Bargaining as one

The managing director of a Caribbean-based hospitality consultancy is urging regional countries including Central America to come together and form the Organisation of Tourism Economy Countries (OTEC) as a means of negotiating as a cartel from a position of greater strength with the cruise lines.

Robert MacLellan, who is also a former vice-president of an explorer cruise line, said Caribbean countries should learn a lesson from the Organization of Petroleum Exporting Countries (OPEC). Those countries came together 60 years ago in a bid to get a fair price for oil, their main source of national revenue. “As a result of their joint stronger bargaining power, oil prices have risen relatively steadily from US$1.63 per barrel in 1960 to an average of around US$77 during the last ten years,” he wrote.

MacLellan said that the weak negotiating position of individual Caribbean governments versus the massive cruise line corporations, relative to port taxes, poses similarities to OPEC’s situation “and the same potential ‘rebalancing’ strategy should now be pursued in the Caribbean.”

“Currently, when individual countries try to increase port taxes, they are threatened with being dropped from cruise itineraries and can be picked off one by one by the powerful cruise lines.”

He said from a better bargaining position, state or national governments with single destination cruise itineraries – Alaska, Bermuda and Hawaii – have already negotiated higher cruise port revenues than those in the average Caribbean country.

“Cruise ships stay two nights in Bermuda and pay at least US$50 per passenger. For mainland United States and Canada cruise itineraries, an average of 33 per cent of the cruise ticket price goes to port taxes, compared to an average 14 per cent for a Caribbean itinerary. By negotiating together, governments in the Greater Caribbean region can achieve similar results to these destinations with higher port taxes.”

MacLellan said that a recent statement from the Antigua and Barbuda government had summarised the history and current situation of regional cruise taxes. He said in 1993, Caribbean Community (CARICOM) countries initially agreed to impose a minimum US$10 port head tax for cruise passengers but this was never implemented because of internal disagreements. He said present head taxes in the Caribbean range from US$18 in the Bahamas and The British Virgin Islands to as low as US$1.50 in the Dominican Republic.

“Imagine the economic benefit if these cruise tax rates could be increased and standardised across the region at the higher levels listed. One directly relevant and current challenge could be addressed – the current sky-high airport and air ticket taxes in the region could be reduced to help increase the volume of stay-over visitors in the Caribbean.”

MacLellan said that stay-over travellers, whether intra-regional or from outside the Caribbean, spend very much more than cruise ship passengers and generate considerably more local employment than the cruise ship business model, which he said is now highly exploitative of Caribbean countries. “An increase in stay-over visitors drives the development of more hotels and marinas, as well as many other forms of real estate and tourism infrastructure investment. Reduced air ticket prices keep intra-regional airlines, like LIAT, flying and increases the number of airline seats into Caribbean destinations from the rest of the world.

“The cruise industry business model has changed radically and aggressively in the last 15 years and should no longer be viewed as an ideal “partner” for the countries of the Caribbean,” he said, noting that the present port taxes are not adequate compensation for the overcrowding of downtown areas, the pollution from the burning of heavy fuel oil and the minimal spend ashore of cruise ship passengers.

“The mega-ships now have multiple shops, casinos, restaurants and bars offering all-inclusive packages that totally distract passengers from spending ashore. In the last 20 years ships’ commissions on shore excursions have risen from 10 to 50 per cent, discouraging passengers from going ashore at all and squeezing any possible profit margin for local tour operators. Today, over 80 per cent of a cruise ship passenger’s discretionary spend is on board.”

He said that most cruise ships enjoy a double high season – Caribbean for less than six months and the balance of the year in Alaska or the Mediterranean – operating virtually free of corporation taxes and with very low wage bills.

“The largest ships cost less than US$300,000 per cabin to build, while new hotel rooms in the Caribbean cost double that figure per room to develop and have only one high season. The cruise ship’s highly competitive business model and the further recent growth of cruise tourism in the region might be viewed as a direct disincentive for resort investment and reinvestment in the Caribbean.”

MacLellan said the total number of cruise ship passengers was over 27 million world-wide in 2018, up nearly ten per cent from two years earlier. “In the next ten years, 106 new ships are expected to enter service and, currently, over 50 per cent of the world’s cruise fleet is based in the Caribbean for the winter. The hugely profitable cruise industry can afford to absorb higher port taxes in the Caribbean and will do so, once faced with a stronger negotiating entity,” he argued. (CMC)