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Thursday, May 19, 2022

Pain at the Ports as Cruise-Related Businesses Wait Out Pandemic

John Tallichet was looking forward to the opening of the new Gerald Desmond Bridge across the Back Channel at the Port of Long Beach, but when the seven-year construction effort finally wound down in October, the moment was bittersweet.

“We were excited about it, but unfortunately, there’s nothing for people to come over to right now on our side,” said Tallichet, whose restaurant, The Reef, is down the street from the former Spruce Goose dome. “It’s a ghost town over here with the Queen Mary and the cruise ships shut down.”

At the nearby Port of Los Angeles, Bob Hindle is facing a similar predicament. The two parking lots that flank the Los Angeles World Cruise Center in San Pedro, managed by Parking Concepts Inc., have been idle since the outset of the pandemic.

“It’s been awful,” said Hindle, who oversees government contracts out of Parking Concepts’ downtown office. “We’ve operated this account a little over 23 years, and 2020 has been by far the worst year we’ve ever experienced in the history of our company, and we’ve been in business about 45 years. Just to put things in perspective, during the last 12 months, we’ve probably collected less than $600,000 in revenue for this location, and in the previous 12 months we were at almost $5 million.”

Tallichet and Hindle are among hundreds of business owners and managers that make up the cruise line ecosystem at the San Pedro Bay. They were almost all left empty-handed when cruise operations were halted because of the pandemic in March 2020.

According to Marine Exchange of Southern California, a nonprofit organization that coordinates traffic at the ports and churns out daily vessel arrival and departure reports, 387 cruise ships carrying passengers docked locally in 2019. In 2020, that number was just 92.

The Port of Los Angeles saw 93 cruise cancellations last year, and the remaining 202 canceled cruises were supposed to dock in Long Beach.

Losses pile up

Each ship call contributes about $1 million to the local economy, according to Chris Chase, a marketing manager who heads cruise business development for the Port of Los Angeles.

“We lost about 100 cruise calls over the last 12-13 months, and so we’re looking at more than $100 million of lost economic development in the area,” Chase said. “The carryover effect on the different pieces of the cruise industry is pretty large because it’s like supplying a resort or a community — you have fuel for the engine that they buy here, most of the food and supplies for the hotel operations are all warehoused here or actually purchased from California growers or from food provisioning companies. And then you have all the staff who check the people in, the (union dockworkers who) load and unload the ships, security guards … so there’s a lot of different pieces of the puzzle there, all of which have been heavily impacted.”

City budgets hit

Another way to quantify the losses is to look at passenger and crew spending at the shore before and after the journey, which averaged about $86 per person per day, according to John Keisler, director of the city of Long Beach’s Economic Development Department.
The cruise terminal at the Port of Long Beach processed some 696,000 embarkments in 2019, while the Port of Los Angeles had 311,000, according to a 2020 report by New Jersey-based Business Research and Economic Advisors. With disembarkments, the volume of annual visits adds up to more than 1.3 million for Long Beach.

“That’s a lot of economic activity for us,” Keisler said. “All the restaurants, bars, hotels, little shops, attractions, everybody suffered when they shut down.”

The city’s budget took a hit as well.

Miami-based Carnival Cruise Lines has been operating in Long Beach since 2003. It has exclusive rights to the local terminal via a lease with the Port of Long Beach on the water side, while on the land side, the city operates a master lease for the area that includes the Queen Mary, the parking lots and the dome, Keisler said. Carnival also pays passenger fees — about $2.15 per person — which help offset the city’s costs related to improvements and repairs on the Queen Mary and the surrounding area.

“Basically that $2.15 is paid every time the passenger boards or exits the ship,” he said, adding that missing revenue from trips that were never realized in 2020 can add up “pretty quickly to be over $3 million. … (Carnival does not) owe us anything if they don’t collect the passenger fees, but that does become a financial hardship (for the city).”

Cruise operations at the Port of Los Angeles are structured differently. New Jersey-based Ports America, which is owned by downtown-based Oaktree Capital Management, won a contract in 2013 with the port to operate the cruise terminal in San Pedro.

“Under that agreement, we provide the terminal management and services to the Port of L.A. as well as the cruise lines that call there and get service, so everything from facilitating the movement of passengers, provision of security, screening the loading and unloading of the ships, management of the shore power systems, and the billing of dockage and wharfage fees,” said Steve Loevsky, the company’s vice president of cruise operations.

No recovery until 2022

About a dozen cruise companies dock at the port, including Princess Cruise Lines Ltd. and Norwegian Cruise Line. They generate about 3% to 4% of the port’s annual revenue, according to Chase.
“We were actually headed for a pretty solid year, probably our best year ever in Port of L.A. in 2020,” Loevsky said. “The rebound of it we’re probably not going to see in 2021 because of the extent of the shutdown, but 2022 I think is going to be a really good bounce-back year. We’re seeing similar bookings to what we had seen in 2019, but we’ve also recently gotten the great news from the Port of L.A. and Royal Caribbean line of a new service that will be doing short cruises to Mexico, to Ensenada, with Navigator of the Seas, as well as the Celebrity vessel, and that’s going to start in early 2022.”

The new contract will likely result in 90 new ship calls, he said, adding that Port of L.A. cruise operations will then be “in the ballpark with our friends over in Long Beach.”
The cruise ships, including the Carnival Panorama, have already started coming to the San Pedro Bay, but not to pick up passengers.

“We see their ships out there, and they’ve been doing maintenance and other things to ramp up, but they have not let us know what their date is to start cruising again,” Keisler said. “Part of that is contingent upon the economic reality and the consumer behavior.”

When the sailings commence, which according to industry sources could happen in August, Hindle’s parking lots and Tallichet’s dining room will be ready for guests.

“When the Queen Mary gets back open and the cruise ships get going, that will be a wonderful thing for us,” Tallichet said. “There’s a lot of pent-up demand to go out and be out and going out to dinner or going out to lunch and being amongst friends again, and we think that when we’re allowed to have events, and these restrictions are lifted, there’s going to be a lot of opportunities for us to be successful there.

Mediha DiMartino
Mediha DiMartino
Mediha DiMartino covers retail, manufacturing and the ports. She can be emailed here.

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