Curse of the Cruise

Despite the ongoing impact of COVID-19, a shortage of workers, a surge of containers, and a lack of warehouse space, U.S. West Coast ports saw a 24.6% year-over-year jump in containers processed during Peak Season last year. At the same time, the passenger cruise industry was rightfully stymied.

The close collaboration demonstrated by The International Longshore and Warehouse Union, and the Pacific Maritime Association during this crisis, was also recognized by Pacific Merchant Shipping Association Vice President, Thomas Jelenić.

He observes that some dockworkers have become sick and too many have died.

“In a year of crisis, the men and women on the waterfront ensured that the goods to protect us during a pandemic and keep our economy functioning were always available,” he adds.

It should be noted, however, that one contributing factor to the Peak Season cargo sector’s efficiency may have been because no cruise vessels were complicating harbor operations…or posing another threat of a pandemic.

Just a year ago we reported that unlike other Pacific Rim ocean cargo gateways, the Port of Oakland had not succumbed to the temptation of diversifying its operations to accommodate the global cruise industry. Indeed, it had always been a working port –  and up until March of 2020 – had never even hosted a guest mega cruise ship into its harbor.

As SCMR readers may recall, all that changed rather dramatically when the Grand Princess – enroute to the Port of San Francisco – was diverted across the bay when COVID-19 was discovered to have infected many of its passengers.

Since last March cruise operations have been suspended at all U.S. West Coast ports, including our nation’s leading ocean cargo gateway in Los Angeles, and no date has been set yet for U.S. passenger sailings.

Meanwhile, The Port of LA continues to closely monitor the situation and is working with the Centers for Disease Control and Prevention, U.S. Coast Guard, U.S. Customs and Border Protection, California Department of Public Health, Los Angeles County Department of Public Health and other emergency and public health agencies.

In 2020, the Port of Los Angeles experienced 93 cruise cancelations – more than 70% of total cruises – due to the pandemic. Each time a cruise ship calls in Los Angeles, it contributes about $1 million to local businesses and the economy. Losing these cruise ships amounts to losing nearly $100 million in economic activity on the LA Waterfront, say port authorities.

But it begs the question: Should a port so vital to our national security and global supply chains be reliant on mass tourism?
Credit profiles for Fitch Rating’s portfolio of ports with significant exposure to the cruise industry have deteriorated due to the virtual standstill of sailings. Furthermore, analyst’s forecasts for cruise operators and ports assume cruise travel does not begin to meaningfully pick up until 3Q21.

“Credit profiles are currently supported in part by liquidity positions but reinstatement of the ‘No Sail Order’ that extends beyond our expectations and leads to cash burn could add pressure,” says Fitch.

Analysts add that cruise operators have minimal liquidity headroom, even after significant capital access and some delaying of the delivery of new ships to conserve cash.

“We estimate roughly 10 to 17 months of cash on hand for the three major cruise operators, after servicing upcoming debt maturities. Two of the three have become ‘fallen angels’ due to the effects of the pandemic, with operators’ revenue projected to be down 84% in 2021 over 2019,” concludes Fitch.

On a final note, The Global Cruise Activist Network (GCAN) has launched its “Rethink Cruise Tourism” campaign to compel ports to imagine a socially, economically and environmentally responsible cruise industry, before restarting the cruise ships sector following its Covid-19 hiatus.

The GCAN is demanding an equitable and responsible system of leisure travel that optimizes economic benefits to all stakeholders, while eliminating the negative social, public health, and environmental impacts of cruising on port communities, workers, and passengers.

“We oppose the return of a ‘business-as-usual’ cruise ship industry,” say spokesmen. “Until these commonsense policies are collectively adopted, effectively implemented, and consistently monitored, the cruise industry will remain complicit in putting passengers, crew, communities…and the planet at risk.”

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