module 4 unit8

Unit 8: Case Studies on Water TransportCase study 1: GLOBAL CRUISE TOURISM INDUSTRY PROFILE

Historical Background

We present below an understanding of the historical cruise tourism background that reveals how the social, political and technological trends have importantly affected the growth and adaptation of the sector.

Passenger crossing as part of Mail Service

Cruise tourism made its small beginnings in 1839 as part of the fortnightly crossing mail service between Liverpool and Boston. Samuel Cunard obtained a British Admiralty contract of 55,000 pounds to provide a mail service and started his ‘British and North American Royal Mail Steam Packet Company’ later known as the Cunard Line. The inaugural sailing carried 63 passengers along with the mail and constituted the first regularly scheduled trans-North Atlantic passenger service.

Almost 58 years later, technological advancement in the form of the steam turbine propulsion technology enabled bigger and better vessels to be launched. In 1907 Cunard introduced a new 30,000-ton class of liner, the Lusitania and Mauretania, marking the beginning of leisure passenger travel on the seas.

The twentieth century witnessed other European countries compete for progressively larger and faster passenger ships: Germany's Hamburg American Line with the ‘Imperator’, ‘Bismark’ and ‘Vaterland’ and the French Line's ‘France’ to name a few. These ships provided three classes of service; first, second and steerage. The first catered to the elite and rich, the second to the white-collar working people and the steerage to the relatively poor. The mass immigration of both rich and poor to America which began during these years provided the bulk of the trans-North Atlantic traffic.

Impact of the Immigration Limitation Act, 1920

With the passing of the Immigration Limitation Act in 1920 by the United States Congress, immigration traffic was vastly reduced with the ‘steerage’ space going vacant in large liners. To fill this void and to foster American tourism abroad, a brilliant marketing scheme was devised. New accommodation named ‘Tourist Third Cabin’ was offered, the space was enhanced, a few more amenities and services were added and offered to the American middle & working class and college students with a flare for adventure. The idea was a success and immediately the traffic became 80% American and remained so to the end of the year-round regularly scheduled trans-North Atlantic crossings era.

Passengers become tourists & ships become floating resorts

The increasing travel demand through the 1950's and into the 60's kept the liners busy crossing with tourists from both continents. Gradually the concept of ‘tourist ship passengers’ was enhanced with value additions to the accommodations and activities : shuffleboard, deck tennis, a walking deck, inside swimming pool, skeet shooting, miniature golf, dancing space, comfortable deck chairs with blankets, kennels for dogs, costume parties, games, quizzes etc. were gradually added. Interior designs became elaborate with expensive murals, draperies, wood, marbles, and glass.

When the majority of the trans-Atlantic passengers became tourists, the crossings became more festive for the enjoyment and entertainment of passengers. Ships became more like floating resort hotels than mere containers. The object still remained to cross, but the theme was to enjoy it.

World and exotic area cruises

Amity Directorate of Distance & Online Education

Introduction to Accommodation Management 1

Notes

This theme was even more prevalent on ‘world and exotic area’ cruises that grew in parallel to the trans-Atlantic crossings and became a dominant model with the gradual decline of the Atlantic ship crossing market. The technological revolution of the jet airliner was the next event that importantly changed the nature and clientele of the exclusive world and exotic area cruise markets. Knute Kloster, a Norwegian, was one of the first to recognize this fact and established Norwegian Caribbean Line (NCL), later renamed Norwegian Cruise Line. Cunard and Holland America were providing regularly scheduled world cruises in the 1960's and were beginning to develop certain regional areas for seasonal trade, for instance, Alaska. Cunard's Queen Elizabeth 2, and Holland America's Rotterdam V christened in 1965, sail popular annual world cruises with a faithful clientele often repeating this three-month voyage again and again. Today several cruise lines have their fleets deployed seasonally in both hemispheres to provide annual fair weather cruises in all global tourist regions.

More ships and lines

In response to the growing market demand, the ships grew in size as well as number with the result that the number of lines and ships gradually outgrew existing port capacities leading to the growth of new ‘sister’ ports. For example, to supplement the port capacity of Miami, Fort Lauderdale developed as a sister cruise embarkation port. San Juan in Puerto Rico became the centre for the Southern Caribbean and Panama Canal cruises. World cruising and cruises to Alaska, Hawaii, the South Pacific, Europe, and the Orient expanded rapidly along with the Caribbean.

PRODUCTS AND SERVICES OFFERED

What makes Cruising Unique?

Cruising is a unique tourism product, a blend of the 5A’s: attractions, activities, access, accommodation, amenities. The words "luxury" and "pampering" are found in all cruise brochures, and every cruise line proudly highlights these five aspects to market its product. Cruising is now well established as one of the most service-intensive sectors in the world, with ever more incredible state-of-the-art vessels being built each year.

‘Pampered in luxury" accurately describes the cruise experience. We capture below what makes a cruise a unique tourism product.

Cruising is intensively service-oriented. Most ships provide a 24-hour Room service. New ships are adding 24-hour pizzerias. Other facilities include casino, pool, jacuzzi, sauna, gym, on-board lectures, card rooms, an unending variety of organized games and contests, supervised children's activities and entertainment including Broadway and Las Vegas-style shows, lounges, nightclubs, movies, dancing and more. Cruise ships are more like mini cities providing most of what such a city has to offer.

Cruise ships are destinations in themselves, with features and amenities comparable or superior to land-based resorts. This can be particularly attractive in destinations that lack high quality hotels or "creature comforts." Onboard facilities such as spas, pool and open deck areas, jacuzzi, lounges, casino, shipboard activities, spacious accommodations and legendary service make the ship a great place to relax, retreat, rejuvenate and play. The Seabourn Pride, Legend and Spirit as well as several Radisson Seven Seas ships have platforms that drop off the back to create a private water sports area when the vessels are at anchor.

Modern cruise ships have state-of-the-art telecommunications equipment, including incabin ship-to-shore phones. Yet they enable the passenger to feel secluded and "out of time." You have the illusion of getting away from it all.


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Cruising is remarkably affordable. The following is typically what is included in the cost of the cruise, at a price that is generally lower than a comparable land-based vacation:

Round-trip airfare.

Transfers from airport to ship and from ship to airport.

Three main meals per day (breakfast, lunch and dinner). Special children's menus are available if children are present or three buffet meals per day (breakfast, lunch and midnight). Some ships add a fourth buffet for late-nighters at around 1:30 a.m. Many ships also have afternoon snacks or traditional high teas.

Cruising offers multiple destinations, without the hassles of packing and unpacking. Itineraries include visits to three or more ports of call (depending on length of cruise).

Cruises are floating resorts. Cruising presents a unique competition feature, with the main competitors of cruise liners being the land resorts rather than the other cruise line companies. Thus a cruise ships are increasingly looked upon as a floating resort than a mere means of transport. The amenities offered on board are a result of popularizing cruising with this concept of a floating resort.

Niche cruise tourism markets

The following are examples of some niche markets prevailing in the cruise tourism industry:

Cruises for Family segment

This segment targets the youngest end of the market. Since families look for moderately priced holidays, most operators offer such packages with interesting complementary activities. Fifty per cent discounts for the under 12s and free flights for children under 2 years of age are a common feature of such packages. Special offers are available during the school holiday season. Of the major cruise operators, Carnival carries the most children and is the Number One family cruise line. Though it has entered the market late in 1998, Disney is also one of the most popular cruise line amongst this segment.

The Senior Citizen Segment

This is the largest growing niche with senior citizens having considerable purchasing power and a great affinity with the product. A study done by Travel and Tourism Analyst in 1996 shows that 10% of the senior citizen segment in the European Union used cruise as mode of transport for international trips. Certain cruise lines like the British tour operator – Saga and Swan Hellenic cater to this class exclusively. Some cruise lines like Fred & Olsen, P&O also offer cruises with no flights involved.

The Conferences and Incentives Segment

With the increasing combination of business with leisure, cruise ships are wooing the business segment with well equipped with state-of-the-art features that can house all delegates within a closed space facilitating the holding of conferences and seminars with an element of novelty thrown in. Most large ships have 700 to 800 capacity assembly, the largest hall being one with a capacity of 1,350 in Royal Caribbean International’s ‘Voyageur of the Seas’. Cunard estimates that 15% of its business is from incentives and conferences. Cruises organized by large companies are also widely approved of in Japan. Such cruises are generally short in duration.

Theme Cruises



Notes

Themes are built by offering new itineraries or by adding specialized products. The best example of such types of cruise is the Disney Cruise. Thus, Carnival has the Paradise ship exclusively for nonsmokers, HAL offers a Caribbean cruise with a screening of films from the forties, there are cruises dedicated to wine tasting and such other exotic themes added to exotic locales.

