estimating the economic contribution of a cruise ship ...

Download PDF
4 downloads 899 Views 56KB Size Report
Comment
economic impacts of cruise tourism in any port of call. Key words: Cruise ... ism agencies, shipping agents, and inbound tour op- erators, have been .... gross regional product and employment). Cruise ..... and Florida, passenger spending for a home ported ship ranges ... such as chemist supplies for medical center onboard ...
Tourism in Marine Environments, Vol. 1, pp. 00–00 Printed in the USA. All rights reserved.

1544-273X/04 $20.00 + .00 Copyright © 2004 Cognizant Comm. Corp. www.cognizantcommunication.com

ESTIMATING THE ECONOMIC CONTRIBUTION OF A CRUISE SHIP VISIT

LARRY DWYER,* NGAIRE DOUGLAS,† and ZELKO LIVAIC‡ *Travel and Tourism Economics, School of Economics, University of New South Wales, NSW 2052 †School of Tourism and Hospitality Management, Southern Cross University, PO Box 157, Lismore, NSW 2477 ‡Sydney Graduate School of Management, PO Box 6145, Parramatta Delivery Centre NSW 2150

The international cruise industry has consistently recorded an average annual growth rate of 8.4% since 1980 with the fastest growth happening in the last decade. However, while the domestic market is small—some 50,000 Australians take a cruise annually—Australia’s cruise potential lies in the growing international recognition as a safe, interesting destination. Measuring the economic impact of a cruise ship’s visit is a challenging task. Consideration must be given to whether it is a port of embarkation/disembarkation or a port of call only, and the facilities and infrastructure available for both ship operations and passenger needs. This article provides estimates of cruise-related expenditure using data for Cairns in Far North Queensland. A framework for classifying cruise-related expenditure is developed. This framework can be used to estimate the economic impacts on Cairns of cruise tourism and, depending on data quality, can be used to estimate the net benefits to Cairns from this special interest visitor market. The framework is, in principle, capable of application to estimate the economic impacts of cruise tourism in any port of call. Key words: Cruise tourism; Economic impacts; Australia

Introduction

million in 2003. The Cruise Line Industry Association, the world’s biggest affiliation of industry participants, claims that in the next 5 years cruising will be worth US$85 billion. The cruise experience has one of the highest levels of satisfaction recorded by participants with over 85% of passengers indicating that they intend to repeat this experience (Cruise Lines International Association [CLIA], 2002). Factors likely to influence this strong growth in the future include:

The international cruise industry has consistently recorded an average annual growth rate of 8.4% since 1980 with the fastest growth happening in the last decade. Fifty-three million people have taken a cruise in the past 10 years, with the industry predicting that 8.6 million people will do so in 2003 in the North American market alone. The number of cruisers worldwide is expected to be 12

Address correspondence to Larry Dwyer, Ph.D., Qantas Professor of Travel and Tourism Economics, School of Economics, University of New South Wales, NSW 2052. Tel: +61 2 9385 2636; Fax: + 61 2 9313 6337, E-mail: [email protected]

1

2 •

•

•

DWYER, DOUGLAS, AND LIVAIC Rapid expansion of the product base in terms of new ships and their carrying capacity. In North American-based shipping lines alone berth capacity will go from 189,441 in 2002 to 234,158 by 2006. Constant development of new cruise areas. As mega ships monopolize the traditional cruise areas of the Caribbean, Mediterranean, and Baltic area, surplus smaller vessels are being redeployed to peripheral regional markets. The growth in the over 45 age group—baby boomers to double-income-no-kids (DINKS) to comfortable retirees. These are the markets most attracted to the cruise experience.

In the Pacific Asia region there has been strong growth in the cruise business driven by the spectacular developments of Star Cruises, the Malaysianbased company that has grown from a single converted Scandinavian ferry in 1993 to the third largest cruise company in the world. It has eight ships hubbed in a number of South East Asian countries and, with its takeover of Norwegian Cruise Line and Orient Line in 2000, is represented in all the major cruise locations of the world. It has 20 ships with 26,000 berths. There are several other smaller lines within Asia bringing the total to 32 ships. Overall there has been a 123% increase in the Pacific Asia cruise business in the past decade, albeit from a very low base. However, the Asian propensity to choose to cruise is certainly developing every year. The cruise business in Australia has recorded an interesting past 5 years, mainly with the changes of product offered by P&O Cruises Australia and the rise and fall of the Norwegian Capricorn Line (Douglas & Douglas, 2001). P&O’s latest vessel is the 1550-berth Pacific Sky, which sails some 36 times a year out of Sydney to New Caledonia, Vanuatu, and Fiji with an occasional trip across to New Zealand or down to Melbourne. Australia’s only other permanent ship is the Reef Endeavour, the 120-berth Captain Cook Cruises’ vessel based in Cairns. However, while the domestic market is small—some 50,000 Australians take a cruise annually—Australia’s cruise potential lies in the growing international recognition as a safe, interesting destination. The efforts of Cruise Down Under Inc., the cooperative marketing brand for destinations developed by port authorities, tourism agencies, shipping agents, and inbound tour op-

