Cruise Industry Financial InformationA reporter for the Marketplace interviewed me yesterday regarding the state of the cruise industry.

I explained that compared to a year or two ago, the general perception of cruise lines is up. More than 23,000,000 passengers will cruise this year. Bigger and bigger cruise ships are being constructed. Travel agents seem more energized than before and appear to have lost their funk brought about by the Costa Concordia and Triumph "poop cruise" disasters.

Industry leader Carnival Corporation, with over 100 cruise ships in its multi-brand fleet, is reaping the rewards of hiring Arnold Donald with his dynamic and charismatic style of leadership.    

Cruise fares are up, prices for excursions and alcohol are up while the cruise CEO’s are driving costs down.  

On the other side of the coin, critics say that the same-old-problems remain in the industry. Last week the Freedom of the Sea erupted in flames and literally burned from bottom of the ship to deck 15. Royal Caribbean tried to down-play the fire, but YouTube videos and photos posted on Facebook and Twitter showed that the fire was indeed dangerous and that the cruise lines still suffer from a lack of transparency that has tarnished the industry for years. Our friend and former Royal Caribbean cook Kevin Chamber’s video of the ship on fire has been viewed well over a million times.  

Crew members and passengers tell me that contractors aboard the Freedom of the Seas were installing a scrubber system when the fire erupted. The captain of the ship says that the cruise line will disclose why the fire broke out, which the suits at Royal Caribbean’s headquarters in Miami will never do. Its been over two years since the Grandeur of the Seas ignited near the Bahamas and the cruise line still refuses to tell the public what happened. The Freedom of the Seas fire will become just another mystery where the cruise line will keep its customers in the dark.

Just a couple of days ago, the Safari Voyager also erupted in flames in Seattle, due to welding operations. Welding at sea rather than in dry-dock is one of the risks of cruising and only one of many dangers that the cruise industry won’t tell you.

Today, the Professional Mariner published an article titled "U.S. Coast Guard cites loose bolts, escape-route issues in fatal fire" about a Coast Guard marine safety alert regarding the deadly fire aboard the Oceania Insignia where three crew members perished when the cruise ship ignited in port at St. Lucia last December.       

This week two crew members were seriously injured when a rescue boat was being lowered from the NCL Pride of America in Hawaii when the cables broke. 

In just the last couple of months, passengers and crew members disappeared from Celebrity, Royal Caribbean, Costa, MSC, NCL and HAL cruise ships. Yet, the industry as a whole still refuses to invest in automatic man overboard technology.

Sexual assaults at sea still occur with alarming frequency. In the last month, the news mentioned a passenger and a crew member assaulting women on Celebrity cruise ships in separate incidents. A sexual predator employed by Disney Cruises was recently sentenced to  over 5 years after pleading guilty to molesting a 13 year old passenger on the Disney Dream.   

Four months ago, twenty-two cruise passengers from Costa and MSC cruise ship were murdered by terrorists in Tunis, after these cruise lines sailed them into danger without a single warning.  The specter of ISIS terror remains a dark cloud over cruise ships which risk proceeding along itineraries across North Africa.  

Cruise Ship Fire - Royal CaribbeanBut the 40 billion-dollar-a-year cruise industry is rich and powerful. As a result of incorporating its businesses in place like Liberia or Panama and registering its ships in third world countries like the Bahamas, cruise lines avoid U.S. taxes and can pay their crew members peanuts. The industry has a huge advantage over U.S. resorts and hotels. It’s cheaper to sail on a Carnival cruise out of Galveston than it is to stay in a Motel 6. 

That’s why Royal Caribbean’s stock price was largely unaffected after the Freedom of the Seas burned last week. CNBC’s Simon Hobbs reported that as long as propulsion is not lost and passengers are not stranded at sea, a cruise ship fire is "not material for investors."  Mr. Hobbs is right about that, it seems. That’s probably why the cruise executives decided not to comply with the International Maritime Organization’s recommended Safety of Life at Sea regulations, which require a post-fire investigation and survey, but instead chose to keep the cruise ship sailing on to the Caymans and Mexico. 

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I have received a dozen inquiries in the last few days about the chances of contracting Ebola during a cruise. My thought is that the chance is slim that anyone is going to go on a cruise and return home infected with the virus.  But there are some issues that concern me.

For U.S. Travelers, Chances of Infection Are Slim at this Time

From what I have learned, it’s very difficult to contract the the virus. A cruise passenger would first have to come into close personal contact with an infected person. The infection could come from contact with the infected victim’s bodily fluids (blood, saliva, vomit, feces, urine, or semen) or through contaminated needles. This would first require travel to the affected countries in West Africa (Liberia, Cruise Ship EbolaSierra Leone, and Guinea) and then intimate contact with an Ebola victim.

