An initial report issued Tuesday by Commissioner Louis Sola of the Federal Maritime Commission identifies a regulatory step that addresses a critical Covid-19 fiscal impact experienced by the cruise industry generally, but most significantly by small passenger vessel operators that are largely U.S.-based businesses that almost exclusively sail U.S.-flagged vessels.
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. This required surety amount is capped at $32 million. Currently, only the smaller carriers hold a surety at an amount below the cap. It is also common for most sureties to require some form of collateral of the carrier prior to the issuance of a bond.
The proposal from Commissioner Sola, developed as part of his work leading 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 carriers. If adopted, this proposal would reduce the premiums paid for said surety and the costs associated with a corresponding collateral amount for carriers whose requests are granted. This would free up capital to allow for the payment of salaries and maintenance of the carriers’ fleets while simultaneously ensuring that sufficient funds are available to refund those customers who had purchased a ticket for a cruise that failed to sail.
Since beginning his work on Fact Finding 30, Commissioner Sola has interviewed port directors, senior executives of cruise lines and marine terminal operator companies, longshore labor 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,” said Sola. “Today’s 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 small carriers sail the Northwest coast of the U.S., many to Alaska. These carriers have a limited sailing season and have been prevented from operating for most, if not all, of this year’s operational window. As the current “No Sail Order” issued on March 14, 2020, by the Centers for Disease Control and Prevention 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.
Sola noted that one small U.S.-flagged carrier has already decided to close its business and others are struggling to deal with the loss of an entire sailing season. The loss of these business enterprises 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 United States that rely upon the income brought to them by the small cruise carriers, the loss of which would have a devastating effect,” Commissioner Sola observed. “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.”