The recent announcement by Carnival Corporation that the company is pulling its ships from home ports in Norfolk, Baltimore and Boston this year flashes a warning light for cities with millions in taxpayer funds sunk in cruise terminals.
Coincidentally, on the day Carnival issued the press release, Savannah City Council voted unanimously against developing a cruise ship terminal. Despite the glowing picture of new revenue and jobs painted by the city’s consultants, when the citizens and council members looked at the facts, they found the problem now facing Norfolk, Baltimore and Boston: The business case for a terminal simply wasn’t there.
The facts that make cruise terminals questionable investments are not unique to Savannah. Of course, the cruise lines industry isn’t likely to talk about them. Terminals in the U.S. are built with public funds, and cruise lines love to have ports compete with each other for their business.
If you’re a cruise corporation CEO, what’s not to like? Cities, states and port authorities spend taxpayer money or borrow long-term to build terminals. Cruise companies put up no financial stake. And if their business equation shifts, the standard industry contract allows them with minimal notice to sail away.
Ironically, on the day Savannah City Council voted to kill the cruise terminal idea, Carnival Cruise Lines, the world’s largest cruise corporation, did just that. Carnival announced it was pulling its last ship from Norfolk later this year and that it will pull another ship from Baltimore in 2014. Norfolk’s under-used terminal is already saddling its taxpayers with over $1 million a year in debt service and operating costs. Baltimore was considering expanding its terminal; the port apparently needs to think again.
For Charleston, the analysis that led to Savannah’s “no” vote is worth a look. The challenges facing terminals like Charleston’s are growing. In addition to Norfolk, five similar terminals built since 2000 — Philadelphia, Mobile, Houston, San Diego and Honolulu — are either closed or operating deep in the red. It’s not just the cruise corporations’ tactics — their habit of pulling out with little notice as they follow shifts in the market — that should cause worry. Trends in the cruise industry suggest that strategic business risks for such terminals are rising as well.
Cruise corporations are building bigger ships, making those in the 2000-plus passenger range like the Carnival Fantasy a shrinking share of their fleets. Terminals that service older, smaller ships are going to compete for fewer vessels.
Marketing will focus increasingly on cities with mega-ship terminals such as Miami, Fort Lauderdale and Port Everglades. These ports already handle over 70 percent of all East coast cruise passengers; ports with smaller ships in the Southeast — Norfolk, Charleston, Mobile, and Jacksonville — together embark barely 5 percent.
As the saying goes, follow the money. For terminals like Charleston, the sliver of the market is likely to shrink in the years ahead.
There’s another trend that should concern all but the largest terminal operators. The cruise industry is shifting to Asia. It’s no secret. Its senior executives say so. Some 50 million Chinese traveled abroad in 2010; the number is projected to double by 2020.
Cruise corporations are already repositioning ships and building new terminals in Hong Kong, Shanghai and Singapore. For smaller terminals in the U.S., the industry’s forecasts mean only one thing: Expect even more competition for ships and greater risks that they’ll sail away as cruise lines respond to the world’s fastest growing travel market abroad.
Investing in a terminal makes sense only if the purported benefits exceed the risks and costs. In Savannah, even the “best case” predictions of jobs and revenue fell far short. The city’s consultants touted 1,000 new jobs. But a close look at the numbers revealed that a terminal in full operation in 2020 would generate at best a few hundred part-time, seasonal jobs with an average wage below the 2010 poverty level. The findings dovetail with analysis of Carnival’s operations in Charleston by Miley & Associates. They suggest the need to dig deeper into real data.
For landmark cities like Charleston and Savannah, costs and risks are not just financial. Terminal operations in the heart of a city bring pollution, congestion and the displacement of destination visitors. All are effects that can damage unique historic values as well as infrastructure, not to mention the quality of life. Savannah’s consultants inexplicably downplayed the estimated additional 1,500 cars on the streets on cruise ship turn-around days and the urban health hazards from toxic ship exhaust.
As Charleston unfortunately knows, cruise lines turn a blind eye to such problems. Their behavior figured prominently in Savannah’s “no” vote.
Facts, John Adams once said, are stubborn things. For Savannah, a cruise terminal represented major public costs with highly uncertain returns. That equation may be different elsewhere, but the cruise industry’s business model, including its success in shifting major burdens onto the backs of the taxpayers, is not.
Savannah’s citizens spoke out overwhelmingly against a terminal for good reasons. Why its political leaders listened and agreed with them is worth a close look.
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Kent Harrington is co-founder of Be Smart Savannah, a community discussion group concerned with public policy issues. Its website is cruiseshipsinSavannah.com.