So far, the only victim in the U.S. is Thomas Duncan who traveled to Dallas from Liberia and since died. There is a chance that the persons who he came into contact with could develop the disease, but the Centers for Disease Control (CDC) is carefully monitoring the health of all persons who possibly could have come into contact with Mr. Duncan.  

Cruise lines are prudently avoiding ports in West Africa. Holland America Line, Seabourn Cruise Line, Regent Seven Seas Cruises and Fred Olsen are dropping West African ports in Ghana, Gambia and Senegal. Princess Cruises is considering rerouting its 30-day "West Africa Adventure," according to the L.A. Times. 

Royal Caribbean does not call on any ports in West Africa, although ironically Royal Caribbean is incorporated in Liberia to avoid taxes and regulations.

Bloomberg says that the Ebola scare has lowered cruise stocks. Carnival’s stock price fell 5.5 percent, NCL was down 2.8 percent, and Royal Caribbean fell 5.9 percent even though it doesn’t sail near the affected (infected) area.

To my knowledge, there are no cruise lines which routinely hire from Liberia, Sierra Leone, or Guinea. In fact, I have never met or even heard of crew members from these countries. I anticipate that if there are any crew members from these countries, they will not be be re-hired when they return home on vacation. Miami-based cruise lines enacted such hiring freezes on crew members from affected areas during the Severe Acute Respiratory Syndrome (SARS) outbreak in the past.

But I’m Uncertain About the Future

There are some factors, though, that make me nervous about the future.

  • The Centers for Disease Control (CDC) says that as many as 1,400.000 people could be infected with Ebola by January 2015.  
  • The virus will get worse in the West African countries.
  • Experts predict the virus to appear in Europe within the month.
  • There are reports that Ebola can survive on surfaces for anywhere from a few hours to several days, depending on the type of surface, the temperature, and the amount of light. 
  • According to the CDC, the average time for symptoms of Ebola to appear is 8-10 days. 
  • Many travelers don’t disclose illnesses either before or during their cruises because they don’t want to be barred from the ship or confined to their cabin.   
  • Some employees don’t report to the ship infirmary because they don’t want to lose their tips.

My concern is that the outbreak will continue and expand. It has already reached Spain. Jacquie Kubin writes in her article Ebola: Lessons Learned from SARS, the Flu, and HIV / AIDS that there is a 75% probability that the virus will reach France by the end of October and a 50% chance that Ebola will migrate to the U.K.

If the virus reaches Europe so quickly, future cruise travelers and employees could become infected. If those infected are booked on cruises, it is foreseeable that an infected person will fail to disclose the early symptoms of Ebola (intentionally or simply because they doesn’t know they have been infected) when they appear at the airport or terminal and then embark the aircraft or cruise ship.

We already know from noro virus cases, many cruise passengers are ill when they come to the cruise ship. Unfortunately, they sometimes lie to get on the ship, and they won’t stay in their cabins even when they are infectious.

We also know from past experiences that some crew members report to work when they are ill, including food handlers. This is documented in the CDC literature.  

Cruise ships are not prepared to handle a situation with an infected Ebola victim aboard. Any crew Cruise Ship Ebolamembers called upon to clean up the vomit and diarrhea and other bodily fluids of a sick passenger would likely become infected. An infected chef or waiter shedding Ebola would be a disaster and could potentially infect hundreds of passengers.  

We have seen that cruise ships can easily be plagued by outbreaks of diseases which include not only gastrointestinal diseases, noro virus and e-coli, but measles & rubella, Legionnaires Disease, SARS and other infectious diseases.

Unlike noro virus which lasts a few days, Ebola is potentially deadly. The victim needs immediate and specialized treatment that a cruise ship can’t provide. An Ebola outbreak on a cruise ship could result in deaths as well as a public relations disaster.

Stay Tuned and Hope for the Best

There currently is no vaccine for Ebola. Clinical trials are just starting.

For the next many months, cruise lines will consider West Africa to be a no-man’s land. Until the disease is eradicated, the cruise lines must avoid the ports there. Cruise ships will continue sailing wide of West Africa until the coast is clear. Hopefully the virus will not spread to Europe and find its way onto cruise ships. 

October 17 2014 Update: Texas Hospital Worker Who Handled Ebola Samples is on the Carnival Magic

October 18 2014 Update: Cruise Industry is Completely Unprepared for Ebola Outbreak

 

Have a thought? Please leave a comment below or join the discussion on our Facebook page.

Read circular letter (No. 3484) about Ebola published by the International Maritime Organization.

Photo Credits: Top – Daily Times; Botton – CDC via AP

Panama Flag of ConvenienceA reader of Cruise Law News (CLN) brought an excellent opinion piece from the New York Times regarding the shipping industry’s use of "flags of convenience" to my attention.  Entitled "Flying the Flag, Fleeing the State" and written by Rose George, the article explains how unscrupulous ship owners evade responsibility for environmental damage, exploitative labor and unsafe work conditions, and criminal behavior. 

