WASHINGTON -- The Federal Maritime Commission (FMC) is requesting
industry and public comments on a proposal to raise its bonding
requirements for cruise lines.
Cruise lines sailing from U.S. ports are required to post a bond
or other surety to protect passenger deposits in the event of
nonperformance, with a $15 million ceiling.
In a rulemaking notice, the commission is proposing to eliminate
the ceiling, effectively requiring larger cruise lines to post
In the FMC's proposal, cruise lines would be responsible for
coverage based on the total amount of passenger funds on hand for
future cruises (the so-called "unearned passenger revenue"), except
for revenue received from credit card charges made within 60 days
The FMC said it recognized the elimination of the ceiling could
impose "tremendous cost and difficulty" on some cruise lines, which
is why it proposed excluding the credit card revenue.
Historically, the FMC has been hesitant to change the bond
ceiling -- it was last raised in 1991 -- because the cruise
industry has been stable; bankruptcies have been rare; and the risk
of cruise line nonperformance was deemed to be minimal.
But the cruise climate has changed in the past two years, and
five lines covered by the FMC bond program, plus two that were not
covered, have stopped operating.
In several of those cases, passengers had difficulty collecting
their deposits for voyages that never sailed. Premier Cruises'
surety bond, for example, fell about $7 million short of its
unearned passenger revenue.
And most of American Classic Voyages' passengers did not receive
compensation because the line was self-insured.
In August, the FMC eliminated self-insurance as a coverage
Operators point out that the $15 million requirement covers only
a fraction of large lines' deposits, even though smaller operators
with less than $15 million in unearned revenue already are
And, as fleets continue to grow, the percentage of unearned
revenue covered by the bond continues to shrink.
In its request for comment, the FMC said even raising the
ceiling by another $10 million "would be wholly inadequate for some
cruise lines whose fleets consistently have outstanding [unearned
revenue] in the hundreds of millions of dollars."
The FMC has asked for comments on this issue, Docket No. 02-15,
be submitted before Jan. 8. For more information, visit www.fmc.gov.