Carnival Torpedoes Norfolk Homeport

Sinking feeling
The Costa Cordia of cruise terminals?

by James A. Bacon

Bad news for the City of Norfolk: Carnival Cruise Lines has confirmed its intention to pull the Carnival Glory out of Norfolk, leaving the city-owned cruise terminal, the Half Moone Cruise and Celebration Center, virtually bereft of business.

Carnival, which has experienced declining bookings and revenue, attributed the decision to a new International Maritime Organization rule that will force it to burn lower-sulfur fuel beginning in 2015, according to the Virginian-Pilot. The regs “would significantly impact our fuel costs for operating cruises from Norfolk and many other ports around North America,” the Pilot quotes Carnival spokesman Vance Gulliksen as writing in an email. It was not clear from the Pilot article why the rule would impact Norfolk more than other ports.

Offering a ray of hope, Carnival said that its experience in Norfolk had been favorable and it will “evaluate all viable options to return to Norfolk in the future.”

Meanwhile, Carnival’s decision raises issues regarding the city’s continued support for Half Moone. The city issued $32.4 million in the facility, backed by an additional $5 million from the Virginia Port Authority. Since its opening in 2007, the city has spent $9.2 million to run the terminal and cover the annual debt service. Over the same time, the enterprise generated $7.7 million, leaving the city $1.5 million in the hole.

After the earlier loss of a Royal Caribbean vessel, the departure of Carnival will leave the facility with no revenue except that generated by occasional stop-overs by other cruise ships. At least two city council members have questioned whether the city should be in the cruise terminal business. Back during May budget hearings, says the Pilot, Councilman Andy Protogyrou called the terminal a “non-performing asset,” asking whether the city could sell it or convert it to another use.  Councilman Tommy Smigiel told the Pilot that the build-it-and-they-will-come approach hasn’t worked.

But defenders of the cruise line contend that it has served well its function of stimulating economic activity. Cruiser passengers spend on average $135.50 each while in Norfolk. The total economic impact since 2007 has been estimated at $51.6 million.

Bacon’s bottom line: Past financial and economic performance is irrelevant. Norfolk officials need to ask themselves what are the odds of landing one or more cruise vessels in the future? This is no time for boosterism or wishful thinking.

I have two key questions. First, why is Norfolk more affected by the clean-fuel regs than other ports? Will that permanently put the port at a competitive disadvantage and deter cruise lines from home-porting there in the future? Second, was Carnival telling the whole story? What were the occupancy rates, revenues and profit margins for the Carnival Glory? Will the Norfolk market profitably fill the ship? Or will Carnival likely find other ports to be more lucrative?

If Norfolk officials decide there is a reasonable chance of snagging another cruise ship, they should probably hang tough. It’s hard to imagine that a terminal configured for a cruise line operation could be reconfigured for much of anything else. If the odds are grim, then City Council needs to bite the bullet and salvage whatever it can from a lousy  business decision. In either case, citizens and taxpayers should insist that city officials act more prudently in the future.

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6 responses to “Carnival Torpedoes Norfolk Homeport”

  1. farrahlee Avatar

    Carnival has also delivered the same news to Baltimore, they will remove the Pride ship in 2014. I’ve been reading that the new EPA guidelines will be in effect soon and the new fuel is costly. If a ship chooses to port in Baltimore it has a lot of miles to cover burning expensive fuel just to get to open sea outside of the 200mile range, unlike florida. I believe the EPA new rule about burning clean fuel with 200 miles of the US Coast is killing cruise business.

    1. Do the fuel regs come from the EPA? The Virginian-Pilot attributed them to the International Maritime Organization.

  2. Peter Galuszka Avatar
    Peter Galuszka

    It is the IMO. Geez, does everyone on this blog have to blame the EPA for everything? Talk about your straw man. There is an knowledgeable international community out there that can be more enlightened that the U.S. on global pollution. Guess they don’t get Fox News.

  3. larryg Avatar

    The PLOT THICKENS! Not to worry Peter. George Bush himself supported the cleaner fuels.

    if you GOOGLE the phrase ” cruise lines low sulfur fuel higher costs”

    you’ll get a variety of articles – rather than right wing propaganda that will more fully explain the issue.

    but not as clear is how that would advantage or disadvantage a particular port and that would require some good old fashioned “investigative” reporting to gain more clarity.

  4. The IMO provides a general framework for establishing Sulphur Emissions Control Areas pursuant to an international agreement that the US, particularly the EPA, pushed very hard. These areas can be very targetted and limited in their geographic reach. EPA has championed a very wide-ranging Control Area that encompasses most of our coastal areas. Because of the bathymetry of the North American continental shelf, a vessel leaving Baltimore or Norfolk for the Bahamas would be in the control area for a very long time. A vessel leaving Tampa for the southern Caribbean clears the area PDQ.

  5. larryg Avatar

    I’ve always been curious why cruise ships departed from ports North of Florida to begin with given the fact that airfare to Florida is likely cheaper than what it costs to move that same person on a ship that distance and it’s purely a transit trip with little tourist interest along the way.

    People just don’t take cruise ships to Baltimore or Norfolk when they’re looking for a Caribbean experience.

    This is one of those things that govt is woefully ill-equipped to take a hard business look at something – that even businesses will have trouble doing even with investor-grade studies – a changing/evolving environment can change opportunities – for the better or worse. Regulations are only one part of the picture.

    Other things like a wide Panama Canal or additional competition using a different business model 0r even technology for Cruise Ships could obsolete existing technology and in turn business models.

    I think ANYTIME a city or a county – want to use public money in an entrepreneurial way that involves taxes or bonds – that two things should take place:

    1. – the state should REQUIRE an independent investor-grade study conducted by a non-govt entity – much like the toll road companies conduct investor-grade studies and ignore the VDOT analyses…

    2. – once the investor-grade study is performed and released- a referenda is required for citizens to approve the use of their taxes for prospective economic development.

    In general, in Va, the foxes are in the hen house when it comes to these kinds of activities ….. whether it be cruise ship facilities, port facilities, stadiums or parking decks….etc.

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