The article reveals that ships used to fly the flags of their nation which protected the seafarers and passengers and punished the shipping companies when they broke the law.  But this changed when American flagged ships began flying the flags of foreign countries in order in order to avoid U.S. laws and government oversight.   The "foreign registries" were in countries with no government oversight and no real connection to the vessel or its owners in the first place, like Panama (flag above left), Liberia, North Korea and even landlocked Mongolia.  The registries often fail to monitor the safety and working conditions on ships or investigate accidents.    

What are the real consequences to employees working on foreign flagged ships? 

The New York Times article points out that there is a "human cost" which includes long hours, punishing work, and little rest; some international regulations permit 98-hour work weeks.  Cruise line employees are a good example.  Stateroom attendants and cleaners work a minimum of 12 hours a day and often are pushed to 14 to 16 hours when required to handle luggage on embarkation days, ending up with a 90 plus hour work week and no days off.  Cruise ship cleaners earn a maximum of $545 a month working a minimum of 360 hours a month.  Repetitive injuries to these crew members frequently occur, and just as frequently the cruise lines abandon them in countries like Nicaragua or India with inadequate medical care.

No foreign registry in Liberia, which often rages in civil war itself, gives a damn about the working conditions which men and women from Nicaragua or India face daily on Liberian flagged cruise ships.    

Because most ship employees are non U.S. citizens, the U.S. public has been indifferent to their plight.  But the problem inherent in flags of convenience came home to the U.S. last year when the offshore Deepwater Horizon oil rig exploded and 11 American oil and gas workers perished.  

The U.S. Coast Guard just released a preliminary report  about the Deepwater Horizon oil rig. The Coast Guard criticized not only rig owner, Transocean, but the foreign registry in the Marshall Islands (flag below) where Transocean registered the rig.  Just like a cruise ship, the Deepwater Horizon oil rig was considered to be a vessel which had to be registered. 

Why did the rig owners decide to go all of the way to an island in the Pacific to register its oil rig, you may ask?   For the same reason cruise lines like Carnival and Royal Caribbean went to South America and Africa to register their cruise ships in Panama and Liberia – to avoid U.S. taxes, U.S. Marshall Islands Flag of Conveniencesafety regulations, and U.S. labor laws.  

One of the the Coast Guard’s initial conclusions is that the Marshall Islands "abdicated" its safety responsibilities.  Transocean got just what it wanted – lax safety inspections and substandard safety requirements from the little spec of an island in the Pacific.   The owners enjoyed lower operating costs in addition to the substantial tax benefits of flying a flag of convenience.  But the financial benefits came at the expense of poor training, poorly maintained equipment, and even poorer safety procedures which resulted in inoperable alarms and failed shut-down systems.  

The ultimate result of the Marshall Islands flag of convenience?  11 dead men.  And 11 families consumed with grief and suffering.  

 

For additonal information, read:

Like Cruise Ships, Foreign Flagged Oil Rigs Avoid U.S. Laws

No Taxes – The Cruise Lines’ Dirty Little Secret

One of the little know facts about the cruise industry is that it pays virtually no U.S. taxes.

The cruise lines take advantage of an obscure provision in the U.S. tax code which permits shipping companies to evade taxes by incorporating overseas and flying the flags of foreign countries.  That’s why Carnival is incorporated in Panama, Royal Caribbean is incorporated in Liberia, and Princess Cruises is incorporated in Bermuda. 

The New York Times covered the issue of cruise line taxes today:

"The Carnival Corporation wouldn’t have much of a business without help from various branches of the government.  The United States Coast Guard keeps the seas safe for Carnival’s cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries.  State and local governments have built roads and bridges leading up to the ports where Carnival’s ships dock.  

Mickey Arison - Carnival Cruise - No TaxesBut Carnival’s biggest government benefit of all may be the price it pays for many of those services.  Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits.  Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes."

I have written about the cruise industry’s ability to avoid U.S. taxes since starting this blog.

Carnival was created by Ted Arison (father of current CEO Mickey Arison, photo right).  Senior Arison collected billions of dollars from tax paying U.S. passengers and lived the good life in Miami.  But he registered his Miami-based cruise line and his cruise ships in Panama to avoid U.S. taxes.  In 1990, he abandoned Miami, denounced his U.S. citizenship, and returned to Israel with his billions in a ploy to avoid estate and inheritance taxes.

Whenever I think of cruise tycoons like the Arisons and the foreign cruise lines like Carnival and Royal Caribbean, I can’t help but think what a scam they are running.    

