Cruise Safety Hearing Surprises

| 07.26.13

Today's Senate Committee Cruise Safety Hearings had Two Big Surprises

Adam Goldstein (RCCL) speaks to
Jay Rockefeller at hearing

Does the U.S. cruise industry need more regulation, more federal oversight and higher taxes? At a Senate Commerce, Science and Transportation Committee hearing on July 25, committee chairman Sen. Jay Rockefeller (D-W.Va.) left no doubt that he thinks it does -- even though he found little support for his views from other committee members, and despite the industry's own substantial efforts in recent days to satisfy Rockefeller's apparent concerns. The industry also surprised the hearing by unveiling a new initiative about shipboard crime.

Congressional leaders love to call hearings where they can rant and rave about perceived injustices and abuses of the public, especially when they can focus in on things that have been the subject of lurid cable news coverage. Thus a few unfortunate cruise incidents in recent months no doubt inspired Rockefeller to call industry leaders to account for their malfeasance. The hearing's focus was cruise ship safety, encompassing everything from accidents at sea to crimes aboard ship.

The same day that he convened the hearing, Rockefeller introduced a bill in the Senate called the Cruise Passenger Protection Act of 2013. In the House, Rep. Doris Matsui (D-Calif.) and Rep. Ted Poe (R-Tex.) introduced a similar bill on Tuesday. Both bills establish new legal mandates for cruise safety, such as video surveillance on board ships and standards for reporting of crimes. These proposed new rules are in addition to the Cruise Vessel Safety and Security Act, signed into law by President Obama in 2010.

CEOs Adam Goldstein of Royal Caribbean and Gerry Cahill of Carnival Cruise Line stood up for the industry at the hearing. Adam Goldstein was brilliant, answering all the committee's questions and promising to start providing cruise industry crime reporting statistics to the public as soon as August 1 (more on that below).

Cruise industry antagonist Ross Klein was the "state's witness" for the committee, while Mark Rosenker, who retired in 2009 from heading the National Transportation Safety Board, spoke on behalf of Cruise Lines International Association (CLIA), the industry's trade organization. Rosenker is a new appointee to CLIA's independent panel of experts on cruise safety.

Biggest Surprises of These Hearings

1) Reporting allegations of crimes onboard

The 2010 Cruise Vessel Safety and Security Act mandates that cruise ships report all crimes to the FBI and the Coast Guard, who would maintain a public web site listing these crimes for the benefit of the public. At the last minute, however, it was decided to limit the public record to cases that were investigated and closed by the FBI, which has jurisdiction over crime on the high seas.

The cruise industry already reports all crime reports it receives to the FBI, but the bureau decided that it would be imprudent to publicly disclose non-adjudicated allegations of cruise ship crimes because there is a presumption of innocence in this country, and because it could affect ongoing investigations.

But all of this is about to change. Royal Caribbean's Goldstein told the committee that starting as soon as August 1, all cruise lines will list all reported crimes aboard their ships on a publicly available database.

This came as a shock to me, since it seems highly prejudicial to report mere allegations of crimes to the general public. Of course I do not yet know what form these reports will take, but we shall soon see.

2) Cruise Line Tax Policies

While many corporations legally avoid paying federal taxes, Senator Rockefeller seemed determined that the cruise industry should have its own special tax laws.

It wasn't discussed much at the hearing, but as the session drew to a close, Rockefeller revealed that the committee's staff has been investigating "how the cruise industry uses a loopholes in the Tax Code to avoid paying its fair share in U.S. corporate taxes," as he put it. He told Carnival's Cahill and Royal Caribbean's Goldstein that his staff reviewed their 10K financial reports for the past seven years and found that the two companies had made over $17-billion dollars in profit during that time while paying just $218-million in corporate income taxes. "Your collective corporate income tax rate therefore comes to about 1.3 percent," Rockefeller said.

"Your companies are headquartered in the United States, most of your passengers are U.S. citizens, you use our ports, our courts and the services of the Coast Guard, and many other government agencies but because you flag your ships in other countries and maintain the fiction that you earn most of your income outside of U.S. territory, you do not pay your fair share of taxes in this country," the Senator charged. He said his staff has been working with the Finance Committee and with the Joint Committee on Taxation to develop legislation requiring the industry "to pay your fair share of taxes." Rockefeller said he will introduce that bill any day now.

I do not understand why Rockefeller left it to his closing remarks to drop this bombshell. In fact, the cruise industry has based its entire business model upon meeting the conditions of the legal tax code in place as the industry grew. Besides, it's no secret that many corporations pay little or no federal income taxes (but their employees do), although they do pay other taxes.