erators, have been successful in developing international appreciation of Australia’s appeal with itinerary planners as the increase in visits from ships in transit or being positioned “down under” for short seasons indicates. For example, Princess Cruises is positioning one of their biggest, newest ships, the 109,000-ton Star Princess, in Sydney for an eightcruise season at the end of 2003. With 2600 passengers and 1100 crew, it will be the second largest vessel ever to sail through Sydney Heads. The Research Objective Measuring the economic impact of a cruise ship’s visit is a challenging task. Consideration must be given to whether it is a port of embarkation/disembarkation or a port of call only and the facilities and infrastructure available for both ship operations and passenger needs. Most work to date has been based on a mixture of hypothetical and observational data, sample expenditure surveys, and multipliers. A 1999 study (Dwyer, 1999) estimated the economic impacts of a cruise ship visit to Cairns in Far North Queensland in two ways. The first estimate was based on the visit of a ship in transit. The figure was AUD$108,000. The second estimate was on a ship using the port as a base port. The figure was AUD$680,000. Cruising Victoria (1999) claims that a cruise ship visit to Melbourne, a transit port, injects AUD$1 million into the local economy. A recent New Zealand study found that an average port expenditure was AUD$107,000 (McDermott Fairgray, 2001). Another recent study looked at a rather different type of ship visit. Over the course of a 5-day visit to Townsville a US navy vessel injected over AUD$9 million into the regional economy in direct and indirect spending (AEC Group Ltd, 2001). Cruise Down Under Inc (CDU) has, for some years now, been in the position of fielding increasing numbers of enquires for operators looking for new destinations as a result of growing international demand for smaller, soft-adventure, upmarket niche cruises (Douglas & Douglas, 2001). While CDU has recognized that the increased awareness generated in cruising in the past 2 years needs to be capitalized on, it has also realized that it is essential that consistent and reliable economic data be made available to planners. To date economic studies on the cruise sector have been piecemeal and usually based

ECONOMIC CONTRIBUTION OF A CRUISE SHIP VISIT on estimates rather than actual data. Moreover, they have lacked a consistent framework of evaluation to compare the economic significance of cruise tourism to different regions. In 2001, CDU commissioned the authors to produce an efficient and user-friendly computer-based model for assessment of the economic impacts of cruise tourism and for forecasting the economic significance of cruise tourism to regions in different demand, supply, and policy contexts (Cruise Down Under, 2002). The specific project aims were: first, to develop a framework that indicates the key variables involved in assessing the economic significance of cruise tourism to a region; second, to test the operational validity of this framework in a case study of the economic significance of cruise tourism to the Cairns region, identifying data limitations that impede economic analysis; third, to refine the model in the light of lessons learned from the case study to improve its performance as an economic assessment and forecasting tool. The Framework Some preliminary research on development of a suitable economic assessment framework has been undertaken by Dwyer and Forsyth (1996) and Forsyth and Dwyer (1998). They conclude that such a framework will need to be comprehensive enough to be able to: • • • • •

include all of the various expenditure items associated with cruise tourism that affect economic impacts; distinguish national, state, and regional impacts of cruise tourism; account for different types of cruises with different implications for expenditure by passengers, operators, and crew; account for different types of economic impacts depending on the different ports of call associated with different cruise types; serve as a device for forecasting the economic impacts of cruise tourism under different assumptions of demand, supply, and policy contexts.

Development of a framework to assess the economic significance of cruise tourism involves six

3

major steps to be undertaken. The first step is to determine the scope of the analysis. For cruise tourism this can be national, state, or regional. Thus, for example, the expenditure associated with cruise tourism can be studied for its impact on the economy of Australia, the economy of Queensland, or the regional economy of Cairns. A region can experience positive economic impacts from cruise shipping if it serves as a transit or base port. For this study the regional economy of Cairns, because of its significance as a regional port of call on the Australian coast, was chosen as the scope of analysis. This implies that expenditure associated with cruise tourism that does not enter the economy of Cairns is irrelevant to the determination of its economic impacts. The framework presented, however, is of general scope and can be used to estimate the impacts of cruise shipping on a regional, state, or national economy. The second step is to classify the types of expenditure associated with cruise tourism because it is expenditure injections into the local economy that primarily determine the economic impacts of this type of special interest tourism. This study chose the categories devised in a report prepared for the New Zealand Tourism Board and Cruise New Zealand (McDernott Fairgray, 2001). Thus, direct expenditure is classified as: Passenger related expenditure; Crew related expenditure; Vessel related expenditure; Support expenditure. The third step is to estimate the injection of expenditure associated with each of the different categories. This is not a straightforward task as relevant data are often either poor or nonexistent. Typically, the analyst must make judgments regarding some of the monetary amounts that comprise total direct cruise-related expenditure. This exercise is important to an understanding of the framework’s operational validity in a regional context. Limitations of existing data were identified to determine what other information would be required for a viable and comprehensive economic analysis. The fourth step is to estimate the commonwealth and state taxes and charges component of gross cruise-related tourism expenditure because this amount is not retained in the local area but goes to the federal and state governments. This enables estimation of gross expenditure associated with cruise tourism net of taxes and government charges. When

