Passenger Vessel Market Update

Maritime Activity Reports, Inc.

February 3, 2011

John Groundwater, Executive Director, Passenger Vessel Association

John Groundwater, Executive Director, Passenger Vessel Association

By Raina Clark, in the January edition of MarineNews

MarineNews spoke with industry experts to get an overview of the passenger vessel market as it stands today, including a legislative update and business leaders’ insights on pricing, ridership and vessel construction and renovation.

John Groundwater, Executive Director of the Passenger Vessel Association (PVA), on legislation:
Actions in Congress this year provided a mixed bag for passenger vessel operators. Because of the new tax law, private operators will be able to take advantage of an immediate 100% depreciation deduction for capital investments made in 2011. Also, owners of passenger vessel businesses who desire to pass their enterprises down to the next generation will be gratified by the new estate tax rates and exemptions.
PVA’s efforts with Congress also paid off when the final version of the newly enacted Cruise Vessel Security and Safety Act did not apply to U.S.-flagged “small ship” overnight cruise vessels; the well-publicized problems of assaults and missing passengers that prompted the legislation had not occurred on PVA members’ vessels.
PVA was heartened this past summer when Congress continued until late 2013 the provision that exempts a passenger vessel of less than 79 feet in length from complying with the EPA’s Vessel General Permit for wastewater discharges incidental to normal operations; PVA had pushed for this exemption to be extended. 
A big “win” is the part of the Coast Guard Authorization Act of 2010 that relieves holders of Coast Guard licenses and merchant marine documents from having to obtain or renew a TWIC (Transportation Worker Identification Credential) to work on a passenger vessel not required to have a security plan (generally, a passenger vessel authorized to carry not more than 150 passengers). On the other hand, that same law will eventually place new mandates on passenger vessel operators for safety management systems, out-of-the-water lifesaving and more extensive log book requirements. PVA has signed a Memorandum of Understanding with the Coast Guard to develop the Flagship program, a safety management system especially for the passenger vessel industry.
It remains to be seen whether the new Health Care Act will produce affordable coverage for most individuals, as its promoters claim, but the “small business” exemption may relieve a number of passenger vessel operators from having to comply with the law’s employer mandate.
Important new federal rules will become effective in 2011, and that will impact passenger vessel operators. In December, passenger vessels must demonstrate that they can comply with stability rules that assume an average passenger weight of 185 pounds. Also, new rules on service to passengers with disabilities become effective in the first quarter of the year. The Department of Transportation rule covers an entity operating a vessel transporting a passenger from point A to point B. The related Department of Justice rule will apply to all other passenger vessel operators. PVA has prepared a guide for its members explaining the ADA rules in detail. 

Darrell Bryan, President & CEO of Clipper Navigation, on Pricing:
Darrell Bryan is President and CEO of Clipper Navigation, Inc., which operates ferries between Seattle, Wash. and Victoria, BC.
“We’re expecting little growth in 2011,” Bryan said. “We’ve budgeted a three percent increase for the year, however Clipper does foresee stronger results in the economy going into the 4th quarter.”
Bryan works closely with the hotel industry and has found that packaging allows for greater flexibility in pricing. The customer does not know what is being charged by the hotel or Clipper. “It seems that people have become conditioned to deals and packages, so by packaging our ferry service with leading hotels, we’re able offer competitive pricing that appeals to consumers. In addition, our discounted rate is not naked which will make it easier for us to maintain a higher retail rate.”
“Since July, we’ve experienced double-digit growth by being flexible and aggressive with our package pricing. We currently have a package with a four-star hotel by offering a rate of $115 that includes the ferry ride and a night’s stay at the hotel. That’s great for the customer. However it comes at a price for us and we have to carry more passengers to maintain the same level of revenue. Fortunately, we’ve generated greater revenue. Part of this is attributable to our ancillary sales — hotels, tours, afternoon teas, etc. — to accommodate deals like this.”
Looking forward, Bryan cited forecasts and reports from the hospitality industry which indicate that the economy may be slow in the short term, but is expected to pick up in the coming years to be back where it had been before the recession hit.
“It’s going to get better. We all just have to keep our heads above water until it does,” Bryan said.

John Waterhouse, Chief Engineering Officer of EBDG, on Construction & Renovation:
When John Waterhouse, P.E., Chief Engineering Officer and founder of Elliott Bay Design Group in Seattle, Wash., (with offices in New Orleans) prognosticated about the future of the passenger vessel industry, he was optimistic that the coming years will be good ones.
Waterhouse said, “It looks very good out there. I’m optimistic about so many of the niches that comprise the passenger vessel industry.”
Waterhouse foresees positive outlooks in many market segments. “The ferries that were built in the 1960s are just now beginning to need to be updated, renovated or replaced,” said Waterhouse. “So there’s good news for those of us in that side of the business.”
“Although the dinner boat operators have taken a bit of a hit due to the economy, I think that we’ll soon see that segment regain its strong customer base,” he said.
“The same goes for the excursion and eco-tour vessel operators. They still offer a tremendous service and people love being on the water. I’m confident that the passenger vessel industry will do well in the coming years.”

Frederick Hall, Vice President of Bridgeport/Port Jefferson Steamboat, on Ridership:
“I like what we were seeing at the end of the last quarter of 2010,” reported Fred Hall, Vice President of Bridgeport/Port Jefferson Steamboat in Jefferson, N.Y. “We experienced an incremental increase in business and I’m optimistic that will continue in 2011.”
Hall said that the operation that runs a ferry between Bridgeport, Conn. and Port Jefferson, on Long Island, N.Y., has modified its schedules to stay in tune with ridership, which he now describes as “steady” and “positive.”
“The price of fuel, however, is the key component to success or failure. If the price of fuel is manageable, we’ll be fine this year,” Hall said.

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