Long-touted economic benefits of cruise ships far overstated
Second of three parts
When the Maasdam, Grandeur of the Seas and Victory I docked nearly simultaneously in Portland on Mother’s Day morning, eastern Commercial Street was a hive of activity.
Together the cruise ships had nearly 2,700 passengers aboard. By standard accounting, they supposedly spent a total of nearly $300,000 that day eating, drinking, shopping and sightseeing in the Portland area.
But there’s good reason to think they spent less than half that, and that some of it wound up in Freeport and the Kennebunks.
Cruise tourism has grown rapidly in Maine over the past decade, with ship visits to Portland more than tripling. Industry promoters and city officials have long touted the primary purported economic benefit: each passenger, on average, spending over $100 ashore every day they’re in port.
However, careful scrutiny of the study backing these claims – and the methods and assumptions it used – indicates passenger spending levels are probably less than half that, suggesting the city and other Maine ports are making decisions about whether and how much to invest in cruise ship terminals, piers and other infrastructure based on poor information.
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“It’s the same smoke and mirrors,” says Ross Klein, a social scientist at Memorial University of Newfoundland whose surveys of cruise passengers visiting Maritime Canadian ports – often on cruises that also stop in Maine – suggests that spending is far lower than that region’s cruise promotion agency has suggested.
“Communities buy into the idea that any passenger spends $100 per port of call, and they see so many dollar signs there’s no room for reason and debate,” Klein said.
The good news for Portland is that the cruise industry really does bring net economic benefits to the city, even when the city’s significant annual cruise ship infrastructure costs are taken into account. But the net effect could be as little as one-fifth of what the city and public have assumed it is.
Bar Harbor and Rockland have both been under pressure from the cruise industry to invest in maritime infrastructure, preferably piers capable of allowing large cruise ships to dock rather than anchor and ferry passengers ashore, which is expensive and time-consuming. Both towns have seen strong opposition against expanding visits by large cruise ships because of fears they would trample the community’s brand, driving away more lucrative land-based tourists.
CLOSER LOOK AT THE IMPACT NUMBERS
Portland made the decision to build the $26 million Ocean Gateway passenger terminal in 2002 – which also has a berth for the Nova Scotia ferry – without commissioning a proper study to determine the economic impacts. In 2008, months after it opened, a team of University of Maine researchers led by tourism economist Todd Gabe conducted the first and only survey of cruise passenger spending in the city.
It’s that study, released in 2009, that claimed each passenger spent $109.68, a figure that decision-makers still rely on to calculate the economic benefit. But a combination of inaccurate assumptions and methodological shortcomings led the study to greatly overestimate both passenger spending and overall economic impact, said to have been $5.8 million to $8 million in 2008, when fewer than 40,000 passengers visited the city.
Once the data and assumptions are corrected, the actual figures for that year would have been $2.2 million to $2.6 million, about two-fifths the original estimate.
City officials and residents also have not known how much taxpayers are spending each year to operate, maintain and pay for Ocean Gateway and the city’s other large cruise ship berth, the Portland Ocean Terminal on the east side of the Maine State Pier.
The Portland Press Herald/Maine Sunday Telegram conducted such an analysis for the period 2008 to 2017 and found the city rarely makes enough from passenger, berthing and other fees to pay for its bond on Ocean Gateway and operations, maintenance and periodic improvements at the facilities. It made money in just three of the 10 years – 2011, 2012 and 2016 – and did so only narrowly if revenues from the Nova Scotia ferry, The Cat, are excluded. In 2008 – the year of Gabe’s study – the facilities cost $615,405, reducing the overall net benefit that year to as little as $1.6 million.
On average over the past decade, the two facilities cost taxpayers $290,000 a year, reducing Portland’s current net annual economic benefit to around $8.3 million to $9.7 million, based on last year’s passenger level of 145,054.
There have been no studies of crew spending in Portland, but based on surveys in Canadian ports that are often visited by the same ships, their total spending is likely about a quarter that of passengers in a given year. If accurate, this might have added something like $1.7 million in net direct economic benefits last year.
But the growth in cruise ship traffic is also threatening to drive The Cat out of Portland, taking fee revenue and economic activity with it.
“There are a few days in the year where it is extremely difficult to have the ferry operating because of the size and passenger volume of cruise ship activities,” says Mark MacDonald, chairman and CEO of Bay Ferries Ltd., the Prince Edward Island company that operates The Cat, which has been considering relocating Maine operations to Bar Harbor ever since Portland unveiled a redevelopment proposal that shrinks the ferry’s loading area. “The city of Portland has a lot of demand on its prime waterfront space, so that has caused us to examine alternatives.”
If The Cat departs for good, the city will lose about $200,000 of Ocean Gateway’s revenues, according to city records, 25 seasonal terminal employees and 12 Maine resident members of the vessel’s crew, according to Bay Ferries. MacDonald says ferry passenger surveys indicate they spend 75,000 person-nights in Maine each year, a figure that would likely translate to hundreds of thousands of dollars in southern Maine hotel spending.