Adventure Cruises

Expedition cruises have a modest, though not insignificant, demand. Most companies that operate this market do not belong to the big groups. Some notable cruise operators in this category are The World Cruise Company and Abercrombie & Kent with ships like Explorer, Clipper, Marine Expeditions and Quark Expeditions with the total fleet being 63 ships and around 5,500 berths. There are also other liners like the Swan Hellenic and Orient Lines with a strong educational element.

Types of cruises

There is an incredible diversity of cruise vacations available, most of them custom designed to suit different interests and personal preferences. Broadly looking the following are the general category/types of cruises that operate.

Ocean Voyages

An ocean voyage is a one-way passage from one point to another over a major body of water. Some voyages have intermediate ports of call while others do not. Trans-Atlantic or trans-Pacific crossings are the most common ocean voyages. The ships most used for ocean voyages are cruise ships, yachtstyle ships, masted sailing ships, and freighters.

Standard Cruises

An open water cruise may be one-way or round-trip with several ports of call. These cruises are traditionally vessel-oriented trips in which the ship and all the amenities it provides are the main focus of the voyage. The ship is selected based on accommodations, recreation, entertainment and service.

The ships most used for open water cruises are cruise ships, yacht-style ships, masted sailing ships, freighters, ferries and private yachts.

River/Canal Cruises

River and canal cruises are closely linked to the culture and heritage of the country being toured.

Along the journey, the waterway's villages, town and cities offers particular appeal to scenery buffs and those who enjoy ever-changing landscape. Travellers choosing river and canal cruises are interested in and attracted to the destinations as well as the cruising experience. The ships most used for river and canal cruises are yacht-style ships, river ships, barges and private yachts.

Destination / Expedition Cruises

Destination and expedition cruises are selected, just as river cruises, based on the destination to be visited. Travellers are attracted by the unique, out-of-the-way, remote or exotic ports of call. These cruises offer the stimulation of exploring new territories while in the company of like-minded travellers. The ships most used for destination and expedition cruises are yacht-style ships, river ships, and private yachts.

Day Cruises

Day cruises are typically a cruise experience of 15 hours or less. Passengers choose this method of cruising, as a day's outing or combined with a longer vacation. These cruises may be geared to gambling, whale watching, dinner, etc. The ships most


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used for day cruises are cruise ships, steamboats, ferries, river ships, and private yachts.

Contemporary Cruises

These are the most popular and recognized cruise lines, having the following key features:

These cruise serves the most popular segment, the mass market or first class cruisers

These cruise lines typically have resort-style facilities with heavy emphasis on shipboard activities.

Most of these lines have both shorter itineraries that are closer to home and longer ones that may require international travel.

These cruises tend to have newer and larger cruise ships with lots of amenities including lavish show rooms, extensive spa facilities, expansive children's programs, televisions and in-room movies in all cabins, double/queen beds, etc.

Often have something for everybody - all age groups. These lines are typically the best for families and kids of all ages.

The most famous examples of these cruise lines are Carnival Cruises, Celebrity Cruises, Costa Cruises, Disney Cruises, Holland America Cruises, Norwegian Cruises, Royal Caribbean International Cruises, Princess Cruises

Luxury Cruises

These constitute the ultimate cruise experience, taking service to a different level. The following features define luxury cruise:

The highest quality of cruises available, offering high style luxury with emphasis on destinations and ship-board amenities.

Most sailings tend to be significantly more formal than first class cruise lines.

Luxury ships tend to be exclusive carrying far fewer passengers. Accommodations are often more spacious with a very high percentage of ocean-view staterooms and suites.

These cruise lines are more itinerary-oriented, often featuring longer cruises and international travel.

Luxury cruises cater to the mature, experienced audience with very few first time cruisers. Accordingly the cruise tends to be less "entertainment-oriented" and more "experience-oriented", less suitable for young children or the first choice for families.

Most popular luxury cruises are Cunard Cruises, Oceania Cruises, Crystal Cruises, Radisson Seven Seas, Silver Star Cruises, and Windstar Cruises.

Specialty Cruises

Specialty cruises, as the name implies, are special destination oriented cruises offering unique experiences. The main features include:

Adventure-style cruising with a heavy emphasis on destination, education, and off ship activities, sometimes offering the only way to see a certain area of the world that the large first class cruise lines can't visit.



Notes

Quality on these cruises varies from very modest to very deluxe, being more of an experience than a cruise. Accommodations and amenities vary greatly by cruise line and product.

Types of ships vary from Sailing Ships, Paddle Wheelers, Cargo Vessels, River Barges, and Yacht-like Ships.

Speciality cruises, like luxury cruises, are not a good choice for children or families.

Pricing is flexible and varies by product.

Onboard Entertainment Facilities

Present-day cruise ships are organized much like “floating hotels”, with a complete "hospitality staff" in addition to the usual ship's crew. There is a variety of full fleged entertainment activities for all the age groups, with the concept varying from one cruise line to another depending on how the business model is built.

There is an endless chain of entertainment activities on these ships, the range including dance classes, classical music, casino lessons, shopping, cabaret shows, bridge, spa treatments (massages, manicures, pedicures, facials), health clubs, wine testing, golf chipping, skeet shooting, cooking demonstrations, ping pong, fashion shows, acts by jugglers and magicians, galley (the kitchen) and bridge (where the navigators work) tours, lectures, crafts, movies, reading and eating at least six times a day. Captured below are the variety of entertainment on board.

Sports Oriented Facilities

Rock walls 200 ft above the ocean level giving an adventurous mountaineering thrill among the seawaters, with professional trainers to encourage passengers.

Mini Golf rinks for golf lovers

Basketball or volleyball on full-size courts

Ice Skating Rings with professional trainers for all ages and skill levels and world class ice skating shows

Innovative self-levelling pool tables

Juggling lessons, backgammon, chess, scrabble, bridge and many other board/card games.

Scavenger hunts

Theatre

The theatre is the oldest and the most popular forms of entertainment, showcases a variety of performances from a contemporary musical stage production to a comedy act to a Las Vegas-inspired floorshow. Some production shows are produced exclusively for a particular ship e.g. for Royal

Caribbean. Fashion shows are also being hosted on certain occasions. Full-service bar, stadium seating, state-of-the-art sound system and theatre lighting is set up for a multipurpose studio complex for just about anything.

Rejuvenation

Most cruise ships have spas that offer a luxurious range of relaxing massage techniques and treatment programmes from oxygenating facials, detoxifying seaweed wraps, aromatherapy and reflexology massages to exotic treatments like Chakra Stone therapy or Rasul. These are delivered by highly trained experts who also give initial to determine and customize the treatment needed. They also host health, fitness and


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beauty demonstrations and educational seminars where experts offer advice on a variety of exercise options and healthy dining possibilities.

Audience Participation

In order to give the entertainment a creative angle and a more exciting feel there are some activities that are designed to encourage Audience Participation. Some of these participatory activities may be:

Karaoke contests

Trivia contests

Game shows

Guest talent Shows

Parties like '50s and '60s Night, Masquerade Ball, Toga Party and Pirate Theme Night

Wine testing and classes

Cooking demonstrations

Casino and card game lessons

Ice-carving instruction

Jewellery seminars

Latin dance schools that teach Cha-cha, rumba, merengue, waltz, two-step, tango, swing, foxtrot, jitterbug, line dancing, country, caribbean, hula, cha-cha slide and '70s Disco.

Tournaments

Tournaments like Ping-pong, floating golf green, billiards, shuffleboard, ring toss are organized specially on long cruises to bring healthy competition, for example on ‘Voyager and Radiance-family ships’ you have basketball and volleyball tournaments, and on Splendour of the Seas, Legend of the Seas, and all of Voyager and Radiance-family ships there are mini-golf tournaments too.

Library

Reading being one of the favourite indulgences on the cruise, cruise ships are stocked with an impressive and wide range of subjects which are available starting from topics like travel, art, biography, fiction, non-fiction, science fiction, beauty, health and many more.

Other Activities and Facilities

A list of some more activities in addition to the above are:

Sun soaking in the Solarium, which is basically a room, built largely of glass to afford exposure to the sun. There are also sunbeds which is a device emitting radiation (usually UVA, but recently also UVB) used for cosmetic reasons (to induce an artificial tanning) but also for medical reasons.

Casinos, with games like Poker slots or blackjack. Some cruises also offer casino classes

Dance floors, wine bars, night clubs/lounges for pub-goers. There are theme pubs with live bands and shows.

Accommodation



Notes

Cruise accommodation is targeted for different categories of people and their preferences. These accommodation facilitates and categories vary from cruise to cruise, however captured below is the most common and standard type.

Superior Ocean View Staterooms : offer a gorgeous view often with a mini bar and private balcony among their amenities. With an area of 188 sq. ft., balcony 50 sq. ft, these staterooms, consists of two twin beds (can convert into queen-size), private balcony, sitting area (some with sofa bed) and a private bathroom.

