A nervous first-time cruiser asked the ship’s Captain, “Do ships like this sink very often?”


A nervous first-time cruiser asked the ship’s Captain, “Do ships like this sink very often?”

No, replied the Captain, “usually only once.”

I used to think the cruise ship industry had many hallmarks of a good business

Yes, it costs big money to build big ships, but that means high barriers to entry, right?

And after the capex, the cash flow model is attractive – guests pay deposits in advance & then settle the balance before catching norovirus

Inventory turnover is high & there’s little risk in embroidered t-shirts, cheap vodka, the odd lobster & low-grade oil

I viewed cruise ships like hotels but without the property rates and with more flexibility – hurricanes flatten hotels & islands, but cruise ships just sail out of harm’s way and go to an island where the palm trees still sway

A perfect play on an aging population – who have (had?) the money & time to travel the world

No gambling licenses are required mid-ocean, nor any tax for their tax haven ships

While the experience doesn’t “float my boat”, go find someone who’s cruised, and chances are they’ve cruised many times

But then the pandemic arrived and exposed some industry truths

and now I fear some companies are on the rocks & could sink

I looked again at Carnival Cruises (down 22% yesterday) & according to Bloomberg, shareholders included an:

“Ethically conscious international shares index fund”


#esg enhanced UCITS ETF”


“World TPI Climate Transition Index equity”


“World ESG Screened Index Equity Fund”

and lots of Value ETFs …

Are these fund managers having a laugh?

Oh sorry, they’re Passives

Are these “rudderless ships” having a laugh?

because there truly is no one “at the wheel”

They don’t pay any taxes, arbitrage cheap labour, & burn the lowest quality fuel,

so, unless this ESG stands for

“Entertaining, Social, Getaway,” I’m not buying it

A recent article in the FT said that in 2017, cruise ships in Europe produced 10x the amount of SO2 as the continent’s 260m cars!

Those funds should buy Renault!

“Ethically conscious..”, “ESG enhanced…”, “climate transition..” – please!

There’s never a free lunch & the bill arrived in the form of tiny tax havens not even providing tiny bailouts

Leaving investors to provide bailouts – only big ones

In Carnival’s case,

Shares outstanding are up 66% in two years, and

Total liabilities have doubled since 2019 from $20bn to $41bn


$9.7bn of secured debt,
$25bn of unsecured debt

some are at “floating rates”…

Peak operating cash flow before capex was $5.5bn in 2018 but my guess is the

$5.7bn of ship build commitments +
$7bn of scheduled debt maturities over the next 3 years

will more than absorb any cash flow they hope to generate

What about the Value ETFs?

Well, index providers don’t consider debt, so any holders should look out for that lunch bill..

Nope, I’m giving this one a wide berth