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Paul Motter April 5th, 2013 11:47 AM

Senator Rockefeller Getting Steamed about Cruise Ships
Carnival and Arison have been getting a public lashing in recent weeks. On Friday, Rockefeller told NBC’s ‘Rock Center’ that Carnival is ‘bloodsucking off the American people and having no second thoughts about it.’

Rockefeller: Carnival response ?shameful,? will press on cruise safety

From an article at "Seatrade Insider"

Rockefeller, who chairs the Committee on Commerce, Transportation and Science, reacted to a letter from Carnival chief Micky Arison, which fielded the senator’s questions about the Triumph and Splendor fires, actions taken and lessons learned, and whether Carnival plans to reimburse the US Coast Guard and Navy for costs associated with their assistance to disabled ships.

The senator had also questioned if the cruise industry pays adequate taxes to cover the costs of various federal services it uses.

‘Carnival's response to my detailed inquiry is shameful,’ Rockefeller said in an email to Seatrade Insider. ‘It is indisputable that Carnival passengers deserve better emergency response measures than they experienced on the Triumph. I am considering all options to hold the industry to higher passenger safety standards.’

What do you all think?

Dave Beers April 5th, 2013 12:43 PM

I think it won't be soon enough for Rockefeller to retire and spend the rest of the trust fund his granddaddy left him.

First of all, the Coast Guard made the decision to send a cutter to the Triumph. I don't think Carnival requested it. Secondly, if we are to start checking the tax status of every ship, boat, and person the Coast Guard rescues we are headed down a slippery slope. What are the supposed to do, start charging a service fee before providing assistance? Scenario of a British sailboat in distress off of Cape Cod, with a married couple aboard and the husband just fell overboard..."this is the Coast Guard. We'll send out a rescue swimmer and helicopter to save your husband from drowning but since you don't pay American taxes it'll cost you $20,000. We take Visa and Mastercard." Granted this is an extreme example, but you get my drift.

I wonder what Schumer and Rockefeller would say if the big cruise lines simply left Florida and established embarkation ports in the Bahamas? I guess the only drawback would be airline support for flying to Nassau.

Paul Motter April 5th, 2013 12:59 PM

My thoughts are that the passengers are all tax-payers who fund the Coast Guard. Those are the people the coast guard are assisting, not the cruise line.

Carnival paid for its own tugs, etc etc.

It isn't as if Carnival need CG assistance every week. There are plenty of companies that operate in the US without paying federal taxes - look at all the foreign airlines.

And besides that - we HAVE a funded Coast Guard already. Isn't it their job to help people at sea in distress? It isn't as if we need to expand the Coast Guard - they would be out there anyway.

Mike M April 5th, 2013 01:05 PM

This is a very interesting topic and there are definitely two, or more, sides to the issues.

First off I have to say that Rockefeller has enjoyed the fruits of his great-grandfather's empire all his life but he publicly denounces the family fortune. However, he hasn't given all of his away. :)

The cruise industry is definitely unique in the business world and provides the most cost effective vacation to millions each year. The way they can stay so cost effective is the structure of the companies. Being incorporated outside the U.S. and having their ships registered under a "flag of convenience" allows them to pay little tax, remain free of U.S. labor laws and have less government oversight than most other businesses. What they do is perfectly legal but they take advantage of every loop hole they can in order to deliver an affordable vacation and maximize corporate profits.

Is this an abuse of the tax and labor laws? Yes: But it is abuse that many other companies do and others would love to be able to to. The more the public becomes aware of how the cruise industry operates the more backing there will be for regulation. Further incidents of mechanical breakdowns, labor issues, passenger deaths and other things will be magnified by the media and politicians in order to garner more support for regulation.

I see more regulation of the cruise industry in the near future and with this regulation will come higher fares and lower dividends to shareholders.

In five to ten years I see cruising to be a much more expensive holiday and there will be fewer choices in ships, cruise lines and atmosphere. Smaller, niche, cruise lines like Azamara, Oceania, Seabourn, Silversea and Regent will either be gone or focus on the non U.S. market. Asia looks better every day for the cruise lines.

I do believe that the times are changing for the cruise lines and I don't think they will like it.

Take care,

Dave Beers April 5th, 2013 01:26 PM

You are correct, Mike. If the government gets involved the ensuing regulations and taxes will only serve to return cruising to what it once was - a vacation that few middle class people can afford to do on a routine basis, if at all. As with all corporate taxes, the corporation doesn't pay them, their consumers do. So there goes the $199 4-night cruise.

It isn't lost on me that I am typing this on an iMac computer built in China by cheap labor, because if it were built in the U.S. few people could afford to buy them.

We have already seen many cruise line assets being moved to Asian markets because of demand. That would no doubt just gather more steam should the lines be taxed and regulated out of U.S. ports.

green_rd April 5th, 2013 04:34 PM

Carnival provides one of the most cost-effective cruise vacations out there. If Carnival is ‘bloodsucking off the American people and having no second thoughts about it.’ I'd like to know what other cruise lines are doing.

Paul Motter April 5th, 2013 05:01 PM


I fully understand your logic, but I take exception to the characterization that what the cruise lines use for their tax structure is "loopholes."