Ocean View Staterooms : offer all of the amenities of a star hotel added to a magnificent view of the ocean. Generally covering an area of 180 sq. ft. these staterooms have two twin beds (can convert into queen-size bed), sitting area with sofa, vanity area, and a private bathroom.

Deluxe Ocean View Staterooms : offer an ocean view with mini bar and private balcony among their amenities. Measuring 173 sq. ft., balcony 47 sq. ft., they consist of two twin beds (can convert into queen-size), private balcony, some offer Pullman beds, sitting area with sofa, and a private bathroom.

Family Ocean View Staterooms : accommodate up to six people, with family oriented amenities, including a mini bar and sitting area. Measuring 265 sq. ft., these family rooms have two twin beds (can convert into queen-size), sofa bed and/or bunk beds, separate sitting area, and a private bathroom with shower. Such family rooms may be large ocean view staterooms also.

Promenade Staterooms : are unique, for e.g. the Royal Caribbean International Cruise Line has bowed windows overlooking the Royal Promenade, creating an interior room with a view, and they offer the amenities of a standard stateroom. Measuring 167 sq. ft. these rooms, which are also called the Atrium Stateroom, have two twin beds (can convert into queen-size), sitting area with sofa, vanity area, and a private bathroom.

Interior Staterooms : which are on the interior of the ship, offer all of the amenities for comfort. Generallt measuring 160 sq. ft. these rooms have two twin beds (can convert into queen-size), some offer Pullman beds, sitting area with sofa, vanity area, and a private bathroom.

Royal Family Suites : have a whirlpool bathtub, entertainment center, a separate living area with refrigerator and wet bar, and complimentary concierge service, which includes access to a private lounge as well as personalized service to help make reservations or other arrangements. Most Royal Suites have a separate bedroom with a king-size bed and some even have a baby grand piano. These large rooms measure 1,188 sq. ft., with a balcony of 170 sq. ft.

Owners Suites : have a queen-size bed, separate living area with large sofa bed, bathtub, and refrigerator and mini bar, among their amenities. With an area of 506 sq. ft., they have a private balcony of 64 sq. ft, private bathroom and concierge service.

Grand Suites : generally come with a private balcony, sitting area, bathtub, a mini bar and complimentary concierge service with an area of 381 sq. ft., balcony 95 sq. ft.

Junior Suites : offers a private balcony sitting area, refrigerator and bathtub. With an area of 277 sq. ft., balcony 69 sq. ft, these suites, also called Superior Ocean View Suite, have two twin beds (can convert into queen-size), private balcony, private bathroom with bathtub and a sitting area, sometimes with a sofa bed).


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RIVER & CANAL CRUISES

Canal & River cruises form a niche element of the cruise sector, arising from the fact that most cruise ships take by and large coastal routes, whereas all of the destination’s charm can hardly be explored within the constraint of a one-day stop at a port of call. Cruise ships take coastal routes because the rivers and canals cannot accommodate large cruise ships, however, it would be possible to enable interested passengers to explore the charms of the destination through a flotilla of specially designed river ships and cruise barges. As a niche of cruising, river and canal voyages are an increasingly popular option, particularly for travellers who enjoy the comforts and variety of cruising, but want to see more of the heartland.

The boom in river cruises started from Europe, which has exotic destinations connected by rivers and far from coastal areas. Today, the European river-cruise industry is in a major expansion mode.

Nearly every corner of the continent has navigable rivers and a selection of ships, which continue to grow increasingly comfortable and luxurious. Peter Deilmann Cruises offers 39 different itineraries and 243 European river cruises on nine ships. Viking River Cruises has unveiled 10 new ships in the last five years, including the 198-passenger Viking Sun, new in Europe this year Viking River Cruise's is recognised as the world's largest river cruise line, it has added about 7 new ships in the last 3 years and 10 new ships in the last 5 years (base year is 2002). Viking has about 24 ships with over 3,700 berths. Viking has also acquired KD River Cruises, Europe's oldest passenger line.

River cruising in particular is in the midst of a major expansion boom. In the past two years cruise lines have introduced new ships, and 2003 saw the introduction of a brand new cruise line, the MS Artistry by Avalon Waterways, one of the newer companies on the scene, which already has three ships and big plans. Itineraries may incorporate major cities as cornerstones, but the experience will focus more on smaller towns/villages, natural features and local experiences.

Today coming out of Europe, we have cruise travellers also sailing on America's Mississippi, Columbia, and Tennessee rivers. In Asia, one of the fastest growing destinations for riverboats, in particular, is China's Yangtze.

Product Design

River/canal cruise ships, are essentially smaller versions of cruise ships, rarely holding more than 200-plus passengers, and generally carrying less. The river/canal barges are even smaller, carrying between six and fifty passengers. The entertainment on broad is also much simpler. Beyond mealtimes, entertainment onboard may be limited to shuffle-board or book-reading. River cruise ships do not provide a range of experiences as happens aboard a large ship. These ships carry no casinos and offer little in the way of evening entertainment.

River cruises range from a couple of hours cruising along a city’s shoreline for a romantic dinner to a full blown week or month-long cruise experience in some of the world’s most exotic locations. There are dining or party river cruise boats that sail for a few hours. These offer fine dining, professional entertainment, music and dancing while cruising up and down the city’s waterways. They often cater to romantic occasions, large parties and business dinners and itineraries that are normally offered could be dinner cruise, lunch cruise, Christmas cruise, New Year eve, conference & meetings, floating restaurant and cruises targeted to specific events. Also, many of them offer special holiday packages.

On the other hand, there are long river cruises that cover theme-based destinations like rural exploration or pilgrimage destinations on holy rivers. For example, the Columbia River Cruise plies on the Columbia River running through seven states of the US, offering magnificent views of river while allowing the passenger to visit national parks, cities, and towns en-route. Some river cruises also offer adventuresome activities such as kayaking and white water rafting.



Notes

The season for river cruises

River and canal cruise ships do not demonstrate the same sharp seasonality patterns as do larger cruise ships. While their operations do fluctuate, showing greater activity during spring, summer and fall months with a hiatus during December, January and February, many Asian operators go year-round taking advantage of the varying offerings of different seasons. Another fabulous exception is the Christmas season in Europe, where, despite the cold and the snow, several river cruise operators offer voyages that stop in towns and cities with Christmas markets. Latin America-based voyages are fairly limited though good for wintertime. The cruise on River Yangtze is fairly all through the year.

Trends in River Cruising

Over the period, river cruise industry has shown following trends:

In Europe, the most established river cruising destination, the biggest trend is the continued evolution in ship design. Ship design is focusing particularly on staterooms providing more contemporary technology like television, internet connections, bathrooms, fashionable french windows offering clear river and scenery views.

China has emerged as a very hot destination, appealing to both cruise line operators and passengers. Not only is the Yangtze a most-exotic trip for even well travelled cruise travellers, it also lacks limitations -- such as low bridges and offers opportunity for plying large ships.

Operators tend to traditionalise both itineraries and onboard environment apparently targeting an older, more sedentary traveller.

1.6 PROFILING OF CRUISE LINERS

In this section we have profiled the following Cruise Liners:

Carnival Corporation

Royal Caribbean International

Star Cruises

Disney Cruises.

We have selected for profiling 3 of the four major cruise operators who between themselves hold control over the cruise market and cater to the different types of cruise tourists, covering maximum destinations, with varied itineraries and a fleet of the most impressive cruise ships. In addition we have alos considered it important to profile Disney Cruises as representing a niche operator who demonstrates the strategy for survival in an essentially monopolistic market. The objective of the profiling is to understand the operations and approach of these operators so as to draw on international precedents.

We present below a profile of these cruise liners based on information available and which we could derive from market interactions. However, some of the cruise liners are more sensitive giving out information due to reasons of confidentiality. Hence we have accordingly structured the profile.

Carnival

Carnival is a global cruise company and one of the largest vacation companies in the world. Their portfolio of 12 leading cruise brands includes Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn Cruise Line and Windstar Cruises in North America; P & O Cruises, Cunard Line, Ocean Village and Swan Hellenic in the United Kingdom; AIDA in Germany; Costa Cruises in Southern Europe; and P & O Cruises in Australia. These brands, which comprise the most recognized cruise brands


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in North America, the United Kingdom, Germany and Italy, offer a wide range of holiday and vacation products to a customer base that is broadly varied in terms of cultures, languages and leisure-time preferences. They also own two tour companies that complement their cruise operations, Holland America Tours and Princess Tours in Alaska and the Canadian Yukon. Their combined vacation companies attract 5.4 million guests annually. Carnival Corp is the most profitable company in the leisure travel industry. They operate a fleet of 75 ships, and they have another 9 ships scheduled for delivery by mid- 2006. With 123,000 berths and almost 55,000 crewmembers, there is roughly 175,000 people at sea with Carnival at any given time.

History

The history of the Carnival Corporation begins in 1972, when Ted Arison set up Carnival Cruise Lines as a subsidiary of the American International Travel Service. The first ship ran aground, but Arison remained steadfast in achieving his vision of a cruise line offering affordable vacation packages to middle-income consumers.

