Hawaiian Cruises Could Sail Away

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The West Coast’s largest cruise port may soon be forced to say bon voyage to most of its Hawaii-bound cruises.

And it won’t be a happy parting.

A proposed federal rule change being sought by an operator of inter-island Hawaiian cruises could spell disaster for the bustling cruise industry at the Port of Los Angeles, which stands to lose nearly 15 percent of its calls and millions of dollars in annual revenue.

The pending change would amend the 122-year-old Passenger Vessel Services Act and require all foreign-flagged cruise ships departing from California and headed to Hawaii to spend at least 48 hours and a third of the trip docked at a foreign port.

Currently, foreign-flagged vessels operating California-to-Hawaii cruises are required only to make quick stop at a foreign port before sailing on to the islands. The new rules would force them to overhaul itineraries and potentially extend cruises by a week or more, which experts say would make the cruises very difficult to book.

Though the change would impact all California ports, the new rule would particularly hurt Southern California since most Hawaiian cruises sail out of either Los Angeles or San Diego. In 2007, 38 cruises departed from Los Angeles bound for Hawaii and 22 left from San Diego.

Hawaiian cruises are offered at the local port by Royal Caribbean Cruises Ltd. and Princess Cruises, the Valencia-based subsidiary of Carnival Corp. & PLC, the world’s largest cruise company. The port also has regular calls from most major cruise lines.

The cruises accounted for more than $33 million in direct spending and supported 1,900 local longshore jobs, according to a Port of Los Angeles analysis.

“We’re concerned,” said Marisela Caraballo, a legislative representative for the Port of Los Angeles. “The ones who lose are the ports because we’re losing millions and millions of dollars. We’re talking about local jobs, tourism dollars, longshore jobs, vendor jobs.”

The nearby Long Beach Cruise Terminal, operated by Carnival Cruise Lines, is not expected to feel much of an impact since it primarily offers cruises to Mexico.

The government is being pressured to make the change by Norwegian Cruise Lines America Inc., which despite its name is headquartered in Miami, like Royal Caribbean and Carnival. But unlike its two competitors, it doesn’t operate cruises from Los Angeles to Hawaii. It instead operates inter-island cruises, which cater to passengers flying to Hawaii from the mainland and elsewhere.

The line maintains that business is struggling amid competition from low-cost foreign vessels leaving West Coast ports. Norwegian refused to make any executive available for comment, but issued a statement saying its request is based on achieving the goals of the Hawaii Cruise Ship Initiative, which was passed by Congress in 2003.

The initiative, which was backed by Democratic Sen. Daniel Inouye of Hawaii, sought to revive the U.S.-flagged passenger cruise ship industry amid the worldwide tourism downturn after 9/11.

Alan Yamamoto, Norwegian’s vice president of Hawaii operations, wrote a letter in December to the U.S. Customs and Border Protection agency bemoaning the competitive disadvantage his company suffers at the hands of foreign-flagged ships that do not follow U.S. labor and other laws.

“Lower cost foreign competition in the Hawaii market has unfairly hurt NCLA’s operations,” he said in the letter. “Unfair foreign competition poses an imminent threat to the remaining U.S. flag passenger vessels operating in the Hawaii trades.”


Foreign Competition

All major cruise lines, including those based in the United States, register the majority of their ships outside the United States in countries such as Bermuda or Panama in order to avoid restrictive and costly U.S. laws and regulations.

U.S.-flagged ships must employ more expensive American crewmembers, pay higher taxes and follow more restrictive licensing requirements. They also cannot have casino activity a popular feature on many foreign-flagged vessels.

Under current regulations, foreign-flagged vessels departing from U.S. ports must make stops at a foreign port, but it can be a token stop. Cruises leaving Southern California ports often stop in Ensenada, Mexico, about 50 miles south of the U.S. border, for a short time before continuing on to their destination.

Amid increasing competition in the Hawaii market from lower-cost foreign-flagged ships leaving from California, Norwegian began asking the government late last year to make the rule change. In response, the government proposed a rule change in November that would require every foreign-flagged ship leaving from any U.S. port to spend a third of its itinerary and at least 48 hours at a foreign port.

Almost immediately, port officials, politicians and business leaders nationwide began expressing outrage over the proposal. Los Angeles Mayor Antonio Villaraigosa, Gov. Arnold Schwarzenegger and the Los Angeles Area Chamber of Commerce were among those condemning the rule change.

“Implementation of this interpretive rule would have a severe and negative economic impact on several Los Angeles communities, including the loss of hundreds of good jobs at the port and in the allied industries that serve the cruise ships,” Villaraigosa said in a letter to the customs agency.

Likewise, a trade group representing several major cruise lines including Carnival and Holland America has warned of the serious consequences the rule change could have on the industry.

And since the proposed change was unveiled, the customs agency has received more than 1,000 mostly-negative comments, said Glen Vereb, chief of cargo security carriers and immigration branch in the agency’s office of international trade.

“Most people were for helping the U.S. flag industry but were against the proposal,” he said. “We’ve taken those comments under consideration. The entire final package is currently being reviewed by the Department of Homeland Security.”

Norwegian, for its part, has stuck by its position. But now officials with knowledge of the negotiations say a new rule may yet be issued, but would be scaled back to apply only to cruises between California and Hawaii a key change sought by senators from Hawaii and Alaska, which each have significant cruise industries.

Department of Homeland Security Secretary Michael Chertoff is currently reviewing the rule change proposal and is expected to issue a ruling potentially within the next few weeks, which has some port leaders worried.

“We’re not even included in the conversation,” said Arley Baker, director of communications and legislative affairs for the Port of Los Angeles. “We’re kind of being iced out of this.”

The change also could impact pending plans for a major cruise terminal expansion project. The Los Angeles port is developing plans to build two cruise terminals that could cost as much as $100 million. The terminals would not only allow the port to handle expected growth in the industry in coming years, but they would also help it accommodate the increasingly large vessels favored by many cruise lines.

Carolyn Spencer Brown, editor of industry Web site Cruisecritic.com, said the rule change would drive up costs and put so many burdens on cruise lines that many would likely just pull out of the Los Angeles market instead of changing their itineraries.

“The whole thing is so ridiculous,” she said. “I don’t think Hawaii is so strong that it’s worth the sacrifice. I think cruise lines will run away from that itinerary.”

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