4

DWYER, DOUGLAS, AND LIVAIC

the scope of analysis is national, taxes paid by foreigners are a gain for the country. The fifth step is to apply multipliers to estimate the economic impacts of cruise tourism (e.g., on gross regional product and employment). Cruise tourism expenditure has direct, indirect, and induced effects on the economy and regions within. The direct effect is on suppliers who sell goods and services directly to tourists or cruise operators. Cruiserelated expenditure is received as revenue by food and beverage suppliers, fuel suppliers, hotels, restaurants, tour and transport companies, shops, entertainment venues, port agencies, etc. In the process of satisfying the additional demand, value added accrues to the employees as wages, to the owners as profits, or to the government as tax revenue (thus constituting a source of development financing). Indirect effects result from “flow-ons” when direct suppliers purchase inputs from other firms, which in turn purchase inputs from other firms, and so on. The induced effects arise when the recipients of the direct and indirect expenditure—firm owners, managers, and their employees—spend their increased incomes, which in turn sets off a process of successive rounds of purchases by supplying industries and further induced consumption. These effects are often analyzed using multipliers derived from input– output models (Mescon & Vosikis, 1985; Price Waterhouse, 1993; PricewaterhouseCoopers, 2001). The displacement effects of increased cruise tourism should also be recognized. That is, an increase in this special interest market may come at the expense of reduced visitation and expenditure on other tourism forms. Further, an increase in net tourism demand may generate additional output in tourism and related industries but will also tend to crowd out other sectors of domestic activity. The extent of the crowding out effects will depend upon the extent of constraints on the supply of land, labor, and capital leading to higher input prices and reduced competitiveness in traditional export and import competing industries. Unless there is significant excess capacity in tourism-related industries, the primary effect of an economy-wide expansion in inbound tourism is to alter the industrial structure of the economy rather than to generate a large increase in aggregate economic activity. Its effect will thus show up as a change in the composition of the economy rather than as a net addition to activity. To

account for such effects, input–output models must be rejected in favor of computable general equilibrium models that generate smaller multipliers (Dwyer & Forsyth, 1993, 1994; Dwyer, Forsyth, Madden, & Spurr, 2000; Dwyer, Forsyth, & Spurr, 2003). There will inevitably be a leakage of expenditure associated with goods and services that are sourced from outside the region. Many products purchased by the passengers or crew are sourced from outside of the regional economy. That is to say, they are “imported” from outside the area and must be paid for in money that represents a “leakage” from the money injected into the local economy through cruise-related expenditure. For example, passengers may purchase liquor that is directly imported; apart from the productive services in importing and selling, this purchase gives rise to a leakage into imports. Similarly, fuel purchased by a cruise ship may be refined outside a local area. These leakages reduce the multiplier impact on income and employment in a region. Such expenditure does not have any impact on the regional or national economy. This would also hold for the case where cruise ships operating in North America and Europe purchase provisions through a central agent. In such cases, where the goods and services are not sourced from the local area, the expenditure does not impact upon incomes and employment in the area. A sixth step is to estimate the real costs and benefits associated with cruise tourism. Unfortunately, the distinction between “impacts” and “benefits” is often not clearly understood in the economics of tourism literature. “Impacts” on economic activity are measured by changes in GDP or similar measures, in contrast to “net benefits,” which are a measure of the gain in economic activity less the cost needed to enable this extra activity. The measured impacts on economic activity of most changes, such as increases in tourism expenditure, are normally very much greater than the net benefits, which they generate for the community (or, in other words, the measure of the extent to which they make the community better off). There are several sources of costs and benefits including externalities, unemployed resources, taxes and subsidies, monopoly practices, terms of trade effects (Forsyth & Dwyer, 1994; Dwyer & Forsyth, 1998). A recent study of the hid-

ECONOMIC CONTRIBUTION OF A CRUISE SHIP VISIT den costs of cruise shipping indicates that the impact of ship emissions into the environment, the social impact of the cruise industry on local communities, and the working conditions on ships all need to be taken account of in a comprehensive cost benefit study of this special interest tourism market (Klein, 2003). Cruise-Related Expenditure Given its importance to economic impact estimation, the components of expenditure associated with cruise tourism to Cairns deserve careful attention. Passenger-Related Expenditure This category covers all expenditure that is directly tied to the presence of a cruise passenger ship in the port of Cairns. Cairns operates as both a transit and a base port. Thus, passenger-related expenditure in Cairns includes that incurred as part of the cruise (port visit expenditure) and also that which is incurred both before and after some cruises. Key items include: Retail spending during stopover; Preand postcruise expenditure; Land-based excursions; Provedoring (food and alcohol); Local transportation; Incidental expenses; Departure taxes. The item “pre- and postcruise expenditure” needs clarification. This refers to expenditure within the Cairns region by passengers who board or leave a ship in Cairns. Some add-on expenditure is essential for the cruise; for example, accommodation, local transport, and, possibly, excursions in port before the cruise begins or following disembarkation. In a sense, this expenditure can be regarded as being “generated” by the cruise, and it is unlikely to have been made, at least to the same extent, if the cruise had not taken place. It is likely that, for many passengers, pre- and postcruise expenditure will be associated with regions in Australia other than Cairns. There is also internal travel within Australia—this is mainly done by air, though not exclusively. Australian-owned airlines will obtain a share of international airfares paid by people joining cruises. Most of this expenditure will effectively be dispersed throughout the economy. Only a small proportion of it, associated with servicing flights, will be spent at the regional level—Cairns will have flights in and out, and some expenditure will be incurred on supporting these.

