Cruise Update: The Only Numbers We Have

The numbers connected to our cruise industry are as slippery as a quarterdeck in a Nor’easter (okay, I promise, no more nautical similes).

MS Rotterdam of the Holland America Line docked in Sydney.

MS Rotterdam of the Holland America Line docked in Sydney.

It starts as the season opens and the Port of Sydney trumpets (in the Cape Breton Post, which has never met an economic impact number it didn’t embrace without question) the number of passengers who will visit, based on how many ships are coming and how many passengers they carry. We are asked to assume a) all the scheduled ships will come and b) all will travel at full capacity.

As the cruise season kicked off in 2015, Bernadette MacNeil, the Port’s manager of marketing and development, told the Post they were expecting 73 ships carrying 99,229 passengers.

MacNeil estimated the economic impact of the 2015 cruise season at $27.7 million.

On 13 January 2016, MacNeil told the Post that the actual figures for 2015 were 70 vessels carrying 89,664 passengers. The estimated economic impact was dialed back to a more subdued $25.2 million.

The port charges a passenger tax of $8 per head, so given that 89,664 passengers arrived in Sydney in 2015, the tax total should have been $717,312.

Except it wasn’t: if you look at the Port of Sydney Development Corporation audited financial statements, dated 31 March 2016 (and therefore including the entire May-October 2015 cruise season) you’ll see that revenue from passenger taxes totaled $629,488.

Divide that by eight and it seems there were actually 78,686 passengers on board those ships—a difference of 10,978 (or, if you prefer, four visits by the Queen Mary 2) from MacNeil’s end-of-season figures, which suggests she is telling you the capacity of the ships that visited in 2015, rather than the number of passengers they actually carried.

Why inflate the number of passengers who visited Sydney in 2015? Could it be to paint the rosiest possible picture of the value of the cruise industry?

 

Industry Standards

The number of passengers who visit is important, obviously, because it is the starting point for estimating the economic impact of the cruise industry in any given season.

Let’s give the Port the benefit of the doubt and assume they start with the actual number of passengers on the ships that dock in Sydney (although pre-season estimates are obviously based on ship capacity). The next part of the calculation is “How many of those passengers disembarked?”

In a 2012 study of the economic impact of the cruise industry on the Port of Sydney, Business Research & Economic Advisors (BREA) stated:

Data collected from the cruise lines on disembarkation rates showed that 91% of these arriving passengers, or 78,862 passengers, made an onshore visit in Sydney.

Ross Klein, a professor at Memorial University in Newfoundland who studies the cruise industry, told me that “disembarkation” rates refer to the number of passengers who pass a certain point on the gangway and are considered to have left the ship, whether they visit the town or take a tour or just stretch their legs before re-embarking.

Disney Magic cruise ship

Disney Magic (Photo by [1] CC BY 2.0, via Wikimedia Commons)

Also, note the phrasing in the BREA report, “data collected from the cruise lines on disembarkation rates,” not “data collected from the cruise lines on disembarkation rates in Sydney.” This is important, as you will see in a moment.

I had the chance to ask Bernadette MacNeil about that 91% disembarkation rate during an interview on November 1. She had emailed me at the end of October to say:

Your recent articles were brought to my attention by fellow colleagues with a plea that I finally react & respond. Although I may be at risk for giving wings to inaccurate [sic] and a misrepresentation of the cruise industry, I do indeed want to offer you my time to ‘talk’ . I wish to thank you for the attention you give to the port and this industry. We see value in all work completed on cruise, good, bad, & ugly…. and you seem to have a great interest in writing extensively on its behalf.

MacNeil’s belief that I consider it my job as a journalist to write “on the port’s behalf” struck me as odd, but I was happy to meet her. She was very open and welcoming and we spoke for almost an hour, during which time I asked her about many things, including the 91% disembarkation rate found in the BREA report. She said:

Ninety-five percent is what we say.

Asked how that figure was arrived at, she explained it was “an international standard that they apply,” i.e. a number from the cruise industry that refers not to our port but to ports in general.

So, they first accept that 95% of the passengers who visit Sydney disembark and they then accept that each and every one of those disembarked passengers spends money. Moreover, they make the same calculation, albeit with lower percentages of disembarkation and spending, for crew members.