Overview of the Hearing

As I watched the hearing, it seemed that Rockefeller was deeply unsatisfied that no one else shared his concerns. His opening statement suggested that despite recent legislation, and despite CLIA's recent adoption of its own "Cruise Passenger's Bill of Rights" and its creation of a new, independent cruise safety advisory council, there were still too many bad things happening at sea. He brought up Carnival Triumph again, never mentioning that no one died or was injured; or that Carnival voluntarily paid for everyone's expenses and gave them compensation including a free future cruise and $500 cash; or that Carnival had followed the international safety protocol of "the ship as the lifeboat" and got everyone home safe. Nor did he mention that Carnival voluntarily reimbursed the Navy and Coast Guard for assistance rendered.

(Rockefeller seems to think the people on Triumph suffered a horrible injustice, but if you compare that cruise to the Carnival Splendor incident in 2010, it is obvious that the real misery was caused by some of the passengers, who stole from empty cabins, got drunk on stolen liquor, and caused mayhem by hoarding food. Carnival's respect for its passengers has kept it from telling the true story about what happened on that cruise.)

Questions and Answers

Rockefeller expressed disdain for the new industry initiatives, like the Cruise Passengers Bill of Rights, suggesting they have had no beneficial effects. But as Sen. Mark Begich (D-Alaska) noted, "the cruise industry's new Bill of Rights has only been in effect for two months. I think we need to give it some time to play out and see how effective it is before we just jump in and write new rules." He also expressed surprise that Rockefeller's bill designates the Department of Transportation to write the new standards for cruise safety. "Based upon my personal experience, I believe it will take the DOT three years, if they started today, to complete a new set of rules for 'passenger rights' for the cruise industry," he said.

Rockefeller also took on CLIA representative Mark Rosenker, asking him about comments by another former NTSB chief (from 1994 to 2001), John Hall, who had alleged that the cruise industry "has never been broken like the airline industry… it is watched over by paper tigers like the International Maritime Organization and has been an outlaw industry that suffers from bad actors."

Rosenker countered by putting the industry in perspective with other modes of transportation. During his six years at the NTSB, he said, "210,000 people died on our nation's highways -- 36-million accidents, 18-million injuries; 210 commercial airline accidents and incidents resulted in 10 fatal accidents for 138 fatalities. In railroads, not including the 180 people who committed suicide during [my] years, 317 people died in operational fatalities. In that same period in the cruise ship area... 18 people died, three passengers and 15 crew. None of these are acceptable but I am just asking where we really need to be looking to raise the bar of safety." Predictably, Rockefeller dismissed Rosenker as a patsy for the cruise industry.

Then the "right to medical care" on a cruise ship was raised. Oddly, Rockefeller and other industry critics do not seem to understand that cruise ships provide medical services as a courtesy, not a passenger right.

When Ross Klein -- to his credit -- said that both the Florida Supreme Court and the U.S. Supreme Court have ruled that a cruise line is not responsible for malpractice by a doctor aboard a cruise ship, Rockefeller was visibly confused, only responding "I will absorb that information to the best of my ability." Apparently it is hard for Rockefeller to admit he is proposing a mandate that Supreme Court rulings have already said is unenforceable.

Obviously, Rockefeller has one final hope before he soon retires: to "break" the cruise industry. But not in a respectful way - it has become "personal" with the Senator, who comes from one of America's richest families yet represents one of the poorest states. To me, it appears that Rockefeller won't be happy with cruise line compliance - he wants a legacy of "beating" the cruise industry.

I recalled Senator Rockefeller's disrespectful stance toward CLIA president Christine Duffy in a hearing after the Concordia incident. I recounted it in this article.

In the end

Despite the enactment of the Cruise Vessel Safety and Security Act of 2010, and despite the action taken by the cruise lines to adopt new safety regulations and a Passenger Bill of Rights, to upgrade ships, to compensate passengers and more, Jay Rockefeller still forgets that it is people like his constituents in West Virginia who have benefited from the value-oriented cruises offered by lines like Carnival. He forgets that 350,000 people in the U.S. depend upon the cruise industry for a living, and that the industry contributes some $45-billion to our economy. Mr. Rockefeller apparently won't be happy unless he can leave the cruise industry "broken" like the airlines and coal mines.

Mr. Rockefeller, as a patriot, should realize he is picking on Carnival, the most "American" of cruise lines - the one most of his constituents cruise on, the one that employs the most American dock workers and suppliers. Royal Caribbean and Carnival are both parts of larger parent companies that can easily take the majority of their business overseas (Royal Caribbean International already does). Carnival just announced it will return to Europe in 2015. Is that what Senator Rockefeller wants -- the cruise lines to take their ships overseas? He can only break the American cruise industry - not the cruise line businesses.

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