5

Quantifying the expenditure flows to Cairns from airlines carrying cruise tourists is a formidable task. Such cruise-related expenditure is best subsumed under the category of “support expenditure.” Cruise passengers make direct expenditures on excursions, attractions, and shopping while their ship is in port. They also incur incidental expenses associated with visits to a doctor, foreign exchange facility, etc. The cruise operator will purchase food and beverage items to provide to passengers while the cruise is in progress. Although, strictly, such provedoring expenditure is not directly attributable to the passengers, it is on behalf of the passengers that such expenditures are made. It is for this reason that we include provedoring under passenger-related expenditure. Passengers pay various taxes while purchasing goods and services. A Federal Goods and Services Tax (GST) component (10%) is included in most expenditures. Additional taxes might include a departure tax of $30 for those who depart Australia from Cairns airport; a noise tax imposed on those who fly to Sydney; a Passenger Movement Charge (departure tax) of $38 is imposed by Australian Customs on all passengers departing Australia. Passengers transiting Australia are exempt if their stay is within 48 hours of arrival. In application any cruise ship that has more than a single port of call in Australia is charged $38.00 for each passenger on board as all passengers are deemed as having entered and departed the country. This tax is regarded by the industry as unfairly weighted against cruise ships. The taxes collected are not earmarked for return into the regional economy, and thus represent leakages from total passenger expenditure. Crew-Related Expenditure Expenditure by crew members can cover all of the categories of passenger expenditure: Retail spending; Pre- and postcruise accommodation; Land-based excursions; Local transportation; Incidental expenses. Vessel-Related Expenditure Vessel-related expenditure covers the following types of items that can be classified according to whether they apply locally or fall under the heading of state or federal taxes and charges.

6

DWYER, DOUGLAS, AND LIVAIC

Local. These expenditures can include: Port agency fees; Storage; Port charges including terminal charges; Water; Pilotage; Berthage, baggage handling, and stevedoring; Fuel bunkering; Marine engineering; Dry-dock charges; Waste disposal; Towage. Cruise operators make a range of expenditures. They pay charges associated with the use of the port. There are charges levied by the port authority, and these will include charges for the terminal used, and pilotage charges. Both port pilotage and pilotage on the Great Barrier Reef are compulsory. Towage charges for the use of tugs are paid to private operators for services provided, as are stevedoring charges. Baggage handling and stevedoring occur when Cairns operates as a base port. Port charges, towage, and stevedoring will be mainly for services that are supplied in the region and thus the expenditure will be incurred within the region. There will be some local component due to the services in actually supplying the fuel. Where the vessel is provided with stores, etc., there will be both local and national expenditure. Services purchased (e.g., waste disposal, water, electricity) come mainly from the region. While some fuel may be produced within a region, most of it will not be. Even if the local firms were paid for fuel, they will pass on most of their receipts to others outside. Apart from these expenditures, the operator will make expenditures on ship maintenance. Ship maintenance, including marine engineering and dry-dock charges, is likely to be undertaken by regionally based firms. It should be noted that ports have traditionally provided cruise lines with concessions and allowances in order to attract their business (Klein, 2003). To the extent that this occurs such amounts must be subtracted from cruise ship expenditure to determine net expenditure. State/Federal Charges and Taxes. These will vary in type and size depending on the waters cruised in and ports of call. In Queensland, Australia, these include: AMSA Marine Navigation and Oil Pollution Levy; Queensland Transport-State Conservancy; Australian Taxation Office-Freight Tax; GBRMPAEnvironmental Management Charge; Reef Pilotage. The AMSA Marine Navigation and Oil Pollution Levy is a charge levied on ships and applied to the upkeep of navigation aids around the Australian

