Small US operators badly hit

2020-07-13T10:46:35+00:00 July 13th, 2020|Finance|

An Initial Report issued on 30th June by US Commissioner Louis Sola (pictured) has identified a regulatory step to address the critical COVID-19 fiscal impact experienced by the cruise industry.

This will affect small passenger vessel operators that are largely US-based businesses that almost exclusively sail US flagged vessels.

US Federal Maritime Commission (FMC) regulations require that all passenger vessel operators demonstrate financial responsibility to the agency through the submission of some form of surety instrument equal to 110% of the highest amount of unearned passenger revenue (UPR) the carrier held over the previous two years.

The required surety amount is capped at $32 mill. Currently, only the smaller carriers hold a surety at an amount below this cap. It is also common for most sureties to require some form of collateral of the carrier prior to the issuance of a bond.

Commissioner Sola’s proposal, developed as part of his work on Fact Finding 30, ‘COVID-19 Impact on Cruise Industry’, would provide a path for smaller carriers to request reducing the required surety amount to more accurately reflect the UPR held by these companies.

If adopted, this proposal would reduce the premiums paid for the surety and the costs associated with a corresponding collateral amount for those whose requests are granted. This would free up capital to allow for the payment of salaries and maintenance of their fleets, while simultaneously ensuring that sufficient funds are available to refund those customers who had purchased a ticket for a cruise that did not take place.

Since starting on his project, Commissioner Sola has interviewed port directors, senior executives of cruise lines and marine terminal operator companies, longshore labour leaders, and FMC collaborative panels.

“Fact Finding 30 is ongoing and will ultimately produce a report offering several observations and recommendations for both the Commission and the industry. Nevertheless, there will be times when a particular observation is of a nature that an earlier and more timely released initial report may be warranted in order to address a pressing need,” Commissioner Sola explained. “This submission is one such report and I hope it will encourage the Commission to take an action that will provide immediate help to a struggling segment of the industry”

A large portion of the smaller carriers operate on the US Northwest coast, many to Alaska. These companies have a limited sailing season and have been prevented from operating for most, if not all, of this year’s seasonal window.

As the current ‘No Sail Order’ issued on 14th March, 2020 by the Centres for Disease Control and Prevention (CDC) went into effect so early into the sailing season, the UPR of these small carriers is substantially less than in the previous two years, which were generally robust.

As a result of a strong market in 2018 and 2019, the surety amounts for the small carriers reflect a UPR substantially higher than the current commercial reality.

Commissioner Sola said that one small US flagged carrier had already decided to close its business and others are struggling to deal with the loss of an entire sailing season. The loss of these businesses not only affects the persons employed by the passenger vessel operators, but it also directly impacts the ports, which these lines call home, as well as the ones they visit.

“There are many communities in the Northwest US that rely upon the income brought to them by the small cruise carriers, the loss of which would have a devastating effect,” he added. “Our mission is to help preserve this economic engine while maintaining a high level of consumer protection. This proposal achieves both those goals and it is my hope that the Commission will adopt the change to regulation I recommend in this Initial Report.”