Maintaining Momemtum panel, TIANS conference, 22 November 2016

Maintaining Momentum panel, TIANS conference, 22 Nov 2016. Bernadette MacNeil, second from right. (Photo via TIANS)

BREA, in its 2012 study, said it derived passenger and crew onshore spending numbers from questionnaires placed on a “representative sample of cruise ships.” A total of 1,146 were completed by passengers who reported spending, on average, $66.92 (Canadian) while onshore. (Klein said this figure has actually been in use in the cruise industry for years.)

Crew spending was estimated at $49.41, based on 350 completed surveys about crew member’ spending in Sydney and Halifax. BREA claimed 21,666 crew went ashore in Sydney in 2012 (the executive summary I viewed did not say how many crew, in total, were aboard the ships in 2012 or what percentage this figure represented).

I questioned the validity of those onshore spending figures and MacNeil said:

Well, the direct spending is so much per passenger spent and then it’s a percentage of crew that actually disembark, they don’t all get off the ship…I think it’s 35% of the crew that disembark.

When I said that both figures are based on industry estimates, MacNeil said:

I trust that—that’s all we have, Mary.

 

Goofy’s Pool

What that means, for instance, is that when the Disney Magic docked in Sydney on 25 September 2016, carrying 2,400 people (assuming full capacity—God, even I’m doing it), the Port of Sydney takes it as given that 2,280 of them disembarked and then spent $66.92 each, or $152,577.60 total.

How plausible is that? This is a Disney cruise. Many of the passengers (surely) are children. Much of its clientele wants to dance with Mickey Mouse, attend a “Frozen deck party” (which I assume is a reference to the movie, not the temperature in the North Atlantic in September), watch ‘Tangled’ the live musical and hang out with Marvel superheroes before, presumably, drowning themselves in despair in Goofy’s pool. Would these same people be equally anxious to visit the Fortress Louisbourg and the Highland Village?

If you read the Post coverage of the ship’s visit, the reality of the benefit to the local economy seems to be bubbling just beneath the surface — the paper interviewed a number of people who got off the ship to see the Big Fiddle, experience fall and “go up to the town and see the city,” all of which, you’ll note, can be done for free.

An early indication of success was seen as several bus tours left the dock on Friday morning, full of Disney passengers in search of Cape Breton adventures.

MacNeil said those tours are a revenue generator for Disney.

That should help with the port’s goal of securing another Disney visit and get the attention of other cruise lines.

“Other cruise lines are looking at us, at how we deliver perfection to Disney, and it gives a great spotlight to our port.”

“Perfection,” for Disney (which recorded net income of $9.5 billion for fiscal year 2016) means money. If it is generating enough revenue from bus tours in Sydney to make it happy, how much can possibly be left over for locals?

That doesn’t seem to be a question anybody at the Port asks: they simply calculate 95% of 2,400, multiply by $66.92 and, voila! Direct economic impact of Disney Magic passenger spending. Do the same for the crew and you have your final direct economic impact figure, which you then use to calculate indirect economic impact, that is, the spending that each $1 of passenger or crew spending is presumed to generate. For example, if a passenger spends money on a bus tour, the bus operator buys gas; if a passenger spends money on a meal, the restaurant owner buys the ingredients; if a crew member buys deodorant, the owner of the drugstore pays heat and lights and insurance and taxes and the salary of the clerk who sold it.

In 2012, using Nova Scotia’s input/output tables for economic impact, BREA calculated that $9 million in cruise passenger and crew spending had generated $21 million in overall economic impact, driving spending and creating jobs in all the sectors listed in the table below:

 

Total Cruise Industry Impacts Sydney 2012 (Table)

 

Local Impact

How hard would it be to calculate actual, local figures for the direct economic impact of the cruise industry? What if, for example, we began with the actual number of passengers who disembarked, rather than using the industry’s 95% figure? Post 9/11, security on cruise ships is such that they not only know how many people left the ship in Sydney, they know exactly how long they stayed ashore. So let’s get those figures.

Next, how hard would it really be to survey local shop owners, bus owners, taxi drivers and tourist operators to come up with a better estimate for cruise ship passenger spending? Sydney is not that big and the list of excursions outside Sydney a) is not that long and b) consists mostly of Parks Canada and Nova Scotia Museum sites.