By 1977, Carnival had three ships, and ten years later, as the industry leader, the company went public. In the early 1990s, Carnival began to diversify into land-based entertainment, thus changing its name to Carnival Corp. The company is the world's largest cruise operator with about a third of the market.

In 1988 Carnival was able to increase profits through the acquisition of Holland America Line and consequently Carnival expanded its cruise lines to a broader market, however Carnival experienced a loss of $135 million from disposal of the Crystal Palace Resort & Casino in 1991.

Carnival also operates 14 hotels in Alaska and Canada and runs Holland America Westours, which markets sightseeing tours. Carnival has a 29.5% stake in Airtours, one of the UK's largest tour operators, and is bidding for control of cruise line NCL. CEO Micky Arison and family control Carnival.

Some Facts and Figures

Carnival Corporation & plc is the largest cruise vacation group in the world, with a portfolio of 12 cruise brands in North America, Europe and Australia, comprised of Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn Cruise Line, Windstar Cruises, AIDA, Costa Cruises, Cunard Line, Ocean Village, P&O Cruises, Swan Hellenic, and P&O Cruises Australia.

Carnival Corporation & plc also operates the leading tour companies in Alaska and the Canadian Yukon, Holland America Tours and Princess Tours. Traded on both the New York and London Stock

Exchanges, Carnival Corporation & plc is the only group in the world to be included in both the S&P 500 and the FTSE 100 indices.

Its Carnival Cruise Lines offers affordable vacation packages primarily to Caribbean locations on about 20 ships, while Holland America offers more luxury-oriented cruises to Alaska, Europe, and South America and is an upscale line targeting the older, more sophisticated cruisers with fewer youth-oriented activities and emphasizes on the beauty of the Alaskan wilderness. Further Holland America Westours operates various tours targeting different markets. Seabourn, known as the "Rolls Royce" of the industry, targets the luxury market

Carnival Corp. basically has three market segments: Contemporary, Premium and Luxury.

The Market Cap (intraday): 45.78B

Company Strategy



Notes

Carnival is considered the cruise industry’s leader, and in the past few years, Carnival has increased its market share through acquisition and joint venture. In terms of targeting international cruisers, Carnival has purchased 29.5% equity interest in Airtours to enter into the European and Canadian markets.

Carnival’s strategy focused on the "Fun Ship" concept, beginning with the Mardi Gras, which targeted people of all ages. In recent years the driving force behind why a person needs to take a vacation has changed. Today vacationers look to get away from everyday stress, and opt for a stress-relieving cruise.

The Company’s current strategy is to attract more repeat cruisers and new cruisers of different segments by offering different types of packages. Such differences include choice of shorter or longer cruises, a low to moderate price for affordable cruises for middle class, and longer luxury cruises for affluent classes. As part of the company’s plan, Carnival is "going global" through a joint venture with Hyundai Merchant Marine to the Asia market.

Carnival entered into the Asian market through a 50-50 joint venture with Hyundai Merchant Marine, one of the world’s leading marine shipping companies with knowledge of Asian Market, in order to expand its market worldwide.

Royal Caribbean

Founded by three Norwegian shipping companies in 1969 as Royal Caribbean Cruise Line, this company is one of two affiliates of Royal Caribbean Cruises, the second-largest cruise operator in the world. The line's first new build, Song of Norway, entered service in 1970, and today, RCI operates a fleet of modern super and mega-liners, among them the three largest passenger ships ever built, the 137,300 gt Voyager of the Seas, Explorer of the Seas and Adventure of the Seas. Royal Caribbean's signature Viking Crown Lounge is a familiar sight in almost all parts of the world, and the company has a strong presence not only in the Caribbean, but also in Europe, Alaska, and other "exotic" destinations.

History

Royal Caribbean Cruise Line (RCCL) has been around since 1969 and currently operates 17 ships. In 1997, Royal Caribbean purchased Celebrity Cruises—a premium line to appeal to an upscale audience— with a fleet of 29 modern ships and a passenger capacity of approximately 60,500. Royal Caribbean is a moderately priced cruise line, and rates vary by itinerary.

Royal Caribbean's 142,000-tons Voyager-class ships are some of the largest passengers ships in the world. The cruise line has 3 classes of ship to suit all tastes, from the smaller intimate super-yachts of Vision Class and Radiance Class to Voyager Class which has some of the best equipped cruise ships in the world. It represents a sound middle America, middle-brow choice, particularly for active travellers.

The company plans to introduce 2 more ship by the end of 2007, when it will have a total passenger capacity of approximately 66,800. The ships operate worldwide with a selection of itineraries that call on approximately 160 destinations.

Royal Caribbean typically appeals to couples and singles in their 30's to 50's as well as families of all ages. The median age is in the low 40's on seven-night cruises and in the 30's on three-and four-night cruises, passengers 50-55 and over tend to dominate ten day and longer cruises. Royal Caribbean attracts passengers that are looking for an affordable, active vacation.

Some Facts and Figures

The sales figure of Royal Caribbean Cruise Ltd for the year 2004 was $ 4.555.4 million with a 1-year sales growth of 20.4 %. In 2004 the net income was $ 474.7 million with a 1 year net income growth of 60.1 %. The employee strength for 2004 was 38,870 with a one year employee growth of 6.1 %


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Star Cruises

Star Cruises was incorporated in September 1993, representing a bold initiative to tap Asia-Pacific’s potential as an international cruise destination. Today, Star Cruises has fulfilled regional aspirations to establish the cruise industry in the Asia-Pacific region, bringing increased tourism traffic into the countries around Asia-Pacific. Asian holidaymakers now see cruising as an exciting and value-formoney vacation. Simultaneously, it also started the influx of travellers from North America, Europe and Australia, who joined Star Cruises holidays for a glimpse of the various sights and sounds of Asia-Pacific. Within 10 years since its inception, Star Cruises has become the world’s third largest cruise company.

History

Star Cruises was incorporated in September 1993, representing a bold initiative to tap Asia-Pacific’s potential as an intern offering three classes of ship to suit all tastes, from the smaller intimate superyachts of Vision Class and Radiance Class to Voyager Class which has some of the best equipped cruise ships in the world.

Today, Star Cruises epitomizes the fulfilment of regional aspirations to establish the cruise industry in the Asia-Pacific region, bringing increased tourism traffic into the countries around Asia-Pacific.

Asian holiday-makers now see cruising as an exciting and value-for-money vacation. Simultaneously, it also started the influx of travellers from North America, Europe and Australia, who joined Star Cruises holidays for a glimpse of the various sights and sounds of Asia-Pacific.

Within 10 years since its inception, Star Cruises has become the world’s third largest cruise company.

The Fleet

Star Cruises is a global cruise brand with a combined fleet of 20 ships in service and under construction, with approximately 29,000 lower berths, cruising to destinations and islands in AsiaPacific, North and South America, Hawaii, Caribbean, Alaska, Europe, Mediterranean, Bermuda and the Antarctica under the Star Cruises, Norwegian Cruise Line, NCL America, Orient Lines and Cruise Ferries brands.

Vessels operated under the Star Cruises' brand in Asia-Pacific are SuperStar Virgo, SuperStar Gemini, Star Pisces, MegaStar Aries and MegaStar Taurus.

The NCL group has a fleet of sixteen ships in service and under construction under three brands:

Norwegian Cruise Line, Orient Lines and NCL America. The NCL fleet includes the Norwegian Dream, Norwegian Majesty, Norwegian Sea, Norwegian Wind, Norwegian Sun, Norwegian Dawn, Norwegian Star, Norwegian Crown and Norwegian Spirit. NCL America currently operates the Pride of Aloha, which will subsequently be joined by the Pride of America in June 2005. The Norwegian Jewel and the Pride of Hawaii are scheduled to be delivered in August 2005 and April 2006 respectively with two more newbuilds presently under construction. Orient Lines is an award-winning single ship line with the Marco Polo offering niche destination-focused cruises.

Both NCL and Orient Lines market primarily in North America but also extensively in the UK, Europe, South America and Asia whilst NCL America offers inter island cruises in Hawaii.

The Cruise Ferries brand, which was launched in 2001 presently, comprises the m.v. Wasa Queen.

A World-Class Brand



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Star Cruises has played the leading role in shaping the cruise industry in Asia-Pacific by offering new and luxurious megaships and exciting itineraries. The company also made important investments in marketing, operations, information technology, reservations systems, safety and infrastructure.

Star Cruises made it to the Top 50 Asian Brands in 1999 and is the second leading brand that has the “Greatest Upward Movement Potential”. It achieved the top brand name in the leisure category for “Top 50 Asian Brands League”. (Source: Top Asian Brands, Asian Brand News, March 1999)

New and enhanced products and services provided by Star Cruises have set new standards of cruising in Asia-Pacific. Ships like SuperStar Virgo now represent the best and most exciting vacation experience option to both the Asian holiday maker and experienced cruiser from America, Europe and Australia.