The Miami-based cruise lines file papers of incorporation and vessel registration in distant countries where no one will bother them with things like income tax, wage and labor laws, or safety regulations. They then collect billions of dollars a year from hard working saps – the U.S. tax paying public. 

 

Like this article?  Consider reading: 

Cruise Line Fat Cat Billionaires 

What the Cruise Industry Has to Learn From My Cousins Back in Arkansas

 

Credits: Mickey Arison – David Adame AP (via Cruise Blog)

Foreign Flags - Marshall Islands, Liberia, Panama The LA Times has an interesting article this morning revealing how drilling companies skirt U.S. laws by registering their oil rigs in countries like the Marshall Islands, described by the Times as a "tiny, impoverished nation in the Pacific Ocean." 

Drilling rigs are considered to be "vessels" under maritime law.  This permits their owners and operators to register them wherever they want in the world.  Like cruise lines which register their ships in Liberia, Panama, and the Bahamas, oil and gas companies and drilling contractors register their rigs outside the U.S. to avoid American safety laws and taxes.   

Congress will be conducting a hearing on the safety of these foreign flagged drilling rigs this Thursday.  The Times quotes James L. Oberstar (D-Minn.), chairman of the House Transportation Committee, as stating:  "Today, these oil rigs can operate under different, very minimal standards of inspection established by international maritime treaties."

Representative Oberstar is a friend of cruise passengers and crew members, having taken a leading role in passing the Cruise Vessel Safety and Security Act in the House of Representatives last year.  This law protects cruise passengers on foreign flagged cruise ships.  Take a minute and read: " Congressional All Stars Pass Cruise Crime Law By Vote of 416 to 4."

    

For additional information on the Marshall Islands vessel registration system, consider reading: "Growth Of The Marshall Islands Flag and American Bureau of Shipping."

Have a comment?  Leave your thoughts in the comment section below. 

Earlier this month, I announced that I will be awarding the "Worst Cruise Line in the World" award to the cruise line demonstrating the worst in gross negligence and indifference towards passenger and crew member health and safety. This will be a monthly award. 

Over the past month, we have received many e-mails nominating a variety of cruise lines and a couple of cruise line tycoons. Mostly passengers have emailed us with a variety of stories, many are just plain sad.  Some of the stories demonstrate such callousness by the cruise lines that your blood will boil.

A few crew members contacted us  Without except they were afraid to reveal their real names in fear of retaliation.

A couple of environmental groups contacted us as well.

So far two cruise lines are vying neck to neck for the award.  After 26 years of being a maritime lawyer I thought that I had seen it all. These two companies have treated their crew members like garbage. At this point, I don’t know who is most deserving of the first month’s award. 

The voting for this month ends on Wednesday, September 30, 2009 at 5:00 p.m. EST. I will be announcing the winner, er loser, in October.

Feel free to tweet your nominee to me at my Twitter page @CruiseLaw

 

Photo credit:

Cruise Ship Tycoon         Activisim

Over the course of 26 years practicing maritime law, I have seen some remarkably bad conduct by cruise lines. Covering up crimes, abandoning injured passengers in foreign ports, or quickly concluding that "missing passengers" committed "suicide" are just a few examples.  I have kept a list of what I consider the most outrageous moments in cruise line history.  The lying and scheming I have witnessed over the years is pretty impressive.

Much of the trouble lies with the foundation of the cruise industry.  All of the cruise lines incorporate their businesses in foreign countries, like Liberia – a lawless and unstable African country where a civil war rages every few years and the rebels take their AK-47’s to the streets. They also register their vessels in places like the Bahamas or Panama where the "regulatory" authorities are more than willing to look the other way as long as the cruise lines fill their coffers with U.S. dollars. The cruise line mentality of avoiding U.S. taxes, U.S labor and wage laws, and U.S. safety regulations often leads to reckless and inexcusable behavior.

I have always thought that some cruise line shenanigans were so outrageous that they should earn a trophy.

One evening while watching MSNBC TV personality Keith Olbermann announce the "Worst Person in the World," an idea popped into my head. Why not recognize the cruise line demonstrating the worst in gross negligence and indifference towards passenger and crew member health and safety?

So with apologies to Mr. Olbermann and the MSNBC show "Countdown," CruiseLaw announces the "Worst Cruise Line in the World" award. There are 24 cruise lines who are members of the Cruise Line International Association. Several companies in this group are consistently strong contenders for the award. I will include some of the smaller lines who have done some terrible things as well.

The award is not limited just to the cruise lines, but will include cruise trade groups, cruise executives, cruise communities, and other individuals in the cruise industry.  We will consider nominations from passengers, crew members and the general public.  If you suffered a bad experience on a cruise ship which deserves special mention, send us your cruise line nominee. We will announce the winner once a month. 

Hopefully, some months we won’t have a reason to award anyone.