FEDERAL MARITIME COMMISSION

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FACT FINDING INVESTIGATION NO. 30

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COVID-19 IMPACT ON CRUISE INDUSTRY

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INITIAL REPORT – LICENSING AND BONDS

June 30, 2020

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Table of Contents

I. Summary.................................................................................................................................. 3

II. Investigatory Method........................................................................................................... 4

III. Preliminary Observations..................................................................................................... 5

A. Bonds [Large and Medium Size Passenger Vessel Operators]........................................ 5

B. Bonds [Small Passenger Vessel Operators] ..................................................................... 6

IV. Next Steps............................................................................................................................ 7

V. Conclusion ........................................................................................................................... 8
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I. Summary

In April, the Federal Maritime Commission (FMC or Commission) initiated a fact-finding

investigation (Fact Finding Investigation No. 30 or FF30). The Order of Investigation1 directed 

Commissioner Sola to investigate and respond to the current challenges impacting the cruise 

industry and the U.S. ports that rely on it. As an initial step in carrying out this mission, a 

concerted effort was made to contact the leadership at key ports across the United States, as well 

as trade associations, individual business enterprises related to the industry, and labor 

organizations. These conversations led to the creation of various consultative panels and a 

determination to divide the mission between a review of immediate and long-term needs and

then, if possible, offer solutions to any observable problems. Initial panel member discussions 

revealed a pressing need to explore the possibility of regulatory reform in limited areas to assist 

the small business enterprises and the sailing public during the difficult financial times wrought 

by the current pandemic. This initial report is intended to address one of those concerns.

Much media attention has been focused upon the financial health of passenger vessel operators

(PVO) and their ability to survive the economic pressures brought to bear by the inability to sail 

for much of the year. It is therefore not surprising that these concerns along with consumer 

protection were front and center during the initial discussions presented to the consultative 

panels. Initial investigations revealed that the smaller PVOs tend to be the carriers with the most 

limited sailing seasons and therefore were the most heavily impacted by the current no sail order 

issued by the Centers for Disease Control and Prevention (CDC). Indeed, it was reported that 

due to the CDC order and the limited sailing season, some carriers would not sail this year. 

Discussions were focused on what the Commission might do to assist the PVOs without placing 

consumer interests at risk. This question led to an analysis and evaluation of the financial 

instrument, most commonly performance bonds, that PVOs are required to have to be issued a 

certificate by the FMC. 

The PVO program administered by the Commission (46 U.S.C. §§ 44102-44103), requires 

evidence of financial responsibility for vessels which have berth or stateroom accommodations 

for 50 or more passengers and embark passengers at U.S. ports and territories. Certificates of 

performance cover financial responsibility used to reimburse passengers in the event their cruise 

is cancelled.2 The Commission’s regulations at 46 C.F.R. § 540.5 provide that the amount of 

coverage generally required shall be in an amount determined by the Commission to be no less 

than 110 percent of the unearned passenger revenue (UPR) of the applicant on the date within the 

two fiscal years immediately prior to the filing of the application which reflects the greatest 

amount of unearned passenger revenue. 

1 Order of Investigation, Fact Finding Investigation No. 30, COVID-19 Impact on Cruise Industry (FMC April 30, 

2020), https://www2.fmc.gov/readingroom/docs/FFno30/ffno30_ord.pdf/. 2 Federal Maritime Commission 58th Annual Report for Fiscal Year 2019 (FMC 2020, p. 26), 

https://www.fmc.gov/wp-content/uploads/2020/04/58thAnnualReport.pdf. 
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The analysis of this program was facilitated through the use of consultative panels comprised of 

some of the most senior executives of both U.S. and foreign flagged cruise lines, the chief 

executives of ports across the United States which service the lines, consumer advocates,

longshore labor leaders, and members of the insurance industry. The ability of certain lines to be 

able to compensate consumers without the need to call upon the bonds filed with the 

Commission was of great interest.

In order to better evaluate this requirement, surveys were conducted of representative carriers to 

determine the extent of current exposure wrought by the current CDC no sail order. This review 

helped reveal both the true expense of the performance bonding requirement and its ability to 

adequately protect the consumer. The panels attempted to identify how often claims against the 

bonds had been filed historically and what the claim rate might be going forward. 

Executive Order 13924 states that “Agencies should address this economic emergency by 

rescinding, modifying, waiving, or providing exemptions from regulations and other 

requirements that may inhibit economic recovery, consistent with applicable law and with 

protection of the public health and safety, with national and homeland security, and with 

budgetary priorities and operational feasibility.” 3 Concerns about the fiscal burden the bonding 

requirement places upon the carriers were weighed against the benefits to the sailing public. 

II. Investigatory Method

Commissioner Sola met with several PVOs of varying sizes, both individually and as 

representative groups. Small PVOs have been most eager to discuss their financial instrument

situation and Commissioner Sola has heard a range of experiences from small PVOs. 

