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Question Description

5. Thoroughly evaluate the alternatives, their outcomes, and their possible effects

on all of the parties involved.

● For each alternative: what is the effect on each important stakeholder if this

course of action is followed?

● Are there any effects on stakeholders whom you do not consider “important”?

● Do these alternatives satisfy the ethical model (ethical theory) you consider most

relevant?

● • (This can be a lengthy analysis as there are many stakeholders in society. It is

a

major part of your paper and requires you to consider all of the possibilities and their

effects on the stakeholders. It should be approximately three to four pages.)

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oikos Case Writing Competition 2013 3rd Prize oikos Case Writing Competition 2013 Corporate Sustainability Track 3rd Place Protecting Our Oceans: Sustainability at Holland America Line Murray Silverman, San Francisco State University This is an Online Inspection Copy. Protected under Copyright Law. Reproduction Forbidden unless Authorized. Questions relating to permission should be directed to: msilver@sfsu.edu Copyright © 2013 by the Author. All rights reserved. This case was prepared by Murray Silverman as a basis for class discussion rather than to illustrate the effective or ineffective handling of an administrative situation. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form by any means without permission. Murray Silverman oikos case collection Protecting Our Oceans: Sustainability at Holland America Lines 1 http://www.oikos-international.org/academic/case-collection/ oikos Case Writing Competition 2013 3rd Prize Introduction Holland America Line (HAL) was proud of its reputation as a sustainability leader in the global cruise industry. Bill Morani, V.P. Safety & Environmental Management Systems, was responsible for ensuring that the company and fleet complied with safety and environmental regulations and policies. He had been with HAL since 2003 following a 25-year career in the U.S. Coast Guard. In light of the maritime industry’s significant environmental impacts and the complex and rapidly evolving regulatory environment, Bill was thinking about the company’s current initiatives in order to prioritize the areas that should be emphasized in the future. Bill’s thinking was interrupted as Dan Grausz, Executive V.P., Fleet Operations, came into his office waving an article about a Stena Line ferry that claimed that the two helical turbines on the deck of one of their ferries was achieving cost-effective reductions in fuel use. Dan was the leader of the Fuel Conservation Committee, and he reminded Bill that wind turbines on the ship’s deck was one of the 56 initiatives in the spreadsheet tracking their priority in being considered for adoption. However, this initiative had been assigned a very low priority, and Dan asked Bill to report back to the Fuel Conservation Committee (FCC) as to whether time and resources should be expended in reconsidering or piloting it. Bill was particularly proud of the progress HAL had made in increasing fuel efficiency. HAL had committed to reduce its fuel use (on a per passenger berth – per nautical mile traveled basis), and thus it’s associated carbon emission intensity by 20% between 2005 and 2015. They achieved this goal by 2011. Reductions in the quantity of fuel used to sail each guest on a voyage reduced HAL’s carbon emission intensity as well as the intensity of emissions of sulfur and nitrous oxides (SOX and NOX) and particulate matter (PM). Regulations relating to SOX, NOX and PM were becoming a major issue for the cruise industry, as there was increasing concern about their health and environmental impacts. According to Bill: “Fuel conservation is our ‘go-to’ strategy. It is a win-win. By consuming less fuel, we are not emitting as much exhausts containing green house gases and other pollutants, while reducing HAL’s fuel costs, and by the way, the money saved through fuel conservation can help offset the increased cost of cleaner fuel.” Bill put aside his thinking about broader sustainability priorities in order to look into the wind turbine idea. Our Oceans Holland America Line (HAL) and the cruise industry business models rely on the oceans as their most important resource. The unspoiled waters and coral reefs at port destinations are a major attraction for passengers. Our oceans cover 71% of the earth’s surface and they provide food in the form of fish and shellfish, they are used for transportation and for recreation, such as swimming, sailing, diving and surfing. They are a source of biomedical organisms that help fight disease. And very importantly, the ocean plays a significant role in Murray Silverman Protecting Our Oceans: Sustainability at Holland America Lines 2 oikos Case Writing Competition 2013 3rd Prize regulating the planet’s climate. The oceans are an integral part of the world’s climate system, absorbing CO2 and heat. The oceans and the atmosphere work together in defining our weather patterns. i Unfortunately, our oceans face many threats: Overfishing: More than half the planet depends on the oceans for its primary source of food, yet most of the world’s fisheries are being fished at levels above their maximum sustainable yield. Furthermore, harmful fishing methods unnecessarily kill turtles, dolphins and other animals and destroy critical habitat. Pollution: There are numerous sources of ocean pollution. An enormous amount of oil has been accidentally spilled from ships. While this in itself is destructive to aquatic plant and animal life, the threat from land-based activities is also great. Eighty percent of all pollution in seas and oceans comes from land-based activities. ii More oil reaches the ocean each year as a result of leaking automobiles and other non-point sources than was spilled by the Exxon Valdez. Eutrophication: Another serious ocean threat is algal blooms which form and spread in coastal areas due to nutrient overloading primarily as a result of fertilizer and topsoil runoff and sewage discharges in coastal areas. As the algae die and decompose, the water is depleted of available oxygen, causing the death of other organisms, such as fish. Black and grey water: The shipping industry, as well as recreational boats, discharge black water (human waste) and grey water (water from galley sinks and showers) at varying distances from shore. Cruise ships are outfitted with equipment that treats the black and gray water prior to overboard discharge. Ocean acidification: Global warming is primarily driven by the increasing accumulation of CO2 in the atmosphere due to the burning of fossil fuels. On the positive side for the earth’s ecosystem, the oceans absorb about one third of this anthropogenic carbon, reducing the atmospheric warming potential. However, the CO2 absorbed is converted into carbonic acid, which increases the acidity of the ocean. The current rate of ocean acidification is unprecedented, and the increase in acidity dissolves the carbonates needed by organisms such as corals and oysters, thereby threatening their survival. It is estimated that acidification is a major contributor along with ocean warming to the loss of 20% of our coral reefs, and that by mid-century; we may lose another 50%. iii Ocean warming: Global warming is also increasing the temperature of the ocean. Increasing ocean temperature leads to significant marine ecosystem change, influencing the generation of plankton, which forms the base of the ocean’s food web. