Monday, May 09, 2005


The US Cruise Industry

I'm taking a cruise to Hawaii in a couple of weeks. I like to research, so I did a bit of research on the history of NCL's America operations. The US cruise industry has a long and probably boring history. Read on only if bored.

A company that operated a few small ships around the country called "American Classic Voyages" in 1999 decided to run their largest venture yet by far - an American flagged Hawaiian cruise line. The American flagging is important - the Jones act (aka the "PSA") is a law that requires a cruise voyage to include a non-US port if the ship isn't US flagged. To put it another way, if, say, Carnival brought one of their ships in (none of them are US flagged), picked you up on Honolulu, and dropped you off without sailing to a foreign port, they would be fined $200 x the number of passengers. ACV saw an opportunity here - a US flagged line could cruise around Hawaii for a week and not have to do the day-and-a-half trip to the nearest non-US port in the Fanning Islands.

ACV had to do a lot of lobbying to implement their plan. The act stipulates that an American flagged cruise ship must be American built as well as American staffed. ACV planned to buy one (foreign-built) cruise ship to start out and build another two ships in the US. A modern cruise ship had never before been built in the US due to high manufacturing costs. This never before attempted feat was made possible with a big loan guarantee from the US ($1.1 billion).

ACV's first move was to purchase a ship formerly owned by Holland America Lines - the Nieuw Amsterdam for $114 million. Through a special exemption granted thanks to their lobbying, they were allowed to register this ship in the US even though it wasn't built there. They still had to meet the requirements of staffing the ship in the US. Meanwhile, the government also granted subsidies to one of it's favorite subcontractors, Northrop Grumman who ran the shipyard responsible for building the two new ships. The two new ships were to be completed in February 2004 and February 2005.

Fast forward to October 2001. Both Northrop and ACV are in neverending mediation because both sides blame the other for problems resulting in delays that have set back construction a year to 18 months. Even worse, ACV ran out of money, claiming that the terrorist attacks ruined their bookings. The bankruptcy means the US government (meaning you, the taxpayer) needed to cover their loan guarantee to the tune of $200 million net. What does $200 million buy? Most of the hull of the first ship and a bunch of construction equipment. A rip off considering the amount of work needed to be done. Consider this - NCL bought the partial hull, the construction material, and some construction equipment for $2 million.

The ship ACV bought (the Nieuw Amsterdam) was still under mortgage from HAL, so they took it back and renamed it back to the Nieuw Amsterdam. It was later sold.

NCL is the current winner of government favor. They were granted the only exception to the "American built" provision of the law for up to three ships. The only terms left to meet are the "American staffing" terms. Their exception only allows for sailings in Hawaii. The Pride of Aloha was another ship renamed and sailed in. The upcoming Pride of America is the result of taking the first hull partially built by ACV/Northrop and bringing it to a European shipyard to be finished. - history of the Nieuw Amsterdam - A rundown
of the legislative mess (greased palms) - A nice summary of how
the Jones act affects cruises

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