Jukin’ the Cruise Stats

The Port of Sydney has posted its audited financials and a Community Update.

I think of it as “Fact vs. Fiction.”

The audited financials deal in fact and show how much money the port made in fiscal 2019 and how much it spent:

As of 31 March 2019, the Port had an annual surplus of $196,488 (compared to an annual deficit of $744,025 in fiscal 2018) and an accumulated surplus of $4,364,102.

The things I noted in particular were:

• The Port paid another $165,323 down on its debt to the Cape Breton Regional Municipality for rent on the cruise pavilion and marine terminal, bringing the total owing to $1,157,294. This is in line with the corporation’s formal repayment plan which will see it repay the balance owing over the next seven years. (The financial statement notes that the capital lease expired as of 31 March 2018 and “no lease renewal or extension was completed,” which sounds an interesting sort of situation and one I must look into.)
• As of 31 March 2019, there was $1.20 million in the trust fund (formerly known as the “Assumption Fund”) holding monies left over from the harbor dredge. (It had held $2.4 million on 31 March 2015, when the PSDC took over from the old Sydney Ports Corporation.)
• The corporation’s office rent was up 142% year/ year because it has entered into a five-year lease agreement to rent premises at 90 Esplanade (i.e. the old Fisheries Building) for $4,360 per month. (The PSDC had actually attempted to buy this building in 2015 for $800,000 but the offer was rejected by the buildings then-owner, JIJ Holdings which, instead, sold it to the CBRM solicitor’s sister and her husband for $1.2 million.) The total cost of the lease through 2024 will be $226,720.

Bottom line: the Port of Sydney seems to be in relatively good shape, although I have to note that the 2019 annual surplus, at $196,488, is lower than its CEO’s compensation ($200,000) and the CEO’s compensation accounts for 27% of all salaries and benefits, both of which which seem a little out of whack to me.

Still, all of this information is basically dry and factual.

So let’s get to the fun part.

Indirect impact

According to the Community Update, 130,379 passengers arrived in the Port of Sydney in 2018/19 and a full 92% of them — 119,949 — came ashore.

You could be forgiven for thinking that figure — 92% — is based in fact. I mean, it could be: thanks to post 9/11 security measures, cruise lines actually know exactly how many passengers disembark in any given port and how long they stay ashore.

But that 92% figure is not based on empirical evidence, it’s an “industry standard.”

The Community Update then tells us that those passengers who came ashore spent, on average, $70.01 each for a total spend of $8.4 million. (Crew apparently spent even more — $71.47 per visit for a total spend of $1.8 million.)

The update gives no source for these figures but I think it’s safe to assume they are also industry standards — as in, generated by consultants with close ties to the cruise industry.

There follows a confusing figure, “Cruise Line Spend,” which the Port puts at $14.6 million, plus an additional “Cruise Line spend per passenger,” which the Port puts at $112.24, for a “Total Cruise sector spend” of $24.8 million. The “update” offers no explanation of any of this, but that’s because it’s in a hurry to get to its headline news: the cruise industry had a total direct and indirect local economic impact worth $57 million in 2018/19.

That figure is based on a formula created by Business Research and Economic Advisors (BREA), i.e. one of those consultancies with close ties to the cruise industry.

Need some evidence of that impact? No problem.

Allison, the manager of Governor’s Pub & Eatery, says:

We see a large spike during cruise ship days in Sydney, it has been tremendous for our business. We offer a seafood special and double our staff for quick service.

Mary Pat Mombourquette of the Cape Breton Miners Museum says:

Without cruise, we would close on Labour Day. Now we are open until the middle of October. As a result, approximately 10 staff get two extra months of work.

Rodney Chaisson of the Highland Village Museum says:

29% of our visitation is from cruise ship passengers, plus they make purchases in our gift shop. The combination of traffic from cruise and Celtic Colours has allowed us to expand our season until the end of October.

This is, apparently, the best anecdotal evidence the Port of Sydney could find to support its claim that the cruise industry put $57 million into the local economy last year. I find it rather thin gruel.

Industry Standard

There’s a problem, obviously, with accepting cruise line-generated economic impact figures and using them to justify spending public money on infrastructure to benefit the cruise lines (second berths, helipads, you get the idea). It’s a problem some jurisdictions have been trying to come to grips with.

Take Maine, for instance.

For years, writes Colin Woodward in the Portland Press Herald:

Maine ports have been told that cruise ship passengers each spend a daily average of nearly $110 ashore, an economic boon that pumps tens of millions into coastal Maine annually.

The paper actually did a five-part series on the subject in 2018, concluding that while cruise tourism was making money for Portland, it wasn’t making “as much as everyone thinks.”

Then the government of Maine and its cruise industry promotion partner CruiseMaine did something innovative — they funded a $100,000 cruise study by a Portland consultancy, DPA, to get some non-cruise line-generated data.

Between 13 July and 7 November 2018, DPA surveyed 2,535 passengers and crew members from 79 cruise ship port arrivals in nine Maine ports. The vessels ranged from under 200 passengers and crew to over 6,000.

The study found that passengers spent, on average, $70 while in port (which is good, but significantly less than $110).

To calculate the economic impact for the entire state, though, per-person spending was calculated at $61.76 for passengers and $66.67 for crew because, as the authors explain:

In gauging the economic impact on Maine, only half of any spending on cruise line sponsored shore excursions is included, as not all of that spending provided to the cruise line remains in the state.

