Carnival Cruise Lines will partially reimburse the U.S. Government

Maritime Articles

In the face of an escalating public relations nightmare, Carnival Cruise Lines has announced that it will reimburse the U.S. Government for a portion of the costs incurred for rescuing its disabled cruise ships. The Triumph and Splendor experienced problems at sea, which left thousands of passengers adrift in international waters without power or plumbing for days. The disasters triggered a spate of lawsuits, as well as negative news coverage that may affect the cruise company’s ability to attract future customers.

It doesn’t help that cruise companies are known for evading U.S. taxes and regulations by registering ships in foreign countries. According to Democratic U.S. Senator Jay Rockefeller of West Virginia, Carnival Cruise Lines has used regulatory loopholes to avoid paying tax on millions in profit while abusing the generosity and goodwill of American taxpayers.

Though the cruise companies are often headquartered in the United States, its ships often sail under "flags of convenience", which allows cruise companies to claim that their ships are under the jurisdiction of another sovereign state. That way, the cruise lines do not have to pay U.S. taxes or adhere to national regulations unless the ship is docked at an American port or is still sailing within national waters. Today, the majority of ships sail under the flag of Bermuda, the Bahamas, Panama, or Liberia.

Senator Rockefeller wrote a strongly worded letter to Carnival Corp. CEO Micky Arison, pointing out that the U.S. Coast Guard has provided invaluable assistance to Carnival ships for the last 5 years, which amounted to 90 recorded events. The Triumph and Splendor incidents already cost the taxpayers $4.2 million—which is just a drop in the bucket when the rescue costs for the other incidents are taken into account.

"These costs must ultimately be borne by federal taxpayers. Given that you reportedly pay little or nothing in federal taxes, do you intend to reimburse the Coast Guard and Navy for the cost of responding to either the Carnival Splendor marine casualty or the Carnival Triumph marine casualty", the senator demanded.

Carnival Cruise Lines’s senior VP of corporate maritime policy James Hunn responded in tone deaf fashion, declaring: "Carnival’s policy is to honor maritime tradition that holds that the duty to render assistance at sea to those in need is a universal obligation of the entire maritime community." He insinuated that since the cruise industry already made significant contributions to the American economy, federal assistance should be provided without hesitation. He also added that Carnival ships already adhere to international maritime tradition by helping other ships in distress at their own expense.

The angry public did not buy the cruise company’s line of reasoning, however. Memories over the latest cruise ship disasters are still fresh in people’s minds, as many lawsuits have yet to be settled.

In a bid to turn around its public image, Carnival reversed its position, stating: "Although no agencies have requested remuneration, the company has made the decision to voluntarily provide reimbursement to the federal government." The company also clarified that they never resisted the request for reimbursement, stating: "It should be clearly noted that at no point in time has Carnival stated it would refuse to reimburse federal agencies if they sought remuneration."

This means that Carnival Cruise Lines will pay an unspecified amount to help defray the costs "related to the Carnival Triumph and Splendor incidents".

The most recent incident involved the Triumph, which floated aimlessly in the Gulf of Mexico for 5 days without power or plumbing. More than 4,000 passengers were stranded, who had to endure food shortages, sleep in tents, and endure unsanitary conditions. The Splendor broke down in international waters in January 2010, subjecting thousands of vacationers to a similar nightmare. Both times, the U.S. Coast Guard came to the cruise liners’ rescue.

Some critics point out that cruise ship safety may be compromised when ship owners prefer to hire less expensive international marine officers rather than credentialed American officers and mariners to cut costs. Said Tom Bethel, president of the American Maritime Officers (AMO) union: "None of these recent [cruise ship accidents] involved an American-flagged ship and none of these incidents involved an American officer. American passengers taking cruises today, I believe, would feel a lot more comfortable and a hell of a lot safer if they knew they had American officers manning the bridge and engine rooms of these vessels".

However, this charge was dismissed as political nativism by Cruise Lines International Association (CLIA) CEO Christine Duffy, who wrote: "all crew members, regardless of nationality, undergo rigorous training before serving on a cruise ship and participate in continuous drills and exercises to hone their skills".

In the end, the problem isn’t a matter of skill or training as much as it is about accountability. The practice of sailing under "flags of convenience" has undermined maritime safety because passengers have no idea that American laws do not apply when accidents or crime occurs in international waters. When something bad happens, unlucky passengers have no choice but to hope that the flag state is serious about investigating the incident, which is usually not the case.  

"People don’t fully understand that when they sail out of U.S. territorial waters, they’re essentially in a no man’s land," noted Miami based maritime lawyer Jim Walker. "If there’s anyone overseeing the ship’s operation, it’s a country like Panama or the Bahamas".

Even though most flag states have signed the International Convention for the Safety of Life at Sea (SOLAS), which is a set of principles specified by the International Maritime Organization (IMO), enforceability is still questionable at best. As Walker explained to NBC News: "People talk about international maritime laws, but there’s no such thing as IMO law. There are no consequences when people break them".

The U.S. Coast Guard does its part by inspecting foreign flagged ships twice a year, but that is often not enough when a crime or accident occurs during international waters. The port states have a responsibility to investigate these incidents, but if there is no regulatory body that can hold port states accountable when there is a failure in prosecution or resolution.

The cruise ship industry, according to Nova Southeastern University maritime law professor Bob Jarvis "is a very fractured industry where customers are relying on the tender mercies of the businesses they’re patronizing. Because of the jurisdiction issues – the flag state, the port state, international waters – it’s just a mess".

That said, cruise ships are generally one of the safest vacation options overall. In the end, cruise companies will opt to do the right thing. As expensive as taxes, regulations, and upgrades can be; it’s still far less costly than the consequences of negative publicity.