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Cruising in South America

By Julian Dowling
June 2008

Say “cruise” and most people think of the Caribbean or Mediterranean, but South America is also starting to become popular as an affordable and exciting new destination.

It’s full steam ahead for the world’s cruise industry. This year, it expects to set a new record in terms of passengers and, although South America still claims less than 2% of the market, that is starting to change.

“An American tourist wants to go someplace different and compares European and South American cruises and sees a big price difference,” says Paul Motter, editor of CruiseMates, an online cruise guide. “South America is a longer cruise and you have to fly there, but your dollar goes a lot farther.”

His view is confirmed by Simon Douwes, director of deployment and itinerary planning at Holland America, a cruise line controlled by Anglo-American Carnival Corporation & PLC. “As cruising grows more popular, guests are increasingly interested in new regions and South America is becoming the choice for many,” he reports.

More South Americans themselves have also started to take to the sea as the region’s prosperity has increased. Cruises are good value, says Bárbara Urzúa, country director at Discover the World Marketing, which represents Royal Caribbean, Celebrity, Crystal and Silversea cruises in Chile. “If you consider that they include food, lodging and transportation, it’s the cheapest way to travel,” she says.

Brazilians are the region’s most enthusiastic cruisers. Their country’s white sand beaches and palm trees are part of the reason why its cruise industry is leading the region, notching up 30% average annual growth since 2004, according to the Brazilian Association of Maritime Companies (ABREMAR).

“Brazilians don't have to be wealthy to afford a cruise; we have 3-day cruises starting at US$334 per person, including all taxes and tips,” says Roberto Fusaro, managing director for South America at Italy’s MSC Cruises. “It's difficult to find a hotel room for that price.”

The number of Chileans taking cruises, at 11,000 passengers in 2007, is tiny by comparison, although this also represented a 30% expansion. But, unlike Brazilians, many of whom take cruises in Brazil itself, they prefer warmer waters. “They take their first cruise in the Caribbean and then try new destinations,” says Urzúa.

Cruises lines are stepping up to the increased demand, whether from international or local passengers. Holland America plans to increase its capacity in the region by 32% in 2009 when it deploys its ms Oosterdam there fulltime. Other Miami-based cruise lines such as Royal Caribbean will also significantly expand their South American presence in 2008/09 by adding new ships and itineraries.

For these cruise lines, it also helps that the South American season runs from November to April so they can ‘reposition’ ships like Royal Caribbean’s Mariner of the Seas to South America when they finish their Northern Hemisphere season in Mexico or the Caribbean. In 2009, Mariner - a ship that holds 4,300 passengers and crew and includes a wedding chapel and a rock-climbing wall - will be doing a 45-day cruise around South America.

Miami is the traditional port of departure for cruise lines but post-9/11 restrictions on U.S. visas have given them an incentive to move even Caribbean departures to South America, says Maria Sastre, vice-president for Latin American and Caribbean sales and marketing at Azamara Cruises, Celebrity Cruises and Royal Caribbean International.

“South America offers the industry a terrific opportunity for growth,” Sastre says. As it does too for the countries the cruises visit.

With no need for accommodation, cruise passengers spend less than tourists arriving by land or air. However, according to the Association of Southern Cone Ports, an organization formed by Chilean ports in 2007, disembarking passengers spend an average US$100 a day at restaurants and souvenir shops.

Adding port fees and other services, that adds up to annual income for Chile of US$22 million, estimates Teodoro Wigodski, the Association’s president. And, although a mere fraction of the approximately US$1.5 billion Chile earned from tourism in 2007, it can be just the tip of an iceberg of visitors who - tantalized by their brief glimpse of a country - subsequently return for a longer stay or encourage their family and friends to do so.

All Aboard

Hailed as the “new Alaska” of the cruise industry, the rugged beauty of southern Chile reminds visitors of the northernmost U.S. state, but without the tourist crowds. “What captivates our guests… are the many fjords, glaciers and the pristine nature of this beautiful country,” says John Primeau, international public relations manager at Holland America.