Star Cruises is also committed to developing the growing meetings and incentive segment of the cruise MICE market in Asia-Pacific. SuperStar Virgo is able to cater to meeting and incentive groups of various sizes with their world-class food and beverage, entertainment and recreation facilities.

Fly cruise programmes will be intensified to capture the medium to long haul markets, and provide wider marketing opportunities. Currently, Star Cruises is developing its fly cruise hubs located in Singapore, Port Klang (Malaysia), Hong Kong and Bangkok (Thailand).

Star Cruises' award-winning product is noted for its excellent service standards and the highest crewto-passenger ratio (1:2) of any major cruise line, reflecting the high standards of the hospitality industry in Asia-Pacific.

Star Cruises is represented in more than 20 locations worldwide with offices in Australia, China, Germany, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Norway, Philippines, Singapore, Sweden, Switzerland, Taiwan, Thailand, United Arab Emirates, United Kingdom and the

United States of America.

In addition the Star Cruises Terminal in Port Klang and the Jetty Terminal on Langkawi Island, Malaysia have been awarded Statements of Compliance under the ISPS Code. The code, which came into mandatory effect in July 2004, sets out a framework involving cooperation between contracting governments, government agencies, local authorities as well as members of the shipping and port fraternity to detect and assess security threats and to take preventive measures.

Star Cruises Limited, a member of Genting Group, is listed on the Hong Kong Stock Exchange with a market capitalisation of over US$1 billion as at 31 January 2005.

One of the top cruise ship operators in the world, the company offers cruises to more than 200 destinations worldwide on its fleet of 20 ships (which operate under the Star Cruises, Norwegian Cruise Line, and Orient Lines names). Ships range from the "SuperStar Virgo" (2,000-passenger capacity) to the "MegaStar Taurus," designed for private charters.

The family of Lim Goh Tong, head of Malaysian conglomerate Genting, controls nearly 55% of the company, which was founded in 1993.

Disney Cruise

The Disney Cruise combines the magic of a Walt Disney resort vacation with the romance of a sea voyage. Reminiscent of classic ocean liners, Disney vessels have two stacks and interiors that follow an Art Deco theme. Whimsical accents cleverly incorporate the images of Mickey Mouse.

Disney genuinely offers one of the most unique cruise experiences afloat. The two-ship Disney Cruise Line is the ultimate family option. The 1,750-passenger Disney


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Magic and Disney Wonder (that's a double occupancy figure, by the way; a truer head count is its maximum, which can handle up to 3,325 folks if every berth is occupied) are sister ships and carry the same basic themes throughout with different individual touches along the way. Disney Magic, for instance, has an art-deco theme while Disney Wonder is more art-nouveau.

Both ships are based in Port Canaveral Florida but offer very different itinerary options. Disney Magic sails seven night Caribbean trips (alternating Eastern and Western); Disney Wonder handles the three-and four-day trips and limits its forays to the Bahamas. Both stop at Castaway Cay, Disney's fabulous private island, complete with family -- and adult-only beaches. Passengers have the option to include a land-stay at the theme resort.

With these ships, Disney has introduced a number of innovations. Chief among them is its cabins with a bath-and-a-half, a rotating dining room schedule in which passengers eat at three different restaurants, albeit with the same table-mates and wait-staff. It was the first cruise line to launch the "soda card concept," an idea that has been picked up by competitors. Equally distinctive is what Disney ships don't have: neither a casino nor a library.

Disney has said it plans to expand its line beyond the original two ships.

FUTURE GLOBAL GROWTH TRENDS

With some 339 cruise ships plying the international waters, competition remains fierce in the cruise industry. That means ships and their products are in a constant state of evolution. We summarize below some of the key expected trends in 2005:

Increasing embarkations from “close-to-home” ports: The market is expected to see a marked increase in the number of ports playing an active role as embarkation terminals.

This would imply that, in addition to the main cruise ports, the other domestic ports would also play supportive roles. This would make access more convenient and cheaper for tourists to drive instead of fly to the nearest port. For eg. where Florida once reigned supreme as home port of choice, now more than 30 North American cities like Norfolk, Tampa, Baltimore, Boston, Philadelphia and San Diego boast cruise ship embarkation terminals.

Greater focus on family and family travel : Cruise ships reportedly carried more than one million children last year. This has led to increasing focus on children in the upgradation and expansion of kids’ facilities on cruise ships. For eg. Holland America offers “kidsonly” shore excursions in Alaska that include treasure hunts, tram rides and hikes. The Disney Magic and Disney Wonder have all-new teen-dedicated spaces in addition to age specific programmes for the very young and the pre-teens.

Increase in choices & flexibilities offered to passengers: Cruise ships are moving away from rigidity offering flexible dining times, open seating, alternative restaurants. Carnival “Fun Ships” have expanded dining options to include 24-hour pizzerias, New York-style delis, sushi bars and steakhouse-style supper clubs. A few cruise lines also allow guests to pre-reserve shore excursions and spa treatments online. Holland America is adding a couple’s massage room to all its ships. Princess has taken its new custom-developed Lotus Spa program fleetwide, with new treatment options such as Chakra Stone Therapy and Wild Strawberry Back Cleanse. Several Carnival ships have installed “virtual bicycles” allowing road warriors to “tour” various routes such as mountain pathways or snow-covered trails. Products are being made increasing exclusive and tailored for each tourists preferences.



Notes

Exotic locales and itineraries: In response to passengers continued demand for more and more new places to visit, cruise lines are looking for new and exotic locales to woo their customers. This has resulted in an explosion in itineraries with the cruise-lines today vying with one another in offering exotic cruise destinations. Radisson Seven Seas Cruises visit remote islands in Micronesia and Husavik in Iceland, whale-watching capital of Europe. Crystal Cruises can take you to Ho Chi Minh City or Split, Croatia. Cunard’s Queen Elizabeth 2 docks at the Canary Islands and Dakar, Senegal.

Growing Variety of Ships: While on the one hand several mega-monster cruise ships carrying as many as 2,600 passengers apiece have been launched, there is also a trend towards a wave of small ships limited to between 100 and 250 passengers, such as “exploration” cruise-ships (capable of entering small coves), sleek vessels such as of the Windstar Cruises, and a number of other smaller and elite ships. Though the small new ships aren’t very competitive in pricing, they’re generally less expensive than the larger luxury ships whose standards they emulate. Thus, the trend is now moving towards a choice of tiny, small, medium-sized, large, and monstrous vessels in just about any reasonable price range.

Growth in Drive Market Cruises: Following 9/11 many cruise lines have adjusted their itineraries to allow more ships to depart from drive-friendly ports to accommodate travellers who prefer not to fly. This has enabled the cruise lines to tap into an eager market who’d rather drive over than fly before hopping aboard a ship.

Rebirth Of The Passenger-Carrying Freighter: There’s yet another cruise alternative. Having all but disappeared about a decade ago, freighter sailings have made a remarkable comeback and are now available on no fewer than forty vessels going to all inhabited areas of the world. The reason behind this is increasing computerization of freighter operation that has lessened the need for crew and made their cabins available for passengers, at rates that can run as low as $80 a day per person, but more usually hover around $100 to $110 still making it attractive for passengers.

Boom in Theme Cruises: Along with the expansion in itineraries has come a vastly greater schedule of activities at sea, almost always at no extra charge to the basic tariff. Movies have been joined by full-scale stage shows; ocean skeet shooting now takes a rear seat to spa-style aerobics and yoga meditation; and “theme” cruises extra heavy attention to styles of music, historical periods, food specialties, murder-mystery, square dancing, lectures by athletes, chefs, poets, and inspirational psychologists are numbered in the dozens.

CASE STUDY 2: Viability of Inland Water Transport in India

Introduction

Water based transport is effective as generally speaking, operating costs of fuel are low and environmental pollution is lower than for corresponding volumes of movement by road, rail or air. A major advantage is that the main infrastructure – the waterway – is often naturally available, which then has to be “trained”, maintained and upgraded. Transport over waterways is especially effective when the source and/or destination are waterfront locations.

Policy motivation

The sector has received large funding in both the ninth and tenth plans. The sector has not been able to effectively utilize the funds allocated to it over the last few years [Planning Commission, 2001]. However, it continues to be a significant focus area for investments, for example, a Rs 300 crore investment planned by ADB [Indian Infrastructure, 2004]. IWT is an important component of the National Maritime


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Development Project (NMDP) as part of the overall maritime policy of the country. In this context, the main policy questions can be posed as follows.

Should the government invest in IWT? To what extent and where?

What is the role of the major institutions in this area (the most important one being IWAI)?

What are the policy instruments available to the government to regulate and support the sector at an “appropriate” level?

Who are the major stakeholders in this sector and how does policy in this area take into account their concerns?