Finally, the University of Maine study showed that about 8.5 percent of passenger shoreside spending takes place in Freeport, the destination of a popular bus excursion package offered by all the cruise lines. Other passengers board buses for Kennebunkport or Cape Elizabeth, so spend less of their time and money in the city itself.
The bottom line: Cruise tourism is making money for the city, but not as much as everyone thinks.
CITY: GOOD INVESTMENT, NO NEGATIVES
But profit is profit, and city officials say they, residents, business people and developers have all been happy with it.
“There’s no question that the growth in cruise ship tourism has supported the economic vitality and growth of business investment in the Old Port and India Street area,” says the city’s economic development director, Greg Mitchell, who thinks there’s plenty of room for cruise ship growth. “Everybody wants to be in an economically vibrant area, and the passengers have helped that.”
City Manager Jon Jennings agrees. “People really enjoy seeing the passengers coming in, because it looks like we’re living in a miniature city,” he says, noting that many passengers are also seeing Portland for the first time and may return as conventional tourists. “I am running the city more as a business to the best of our ability, and if we felt there was a negative impact on the city or its budget we would certainly be looking at that. But at this time, we feel this has been the right investment.”
Some local businesses are clearly benefiting.
After graduating from the University of Southern Maine, Khaled Habash moved to Alaska, where he eventually managed an independent tour company in Juneau, a city of 32,000 that sees a million cruise ship passengers each season. But after Ocean Gateway opened, Habash decided to return to Portland and try to run his own tour company, which sells directly to people getting off the ships and has no relationship with the cruise lines.
“I put all my chips on the table, and the gamble worked, so I decided to stay home,” says Habash, who is now also co-owner of the Maine Duck Boat and a souvenir store, the Blue Lobster. “The beauty of the ships is that by 5:00 or 6:00 at night they’re all gone, and you’ve got your downtown back for your community.”
Lynn Tillotson, president and CEO of Visit Portland, the convention and visitor promotion organization that greets and answers questions for passengers as they disembark, says there have been no tensions within her membership over the growth of the trade.
“We haven’t heard any negative feedback, and that might be because Portland is such a melting pot of visitors,” she says. “You get the feeling that it’s busier for sure when a cruise ship is in town, but it doesn’t seem like at any point any one segment or the other (of tourism) is overrunning the city.”
While smaller Maine ports are considering restrictions and moratoriums on large cruise ships, Portland wants to keep growing, especially since the terminal costs are more or less fixed. “We want to maximize the use of the pier and the infrastructure, and spreading out the use of the facility to more of the year optimizes it,” Mitchell says. “I see opportunities for growth, meaning both expanding the cruise ship season and adding more ships to our port.”
THE BUS AND EXCURSION BUSINESS
The Cruise Lines International Association declined interview requests, but in a written response to questions about the limits to future growth in Maine ports, it indicated that Portland – unlike Bar Harbor and Rockland – had built appropriate infrastructure to allow vessels to dock and unload efficiently. With that in place, the biggest constraint its member cruise lines see is that there are only 92 motor coaches available to charter in all of Maine, making it impossible to “move passengers to historical and cultural sites or excursion programs in multiple ports at one time.”
That is indeed a problem for the cruise lines, says Jason Briggs, vice president of business development at the Portland-based VIP Tour & Charter Bus Co., and one that won’t be easy to fix. The problem is that most cruise ships call during September and October, which is also the busiest time of year for VIP and its competitors because of college athletics.
“You take the University of Maine System, Saint Joe’s, Bates, Bowdoin, Colby, Unity and every other small private college scattered throughout Maine and they all have teams that need a bus,” he says. “Right now if there’s a cruise ship in town at that time of year, we’re all sold out.” And buying more buses doesn’t make business sense because the extra capacity is needed for only a few months of the year, he said, so the problem will likely persist.
But Portland does appear to be in a good position to grow its cruise traffic if it decides to, having the only dedicated large cruise ship terminal between Boston and Saint John, New Brunswick. Indeed, there is some evidence that the main reason cruise ship visits have grown so rapidly over the past decade is that the ships can save a lot of money on fuel simply by having a place to tie up for a day.
Patrick Arnold helped grow Portland’s traffic as a consultant for several years starting in 2007. He created itineraries for cruise ships that, by stopping in Portland, saved fuel by slowing sailing speeds. In just four weeks, Royal Caribbean alone saved $397,000 on its New England cruises, according to his firm’s successful proposal to assume management of CruiseMaine, the state’s cruise ship marketing entity.
Maine needs to create more lucrative shore excursions, a key profit center for the cruise lines, Arnold wrote. “When margins are higher, the cruise line is more interested to come to Maine ports and stay longer, as there are more opportunities for them to make money,” his proposal argued.
But this is also the area where local ports derive the least benefit, because cruise lines typically sell the excursions at a 40 percent to 70 percent markup and a wholesaler they hire often takes an additional cut.
“This leaves the shore excursion provider in the uncomfortable position of being paid less than $50 for a product that passengers expect to be worth $99,” Klein notes in a 2009 study. “However, disappointed passengers are likely to blame the port, not the cruise ship.”
Colin Woodard can be contacted at 791-6317 or at:
cwoodard@pressherald.com
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