In fact, as the lankiest country in South America, Chile is a cruise-lover’s paradise, with ten ports including Valparaíso, Puerto Montt and Punta Arenas. Chile is, moreover, central to one of South America’s most popular itineraries - from Valparaíso to Rio de Janeiro through the Chilean fjords and around Cape Horn via Buenos Aires.

Cruise lines discovered Chile in the mid-1990s and, as word spread, the number of passengers grew 30-40% annually between 1995 and 2000, says Claudio Nast, CEO of Santiago-based Destination Management Chile (DMC), a local tour operator. Since 2000, however, growth has slowed to around 12% a year, falling behind worldwide growth in cruising.

Part of the reason is geographical - after all Chile is not the Caribbean. Cooled by the Humboldt Current, its coastal waters average a chilly 13ºC. “We don’t sell beaches… we sell nature and wine,” says Nast.

Of course, this usually means getting off the ships which, in turn, means opportunities for local tour operators and other businesses. But the logistics of organizing tours and supplies for thousands of passengers are being stretched to the limit.

In the late 1990s, cruise ships brought up to 1,200 passengers each. Newer ships, however, can hold 2,800 or more, and some ships scheduled to arrive in 2008/09 hold over 3,500, says Nast.

Cruise lines hire local tour operators like DMC, which bid annually for contracts, and then resell the tours - or shore excursions as they are known - to passengers, about half of whom usually sign up. DMC, which claims 60% of the Chilean market, organizes tours to destinations like wineries and penguin colonies.

“But it’s not easy because of the volume of passengers… we often don’t have enough buses and have to bring them from different ports,” says Nast, “and it’s also not easy to get enough guides because tourism in Chile is seasonal.”

Cruise lines give Chile’s tour operators a good report card. “The ones we use are extremely professional and well-run; they compare very favorably with many regions of the world that we cruise in,” says Holland America’s Douwes.

But tour operators fear that may start to change if they are asked to provide tours for more passengers than is practically feasible. “You can’t arrive with 2,000 people to see the penguins because of environmental factors,” observes Nast.

Small End of the Market

Although large cruise lines dominate the industry in South America, small ships holding up to 100 passengers also sail to destinations like the Galapagos Islands, the Iguazú Falls and Antarctica. These cruises are usually offered on locally-operated boats with local guides and are popular with a younger, more adventurous age group.

But age is not necessarily a limiting factor. North American and European baby boomers are also signing up, says Todd Smith, founder of California-based tour operator AdventureSmith Explorations.

“We’ve seen a definite surge in interest, with demand for South American cruises growing 10-15% a year,” he says. “The West-East axis is shifting to North-South… people who used to go on cruises in Europe are now going to South America.”

These passengers want to “get off the boat and explore, meet the local people and see the wildlife up close,” says Smith. “They don’t just want to sail by on a ship and tell their friends they were there.”

Small-ship cruises strive to create a connection between the tourist and the environment, which Smith hopes will lead to a “conservation ethic”. But that connection is hard to achieve in Antarctica where more cruises are arriving every year.

The number of tourists rose to 34,000 in 2007/08, up from 12,000 in 2000/01, according to the U.S.-based International Association of Antarctica Tour Operators, and more are on the way. Carnival’s Star Princess will sail there later this year on its way around Cape Horn while Celebrity Cruises’ Celebrity Infinity will offer its first ever Antarctica sailing in 2009.

Concern about the environmental impact of cruise ships in Antarctica heightened after MS Explorer, a Canadian-owned ship, hit an iceberg and sank in November. The passengers were rescued, but the ship started leaking diesel fuel near a penguin colony.

“Cruise tourism such as the smaller ships that have operated in the Antarctic for the past two decades can be relatively benign… but can be quite negative too with increasingly large vessels owned by large companies that have a completely different style of operation more focused on the economic bottom line,” warns Ricardo Roura, a senior adviser at the Antarctic and Southern Ocean Coalition (ASOC), a coalition of environmental NGOs.

Stricter regulation is needed, urges Roura. “Operators may comply with voluntary industry regulations… but ultimately a comprehensive tourism policy by Antarctic Treaty Parties is needed.”

