41,000-gt sister vessels delivered in 1992 and 1993, respectively.

She said Norwegian was emphasizing lifestyle rather than size in its ships, noting their fitness rooms and spas and greater number of intimate dining rooms. On the other hand, Norwegian ships like theSeaward and the Norway — which represent the larger end of Norwegian's fleet at a respective 700 ft. (213 m) and 42,000-gt, and 1,035 ft. (315 m) and 76,049-gt — may indicate that Norwegian, like othermajor operators, understands the importance of diversification to serve as many sub-markets as possible. Serving today's cruiser is what the lines are here to do, but Mr. Wallack says it's even better if you can bear tomorrow's in mind as well. "You want to be able to project what people want, and not just add technology for the sake of technology," he said. "The kind of technology you put on a vessel has to allow you flexibility to adjust the amenities. Ships have a long lifespan — and you have to consider today's passenger, and passengers ten to fifteen years from now." The Tonnage Tax & U.S. Flag Recent legislative proposals have called for increasing the tonnage tax vessels pay when entering a U.S. port, and increasing the maximum number of times it must be paid in a given year, to subsidize the U.S.-flag fleet. "Funding is the issue," said Mr. Fain. "The proposal now on the table in the House calls for a 1,400 percent increase in our tonnage tax. The problem is, people's vacations are price sensitive, and these expenses get passed along." "We're in the kind of times when the government's looking at every resource," said Mr. Wallack. "The cruise industry is successful and growing, and people see it and say, 'There's a way to make money.'" He described the tax as short-sighted an possibly damaging to an industry that is a great source of jobs and revenue. "ItwiZZslow the industry's growth," he said, resulting in fewer passengers and possibly the repositioning of ships. "And that's not a healthy thing," he said.

"I think the foreign-owned lines and travel industry in general are an easy target for a lot of legislation," said Ms. Johnson. "People explore the easiest and most lucrative paths," she said, agreeing that this is indeed a pass-along expense. "I testified before Senator Breaux (John Breaux, D-La.) and laid out in some detail the position of the industry," said Mr. Estes. He said while ICCL generally doesn't involve itself in how a country supports its maritime fleet, he feels it necessary to testify "when a tax is discriminatorily applied to a foreign carrier, and singles it out." Mr. Estes testified that the major concern of ICCL and its members is that of freedom of the seas. That is, if prohibitive costs keep vessels from entering U.S. ports, the freedom of vessels to call what ports they wish is effectively impaired. Additional tonnage for the U.S.-flag fleet may indeed be a problem, said Mr.Estes, but it is a defense problem — and "we do not think it is appropriate to place this burden on the cruise passenger." At press time, a version of the subsidy package containing the tonnage tax had recently passed the House Merchant Marine Subcommittee of the House Merchant Marine and Fisheries Committee. The version adopted limits the amount of times the tax can be incurred to 12 a year (the previous cap was five).

While its subsidization measures are seen as a godsend by many in the industry, the legislation has been criticized by U.S. as well as foreign carriers for its funding mechanism. A U.S. Cruise Industry? Congresswoman Jolene Unsoeld (D-Wash.) introduced the U.S. Passenger Vessel Development Act on February 9, 1994 — a legislative package comprising two bills (HR 3821 and 3822) intended to jumpstart the American cruising and shipbuilding markets.

Although 85 percent of all cruise ship passengers are reportedly American, the only two U.S.-flag cruise vessels left are American Hawaii Cruises' Independence and Constitution, the first of which is undergoing a $25 million overhaul at NNS. Since current U.S. law prohibits foreign cruise vessels from transporting passengers between U.S. ports, the proposed legislation would allow foreign-flagged vessels to operate asde facto U.S.-flag ships, if they begin construction of a U.S.- built replacement vessel within three years. An April hearing by the House Subcommittee on Merchant Marine reportedly saw enthusiasm from various passenger vessel, cruise, port, shipbuilding and labor factions.

"It's a noble experiment," said Mr. Fain, but he expressed personal reservations on whether the bill would pave the way for a U.S. cruise industry. "The whole concept of the Jones Act and privileged trade made sense when water was the main form of transportation. Today, cabotage trading is very small. I personally believe (these measures) have served to make the U.S. flag less viable," he said. "The U.S.-flag does not thrive when the only way it can operate is protected. And there's no reason why the U.S.- flag can't be viable," he said.

"Philosophically it sounds like a good idea," said Mr. Wallack. "But as an industry we would have to see what kind of ships U.S. yards could build." He said the legislation's offer to lines could expand their market, but whether that makes it economically viable to place orders in U.S. yards, he couldn't say. He said if U.S. builders presented the lines with a workable plan for how they intend to construct cost-effective ships, it might make the proposal more tangible. Both Ingalls and NASSCO have won MARITECH funding to do just that, perhaps bringing the proposal a step closer to reality.

"It's in the interest of the U.S. to have a good, solid shipbuilding industry, and we have no interests in standing in the way of that," said Mr. Estes. In fact, he indicated a strong U.S. shipbuilding base would give foreign lines someplace closer to their operations to turn for newbuilds. "The U.S. has the capacity and ability to build good cruise ships," he said.

However, according to Mr.Estes, the legislation might eventually limit foreign ownership of a cruise line, reserving a majority of ownership for U.S. interests — and this he criticized. "Our members are not interested in being minority partners in a business," he said. "We are not investors, we are operators." That argument aside, the problem remains that U.S. yards haven't built cruise vessels in competition with foreign yards for a great many years, and the trick is to inspire the lines to place orders in U.S. yards, giving them needed experience and an invaluable opportunity to demonstrate their abilities. Whether the right to transport passengers from U.S. port to U.S. port will be a sufficient incentive remains to be seen.

A number of U.S. yards, including Newport News, National Steel and Shipbuilding Co. (NASSCO), Ingalls Shipbuilding Division of Litton Industries and Avondale, have made it plain that they intend to pursue the cruise ship building business. Many have been engaged in repair work, and McDermott Inc.'s Amelia, La. yard is building the American Queen, reportedly the largest overnight cruise vessel constructed in the U.S. in 40 years.

"When we took the Norway through some refurbishment, we took it to Newport News," said Norwegian's Ms. Johnson. She said that by all reports, the work on that vessel was performed to a high standard of quality, on time and on budget. "I think the quality is there, and that may be demonstrated in the near future."

Subscribe for
Maritime Reporter E-News

Maritime Reporter E-News is the maritime industry's largest circulation and most authoritative ENews Service, delivered to your Email five times per week