coast. The Oil Pollution levy supports the supply and upkeep of oil spill equipment around the coast. The charge is based on a sliding scale based on the ships Nett Registered Tonnage. Rates vary between 49.5 cents per ton for a 1000-ton vessel and 18.0 cents per ton for a 72,000-ton vessel. A 10,000-ton ship would pay $4,325, a 30,000-ton vessel would pay $10,425, while a 40,000-ton vessel would pay $12,825. The MNOPL certificate remains valid for 90 days. The Queensland Transport-State Conservancy is levied at 13.90 cents per Gross Registered Tonne and remains current for 30 days. Revenue supports maintenance of navigational aids within the State. The Australian Taxation Office-Freight Tax only applies to passengers traveling between Australian ports on international passenger ships. Thirty percent of the coastal fare is taxed at 5%. The Great Barrier Reef Marine Park Authority (GBRMPA) Environmental Management Charge is levied on vessels entering the GBRMP for sightseeing/activities at $4.00 for each passenger on board. This will increased in April 2002 to $4.40 per head. Any vessel entering the GBRMP must hold a valid permit issued by the GBRMPA. The price of a standard permit is $470 for a Class 1 permit (allows for organized tour activities) up to $3350 that remains valid for 6 years. It is mandatory to carry a Reef Pilot while within the Whitsundays Marine Park or whenever traversing the Inner Great Barrier Reef route north of Cairns to Goods Island (Torres Straight). Pilotage rates vary. A major shipping agent estimates the cost to be about $900–$1000 per day plus travel expenses/GST for the Whitsundays. Pilotage for the Inner Reef (Cairns/ Goods) is estimated to be about $4664 inclusive of GST and travel expenses. These include state government charges that are levied to cover the cost of navigational services. Finally, taxes may be levied on cruise operators. These include income taxes; some operators will be exempt, due to the operations of tax agreements and the nature of their cruises. There may be customs duties payable, and departure taxes will be levied. Where the charges are for navigational facilities, and these are in the region, expenditure will come back to the region. Most taxes, however, are likely to mainly go outside the region. Most of the taxes will be collected by the commonwealth and,

ECONOMIC CONTRIBUTION OF A CRUISE SHIP VISIT to a lesser extent, the state government. There may be a flow back of some taxes (e.g., taxes such as departure taxes that are charged for services performed). Supporting Expenditure Supporting expenditure includes items such as direct payments by ship owners into Cairns, including office expenses, wages, injected funds to support passengers and crew, shipping agent commissions, and marketing expenses (these are likely to have regional and national components). Marketing expenditures incurred by the destination tourism authority can be included under this heading also. An Assessment Framework Based on the discussion above, a framework was developed that indicates the key variables involved in assessing the economic significance of cruise tourism to a region, state, or nation. The framework, as set out in Table 1, is used in the case study below. The advantages of an automated spreadsheet model include performing scenario (what-if) analysis on a per-ship or aggregate basis. For example, by repeatedly changing and testing any of the variable inputs relating to ship expenditure, it can determine the value this change has on total value added and employment. Similarly, by repeatedly changing and testing any of the multipliers or tax rates it can determine the aggregate changes on total value added and employment. Another benefit of this model results from sensitivity analysis in testing which change in expenditures, tax rates, or multipliers yields the most significant impact to a region, a state, or Australia as a whole. The usefulness of the framework can be demonstrated by means of a case study. Case Study There is little empirical information available on which to estimate the economic impacts of cruise tourism in Australia. Cruises differ considerably amongst themselves and there is no “typical” cruise. Such data that do exist are in a form that does not easily translate into the framework as exhibited above. Thus, the following results must be regarded as tentative and be treated with caution.

7

The Queensland Cruise Shipping Plan (Tourism Queensland, 2001) identifies four types of cruise ships: Adventure cruise and expedition cruise ships; Boutique cruise ships; Mid-sized cruise ships; Megacruise ships. The different types of cruise ships are associated with different expenditures in each of the four main categories: Passenger related expenditure; Crew related expenditure; Vessel related expenditure; Support expenditure. The expenditure injections will also differ according as to whether a port is a base port or transit port. Estimates of direct expenditure associated with a Cairns stopover are set out in Table 2. The estimates are for Ship X, a mid-sized cruise ship, with the following specifications: number of passengers 1050; number of crew 500; gross tonnage 44,500; net registered tonnage 19,700; star rating 5; duration of Cairns stopover, 8 am until 6 pm (10 hours). Table 1 provides estimates of expenditure associated with Cairns as a transit port. Passenger Expenditure Retail Expenditure. Based on estimated expenditure of $108 per port visit. The figure of $108 per day is an estimate based on the only known estimate of passenger expenditure in North Queensland. Richard Power Enterprises estimated daily expenditure of $82 in 1990 for Townsville. This figure has been adjusted for inflation to reflect current values. It is interesting to compare these figures with on-shore spending in Caribbean ports, which range from US$53.84 in San Juan PR to US$173.24 in St. Thomas (PricewaterhouseCoopers, (2001). The amount spent by passengers will vary according to available shopping facilities and types of products on offer. Average cruise passenger spending per port of call in the Caribbean is estimated to be US$103.83 (PricewaterhouseCoopers, 2001). Pre- and Postcruise Expenditure. Industry estimate covering 19 passengers and one crew member who boarded ship and 17 passengers and two crew members who disembarked. The figure of $2950 covers the cost of accommodation, local transport, and baggage handling. In contrast, in the Caribbean and Florida, passenger spending for a home ported ship ranges from US$14.33 for those arriving the day of the cruise to $78.91 per person per day for