No Port in a Storm

For cruise lines operating in South America, port capacity and organization is a prime concern. Their nightmare is the simultaneous arrival of two ships at the same port, resulting in delays and unhappy passengers.

“There is an issue with advance booking of ports,” says Royal Caribbean’s Sastre. “The lack of a booking structure is affecting quality of services and passenger satisfaction and growth.”

Cruise lines are supposed to contact ports 18-24 months in advance to reserve a berth and, if another ship has reserved space the same day, the port should inform the cruise line so it can change its itinerary. But the system is not working.

This is partly due to the lack of a formal booking system, says Mike Ronan, Royal Caribbean’s vice-president for government relations in the Caribbean, Latin America and Asia. “The problem has been and continues to be the lack of a cohesive system across all the ports to manage advance bookings in conjunction with the industry,” he says.

But solving that is easier said than done in South America where past efforts to coordinate cruises between countries have failed. For example, Surcruise, an organization created by 14 Argentine, Uruguayan and Chilean ports in 2000 to promote cruising, ran aground because their members could not agree, recalls Nast.

At the root of the problem is lack of cooperation at a regional level. “I don’t see a solution because there is no political coordination between Latin American countries and ports are a highly political issue,” says Nast.

Further complicating matters is the fact that cruise lines must compete for berths with cargo shipping which is year-round, rather than seasonal. The situation is acute in Brazil where the two main ports - Santos and Rio de Janeiro - have insufficient facilities for all their cargo and cruise traffic.

“Cruise lines there have to jockey for positions and guests have to endure long delays for check-in and check-out operations,” says MSC Cruises’ Roberto Fusaro. As a result, cruise lines catering to North Americans and Europeans prefer to deploy their ships in Chile, he reports.

If there are no berths available, a ship can dock near the port and use its small boats - known as tenders - to ferry passengers to and from shore, suggests Wigodski. But tenders carrying 80-100 passengers are impractical for transporting 3,000 passengers and crew, especially when the weather is bad.

“The reality is that the passenger experience is significantly lessened, the number of passengers who go ashore is drastically reduced and time and money spent ashore is correspondingly reduced,” says Ronan. This is especially true in Chile where the market tends to be an older, more educated and experienced traveler.

More investment in port facilities is the obvious answer. “Valparaíso would benefit from additional terminal facilities preferably adjacent to the ship… the major cruise corporations are now investing in facilities around the world and may be prepared to partner in Chile,” suggests Ronan.

Wigodski is optimistic that cooperation between ports and cruise lines will facilitate these investments. But that also requires clear regulation and institutions in charge of enforcing it.

And, in Chile, that is a problem. The Ministry of Transport regulates the country’s ports and is supposed to ensure that cruise ships have access to their facilities but, since most state-owned ports in Chile are privately-operated, each port watches its own economic bottom line. Moreover, in Chile, there is no Ministry of Tourism and, according to Nast, the National Tourism Service (SERNATUR) lacks the political clout to be effective.

“Undoubtedly the industry would prefer to work through a single Ministry, with Tourism being the logical entity since it would best understand the broader positive impact of the cruise sector,” argues Ronan.

The government is moving in this direction, but slowly. A bill submitted to Congress in December would create a Ministerial Council for Tourism, headed by the minister of economy who would act as minister of tourism.

The bill is designed to strengthen SERNATUR, but does not go far enough, argues Nast. Instead of having its own ministry, tourism would still be dependent on six ministries, he argues.

Ultimately, the future of Chile as an international cruise destination, and the future of its own local cruise industry, depend on investment in ports and training, better coordination with cruise lines and a coherent tourism policy which maximizes the economic benefits of cruises in Chile in a sustainable way.

If it fails to rise to this challenge, it would be a tragedy of Titanic proportions. “Chile is in a key strategic location to grow exponentially in the cruise category but it can do a much better job,” says Sastre.

Julian Dowling is an energy analyst at South World Consulting in Santiago and contributes regularly to bUSiness CHILE.