Four Significant Challenges Confronting the Cruise Industry

¶ … 21st century, significant challenges confront the modern cruise ship industry. The four most prominent are industry concentration resulting in a lack of product diversification, an ever increasing expansion in the tonnage of ships requiring further investment in port facilities, a limited number ports of call producing tourist over-crowding and an environmental record that demands improvement and may be an expensive source of litigation. Through an understanding of these issues, the cruise ship industry can ensure its viability looking forward.

The cruise ship industry is dominated by four major companies: Carnival Lines, Royal Caribbean, Norwegian Cruises and MSC Cruises. The remaining 4% of the industry which is not controlled by these behemoths faces significant challenges to operate. A modern ship able to carry thousands of passengers can cost over 1 billion dollars and takes 4 years to launch from order to delivery. Due to this high buy-in cost, this phenomenon results in a non-competitive industry in which four companies only need to match the amenities and booking prices of the other three companies. Furthermore, it leads to product homogenization as everyone simply looks to hold and grow their market share rather than to radically change the product (i.e. The cruise ship experience) as smaller more competitive companies would seek to do to gain customers. In the years ahead, if the industry hopes to draw in new customer populations it is important that steps be taken to facilitate competition and innovation in the industry.

Another major development facing the cruise ship industry is the dramatic expansion in the tonnage and passenger capacity of ships. The new RCC Freedom of the Seas is being built at 160,000 Gt. with 3,643 lower berths. This change in the size and carrying capacity of newer ships will demand expansion of port facilities to accommodate both the larger ships and the increased resources that must be delivered to these ships (i.e. food, water, waste disposal and sewage treatment to name a few). Whether this investment will come from the industry itself or from port countries is a significant point of contention that must be resolved.

A third area of concern for the cruise ship industry is over-crowding both in regards to ships and tourists. There are only so many islands to visit and harbor facilities that can accommodate ships of the current magnitude. This results in significant demands on existing port facilities to manage multiple ships as well as an overcrowding of port cities and attractions when multiple ships arrive. This can result in decreased tourism as customers may look elsewhere to visit tourist attractions without the throngs of fellow tourists surrounding them. Two steps that could be taken would be to develop new ports of call and to establish some system of organization between cruise ship companies to better manage ship traffic reducing the strain on any one port.

Finally, an issue that has received little attention in the industry is that of environmental impact. The small islands that cruise ships visit are particularly sensitive to environmental degradation in light of the thousands of visitors and the significant demands of the ships themselves in terms of water and waste disposal. Eventually, ports will reach a maximum capacity that will either require further investment or will simply be un-modifiable based on either local politics or environmental reality. Furthermore, the industry has extremely poor environmental self-monitoring. In 1999, Royal Caribbean paid U.S.$18 million in fines for the illegal release of hazardous waste and then lying about it in its records. As nations and states such as Hawaii and Alaska adopt more stringent environmental regulations it will inevitably drive up the operating costs in these markets as well as negatively influence customer perspective of the industry.