8

DWYER, DOUGLAS, AND LIVAIC

Table 1 Estimated Expenditure per Day Associated With Stopover in Port of Cairns: Ship X

Expenditure Source Passenger related expenditure Retail spending during stopover Pre-/postcruise expenditure Land-based excursions Incidentals including local transport Provedoring (food and alcohol) Departure tax Crew-related expenditure Retail spending Pre-/postcruise expenditure Land-based excursions Incidentals including local transport Vessel-related expenditure Passenger embarkation charges Fuel costs (bunkering) Port dues Port Agency fees Additional Agency fees Pilotage Water Garbage Berthage Stevedoring Towage Miscellaneous expenses Dry Dock charges State Conservancy Dues AMSA Dues Supporting expenditure Direct payments by ship owners into Cairns Total direct expenditure

Expenditure per Port Call (Net of Taxes)

Federal Taxes Paid (Incl. GST)

Revenues Payable to State Govt.

Expenditure Retained in Region

$113,400 $2,950 $79,000 N/A N/A N/A

$11,340 $295 $7,900

$113,400 $2,950 $79,000

$7,500 N/A N/A N/A

$750

$7,500

$227.50

$2,275

$5.50 $100 $114 $595

$55 $1,000 $1,140 $5,959

$2,275 N/A $55 $1,000 $1,140 $5,959 N/A $4,000 $1,300 $900 $20,000 $3,875 variable $2,738.30 $7,823

$400 $130 $90 $2,000 $254

Expenditure Retained Within State

Expenditure Retained Within Australia

$4,000 $1,300 $900 $20,000 $3,875 variable $5,975

$7,823

$243,400

those on a pre/post package (Pricewaterhouse Coopers 2001). Land-Based Excursions. Estimate by FIT tour sales that land-based excursions associated with this type of cruise were not less than $79,000. Crew Expenditure Industry (Travelex) estimates that, on average, each crew member converted US$100 into Australian dollars for the Cairns stopover. It is assumed that three quarters of this (A$150) was spent per crew member in Cairns. This contrasts with US$84.15 spent, on average, by crew members in Caribbean home and transit ports of call (Pricewaterhouse Coopers, 2001).

$243,400

Vessel Expenditure • • • • •

•

Passenger embarkation charges include terminal hire, band provided, port services office (source: industry estimates). Bunkering—fuel not applicable this port. Water not applicable this port. Marine engineering, dry dock charges, provedoring can occur but not on this particular cruise. Miscellaneous vessel expenses include items such as chemist supplies for medical center onboard, extra navigation charts if required, maintenance or engineering items, mail clearance, etc. (source: industry estimates). Port dues are a charge on the ship, based on the

ECONOMIC CONTRIBUTION OF A CRUISE SHIP VISIT

•

•

• • • • • •

amount of passengers disembarked and/or embarked in the port, to cover the cost of providing navigation. State Conservancy Dues includes navigation lights, etc., and is payable to Queensland Department of Transport. These are charged only at first port of call in Queensland and are valid for 30 days. Commonwealth AMSA dues, based on tonnage and valid for 6 months, are paid at first port of arrival in Australia. For ship of 19,700 tons, amount due is $7823. GST is payable on all transactions and goes to federal government. Company taxes paid to federal and state governments. Departure taxes paid to federal government. Airport Noise Tax on flights to Sydney paid to federal government. Environmental tax on visitation to Great Barrier Reef paid to GBRMPA. Freight Tax payable to federal government.

The types of expenditure and types of taxes will vary according to destination. Supporting Expenditure Direct payments by owners into Cairns, including office expenses, wages, and injected funds. Supporting expenses can also include that of the destination marketing organization on cruise-related marketing expenditure. The latter must be counted as a cost to the region of gaining subsequent expenditure injections. In this scoping exercise no attempt was made to estimate the expenditure retained within the state of Queensland nor that (greater) amount retained within Australia. Given the difficulties of getting accurate cruise-associated expenditure data in the first place, these other tasks were not attempted. The format of Table 1, however, facilitates estimates of net expenditure to both the state and the nation as a whole from cruise tourism as well as to a smaller region. Discussion The visit by Ship X is estimated to have injected $243,400 per cruise into the Cairns regional