Scope of the research

The potential for this mode of transport has been unquestioned over the years and it forms a significant fraction of ton-km of movement in countries across the world. In Germany IWT constitute 20% [WB, 2005] and in Bangladesh it is 32% [Rahman Mushfequr, 1994].

However, in India, it has become a very marginal part (0.15%) [Raghuram G, 2004] of the overall transport movement, both in absolute terms and in terms of share vis-à-vis other modes. One of the objectives of this research is to understand the reasons for this. Also, while investments in this sector have not equaled those in rail in early years and road in more recent times, there are proposals for investing in this sector. This research will try to eventually offer an opinion on the commercial viability of such investments by the government or other players.

IWT in India

Historically, at least on some geographical sectors, it has been a viable mode of freight transport. Currently, three major waterways in the country have been designated as National Waterways: NW-1, the Ganga-Bhagirathi-Hooghly system, from Allahabad to Haldia, NW- 2, the Brahmaputra system in Assam and NW-3, the West Coast canal system in Kerala. Commercially, the most important sector is the small tidal riverine system in Goa, comprising the Zuari and Mandovi rivers and the Cumbarjua canal. A number of possibilities do exist, in terms of in-principle navigable waterways, but the ones that offer some potential (a mix of feasibility and some traffic possibilities) are the riverine inlets along the coast, especially the ones near ports and some of the canal systems as part of larger water resource development projects. A further possibility can conceivably open up if and when the river interlinking project in the country is found viable. This last possibility is doubtful, at the moment.

Numerous studies (some of which have been listed in the references) have argued that inland waterways are per se a desirable and environmentally friendly mode of transport. In this research, after a brief look at passenger movements, the bulk of the report discusses freight movements on inland waterways.

Passenger movement

In India, the main passenger movements by inland waterways that are viable are ferry operations across rivers (at numerous locations on all waterways), on short stretches along rivers and tourism based passenger traffic (in Goa, Kerala, Sunderbans and Northern regions).

Details of such movement are given in the statistical summaries produced by IWAI, the Ministry of Shipping, the Planning Commission working group on IWT and State level authorities like West Bengal [TRW, 2001; TRW, 2002], Kerala etc. Some factors that affect passenger movement are discussed below.

Travel time vis-a-vis the alternate land based route: While time by land routes is generally reducing, with more and more bridges being constructed, it is still sometimes



Notes

quite viable and direct to have ferry based services in many parts. Faster ferries and launches are a possibility to encourage traffic on this node.

Cost: For passengers, the typical costs of ferry, while not high, have to be added to the costs of the subsequent mode of transport which may have to be used to achieve the end to end requirement of transport.

Interchange convenience: The waterway movement should be able to move seamlessly to other modes, eg bus and train.

A few studies have shown quite convincingly that inland waterways can have a major role to play in the integrated passenger transport planning in an urban area. For example, a study in the Cochin metro area suggests that IWT will be an option that is impossible to ignore in the future growth of the city and calls for integrated investments to increase complementarity with other modes, faster vessels, unified pricing, ticketing and targeted subsidies in the area.

Mumbai has experimented with faster modes of water transport such as hovercrafts (apart from continuing ferry systems), but a sustainable service mix has not been found, as of now.

Inland waterways provide a convenient function in related activities. Some of them are given below.

Carriage of vehicles (preferably in the roll-on-roll-off mode): West Bengal, Kerala and Goa have significant number of these ferry services, but there is potential for much more, with faster boats, proper landing facilities and interchange with other modes.

Tourism, including stay and entertainment: This is a growing activity with economic potential. In Kerala, Alappuzha and to a smaller extent, Kozhikode are centres of this activity, especially for houseboats. Boats that provide music and dining are becoming increasingly common in Mumbai, Goa and Kochi. Long distance river cruises, both as per schedule and as per a group demand are also available, though they retain an exclusive flavour [Outlook Publishing, 2004].

Water sports: This is a new sector that has some possibilities in the rivers in North and East India. White water rafting and trekking on iced mountainous stretches of river are examples.

Cargo movement

Historically, location of industrial activity has been influenced by logistical convenience of riverine transport possibilities, at a time when road and rail networks were not so well developed. This may not be true to the same extent today, although access to water for processing and in some cases effluent treatment is still a consideration in location.

The viability of goods movement using IWT is to be analyzed from the perspectives of technological and physical viability, commercial potential and operating policy of carriers and associated agencies. As in any mode of transport, some factors that affect the economics and operation of a transport are the availability of the channel or right-of-way, facilities at the ends of travel and the carriers or vessels, together with all the managerial and supporting infrastructural systems to manage the flows. In IWT, these translate to the availability of the waterway, terminal facilities like jetties and ports, barges and other vessels capable of navigation, and finally the management component.

In India, inland water transport on the Ganga may have provided among the earliest organized transport movements over significant distances, well before rail and road networks developed. Although the issue is not examined in detail here, movement and exports of commodities like tea, jute, spices in the eastern sector, connected to the


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riverine port in Kolkata have been among the early commercial drivers of the pre-independence subcontinent.

It is clear from aggregate statistics that the sector has been growing only very slowly in the National Waterways and other major waterways. The glaring exception is the tidal rivercanal system in Goa, which saw unprecedented growth and where some 30 million tons of iron ore moved by barges on the Mandovi-Zuari-Cumbarjua system in 2003-04 [GMOEA, 2004]. This solitary example is enough to demonstrate the economic potential per se and may provide some learning points in a variety of dimensions.

In the rest of the document, we examine the technological and physical viability, followed by the traffic potential (including a consideration of other competing modes), and finally the economics of IWT. The management of the sector at the policy level is also addressed.

Technological and physical viability

Water flow: The basic prerequisite for water based transport is the availability of water flow.

In the main waterways, this may have decreased over the years because of increased usage arising from habitation, industrial and agricultural needs. The extent of regular flow may also have decreased because of the impact of dams on river streams.

River training, dredging and navigation: The next requirement is that the river is trained and consistently provides a sufficient depth vis-à-vis the draft of the vessels that are expected to ply on it. This is possible for some types of river beds and may require maintenance of banks and dredging of the river bed periodically, to maintain the required depth. Recent cost estimates of river training on Sabarmati river provide a figure of about Rs 10 to 11 crores/km [SRFDCL, 1998] on each bank. In rural areas, the figure could be lower, say Rs 8 to 9 crores/km.

In India, IWAI, in principle, commits to maintaining a year-round draft of 2 m along the National Waterways [Planning Commission, 2001]. This is not found to be the case, in practice. One possibility is that it is strategically justified to provide this draft on appropriate channels, by an assessment of the commercial traffic potential on each waterway. The other option is for operators to plan for a realistic draft of 1.5 m and see if that is operationally viable.

The requirements for navigation are channel markings, night navigational aids, including the possible deployment of GPS and river maps and charts for navigation. The National Inland Navigation Institute in Patna has been set up to oversee this development by the use of appropriate technology.

Locks: The physical drop of the river channel cannot be too much, or else locks have to be provided to manage the height differential. For example, the planned Three Gorges Dam on the Yangtze will have five locks for descent [www.travelchinaguide.com].

Access of cargo: The cargo has to be accessible to the waterway at both ends, to ensure door to door movement.

Availability of vessels and associated infrastructure: India has a long history of river based water transport. Among operators, the government owned CIWTC (Central Inland Water Transport Corporation) is the largest owner of vessels and barges. Private operators have a substantial fleet, but have not been investing in new vessels in the last decade. In fact, there has been scrapping vessels of late, and all operators may require some help in reviving them and investing in new vessels. The role of the (government owned) shipyards here is important, including the CIWTC owned and operated Rajabagan Dock Yard in Kolkata.

CIWTC can provide repair facilities for other operators in the area as well.



Notes

There is a well established industry of manufacture, maintenance and repair of barges in Goa, some of which are operated by mining companies which use barges for transport of ore, and some other organizations. IWT is a sustained economic activity in Goa, and there are many support services available in the state.

Commercial potential

From a supply chain perspective, the main reason for using inland waterways as a mode of transport is the fact that it decreases the total cost, when used as part of the end to end logistical requirement of cargo movement.

Geographical advantage of water bridging: This is strongest when the movement is across the river, but can be present in some other movements. Examples of these are passenger ferry services across rivers and transport in the Sundarbans areas in India and Bangladesh.

River based origins/destinations: The next level of advantage is when there is either an origin or a destination, or both, at a river location. This can be classified as follows.

Project based requirements of commodities: This demand is for material relating to a particular project activity. It consists of construction material and transport of equipment related to the project. Where the project is river based (e.g. river bridges, hydro-electric plants), it is most attractive, as the destination is the water site itself. Even otherwise, it may be viable in some cases.

Existing traffic: By far the biggest example here is the iron ore export requirement from mines in north and south Goa, which access the Mandovi and Zuari rivers. This movement is expected to continue, along with movement of ore from Karnataka, after blending, for the next five to seven years at least.