Questionnaires were sent out to a randomly selected group of carriers equally representative of 

large, medium, and small PVOs. Questions focused on areas related to:

• Nonperformance financial instrument on file;

• Current ability to refund unearned passenger revenue (UPR);

• Ability to fully refund passengers in a normal operating environment;

• Collateral PVOs are required to provide for their financial instruments;

• Premiums PVOs are required to pay for financial instruments; and

• Internal process for refunding passengers due to nonperformance.

3 Executive order 13924, Regulatory Relief to Support Economic Recovery (The White House May 19, 2020), 

https://www.whitehouse.gov/presidential-actions/executive-order-regulatory-relief-support-economic-recovery/. 
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III. Preliminary Observations

A. Bonds [Large and Medium Size Passenger Vessel Operators]

To date, the study has the following observations to offer:

The study found that of the PVOs reviewed, all indicated that at time of their response, their 

unearned passenger revenue was significantly higher than the amount required to be bonded by 

the FMC (maximum $32 million per cruise line4). 

• All large PVOs also indicated that they have the funds to fully refund all unearned 

passenger revenue.

• More than one large PVO indicated that 100% of UPR is being kept as cash or its 

equivalent and available for refunds for nonperformance, which is in line with their 

capability during normal operations. 

No PVOs reviewed in this category are required to provide collateral for their financial 

instruments. One PVO indicated that though they do not currently have to provide collateral, 

their financial instrument holder has the right to request it under certain circumstances. 

PVOs are required to pay a premium on their bonds at varying levels ranging anywhere between

$200,000 and $600,000. 

Every PVO reviewed in this category brought up prior situations, such as the 2008-2009 

financial crisis and shipboard health incidents, to point out that there has never been a situation 

when a cruise line, backed by the appropriate financial instrument as required by the FMC, have

failed to honor refund requirements. The questionnaires stress that “ New refund protection 

requirements that increase cruise line working capital requirements or necessitate ticket price 

increases will weaken cruise operators’ financial soundness, increasing risks of failure on an 

industry-wide basis, possibly making it more, rather than less, likely there could be a failure of 

the system.”

When individual PVOs were asked by the study to suggest means by which the Commission 

might address the situation, the following responses were received:

• “The Commission could use its platform to inform passengers where to get financial 

information about cruise lines, and what cruise cancellation insurance covers, and how to 

shop for it if it makes sense for the individual passenger’s situation.”

• “The Commission should take advantage of the vastly increased transparency in the 

industry to make sure that both passengers and the government are better informed.”

4 Federal Maritime Commission 58th Annual Report for Fiscal Year 2019, supra note 2, at 3. 
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• “As the Commission has done in some prior situations, the Commission can act as an 

information source for passengers seeking refunds, providing details of how and where to 

apply and what to expect.”

• “The best protection for passenger refunds is a strong and stable industry. This is clearly 

emerging from the shadows of the COVID-19 threat as the weeks advance toward 

reopening.” 

B. Bonds [Small Passenger Vessel Operators]

To date, the study has the following observations to offer:

A variety of bond and escrow accounts are being used to meet the financial responsibility 

requirements imposed.

Of those PVOs who utilize bonds to satisfy financial responsibility requirements, most maintain 

a cooperative, understanding relationship with their financial instrument holder. Indeed, as of 

this writing, only one PVO reported a negative opinion of their financial instrument holder due to 

a recent demand that their collateral amount be increased to one hundred (100) percent of the 

bonded amount.

When a bond is utilized, PVOs are required to pay a premium on said bonds at varying levels 

ranging anywhere in between $75,000 and $300,000. 

Many small PVOs only operate in the summer. These PVOs often do maintenance and 

refurbishing over the winter months. Some had cancelled their entire 2020 season and are not 

looking at having any new revenue coming in until 2021. 

All PVOs who responded to the questionnaires indicated that they have sufficient funds to fully 

refund all UPR. This is in line with their capability during normal operations. Of note however, 

one PVO, whose bond amount exceeds current UPR, indicated that without the bond, they are 

not capable of refunding all UPR, as to do so would result in the loss of all working capital 

necessary to operate with the possible commensurate result of a default on current financial 

obligations. 

Most small PVOs are required by their surety to provide collateral at varying levels of the bond 

amount. In some cases, it is reported that the cost to maintain collateral exceeds the bond’s

premium.

When individual PVOs were asked by the study to suggest means by which the Commission 

might address the situation, the following responses were received:

• Mentioning the ease by which customers may obtain a refund from their credit card 

company (which will be discussed more in the next interim report) it was proposed that 

the FMC bonded amount take into account the number of purchases made with credit 

cards. 
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• Observing that the financial instrument amount required is based on the highest UPR for 

the last two years and that UPR is lower during the COVID-19 recovery period, it was 

proposed that a reduction in nonperformance requirements be made to accurately reflect 

current UPR levels. 