From there:

Total spending across the state is calculated by applying the average per-person spending on each shore visit to 423,000 disembarking visitors, derived from
•A 94% occupancy rate on ships at each port,
•An 85% overall disembarkation rate among passengers, and
•A 23% overall disembarkation rate for crew.

The study concludes that cruise passengers spent $29 million in the State of Maine in 2018 which, combined with “indirect” spending, generated total spending of $33 million. That’s a relatively modest $4 million in “indirect” spending.

Compare that to the Port of Sydney, which starts with 144,914 disembarking visitors based on a 92% disembarkation rate for passengers and a 43% disembarkation for crew.

The Port says the average passenger spends $70.01 and the average crew member spends $71.47 for a total of $10 million.

But think about that for a minute: that $29 million total noted above is for the entire State of Maine — nine ports. Which means the average spend per port is $3.2 million. We’re claiming visitor spending in Sydney is worth three times average spending in Maine ports?

I can’t compare the indirect economic impact figures, because the DPA report restricted itself to passenger spending while the Port of Sydney includes “cruise line spending” worth $25 million in its calculations and claims direct spending of $35 million and a combined direct and indirect economic benefit of $57 million — which means indirect spending added $22 million to the total.

Home ports

Closer to home, three Atlantic Canadian academics — Ross Klein of Memorial University (the Cruise Junkie), Brian Van Blarcom of Acadia University and Burc Kayahan, also of Acadia — have also been looking into the question of cruise tourism economic impact in this part of the world.

I wrote something about their work back in 2017, but it seems to have advanced since then. In September, they submitted a paper to the Travel and Tourism Research Association Canada Annual Conference (which was apparently held in Halifax, now I find out) entitled: “Economic Impact of Cruise Tourism in Atlantic Canada: Is Cruise Passenger Spending Exaggerated?”

They note that the economic impact estimates reported by the cruise lines “suffer from a variety of theoretical and empirical problems.”

Benefits, computed in the form of tourism spending by passengers, are commonly calculated by taking the average expenditure times the number of passengers. Ports are quick to claim that each cruise passenger spends more than $100 during a port call and then simply deduces that a cruise with 4000 passengers and 2000 crew generates revenue of $6 million (Brida and Zapata, 2010). However, as Stavanger (2012) demonstrates, 20-40% of the passengers do not leave the ship during a stop-over.

So they did their own study, drawing on data collected during the 2016 cruise season in four major Atlantic Canadian cruise ports (Halifax, Saint John, Charlottetown and St. John’s) but mainly on data collected in 2017 in Halifax. The Halifax data is actually as good as the data collected in the Maine study — between 30 April 2017 and 28 October 2017, researchers collected 2,205 surveys from “100 (75%) of the 133 cruise ships that visited the port.”

Big ship, grey day: the MSC Meraviglia in Sydney. The ship is 316 meters long, has a 4,500 passenger capacity, and lots of things to keep those passengers on board. (Spectator photo)

For the purposes of their study, the authors divided the 23 cruise lines coming into Halifax into four categories (with the blessing of the Halifax Port Authority): Mass Market, Premium, Luxury and European. This was important, because the passengers in each category have different spending patterns. Mass Market cruise visitors, it turns out, spend more than Premium, Luxury and European Line passengers, significantly more, as in $70.44 for Mass Market cruise visitors compared to $60.02 for Premium Passengers, $57.84 for Luxury passengers and $52.79 for European passengers.  (The average spend was $63.57.)

The authors say the advantage of their study over one done by BREA is that it better reflects the cruise ship “universe” in the Port of Halifax, meaning, all ship arrivals in the year:

The risk of biased results is reduced if the collected sample is representative of the population. In the BREA study, Luxury and European cruise visitors constitute 16.8% of passengers landing in early Season, yet no respondents were drawn from this group. A further bias is introduced by Mass Market visitors making up 42.7% of the cruise passengers in early season yet they are 64.4% of the early season respondents to the BREA survey…

The effect of oversampling the cruise market category, where spending is highest, is to artificially increase the overall per passenger spending.

The average spending per passenger in this study was $63.57; in the BREA study it was 31.5% higher at $83.84. The significance of this difference in per passenger spending can be illustrated for Halifax (Atlantic Canada’s largest port for cruise visits) which had 220,351 passenger visits in 2016. Using the BREA figure for average spending, total spending would be $18.4 million, using our estimate, total spending would be $14.0 million.

The authors also consider other factors that influence passenger spending and discovered that “demographic characteristics, cruise industry segment, precipitation/temperature and port order placement in cruise itinerary” all play a role. (Anecdotally, the day the 4,500-passenger MSC Meraviglia was in port was drizzly and grey and I saw hardly any passengers around town — and I was on Charlotte Street in the middle of the afternoon.)

Personally, I find this stuff really interesting and I wish the governments in Atlantic Canada would fund a study like Maine’s — especially since we clearly have academics who are ready and willing to undertake it.

Featured image: The Caribbean Princess at the dock in Sydney, 2019. The vessel’s parent company, Princess Cruise Lines, paid a US$40 million fine for a “magic pipe” that allowed the Carribbean Princess to dump oily waste into ocean waters. Spectator photo.