10/05/2011 11:13 am ET | Updated Dec 05, 2011

The Key To Cruising: How A Port Project Explains An Industry

Dave Taylor has been running the Cypress House B&B in Key West, Florida for 15 years, and though he’s gotten used to increased traffic on days when cruise ships arrive -– “lost cruisers pushing baby carriages into intersections,” as he describes it –- he was dismayed when he heard the city was considering expanding its port to welcome larger boats.

“If the volume increases, I’ll be nervous for my business,” said Taylor, who describes downtown Key West as already overcrowded. “People will eventually start looking for a different place that still has the flavor they want.”

Key West has relied on steady cruise ship traffic to bolster the local economy since the first boat docked in 1969, but for many locals, the ships have been a mixed blessing. As the last American port of call for many Caribbean cruises, the island city’s dealings with cruise lines provide a window into how the multi-billion dollar industry currently engages with American ports.

Key West now welcomes roughly 800,000 cruisers annually, so the city government reacted quickly when it heard that cruise captains were worried the channel outside their port was too narrow to handle the next generation of ships: a crop of 1,100 foot, 3,500 passenger boats.

“We were getting to the point with our harbor pilots [the locals who dock ships] where we were at the limits of comfort,” said Key West City Manager Jim Scholl. “The concern is that the cruise industry will just write Key West out of the itinerary. If we want to be on the schedule, we have to increase the size of the port.”

According to Scholl, Key West businesses generate somewhere between $50 and $80 million annually from cruise passenger spending, in addition to the percentage of fees the city receives from its privately-owned port. That figure makes the potential $35 million bill for the port expansion look like a bargain. City Council members with financial stakes in local stores have been asked to abstain from votes on the project because of their financial interest in expansion.

But if the expansion is a good deal for Key West, it is an even better deal for the cruise companies that frequent the island’s port. Carnival, Disney and Royal Caribbean, which have all financed projects to expand ports or made passenger supply agreements in Caribbean countries, have not yet volunteered to defray the costs.

Michael Crye, the spokesperson for Cruise Lines International Association, explained it this way: “We have to pay for expansions and port creation in the Caribbean because those places simply can’t afford it, while American ports can.”

Bigger boats are inevitable, according to Crye. He said that larger vessels like the "New Panamax" ships -- boats built to fit the widened Panama Canal set to debut in 2014 -- will not drive the growth of cruise vessels as much as the “greening” of the industry. Cruise lines are investing in economies of scale that work on the principle that larger ships carry more passengers, which means less vessels and less environmental impact.

“For us, greener almost has to mean bigger,” said Crye.

Crye is quick to point out that American ports that have expanded to fit bigger boats have generally been rewarded for their investment to accommodate larger, "greener" ships, but such success is hardly inevitable. The city of Mobile, Alabama owes $26 million on a cruise terminal it built at the bequest of Carnival Cruise Lines before the company moved its ships to New Orleans earlier this year.

Carnival declined to comment on this story after repeated inquiries.

From Charleston to Cape Canaveral to New Orleans, popular cruise ship ports are considering financing expansions with public funding provided, at least in part, by municipalities that receive no guarantees from cruise ship operators. In other words, even with the expansion, Key West cannot guarantee it will stay on the cruise lines’ itineraries.

According to Ross Klein, a professor of social work at Florida Memorial University and the author of Cruise Ship Blues, cruise lines have spent the last decade playing ports off each other to create the best conditions possible for their changing fleets.

“Ports, unfortunately, have not learned the laws of supply and demand," said Klein. "As ports compete for business (often spurred on by the cruise industry) and increase supply, the value of each choice is diminished ... the cruise industry is in control.”

Port projects might not be so controversial if they were being funded by cruise tax dollars, but most cruise lines pay very little in taxes. The New York Times reports that over the last five years Carnival has paid an effective tax rate of 1.1 percent on $11.3 billion in profits. The company accomplishes this by operating as a shipping company under a Panamanian “flag of convenience.” For tax purposes, the “Miami-based” company is Panamanian.

But with the cruise industry set to generate record revenue this year according to CLIA, it is hard to blame coastal communities that struggle to turn down a piece of the pie, despite the costs.

Key West fields a police force proportionate to the number of people in the city when it is at its most crowded, roughly 29,000 when the biggest boats are in port -- though these numbers are hard to pin down thanks to the rapid coming and going of ships. A recent study showed the town’s roads are already overburdened. Beyond this existing pressure, in order to expand the channel for bigger boats, the city would also have to level part of a reef within the Florida Keys National Marine Sanctuary. This destruction of rare ecological systems could require an act of Congress. Still, expansion remains on the table.

“We are more concerned about bigger cruise ships than about our ability to give tourists who aren’t on cruise ships a proper Key West experience when the town is so crowded,” said Mark Songer, the president of the local advocacy group Last Stand, which opposes the port expansion. “The cruise passengers definitely bring money, but the people who stay in our hotels for a longer time pay a lot more. If we want to attract tourists we have to have priorities.”

Key West's status as an in-demand port positions it for potential profit -- or problems. Potential profit could tempt Key West into more controversy. Widening the channel may have its benefits, but it could also further involve the city in a system that is known to have pit some American communities against each other -- and it likely won’t stop Dave Taylor’s guests from whining about the traffic downtown.

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