Potential traffic: Oil refineries in the north east: Numaligarh, Dibrugarh and Digboi. Oil refineries elsewhere on river bank locations such as Haldia and Barauni.

Thermal power plants, for bringing in coal and carrying away fly-ash at locations like Barh and Bandel.

While many industries are located near water sources for convenience of water use, the potential of using water for transport does not seem to be there. For example, the thermal power plants in Ahmedabad, Bhusaval and other river locations. A major constraint in this is the non-availability of year long draft.

Small customers with regular demand: This is based on agriculture or manufacture of commodities and meant for consumption/processing within the country, or for export. This segment is slowly increasing, from the estimates of CIWTC [CIWTC, 2004a] and other barge operators in NW-1.

Small customers with occasional demand: These could be occasional users of IWT, but could sometimes be high value movements, such as movement of machinery and equipment on river based projects. This has proved to be a viable activity for bridge building.

Export/import traffic through ports: Exports and imports through ocean-going liners are a good candidate for IWT where possible, because of the economic value and impact.

Existing traffic: As discussed above, iron ore from Mormugao and Panaji ports is fed entirely by barge traffic through the Zuari and Mandovi river system in Goa.

Potential traffic: Some traffic through Haldia port is viable from a supply chain principle because the riverine system is connected to the port operation and barges can unload directly on to ocean going vessels, provided customs formalities can be carried out without entering the port. The cost savings are likely to be significant.


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Volumes of flow (ton and ton-km): Aggregate assessments of traffic are available in statistical studies of the Ministry of Shipping and the IWAI, as well as the studies made on Inland Waterways as part of the Plan documents for the 10th Five Year plan. Disaggregate assessments about potential traffic on NW-1 and 2 are available from CIWTC and other operator records and also in the data provided region-wise in the IWAI supported studies on the development of the Kolkata Port Trust region.

Value of flow and revenue potential: CIWTC operates under a rate schedule proposed by IWAI. Given the service requirements (see below), the main consideration is the volume occupancy of the material and whether the vessel can carry the required volume. The revenue potential is also subject to the charges for loading and unloading, which has to be borne by the user. The movement for FACT in Kerala is marginally competitive.

Service requirements: The basic requirement of freight demand is physical handling from door to door. In the case of IWT, this involves movement to and from the water mode, including the loading and unloading of material on to and from the vessel and proper storage of the material on docks and in the vessel.

IWT is generally slow in movement, compared to other modes, so very expensive cargo does not move by this mode, unless there are physical constraints to moving by other modes. IWT is a comparatively secure mode of movement.

Competing modes: For IWT, the competing modes of transport are rail and road, and combinations of these (sometimes with IWT itself). Broadly speaking road offers small load options, faster movement, door to door service, but higher rates. Rail offers large batch economies, quick movement, partly door-to-door service, and medium rates. IWT offers medium batch size possibilities, slow movement, limited door-to-door opportunities and cheap rates.

There are examples such as Kerala, where traffic has shifted from IWT to other modes in recent times in the last one decade.

Operational viability

Costs: IWT is a capital intensive industry, even for operators, as significant investment is required in vessels, for a start. Investments required to provide and maintain the waterway and terminals are of an even higher scale and come under the heading of infrastructure. In today’s environment, it is only IWAI which can maintain the waterway and a few large customers (e.g. project based shippers and bulk manufacturers like refineries and steel plants) who can participate in investments for terminals.

Operating costs can be categorized as below.

• Vehicle costs

• Fuel costs

• Crew costs

• Maintenance costs

• Loading Unloading costs

Besides these, there are costs to do with contingencies like running aground and damage to vessels. These are not rare, under current operating conditions of insufficient draft, even in the National Waterways.

Systems perspectives: A detailed study emphasizing the systems perspective in analyzing the IWT mode is presented in a companion research paper by the authors [Raghuram and Rangaraj, 2005]. This study draws on illustrative examples from the Goa scenario and typical freight operations over multiple destinations in NW-1 and highlights the principles of supply chain management and the possible use of network



Notes

flow models and scheduling models for analysis. Also proposed is a model for identifying the range of viable operation from the point of view of (a) the competitive fare provided by other modes, (b) the size of barge and therefore the operating cost (c) the desired throughput and (d) the total cost to the customer (and therefore a price that can be charged).

Fleet planning: Barge operations rely on economies of scale in movement, as fixed costs of the vessel (barge) and crew are quite high. The trade offs here are as follows: Larger barges have more draft and require a larger water depth, but have lower operating costs. For customers, the lower freight costs are offset by higher inventory staging costs. The barge size is also limited by the throughput consideration, as large barges may have operating restrictions and small barges may cause too much congestion in handling the required traffic.

This leads to an operating range of sizes and related costs that are incurred and therefore the prices offered to customers.

Scheduling: Two types of schedules are possible in transport operations. Fixed schedule movements (which provide for more certainty for customers, makes vehicle deployment easy and where operational costs are more controlled) and variable schedules (which provide for more responsiveness and can reduce unremunerative runs). CIWTC operates both types of services [CIWTC, 2004]. In NW-1 and 2, it is the only operator that has a large enough fleet to be able to attempt fixed schedule movements.

Summary of operational viability: From the analysis of operations in NW-1 and the Goa iron ore movements by barge, it becomes clear that barge economics is a capital and scale intensive activity. The preferred barge size in the NW-1 sector seems to be about 750 T, given an optimistic view of the draft that is available (when sufficient draft is not available, the vessel has to be operate below capacity). In Goa, the preferred size is now about 1500 T and 2000 T barges are also operated. This is viable, given the volumes of cargo and also the efficient loading and unloading practices, which allow for good barge utilization. In NW-1, one may have to consider smaller barge sizes with more valuable commodities. Here, since the servicing requirements are likely to be higher than what IWT can offer, a big market is doubtful initially. Agri-export is one possibility and the other is project related activity, both of which have some volume potential.

Other issues

Role of agencies

In India, a number of central and state agencies play a role in the regulation, operation and sustenance of inland water transport. Their smooth functioning is required for IWT to be viable. This is a complex issue and needs to be addressed in the remaining part of this research. Some of the actors in this sector are given below.

• IWAI

• CIWTC and other operators

• Customers

• State governments

• Port authorities

• Transport development agencies

The regulatory-cum-infrastructure provider role that IWAI is supposed to take needs to be sharpened keeping in mind the operational aspects of this sector. IWAI has taken on a limited role in provision of some infrastructure at terminals (for example at Patna, Guwahati and Kerala) and has also commissioned some medium size barges for


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operation. But the main responsibility of IWAI remains the provision an effective waterway at least on the National Waterway system.

The system of recovering reasonable operational charges for various services and thereby ensuring a level of service on the infrastructure has not yet evolved in inland waterways. In India, the other two major modes of transport (road and rail) have very different operating and regulatory models and a suitable model needs to be evolved for IWT.

Inland water operations are often interfaced with coastal and deep sea movements. While ocean movements are guided by a mix of international and national laws, coastal shipping is within the ambit of the central government control and an attempt can be made to synergise this activity with IWT where possible. The major issues are those of operating standards, including vessel certification, safety and personnel related concerns.

CIWTC, based in Kolkata is an organization that has been loss making and which has been considered for privatization. It has a large fleet of barges, but not many that are in operation (for both traffic reasons and operability). A complementary asset is Rajabagan Dock Yard, which does have facilities for ship-building and repair of the required range of vessels.

Although the Dock Yard has also shown some improvement, neither it nor the River Services Division is close to being financially and operationally viable as of now. Given the declining demand and the large overheads of CIWTC, its continued presence is not critical for IWT.

The various services provided by CIWTC would however retain their significance. This includes ship-building and repair, terminal operations, barge operations and warehousing. The National Inland Navigation Institute is functioning in India. It has limited staff strengthand has so far done training and certification and a few focused studies.

Other country experiences

Surveys have been done in past reports, of other countries where inland waterways have been successfully used and continue to be used. In the region, UNESCAP (United Nations Economic and Social Commission for Asia and the Pacific) publications on IWT give brief comparative pictures of India, Bangladesh, China, Indonesia, Thailand and the Mekong river system. Published policy overviews on IWT also discuss measures such as standardisation of navigation rules and modernization strategies through this forum. An initiative taken by Japan attempts to consolidate the knowledge base and facilitate exchanges of good practices on IWT.

IWT experience across the world is varied and offers interesting comparisons. What follows is an indicative set of observations.

Bangladesh: A significant fraction (about 35%) of the freight movement in the country is by IWT because of the geography of the region. Riverine ports are quite well developed and competing modes (rail and road) are not as developed in comparative terms.

Thailand: IWT is next to road in share of freight carried (about 20 million tons). Passenger movement in and around Bangkok is significant, with different types of services, including express services.