9

economy. Passenger and crew expenditure injection was approximately $196,000, crew expenditure $7500 with an additional $40,000 injected by vessel operators. Taking all expenditure into account, the average expenditure within Cairns generated by the cruise was $231.80 per person. Put in context, the US navy crew spent an average of AUD$376 per day (AEC Group Ltd, 2001) while the Dwyer (1999) study estimated AUD$90 per day from cruise tourists. No data were available on the extent of supporting expenditure associated with the operating expenses of the shipping line office in Cairns. Such annual expenditure would need to be averaged over the number of visits to Cairns by ships of that line and added to the data in Table 1. The estimated $243,400 injection of expenditure represents a gross amount associated with one ship. This figure may be contrasted with the figure of US$259,000 generated during a port of call visit by a typical Caribbean cruise ship carrying 2000 passengers and 900 crew members (Pricewaterhouse Coopers, 2001). The economic impacts of the visit can be determined by applying multipliers to the injected expenditure to estimate contribution to gross regional or state product. This has not been undertaken for this study. The economic impacts of cruise tourism on a destination region will depend upon the aggregate expenditure of all ships using Cairns as a port, and the relevant multiplier applied to that expenditure. The amount of leakages, which reduce the economic impacts from a given gross expenditure, will depend upon the extent to which associated goods and services are sourced from within the region or sourced from elsewhere. There is also associated the question of the distribution of these impacts, regionally and nationally. In 2001 there were 125 visits to Cairns from 18 ships. It is acknowledged here that the majority of these visits were the regular arrivals and departures of the Reef Endeavour, the Cairns-based small ship of Captain Cook Cruises. Because the ships differ with respect to size, number of passengers, number of crew, and associated expenditures, it is essential that a framework allows aggregation of expenditure while recognizing these differences. Table 2 provides a framework for aggregating the expenditure injections associated with all cruise ship visits to Cairns.

10

DWYER, DOUGLAS, AND LIVAIC Table 2 Summary of Annual Expenditure and Impacts on Cairns Economy Associated With Cruise Tourism (all Ship Visits) Passenger-Related Expenditure

Crew-Related Expenditure

Vessel-Related Expenditure

Supporting Expenditure

Total

X Y Z Gross spend in Cairns Taxes/charges federal Taxes/charges state Net spend Cairns State Australia Contribution to value-added Cairns State Australia Employment Cairns State Australia

Data Limitations Two issues must be emphasized regarding the data used in the case study. One is that some data are simply not made available to researchers. Another is that the data that are available must be treated with caution. The data problems in estimating expenditures associated with cruise tourism are indeed so severe that assessment reports contain standard clauses setting out the assumptions and limiting conditions (e.g., PricewaterhouseCoopers, 2001). Thus, the estimates in Table 1 must be regarded as indicative rather than as accurate numbers. Further, given the paucity of expenditure data relating to cruise tourism, there was little point in applying multipliers to project the effects on gross product and employment. At this time, attention must be paid to refining cruise-associated expenditure data as an (accurate) input into economic impact analysis. While limitations of data are not the exclusive province of cruise industry analysis (they are endemic to much research on tourism’s economic impacts), they do present a barrier to realization of the full potential of the framework for assessing cruiseassociated expenditures. Economic Impacts In the project that formed the basis of this article (Cruise Down Under, 2002), no estimates were made

of the economic impacts of cruise shipping to Cairns. There were two reasons for this. The first relates to data limitations as acknowledged. The second reason is that there are no input–output or computable general equilibrium models of the Cairns economy. Whatever the multipliers that are used to estimate economic impacts, they will be based on one or another of such models. While input–output models tend to generate value-added multipliers exceeding 1, recent development of a computable general equilibrium model for the state of Queensland indicates that value-added multipliers are substantially less than 1 (Woollett, Townsend, & Watts, 2001). If so, then the multiplier for a region (such as Cairns) would be smaller still, given the higher import content of cruise-related goods and services consumed regionally rather than in the wider state. Regarding employment multipliers, computable general equilibrium models project much less net job creation than do input–output models, but no such models exist at the regional level in Queensland. Cost–Benefit Analysis Because economic impacts are an essential input into cost–benefit analysis, no cost–benefit analysis was undertaken in the present study. It must be emphasized, however, that there are various “hidden”

ECONOMIC CONTRIBUTION OF A CRUISE SHIP VISIT costs of cruise tourism that must be accounted for in an overall determination of the net benefits of this sector to local communities. These include such costs as extra police deployed during cruise visits, cleanup expenses of the waters from cruise ships (black water, gray water, garbage and solid waste, hazardous wastes, oily bilge, ballast water, and diesel exhaust emissions), and wear and tear on infrastructure (Klein, 2003). Expenses incurred by the destination marketing authority would also need to be taken account of. There may be adverse social impacts on local communities resulting from cruise ship visits. Resident values are important in a cost–benefit accounting of these social impacts. A growing cruise ship industry can impact upon land prices, employment opportunities, growth of other industry sectors, and general quality of life of residents in a region. These costs must be weighed against the benefits in particular contexts, requiring case by case study.

11

ism to Cairns, it is essential that more accurate data be obtained regarding this. This type of framework is essential for policy, planning, and development of this special interest tourism market. If a region is to determine the appropriate amount of resources to allocate to the development or support of this sector (e.g., expenditure on upgrading existing facilities or investing in new, purpose-built infrastructure, or in marketing/ promotion activity), accurate information is needed on both the economic impacts and the net benefits accruing to the region from such support. This will first require estimation of the economic impacts of cruise-associated expenditure, and then adjustment of the economic impacts to identify the real costs and benefits of cruise ships to the region. In this scoping study these tasks were not undertaken. Accurate expenditure data are the basis on which economic impacts and net benefits of cruise tourism can be estimated.

