Cruise ship ports in the U.S. may see some light at the end of the tunnel after more than a year without any departures because of the COVID-19 pandemic.

Updated guidance from the Centers for Disease Control and Prevention outlines a path to resuming some U.S. cruises in July, though the evolving situation will continue to put pressure on port revenues in Florida, Fitch Ratings says.

“I think through the COVID-19 pandemic the most pressure we’ve seen for ports has been on the cruise side,” Emma Griffith, senior director for infrastructure and project finance at Fitch, told The Bond Buyer. “The cargo side has performed very strongly.”

“Cruise ports have not been collecting revenues from normally stable cruise operations for over a year now,” Fitch said in a May 19 report. “While other leisure and travel sectors started to recover from coronavirus-driven slumps, the CDC moratorium on cruises prevents a recovery in the U.S. cruise sector. Liquidity and diversification from cargo revenues provided some cash flow relief, but protracted delays in the resumption of cruising add pressure to port performance the longer they continue.”

Late Tuesday, Royal Caribbean said it has received CDC permission to start test cruises from PortMiami in June in preparation for regular revenue sailings.

But the industry may face obstruction from the state’s government and governor.

After a pandemic that entered the public eye with deadly outbreaks aboard cruise ships, the major cruise lines plan to reassure passengers by requiring all crew and passengers to be fully vaccinated when they resume operations.

Florida Gov. Ron DeSantis has signed a law that prohibits businesses from requiring proof of vaccination. This may cause some cruise lines to avoid Florida ports if they can’t verify the vaccination status of its passengers.

If cruises in Florida don’t not resume until later in the year, Fitch says port revenue streams from cruise-related activity will remain stalled into a second season. Diversified ports will be under less pressure because cargo operations have been strong throughout the pandemic, the agency said.

Florida ports with 30% or more of revenues from cruise operations are the most vulnerable to further delays in the return to cruising, Fitch said. These include PortMiami, Canaveral Port Authority and Port Everglades, which are the first-, second- and third-busiest cruise ports in the world, respectively.

In November, Fitch cut the rating on Port Canaveral, the port with the biggest exposure to cruise revenues, to A-minus and assigned a negative outlook. Fitch kept the ratings of PortMiami and Everglades at A and assigned negative outlooks. While both these ports have significant cruise operations, large cargo activities mitigated the loss of cruise revenues.

Moody’s Investors Service rates the Miami Port Facility at A3 with a negative outlook, the Canaveral Port Authority at A3 with a negative outlook and the Broward County Seaport Enterprise/Everglades at A1.

Moody’s said the rating on PortMiami’s seaport revenue bonds reflects its position as the largest cruise port in the world, its revenue diversification across cargo and cruise and its implicit support from Miami-Dade County, which is rated Aa2 with a stable outlook.

“In the short run, PortMiami’s credit profile will be dominated by the length of time that cruise operations remain suspended. Prospects for a restart of cruise operations at the port at some point in 2021 are increasing with a growing number of vaccinated people in the U.S,” Moody’s said in a May 4 report.

Moody’s said in an April 30 report that the rating on Port Canaveral’s port revenue bonds reflects its competitive position in the cruise market as the second largest cruise port in the world.

“Management has demonstrated its ability to manage through more than 12 months of suspended cruise operations at the port through operating expense reductions and with an adequate liquidity profile,” Moody’s said.

S&P Global Ratings assigns Port Everglades an A rating with a negative outlook, as of March 26, 2020.

The state’s ports have benefited from tax-exempt bonding since 1996, when the Florida Ports Financing Commission was created.

Since its creation, the commission has sold $222.32 million of Series 1996 revenue bonds and $153.115 million of Series 1999 revenue bonds, whose proceeds befitted intermodal transportation projects at several ports.

In its report, Fitch noted several cruise lines have shifted their operations to ports outside of the United States such as Latin America and other Caribbean countries after they were unable to sail from their traditional homeports. U.S. cruises were halted after several ships saw coronavirus outbreaks and passenger deaths.

Most of the cruise industry has not returned to service, with less than 20 large ships operating worldwide this week, according to trade publication Cruise Industry News, which notes that lines are preparing to resume service as vaccinations levels increase in major markets.

The CDC said in April that firms may be able to start cruises again in July depending on how quickly they meet new safety requirements. The revised CDC plan is contingent on a high rate of crew and passenger vaccinations. The CDC’s new guidance will let ships skip previously mandated unpaid test voyages and allow sailings if 98% of the crew and 95% of the passengers are fully vaccinated.

Five cruise lines this week announced the scheduled return of Alaska cruises from Seattle starting in July, after the administration said President Biden will sign a bill suspending the requirement that foreign-flagged ships stop in a foreign port on cruises from an American homeport. All the major lines’ cruise ships are foreign-registered, and Canadian health authorities are banning large passenger ships until 2022.

“This is positive for Seattle and other West Coast cruise operators in that they can temporarily forgo stopping in Canada so they will be able to launch, with the safety precautions, some cruising up to Alaska,” Griffith said.

Florida and Alaska filed lawsuits in April to overturn the CDC’s coronavirus safety orders for cruise ships, though the cruise companies did not join these suits.

Florida also asked for an immediate halt to the CDC’s mandates. On May 19, a federal judge in Tampa ordered the state and the CDC to go into mediation, a move seen as a setback for DeSantis’ attempt to have the CDC’s rules set aside quickly. The judge gave the state and CDC until June 1 to come to an agreement.

Griffith said that there is growing optimism for the cruise sector.

“At least now we can see the light at the end of the tunnel, with some possibility to resume cruising in July,” she said.

There are other reasons for optimism in Florida, after state lawmakers allocated $250 million of federal stimulus money for seaport relief into the state budget.

Additionally, the end of strict pandemic restrictions looks likely to unleash pent-up consumer demand, something that could possibly benefit cruise lines.

According to a report released by Wells Fargo Securities on Monday, a seismic shift in consumption in the services sector is imminent.

“Our forecast calls for more than four and a half years of typical spending packed into the next nine months. It’s not any old rebound; it’s an earthquake,” Wells Fargo said. “The reopening of the service sector is giving way to an unprecedented level of pent-up demand for many services.”

Wells Fargo said that a high personal savings rate over the past year due to the pandemic combined with generous federal stimulus is leaving many households in a strong position to spend. The report added that the desire for people to get out and participate in experiences again has perhaps never been stronger.

“We expect services to be the main driver of consumer spending this year, led by discretionary spending in categories associated with leisure activities and vacation travel,” Wells Fargo said.

Griffith said she thought port revenue would remain under pressure for a little while longer though the long run looks better.

“It’s a positive development for the ports that we rate in that we now see more of a path towards resuming cruises. It’s a little later than we had initially had hoped. We had hoped to see some resumption in the second quarter, but we now think that’s more likely to hit the books in the third quarter,” she said. “But the demand that we have seen in other regions for cruises is pretty strong. So while we’re still showing resumption of full 2019 levels by 2024, there is a possibility that if people are anxious to cruise it could come back quicker than that.”

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