You’d start by surveying the “upwards of 55” crafters who rent tables in the Joan Harriss Pavilion on cruise days. Some are there every cruise day (for which they are rewarded with cheaper table rental rates) while others prefer to pay more to pick and choose the ships they’ll show up for. (Think about what that means—some crafters don’t consider it worth their while to be there for all the ships; if disembarkation and spending rates were as high as the industry insists, would this really be the case?)

The fair is overseen by one staff person whose job is seasonal, so that direct impact is pretty easy to calculate.

There are nine boutiques in the pavilion which MacNeil says were “selected based on what we know would sell to cruise line passengers, really nice, unique stuff.” These are open during the cruise season, on cruise days.

There are two tour companies—Ambassatours Gray Line and Atlantic Cruise Ship Services—both Halifax-based, responsible for onshore excursions. (Klein says cruise lines generally charge a 50% commission on such excursions but that number can be as high as 90%.)

MacNeil explained their pricing process this way:

…the supplier…would be the Highland Village, the Fortress Louisbourg, the Bell Museum, the Old Sydney Society. They negotiate with the tour operator…They come up with a price and then that tour is priced and brought to the cruise line, by way of the operator, the cruise line then marks it up—and they get the most profit, so then it still has to be at a price point that’s going to be affordable enough for the cruise ship passenger to buy it from the cruise lines. I’m the first one to say, and I have been vocal in saying, it’s a very corporate industry and if we are naive to think that’s it’s not, we would not be successful.

I asked about the percentage of passengers who take onshore tours and this is the exchange we had:

A: Forty-five to fifty-five percent will take an organized shore excursion. That’s the statistic that has been in play for quite some time. Now, in the last year and a half that’s dropped to 30%.

Q. When you say “that’s the stat that’s been in play”…

A: It means that cruise lines share that with us. And tour operators, who are in contact with the cruise line, would be able to support that. So in other words, there are two operators that conduct business in the Port of Sydney and that’s Atlantic Cruise Ship Services and Ambassatours Gray Line. And so, they could tell you, from their statistics, how many go where.

And we know from looking at the cruise ships schedule, we track the actual counts, so they know how many went on their buses and they know that percentage of how many actually went on tours from the ship itself.

Q. So you’ve got those numbers?

A. Yes, tour operators have them. If I wanted them, I could get them.

Q. And wouldn’t you want them? I would want them.

A. …we get them in general terms but that is their business, their private business…

Q. But…if you’re going to make a business case to the city, to the governments, that we need a $20 million second berth, those are the kind of numbers you have to have. You have to say, ‘This is how many people take tours. This is how many people visited Louisbourg.’ You have to have these numbers, presumably.

A. …I can get them, I didn’t put them in the business case for the second berth.

Q. Why not?

A. …I’m not sure why not….[the] cruise industry is about the total economic impact, which we have faith in those numbers.

Basically, MacNeil is saying she puts her faith in the numbers the cruise lines give her and feels no need to dig any deeper.

Sydney, N.S. harbor, aerial view

Sydney, N.S. harbor, aerial view (Photo by Abebenjoe, Own work, GFDL, via Wikimedia Commons)

She accepts the numbers calculated based on “international standards” for disembarkation and spending. When I continued to question those numbers she told me she’d ask Ambassatours Gray Line and Atlantic Cruise Ship Services for numbers about tours taken for the past four seasons and provide them to me. I told her that would be excellent.

On November 22 she wrote me to say:

Tour numbers were received from tour operators, however we have been asked to keep them confidential due to competitive reasons of their private businesses.

Yes, heaven forbid tour operators shuttling passengers from the $10 million cruise pavilion we built to the parks and national historic sites we fund should have to reveal how much they’re making at it, even if that information is germane to our decision to spend another $20 million on a second berth (that will add to their business). What was I thinking?

 

A Farewell to Cruise?

Another argument in favor of the second berth is that without it, we will not be able to welcome larger cruise ships and will therefore have to kiss our cruise industry good-bye. This is from the January 2016 Port of Sydney “update” to the community:

As cruise ships become increasingly larger, the challenges of ‘tendering’ passengers (loading them onto smaller boats to come ashore) becomes more difficult and time-consuming. The Port of Sydney currently has a proposal for a $20.1 million expansion to allow for the simultaneous docking of two or three cruise ships. This capacity would make our port more attractive to cruise industry decision makers.