And just to be clear, I just had this conversation with Anne Kalosh from Seatrade because I don't think many people (especially journalists) understand these issues better than she.

The cruise lines operate fully within the confines of Maritime law as this country has agreed to honor by treaties with the IMO. I don't see that as a "loophole." I see that as a business model based on the law of the land - just like foreign airlines flying into all of our international hubs and BP oil platforms in the Gulf of Mexico.

A "loophole" is when you have a corporation registered in the Caymans with an opaque bank account and the only listed company executives living in foreign countries ( read Windjammer Barefoot Cruising) - like a gambling web site.

On the contrary, Carnival Corp is a NY Stock Exchange listed corp with full financial disclosure. There is nothing illegal or even exceptional about what they do. They are not hiding anything, nor are the skirting any US laws.

They don't operate any cruises they are not allowed to operate legally, and they are very fully regulated by the Coast Guard, which is the U.S. representative to the IMO, when their ships come into port here. Their crews are legal employees treated with all the rights given to them by the IMO.

The fallacy in the thinking of Rockefeller and others is that because cruise ships come into US ports that they are subject to the same rules as US-flagged ships. They are not. These are foreign flagged ships working for a US corporation with foreign assets.

If you change the tax laws on holding foreign assets then you have to change them for GE, Exxon and all the other American companies that legally do business in other nations.

If Carnival ever decides to run an "American" cruise line, then they will be subject to all of the applicable laws, just like NCL-America in Hawaii, but that is not their business model.

Paul Motter April 5th, 2013 05:11 PM


Originally Posted by green_rd (Post 1469349)
If Carnival is ‘bloodsucking off the American people and having no second thoughts about it.’ I'd like to know what other cruise lines are doing.

That is libelous statement for a Senator to make, especially one with the wealth and heritage of J Rockefeller.

His family wealth was infamous for "creative management" - eventually Standard Oil was declared a monopoly and broken up, but they "skirted" the laws by creating the "Standard Oil Trust" which was subject to completely different laws than a corporation. To me, that is a "loophole."

Ironically, one of Rockefeller's first partners in Standard Oil was Henry Flagler (the father of Miami).

My gut says J Rockefeller's motivation is more about breaking up Micky Arison than it is about the American people."

I don't see many American people complaining about the price of cruises. But the price of gasoline? That's a different story.

Dave Beers April 5th, 2013 06:19 PM


Originally Posted by Paul Motter (Post 1469359)
My gut says J Rockefeller's motivation is more about breaking up Micky Arison than it is about the American people."

If it wasn't a personal vendetta initially, it definitely has become one now. I suspect Arison wasn't sufficiently contrite when he met with Rockefeller last year and thus the esteemed senator from West Virginia now hopes to destroy Arison, and even more so given the responses Carnival provided to Rockefeller's outrageous letter demanding answers.

Mike M April 6th, 2013 08:20 AM


Originally Posted by Paul Motter (Post 1469357)

I fully understand your logic, but I take exception to the characterization that what the cruise lines use for their tax structure is "loopholes."


In my original statement I was addressing how they structure their business to handle taxes, labor laws and government oversight. I did not say they did anything illegal and they do take advantage of every opportunity to reduce costs. If you can find a way to make the the tax system or regulations work for your business you have found a "loophole". The laws are the laws and as long as they are working within the law it is fine and structuring the business to take advantage of the laws is a good business practice. Is it a practice that will go unnoticed and perhaps be changed? Initially John D. Rockefeller did nothing wrong when he created Standard Oil. However, anti-trust laws were enacted that ended his monopoly. As you pointed out; after the dismantling of Standard Oil John D. Rockefeller was richer than he had been before the break up.

The magnifying glass is on the cruise industry. Business practices and other things that many of us took for granted may not be looked upon the same way by many legislators and the general public.

Take care,

Paul Motter April 6th, 2013 11:47 AM

I know Mike, I said I understood your post.

It is just that as I watch the vernacular changing around us in the last few years, I find the word "loophole" has changed its definition. It used be considered fine by all to take a "legal deduction,"... as it was defined by the tax code.

But you did it yourself, you used the word "loophole" as if it is something that is a legal "mistake" making it functionally illegal and destined to be changed or eliminated.

Not all of us think that way. The tax code is complex, but it isn't just random. Certain parts of it exist as they are because life is complex.

Paul Motter April 6th, 2013 11:55 AM

I wouldn't characterize Rockefellers letter as "outrageous," but it sure reeks of sour grapes.

And most of all - it is typical of a person who does not understand the history of passenger ships, and the fact that the business evolved and exists solely because of the way this country accepted Maritime Law (which by the way, is almost the same way all countries view it, Britain being one exception where they have changed the tort laws to say a person can sue for some punitive damages, and they raised the limit of compensation for a death at sea).

But otherwise Maritime Law is very standardized worldwide, because it is governed by a singular world-wide organization, the IMO, which has created treaties that most countries have signed.

If Rockefeller really wants to change the way these cruise lines are treated he is facing a much deeper challenge than changing the tax code - he has to change our nation's commitment to the IMO.

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