Conclusions The project upon which this article is based was primarily a scoping project that does not claim to be complete in any respect. It is best regarded as a basis for further detailed exploration of the issues. It is acknowledged that different ports of call may have different types of associated expenditures and be subject to different types of taxation regimes. The framework that indicates the key variables involved in assessing the economic significance of cruise tourism to a region is capable of accommodating any number of additional expenditure related variables. While it is considered that it does capture the main variables, others can be added as required. The operational validity of this framework was tested in a case study of the expenditure associated with cruise tourism to the port of Cairns. Given the paucity of reliable data, the findings must be treated with caution. In each of the main categories of cruise-related expenditure (passenger, crew, vessel, and support), there are significant limitations in the available data. In some cases data are missing entirely. In other cases the estimates of expenditure are not based on appropriate survey or other assessment techniques. More precise and accurate data are needed if the model is to be used to generate credible results. Given the importance of passenger expenditure in determining the overall economic impacts of cruise tour-

Acknowledgements The authors would like to thank the Centre for Regional Tourism Research (Southern Cross University) and Cruise Down Under Inc. for funding assistance with this research project. The authors also wish to acknowledge the valuable comments of the journal referees, whose constructive criticisms have resulted in an improved article. Biographical Notes Larry Dwyer, B.Comm., B.A., Ph.D., is Qantas Professor of Travel and Tourism Economics at the University of New South Wales. His research interests include economic impacts of tourism. He has undertaken an extensive number of consultancies for public and private sector tourism organizations within Australia and internationally including the World Tourism Organization. He serves on the editorial boards of five international tourism journals.

Ngaire Douglas, B.A., Ph.D. (UQ), is Associate Professor, School of Tourism and Hospitality Management, Southern Cross University, Lismore, NSW, Australia. She publishes widely on various aspects of tourism in Pacific Asia and the cruise business. Consultancies include the International Development Programme of Australian Universities and Colleges (IDP), South Pacific Forum, Asia Pacific Economic Cooperation (APEC), Pacific Asia Travel Association (PATA), and Australian Federation of Travel Agents (AFTA).

12

DWYER, DOUGLAS, AND LIVAIC

Zelko Livaic, B.Bus., Ph.D., is Senior Lecturer in Management, Sydney Graduate School of Management, University of Western Sydney. He is an experienced consultant to the financial services and IT industry. His research interests include applications of game theory to industry economics and the development of a framework and indicators of destination competitiveness. References AEC Group Ltd. (2001). Economic impact assessment of a US navy ship visit on the Townsville regional economy. Townsville: Townsville Enterprise Ltd and Townsville Port Authority. Cruise Down Under. (2002). The design and development of a framework and computer model to measure and evaluate the economic impacts of a cruise ship visit to a regional Australian port. Report prepared by L. Dwyer, N. Douglas and Z. Livaic for Cruise Down Under Inc, Cairns. Cruise Lines International Association. (2002). The cruise industry—an overview (Marketing Edition, Spring). New York: Author. Cruising Victoria. (1999). The Victorian cruise shipping strategy 1998–2000. Douglas, N., & Douglas, N. (2001). The short, unhappy life of an Australia-based cruise line. Pacific Tourism Review, 5(3/4), 131–142. Dwyer, L. (1999, May). The impact of cruise tourism on the economics of Townsville and Queensland. Tourism Queensland. Dwyer, L., & Forsyth, P. (1996). Economic impacts of cruise tourism in Australia. Journal of Tourism Studies, 7(2),

36–43. Dwyer, L., Forsyth, P., Madden, J., & Spurr, R. (2000). Economic impact of inbound tourism under different assumptions about the macroeconomy. Current Issues in Tourism, 3(4), 325–363. Dwyer, L., Forsyth, P., & Spurr, R. (2003). Inter-industry effects of tourism growth: Some implications for destination managers. Tourism Economics. Forsyth, P., & Dwyer, L. (1998). Economic significance of cruise tourism. Annals of Tourism Research, 25(2), 393– 415. Klein, R (2003). Cruising—out of control: The cruise industry, the environment, workers and the maritimes. Halifax: Canadian Centre for Policy Alternatives. McDermott Fairgray. (2001). The economic impacts of cruise ship visits: 2000/01 season. New Zealand Tourism Board and Cruise New Zealand. Mescon, T., & Vosikis, G. (1985). The economic impact of tourism at the port of Miami. Annals of Tourism Research, 12, 515–528. Price Waterhouse. (1993, March). The economic impact of the passenger cruise industry on the Caribbean region in 1992. Prepared for the International Council of Cruise Lines, ICCL. PricewaterhouseCooopers. (2001, July). Economic contribution of the FCCA Member Lines to the Caribbean and Florida. Miami. Tourism Queensland. (2001). Queensland cruise shipping plan 2001. State Development, Queensland Government. Woollett, G., Townsend, J., & Watts, G. (2001). Development of QGEM-T. A computable general equilibrium model of tourism. Office of Economic and Statistical Research, Queensland Government Treasury.