Today I read an interesting case analysis from the Journal of Business Case Studies (May/June 2012), which studied the business model of the second largest cruise company in the world, Royal Caribbean Cruises, Ltd.
The article is entitled "Royal Caribbean Cruises Ltd.: Innovation At A Cost?" (click on the pdf link)
The article focuses on Royal Caribbean Cruises Ltd. which was formed in 1997 when Royal Caribbean Cruise Line (founded in 1968) and Celebrity Cruises (founded in 1988) merged together.
The article explains that the foundation of Royal Caribbean is the avoidance of U.S. taxes and regulation. It accomplishes this by:
- Incorporating in a foreign country (Liberia, Africa), and
- Registering its cruise ships in weak, poor and disorganized foreign countries (mostly Liberia and the Bahamas).
By registering its corporation and ship overseas, it avoids U.S. taxes, labor and environmental laws, and criminal culpability. U.S. executives are offered millions in bonuses while the cruise line itself pays no U.S. taxes, which is the key to its profitability. The Journal writes that Miami based cruise lines, like Royal Caribbean:
" . . . take advantage of maritime laws to avoid paying U.S. taxes, gain immunity from American labor laws, avoid U.S. courts in workplace disputes, and fend off new environmental regulations, government records and industry reports show. They have done this by incorporating in Central America and Africa and registering their ships under the flags of foreign nations . . ."
Although this theoretically gives tiny countries regulatory power over one of some of Florida’s largest corporations, the flag states " . . . are not only reluctant to discipline major contributors to their economies, but also do not have the resources to enforce regulations or even punish polluters."
Flying flags of convenience has historically been used to conceal criminal activities, and is now "used primarily for economic reasons and sanctuary from restrictive regulatory environments."
Tonight in England a documentary will air about the exploitation of crew members on the Eclipse cruise ship which is operated by Royal Caribbean’s sister company, Celebrity Cruises, out of Southampton England. Crew members work 12 hours a day (sometimes more), every day, every week for the length of their 6 – 8 month contracts with no time off. When injured, the crew members are often dumped back in their home countries and paid only $12 a day and denied competent medical treatment.
You can trace the root cause of this abuse back to the earliest days of Royal Caribbean in the late 1960’s when the cruise line decided to skirt U.S. laws by incorporating in the lawless country of Liberia.
Credit: Flags of convenience article – "Flags at Sea . . . "