One small PVO recommended that the government temporarily guarantee the amount in the 

financial instrument, giving companies access to that cash. They also suggested lowering the 

percentage of the financial instrument and specified that lowering the percentage to 50% (down 

from 110%) “would improve our financial stability, especially during times operations are 

halted/restricted.”

One small PVO is permanently closing their business. They have been in contact with the FMC’s 

Bureau of Certification and Licensing regarding their bond requirement. They informed the FMC 

that all passengers were being sent refund checks. As the surety company has to reimburse any 

other passengers overlooked by the company, they were advised to provide the surety company 

with a recent audit of financial records, passengers due refunds, the amount, and other 

information to assist the surety company in determining all passengers have received refunds. 

IV. Next Steps

The study has found that the sudden suspension of most cruise transportation due to COVID-19 

has significantly reduced some PVOs’ current UPR, leading to substantial disparity between 

current UPR and the required coverage amount under 46 C.F.R. § 540.5. This disparity could 

result in unnecessarily high premiums and required collateral for PVOs to maintain their required 

financial instruments. 

The Commission’s regulations at 46 C.F.R. §540.5 provides that the Commission may, for good 

cause shown, consider a time period other than the previous two-fiscal-year requirement or other 

methods acceptable to the Commission to determine the amount of coverage required. The 

Commission’s regulations at 46 C.F.R. § 540.9(l) further allow smaller PVOs to submit a request 

to substitute alternative forms of financial protection to evidence the financial responsibility as 

otherwise provided in the regulations.

The study has determined that COVID-19’s unprecedented effects on the cruise industry 

constitute good cause under 46 C.F.R. § 540.5 and 46 C.F.R. § 540.9(l) for the Commission to 

consider alternative forms of financial protection using a shorter period to determine the amount 

of PVOs’ financial responsibility. 

To that end, the record suggests that a requested lower coverage amount should be favorably 

considered when a PVO whose UPR at no time for the two immediately prior fiscal years has 

exceeded 150% of the required cap5 submits a request to the Director, Bureau of Certification 

5 Only PVOs whose UPR at no time during the two immediately prior fiscal years has exceeded 150% of the 

required cap may request alternative forms of financial responsibility under § 540.9(l).
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and Licensing, seeking a temporary surety/financial responsibility amount based upon 110% of 

the PVO’s previous month’s UPR rather than the prior two fiscal years’ UPR. Approval of such 

requests shall be granted by the Director provided the PVO submits documentation satisfactory 

to the Director demonstrating the PVO’s UPR; said report shall comply with individual reporting 

requirements imposed by the Director of BCL regarding the submission of satisfactory 

documentation demonstrating the PVO’s UPR on a monthly basis. The PVO must ensure that the 

surety, insurance, guaranties, or escrow account held is sufficient to cover the 110% of existing 

UPR. This filing should be in addition to all other filings required by this rule and shall not 

relieve the PVO of any other terms or conditions established by regulation or statute. As an 

additional condition of this approval, it must be understood that failure to provide said report on 

time or failure to maintain financial instruments covering 110% of existing UPR shall result in 

the immediate reinstatement of the financial responsibility amount on file with the Commission 

prior to the granting of the modification approved under this policy.

It is further recommended that the Commission maintain this policy as long as it determines that 

COVID-19’s negative effects on the cruise industry continue and in no case shall this policy 

terminate prior to April 1, 2021.

These recommendations should not be considered this study’s final proposal concerning PVO 

financial responsibility. Reviews are ongoing and may produce further suggested actions which, 

if proffered, will be included in the final report. This recommendation is being presented due to 

the urgent nature of the problem generated by the ongoing pandemic.

Large PVOs will likely be unaffected by the steps outlined above. The maximum amount of 

financial instruments that the FMC requires by large PVOs is so much less than their unearned 

passenger revenue, that the amount bonded would have to increase by an unreasonable, 

exponentially increased amount in order to come close to unearned passenger revenue, which 

would cause a further hardship for PVOs in this current crisis. The intent of the bonds is to 

protect consumers from PVOs that may go out of business. Even in this dire situation, no large 

PVOs are indicating at this time they are likely to go out of business.

Small PVOs, however, having less than the threshold amount of UPR to warrant a surety equal to 

the maximum mandatory should benefit from the proposal through the commensurate reduction 

of operational costs tied to surety premiums and collateral requirements. Allowing the review 

period for unearned passenger revenue and the bond amounts to be shorter will maintain the 

integrity of the FMC’s PVO program while providing regulatory relief to small PVOs during the 

COVID-19 crisis, in line with Executive Order 13924. 

V. Conclusion

During these unique times and in light of the assessment above, Commissioner Sola as Fact 

Finding Officer recommends that the Commission adopt a policy statement reflective of the next 

steps outlined above in order to protect the cruising public and address the current challenges 

impacting the cruise industry.
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Commissioner Sola will continue his Fact Finding mission to study the area of PVO financial 

responsibility and shall be issuing another report related to consumer protection prior to the 

issuance of a final report to the Commission.