US Commerce Secretary’s Comments Give Cruise Operators Case Of Deja Vu

By Redd Brown

Feb 21, 2025 (Bloomberg) –Cruise operators may yet avoid paying more US corporate taxes despite threats from US Commerce Secretary Howard Lutnick to close favorable loopholes. 

Lutnick’s comments on Fox News Wednesday that that US-based cruise companies should be paying taxes even on ships registered abroad sent shares lower, though analysts indicated the worry may be overblown.

“We would note this is probably the 10th time in the last 15 years we have seen a politician (or other DC bureaucrat) talk about changing the tax structure of the cruise industry,” Stifel Managing Director Steven Wieczynski wrote in a note to clients. “Each time it was presented, it didn’t get very far.”

Industry shares fell sharply Thursday. Royal Caribbean Cruises Ltd. closed 7.6% lower, the largest drop since September 2022. Peers Carnival Corp. and Norwegian Cruise Line Holdings dropped by at least 4.9%.

All three continued slumping Friday, trading lower by around 1% each.

Cruise companies often operate their ships in international waters and can register those vessels in tax haven countries to avoid some US corporate levies. It’s exactly those sorts of practices with which Lutnick has taken issue. 

“You ever see a cruise ship with an American flag on the back?,” Lutnick said during the interview which aired Wednesday evening. “They have flags like Liberia or Panama. None of them pay taxes.”

“This is going to end under Donald Trump and those taxes are going to be paid.” He also called out foreign alcohol producers and the wider cargo shipping industry. 

The vessels are embedded in international laws and treaties governing the wider maritime trades, including cargo shipping. Targeting cruise ships would require significant changes to those rule books to collect dues from the pleasure crafts, analysts noted. The cruise industry represents less than 1% of the global commercial fleet, according to Cruise Lines International Association, an industry trade group.

They also pay significant port fees and could relocate abroad to avoid new additional taxes, according to Wieczynski, who sees the selloff as a buying opportunity. 

“Cruise lines pay substantial taxes and fees in the US — to the tune of nearly $2.5 billion, which represents 65% of the total taxes cruise lines pay worldwide, even though only a very small percentage of operations occur in U.S. waters,” CLIA said in an emailed statement. 

Should increased taxes come to pass, the maximum impact to profits would be 21% on US earnings, Bernstein senior analyst Richard Clarke wrote in a note. That hit wouldn’t be enough to change their product offerings, though it may discourage future investment. Recently, US cruise companies have spent billions beefing up their operations in the US and Caribbean. 

Cruise lines already employ tax mitigation teams that would work to counteract attempts by the US to collect taxes on revenue generated in international waters, wrote Sharon Zackfia, a partner with William Blair.

Royal Caribbean did not respond to requests to comment. Carnival and Norwegian directed Bloomberg News to CLIA’s statement. 

© 2025 Bloomberg L.P.

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