North America: Freight movements on the Great Lakes and the Mississippi continue to be important modes. Leisure activities based on water movement are quite common. The Transportation Research Board publishes studies on a variety of aspects of IWT in North America and elsewhere.

Europe: IWT is estimated to carry about 7 per cent (and growing) of freight traffic in those EU states. In the EU states with waterways, this proportion is 12 % overall and it



Notes

accounts for more than 40% of ton-km in some regions [European Commission, 2001]. River training and use of rivers and canals for a variety of purposes has been common for a number of years. IWT is seen as a complementary mode of transport, and offers another option as part of the environmental impacts of different modes of transport and the increasing role of multimodal transport and containerization. The current challenges are safety and the development of information systems to harmonize IWT traffic across Europe.

China: The navigable inland waterways in China total more than 100,000 kilometers and there are a large number of inland port facilities with berths for large vessels. IWT accounts for almost 10 per cent of the total freight tonnage carried in the country, and of that, two thirds is carried on the Yangtze river (including commodities like coal, steel, cement, containers and LPG). In particular, many steel mills are located along the Yangtze river and use barges for transport of material. The downstream part of the river carries barges up to 10000 T capacity. Barges move on the river for more than 3000 km, but a shift in priorities is reflected in the construction of the Three Gorges Dam, which is a 370 mile long reservoir and which will now involve a system of locks which barges will have to traverse. The full impact of this on river traffic is not yet clear. In fact, navigability of the river upstream and downstream may actually improve with the controlled flow of water that the dam provides.

Environmental impact

Water is per se a scarce resource in the country. The use of water for facilitating transport ay be sometimes difficult to justify. Related to this is the increased drawing of water for drinking, irrigation, construction and other activity, which reduces the overall flow of water in downstream regions. This makes transport operations difficult. Dams provide another level differential barrier to smooth transport. Given all these constraints, inland water transport is not at all the automatic first choice for movement of goods – a position that it enjoyed for many centuries in the past.

However, where it is physically possible and commercially viable as part of a supply chain for a shipper, it is usually the most appealing environmentally. The basic reason for this is low fuel usage and therefore low pollution from emissions, and ability to carry in bulk, thereby reducing handling related pollution and congestion.

Policy issues in India

National

The key issues here are investments in national waterways and associated infrastructure. The proportion of traffic carried by IWT is very small. One of the reasons is the development of road and rail traffic, which have become very viable modes of transport. But a case can also be made that investment in the IWT sector has been small, compared to the other two.

Worldwide experience suggests that strategic investments in some modes of transport can impact shares of movement significantly and with the resulting impact on overall costs and competitiveness. In this context, IWT can be examined, at least for selective enhancement of the sector.

The general principle of investment by the government in such sectors is that it concerns those facilities and operations which go outside a normal commercial domain. Large investments with long term impact and which are likely to be used by numerous commercial entities are candidates for government participation. River training, including dredging, mapping of the river and providing navigational support are some tasks in this domain.

Tasks such as terminal construction and operation are viable for private participation where appropriate. The operations in Goa indicate that the private sector has the capability and will to invest in barge ownership, operation and supporting services such as barge building, maintenance and repair. A significant facilitator is the


24 Transport System

Notes

terminal facility for handling iron ore at Mormugao Port. Emerging private participation in port activities is an interesting possibility in the future. At Mormugao also, there is private operation of some berths and coal handling and dry dock repair operations already.

Exhibit 1 summarizes the various facets of inland waterway activities and participation and a representative existing mix of actors in this sector. The role of

regulation and waterway provisioning is currently only with IWAI and limited to the National Waterways.

International

The main issue is the protocol with Bangladesh. This is important for the following reasons.

• Export traffic to Bangladesh and a small amount of import from Bangladesh is a component of trade on both NW-1 and NW-2. River movement is especially viable as there are a number of inland and riverine ports in Bangladesh which are oriented to cargo handling.

• Domestic movements on NW-2 from/to the Assam region to/from Haldia/Kolkata areas pass through a significant stretch in Bangladesh and are subject to the protocol.

While the protocol permits vessels of either country to carry Indo-Bangladesh trade cargo and prohibits one country’s vessels carrying intra-country traffic of the other, the Bangladesh vessels are permitted to carry Indian domestic cargo passing via Bangladesh. Further, Bangladesh vessels carrying their domestic cargo have a short empty lead to come to Haldia/Kolkata for picking up import cargo (which is significantly higher), while the same economics would not apply for Indian vessels. Consequently, Bangladesh vessels are able to offer more competitive rates than Indian vessels.

Conclusions



Notes

Freight and passenger movement by water is an attractive proposition prima facie, being one of the earliest modes of freight transport used world-over. The potential is sufficient to justify a national body such as the IWAI with a sharp role in nurturing the sector. But its sustenance in today’s economic context in India needs to be judged contextually in the case of each waterway or waterway system.

The conclusions of our study are divided into five broad areas below.

Prima facie viability: Should Government invest in IWT?

Given a sector turnover of about Rs 110 crores annually, the sector investment by the government in the 9th plan: Rs 308 crores (Rs 1701 crores, proposed) and in the 10th plan:

(Rs 5665 crores, proposed) does not appear to commercially or economically viable, even with projections of the growth of traffic, barring in a few sectors.

Existence of a driving cargo stream of sufficient volume is required to justify large investments where natural depth of water and navigability are not adequate, per se. Natural draft of at least 2 m should be available for operations of craft of viable size.

Passenger movements are possible at low cost, but would need faster vessels and good interchange facilities than area currently available. Launches carrying road vehicles may be a viable and cost-effective proposition in some parts of the country.

Tourism and related activities offer good potential with appropriate local investments and operational control, wherever relevant.

Technical capability and vessel supply is available in the country and a unified and liberalized policy with regard to IWT and coastal shipping will benefit the sector.

Finally to answer the question, we say that Government should invest in a measured manner, given the considerations of a possible primary driving cargo and specific geographic potential. A tie up with the industrial location policy to drive demand would be essential.

Where should Government invest?

Possibilities are outlined for each waterway and port interface.

• NW-1: Investment based on integrated water use for irrigation, drinking and industry and for controlled flow

• NW-2: Investment due to strategic importance as an alternate route for bulk movements

• NW-3: Tourism related investment

• New canal systems (eg Narmada canal)

• River linking projects, if pursued by Government, should explicitly provide for IWT

The locations where IWT for freight is successful in India are because of the interface with ports and the larger marine supply chain. A further opportunity exists if there are vessels capable of inland as well as coastal operations or there is a good interface between vessels on these two sectors.

Tidal river systems are especially attractive in this context also because their draft availability is generally good and also there is no competing demand for the saline water in these systems for use in drinking, irrigation or construction.

Possible driving cargo for the future are:

• Bulk for export or import through ports (Mormugao, Cochin, Haldia, Kolkata)

• Coal to Bangladesh


26 Transport System

Notes

• Coal to and fly-ash from thermal power plants

• Construction material for the North East (dams and other large projects)

• Agri exports

Government policy: Instruments

Industrial location policy has played a big influence on the demand for cargo and can play a big role in providing the driving cargo.

Adjustable subsidies on movements by IWT would be a better way to build traffic, rather than enforcing percentages of movements by a particular mode.

The protocol with Bangladesh on usage of Bangladesh waters by Indian vessels and vice versa and the commercial conditions of operation need to be uniform and liberalized.

Governmental policy: Institutions

IWAI needs to be accountable for the provision of draft on the National Waterways.

Certification (perhaps by NINI or an independent body) of this may be necessary.

IWAI needs to initiate a revenue model based on a combination of usage fees, cess (on other transport modes to finance this mode, if environmentally desirable) and explicit subsidy needs to be in place. The local revenue model in Goa offers one way of doing this.

Traffic potential needs to be professionally assessed with a competitive perspective in the following dimensions: Origin-Destination flows; Commodity-wise flows and values, and Revenue potential.

Key stakeholders

Apart from the planning commission, central ministries and institutions like the IWAI, the following stakeholders should also be taken along for policy formulation and implementation

• Barge operators

• Shippers (eg mine owners)

• Bangladesh operators

• State Governments.

1.11 Further Readings http://dev01.incredibleindia.org/images/docs/trade-pdf/surveys-and-studies/study-

reports/Cruise%20Tourism%20-%20Potential%20&%20Strategy%20Study.pdf http://www.ieor.iitb.ac.in/files/faculty/narayan/transport/iwt-tec-rep-oct-05.pdf



Notes

http://www.ieor.iitb.ac.in/files/faculty/narayan/transport/iwt-tec-rep-oct-05.pdf

http://dev01.incredibleindia.org/images/docs/trade-pdf/surveys-and-studies/study-reports/Cruise%20Tourism%20-%20Potential%20&%20Strategy%20Study.pdf

http://dev01.incredibleindia.org/images/docs/trade-pdf/surveys-and-studies/study-reports/Cruise%20Tourism%20-%20Potential%20&%20Strategy%20Study.pdf