Cruise lines test two strategies as pollution deadline nears

The cruise industry is mounting a two-track response to new air pollution rules that threaten to make many North American cruise itineraries more expensive beginning in 2015. One response is to bet on a technology that has worked on land but is untested at sea; the other is to abandon a number of drive-market homeports.

The rules in question are known collectively as ECA, an acronym for North American Emissions Control Area, a zone that surrounds the U.S. and Canada. It generally extends up to 200 miles offshore, though it narrows around southern Florida where Bahamian waters bend its boundary.

Within ECA, starting last August, cruise ships and other large vessels can only use fuel with sulfur content below 1%, compared with 3% to 4% previously. In 2015, the allowed level will drop to 0.1%.

This can be accomplished either by using low-sulphur fuel, which is expensive and in very low supply, or by modifying the ships’ engines to reduce emissions to the required levels while burning standard bunker fuel.

A key example of the latter option is to remove sulfur dioxide and other pollutants from engine exhaust by installing “scrubbers.” But that technology is evolving, and its use will require a variance permit from the Environmental Protection Agency (EPA).
 

At the same time, the lines are already beginning to reposition ships, dropping cruises that are, or will be, less profitable under the new rules. Carnival Cruise Lines recently eliminated Boston, Baltimore and Norfolk, Va., as homeports in its 2014 schedule. Both the scrubbers and repositioning aim to avoid an increase in daily costs that CLIA has pegged at between $14 and $19 per passenger on cruises that sail entirely or mainly in North American waters.

“It’s really pretty straightforward,” said consultant Roger Blum, principal at Cruise and Port Advisors in Miami. “ECA is definitely affecting the cruise lines’ itinerary decisions.”

The low-sulfur fuel is less available, and thus more expensive. In Vancouver after the requirement was implemented, the price for low-sulfur fuel was $300 to $400 per metric ton, compared with $157 per ton for bunker-grade fuel, according to Platt’s, a trade publisher.

Most cruise lines have already set their 2014 itineraries, but in June Carnival said it would leave the Carnival Glory in Miami after November rather than sending it to Norfolk and Boston next summer.

Carnival also said it will move the Carnival Pride to Tampa in December from Baltimore, where it had been doing seven-night cruises year-round.

The decision leaves Norfolk without a ship that does turnarounds there, and it reduces the number of ships sailing from Baltimore to one: Royal Caribbean International’s Grandeur of the Seas.

In a statement, Carnival said fuel costs were a factor in the Glory and Pride redeployments.

“The 2015 North America ECA requirements would significantly impact our fuel costs for operating cruises from Norfolk and many other ports around North America,” the company said.

Carnival said its program from Norfolk is very successful, but it needed time to evaluate its ECA mitigation options.

Carnival was one of the pioneers in the late 1990s of a strategy to cut the cost of a cruise vacation by homeporting ships in regional ports to which passengers could drive rather than fly.

Some of those ports, such as Norfolk and Baltimore, are now under pressure because of the ECA, throwing the future of the drive-market strategy in jeopardy.

Sailing south from those ports to the Bahamas or the Caribbean puts ships in the 200-mile zone for a long time because they essentially parallel the coast for much of the transit.

“The longer a ship is in the ECA zone, the more expensive it is,” Blum said. “The quicker a ship can get out of the ECA zone, the less impact it will have. For a so-called marginal port, if it adds a marginal cost and they can’t recover that in revenue, for sure it will make an alternate port more attractive.”

Cruises in southeast Alaska and to New England and Canadian Atlantic destinations fall entirely within the zone.

Carnival has the most ships in what are considered to be mainly drive-market ports, including Jacksonville, Fla., and Charleston, S.C., where it plans to continue homeport operations in 2014.

Royal Caribbean said it plans to keep the Grandeur in Baltimore through at least April 2015, but it isn’t clear how the company plans to meet the stricter environmental requirements for that market.

In general, however, Royal Caribbean is pressing ahead with a scrubber solution. Its two Quantum-class ships, being built for delivery starting in the fall of 2014, will include the scrubbers, which sit between the engine and the funnel and remove key pollutants from the exhaust (see diagram at right).

Royal Caribbean has been testing scrubbers from two other suppliers on its Liberty and Independence of the Seas ships. Rules adopted by the International Maritime Organization allow for temporary relief from the tighter sulfur standards for trial technology programs.

The EPA has granted trial exemptions for six Royal ships. In addition, it has authorized an “emissions averaging” solution in certain subregions of the ECA in which Royal can use fuels with differing sulfur levels, as long as the average equivalent sulfur emissions meet the ECA limits.

Scrubbers have been used on land by factories and utilities for many years, but at sea they must be far more compact, and the effluent they produce must be stored or recycled. To remove sulfur, they spray seawater through beds of an alkaline reagent, such as lye, while the exhaust gas circulates through a chamber.

Other cruise lines are also investing in the technology.

“We are in the process of adding scrubbers to Pride of America so that the ship can continue to sail year-round in Hawaii,” said AnneMarie Mathews, a spokeswoman for Norwegian Cruise Line.

Last week, Norwegian announced it will have ECA-compliant scrubbers on its two “Breakaway Plus” vessels that are scheduled to debut starting in 2015.

At Carnival Corp., a pilot program has been launched on one ship, and it expects to add two more by the end of the year.

In a recent conference call with Wall Street analysts, Carnival Corp. COO Howard Frank said the company will begin a full rollout of the technology in 2014. Without mitigation, Carnival faces a $265 million increase in its fuel bill in 2015 as a result of ECA, according to regulatory filings.

Carnival Corp. CFO David Bernstein said that adding scrubbers will cost $1 million to $1.5 million for each engine, and several engines on each of its ships will need to be outfitted.

“We may not have every single ship equipped with scrubbers by Jan. 1, 2015, but we’ll clearly prioritize those ships that have the biggest impact,” he said.

Follow Tom Stieghorst on Twitter @tstravelweekly.