There is no certainty that this is true and a number of facts that suggest it is, if not untrue, at least dubious:

      1. According to Klein, some cruise lines will actively avoid ports in which one or two other ships are docked.
      2. In the case of Sydney, where ground transport is at a premium at the best of times, having docking facilities for three ships would not guarantee we could handle passengers from three ships. MacNeil said there is a “proposal” (I’m not clear from whom) to create a “not-for-profit” bus company — basically a “bus bank” — that tour operators throughout the Maritimes could tap into once local bus reserves had been exhausted. MacNeil insists the cruise lines would pay for these buses, but given that cruise lines don’t like paying for anything, I’m wary. Moreover, moving buses between Halifax and Sydney and Charlottetown and St. John would not be cheap or particularly convenient. Moreover moreover, the cruise industry is not generating enough local business to prompt any private sector operator to launch such a business — what does that tell you?
      3. The larger the cruise ship, the more it is a world unto itself. The arrival of a 2,400-passenger ship like the Disney Magic, designed precisely to keep children happily occupied while their parents drink, does not necessarily mean great things for local tourism. This is where actual figures for how many people disembarked from that ship and took tours would be helpful.
      4. During the 2015 cruise season, there were precisely 7 days when there was more than one ship in Sydney harbor.

 

 

If You Build It

At several points in our discussion, MacNeil reminded me that cruise is just one factor in the “business case” for the second berth.

The second factor is the “other” business the second berth will attract.

“…we’ve turned down business that we’ve tracked for…project cargo and bulk,” said MacNeil, putting the value of that lost business at $500,000.

Now, the first time I heard that $500,000 figure was at the Port of Sydney AGM last spring. During her presentation, Port CEO Marlene Usher said that the port has had to turn away so much business due to lack of docking capacity that they “thought they should be writing it down.” She then estimated that lost business (without any time frame) at $500,000. This figure is dubious to begin with but without a time frame, it’s worthless. (To put it in perspective, in 2015, the cruise business and all other business generated $523,562 in berthage and wharfage fees for the Port.)

And then there’s this: of the 57 boats scheduled to call in Sydney in 2015, 38 (67%) arrived in September and October and the number of days when there were two or more ships in Port was seven — that is 14% of cruise days; 1.9% of all days in 2015. How often, realistically, does the Port of Sydney have to turn down business?

MacNeil pointed to Imperial Oil, whose tankers, which bring “all the fuel oil to Cape Breton,” must sometimes wait to dock.

I asked if she was suggesting Imperial Oil would go elsewhere with our fuel oil and she said no, but that waiting on standby “adds to their operating costs.” (Imperial Oil, for the record, earned $1 billion in Q3 2016.)

When I asked how often they have to wait on standby, MacNeil said:

“You could speak to Imperial Oil.”

And yes, I could, but why should I have to? If the Port of Sydney is using Imperial Oil’s need to wait to deliver fuel to bolster its case for a second berth, surely the Port of Sydney knows how often this happens? Without actual figures as to how often it happens, this is not much of an argument for a second berth. In fact, even with actual figures, spending $20 million in public money to reduce an oil company’s operating costs is a terrible argument for just about anything. (Having a tank farm in the city’s “historic North End” is also a pretty bad idea, when you come to think of it, but one beyond the scope of this article.)

Norwegian Majesty in Sydney, N.S. harbor.

Norwegian Majesty in Sydney, N.S. harbor. (Photo by freshfighter9, Public domain, via Wikimedia Commons)

MacNeil told me that I was the first person she had ever encountered who questioned the business case for the second berth, the implication being that I am some sort of crank who must be humored (which, obviously, I am).

Her final argument in favor of spending $20 million on a piece of port infrastructure was that it would, in and of itself, be an engine of economic growth. Isn’t that, I asked, an “if you build it they will come,” sort of argument?

That would be your way of looking at it, I don’t look at it that way at all.

Ross Klein told me that Sydney needed to have a “sober discussion” about the benefits of the second berth, but I’m afraid it may be too late. If last Thursday’s Post story is to be believed, the second berth is an all-but-done deal. We seem poised to dump $20 million into the harbor as a sort of leap of faith. In fact, faith is precisely the word MacNeil used to describe her belief in the economic benefit of the cruise industry, and she wondered at my lack of it. As a journalist, she asked me, don’t you “have to have faith that what you’re being told is the truth?”

To which the answer is obviously, no, that’s kind of the opposite of what journalists have to do. Putting blind faith into the self-serving numbers provided by multi-billion corporations is not something anyone should do.