How an 1886 maritime law is holding back U.S. tourism

by Jonathan Helton, Grassroot Institute  (This article was published originally by the TravelPulse news and media website on July 9, 2021.)

Some old laws have withstood the test of time. Some haven’t.

The 135-year-old Passenger Vessel Services Act is the epitome of the latter. From the Atlantic to the Pacific, the Great Lakes to the Gulf of Mexico, the PVSA has limited America’s tourism potential, for little tangible return.

The PVSA is the passenger equivalent of the 1920 Jones Act, which requires goods transported between U.S. ports to be carried on ships that are U.S. flagged and built and mostly owned and crewed by Americans. Both the PVSA and Jones Act are intended to protect America’s domestic maritime industry and ensure there is a pool of ships and mariners available to the government during a national security crisis.

These laws sound nice on the surface, but they don’t work out in practice. U.S. shipyards that build large commercial ocean-going ships have dwindled to a mere four, which cumulatively construct only two to three commercial vessels per year.

In the case of cruise ships, though, the outlook is even bleaker. There hasn’t been a single vessel featuring more than 800 passenger berths built in the United States since 1958. The last time someone tried, in 2001, the project was an abject failure, despite millions of dollars in federal subsidies.

Half-completed in the U.S., that vessel had to be hauled to Germany for completion. Ironically named, the Pride of America is now the only large ocean cruise liner qualified under the PVSA to transport passengers between U.S. ports without having to make a stop at a foreign port as part of its itinerary. Moreover, the only reason it can do that is because Congress exempted it from the PVSA’s U.S.-build requirement.

Of course, there are several smaller U.S. cruise lines that operate PVSA-qualified ships in the river and coastal markets. But these lines aren’t fans of the law, despite it being designed to block outside competition. Several U.S. lines are on record lamenting its high costs.

So, if there is only one large ship “protected” under the law, and the passenger vessel industry at large opposes it, why bother keeping it around?

That’s exactly what U.S. Sen. Mike Lee asked just a few weeks ago. The Utah Republican has proposed three bills to either repeal or reform the PVSA, any of which could go a long way toward revitalizing domestic cruise tourism.

Cruises from New York City to Miami, without stops at a foreign port? Perhaps. But these routes don’t have a chance in the status quo. This makes the law’s cost hard to estimate, but anecdotal evidence reveals the law puts a damper on U.S. tourism.

In World War I, for example, the PVSA and other U.S. cabotage laws had to be waived for Hawaii. So many U.S. ships were pulled to transport troops that foreign ships were needed to move merchandise and people between the mainland and the territory.

Fast forward almost a century and, in 1997, a study prepared for the California State Tourism Board found that amending the PVSA would boost tourism revenue for the state, while a 2001 U.S. Senate report noted that “growth in the domestic cruise ship trade has been deterred due to the higher costs of building and operating U.S.-flagged cruise ships.”

The PVSA’s harm isn’t limited to the ocean market. When Viking wanted to start offering river cruises in the U.S. in 2015, the law would have forced it to use U.S.-built vessels that were twice as expensive as those built in Europe. Consequently, the company considered canceling its U.S. expansion. Viking will begin offering U.S. river cruises in 2022, but the PVSA is at least partly to blame for the delay.

The same goes for other U.S. routes. The PVSA has created barriers to foreign ships in the Great Lakes and limited the cruise potential of the East Coast.

The COVID-19 lockdowns of 2020 and 2021 have further underscored how the PVSA has created market distortions potentially destructive to the U.S. cruise industry.

One of its quirks requires that foreign-flagged cruise vessels — often owned by U.S. companies, such as Carnival Cruise Line and Royal Caribbean Cruises — make at least one stop at a foreign port if carrying passengers between U.S. ports.

That’s why most cruises from the lower 48 to Alaska stop in Canadian ports such as Vancouver and Victoria. Similarly, foreign-flagged vessels cruising from California to Hawaii often stop in Ensenada, Mexico. And foreign-flagged cruises from Florida to New England must stop in Canada to satisfy the law’s requirements.

In Canada, the PVSA is in the news right now because U.S. efforts to repeal or reform the arcane law are being driven partly by Canada’s ban on cruises stopping at its ports until March 2022, due to COVID-19 fears.

During 2020, Canada’s ban hadn’t mattered because U.S. COVID-19 restrictions had virtually crushed Alaska’s cruise-dependent tourism industry on their own. But as U.S. restrictions began to ease, all hopes that Alaska tourism would revive for 2021 were dashed when Canada announced it intended to keep its ban in place for an additional year.

This is when Alaska officials realized that it was the PVSA that now stood in their way, blocking large cruise liners from making trips between Seattle and the Last Frontier.

One summer without cruise tourism revenue was hard. Two would have been a death knell for dozens of small businesses. “The survival of our communities is really on the line right now. … Not everyone will survive,” one Juneau business owner predicted in early March.

After negotiations with Canada fell through, Alaska’s congressional delegation introduced legislation to waive the PVSA. In an amazingly quick and bipartisan effort, the Alaska Tourism Restoration Act was approved by Congress without objection and signed by the president in late May.

While this waiver was essential to help save the 2021 Alaska tourism season, it is telling when a law has to be waived during emergencies to avert further disaster.

As Keli‘i Akina, president of the Grassroot Institute of Hawaii, wrote about Jones Act waivers, “If a shipping law that ostensibly protects ‘national security’ has to be waived every time there’s a crisis, maybe the problem is the law itself.”

Oddly enough, most of the voices opposed to Lee’s PVSA bills aren’t from the United States, but from Canada. That’s because cruise vessels in the Alaska trade bring about $2.2 billion a year to the country’s tourism industry — additional money that could be spent in Alaska if the cruise ships didn’t have to stop in Canada.

Even if the PVSA was repealed or reformed, travel writer Bruce Parkinson believes that “cruise ships will still make stops in British Columbia, simply because of their desirability for guests.”

But the market, not an outdated law, should decide these stops. As Sen. Lee said, “The PVSA is bad economics and bad law.” His bills are the perfect opportunity to update the PVSA for the 21st century.