By
David Mott |
In the slow climb out of recession, the market for cruising remains fragile and lines are acutely aware of external factors which could hit their financial prosperity. There are two main areas of concern: passenger compensation and stricter emission controls due to take effect in 2015. The European Union is the driving force behind both.
Though the environmental point is the potentially more expensive and imminent for cruise lines, it is passenger compensation which is currently making the headlines as a new EU regime, including enhanced consumer rights, came into force on 1 January. This new regulation has become operative less than 12 months after the Costa Concordia revived the industry’s worst nightmares of a major accident with a big ship.
The person who did more than most to usher in this new EU regulation for the cruise industry is Maria Pittordis, a partner in Hill Dickinson, who is considered a top London personal injury lawyer in the maritime field. She is also a prominent member of the International Cruise Council in Brussels, specialising in consumer rights within cruising.
High-profile passenger shipping issues like compensation are normally dealt with by external lawyers, who have traditionally been particularly attracted to cruise companies. Pittordis explains that the new EU regulation is largely based on the long-standing Athens Convention, first introduced by the International Maritime Organization as long ago as 1974 and last updated in 2002. It is still to be ratified by enough states to take effect.
Under the new law, initial compensation stands at 250,000 SDRs (Special Drawing Rights) and up to a final maximum of 400,000 SDRs (£400,000) per passenger per incident if this is not enough. This the same as in the updated Athens Convention. “The difference is that the EU regulation is now in force but the Athens Convention is not,” says Pittordis.
Improved consumer protection is the other part of the Community’s package and mostly applies to the ferry industry. But there is a section which includes a provision that lines are not able to refuse a booking from a disabled person and must charge the same price as for everybody else. This implies an adequate number of disabled cabins which are an increasing feature of new ships.
Another external lawyer, Kevin Cooper of Ince & Co, says: “Some within the shipping industry have expressed concern that the EU regulation applies independently of Athens Convention ratification and that the Community has rejected calls for a delay in the date of entry into force of its regulation.” Nevertheless, he urged European states to ratify the Convention individually “if a coherent legal framework is to be achieved.” The EU acceded to the latest convention protocol at the end of 2011. “But this does not substitute for individual ratification by member states,” says Cooper.
Cruise lines protect their liabilities with what is known as Protection and Indemnity (P & I) insurance cover underwritten by P & I Clubs, which are mutual associations. This cover is mandatory so no cruise line can operate without it. So the liability is covered, but if experience is bad, clubs may well ask for an additional call (premium) from all ships entered in their club. So there will always be an extra charge to the cruise line resulting from bad liability experience.
For the record, Costa Cruises says that at the end of last year, 80 per cent of the 3,055 uninjured guests who returned home accepted the company’s lump sum compensation offer of €11,000 per passenger. The cruise line has been informed of independent legal actions by 10 per cent of passengers, two or three of them in the United States. There were 129 Americans on board.
The threat of terrorism is something felt by all transport businesses these days and cruising is no exception. This threat takes the form of pirates, mostly Somalis, who scour east African waters looking for ships with their crews of all types to seize for ransom. Cruise ships, though hard to seize, are potentially a much more valuable prize so armed guards are placed on board by a number of passenger companies.
Philip Roche, a former deck officer in the Royal Navy who is now the joint head of Norton Rose’s global shipping group, says he feels considerable concern about these guards. “I thought they might find themselves in some legal difficulty over the terms of their employment.” But the heat was taken out of the situation when the Baltic and Maritime International Conference (BIMCO), the owners’ body, drew up a standard employment contract for such work, he says. There is also now talk of private navies patrolling the area.
The relevance of this is that under the new EU compensation arrangements, fault-based liability has been replaced by strict liability. This means carriers will be liable unless they can show that incidents resulted from acts of war, civil war, hostilities or other uninsured events.
Cooper also sees some split within the cruise industry over the way to go on sulphur emissions. Some parts of the industry still believe lines should be permitted to regulate themselves globally through IMO rather than be regulated by the EU, he says.
But when all the political and financial debate has subsided, cruise lines will still only be asking two main questions: will there be enough distillate (refined fuel) to go round; and will the network of distribution points be adequate? There have even been suggestions that lines would have to abandon certain itineraries because the right fuel would not be available.
This mood is encapsulated by Francesco Balbi, environmental coordinator at MSC Cruises, who – when asked what is being done to meet stricter limits – says bluntly: “Some emerging rules such as sulphur regulation pose questions that are extremely difficult to answer. Will low sulphur be available? Will it be in the right place?”
But he thinks he has the answer. “Together with the rest of the cruise industry, we are working closely with the IMO as well as regional bodies such as the European Union to set up a global environmental transport agenda, contributing to the creation of benchmark legislation and crafting practical solutions the cruise industry can live with.” There are now just two years to achieve this in an environment in which the cruise industry faces a wider range of legal and regulatory challenges than ever before.
This article appeared in the Autumn/Winter 2013 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.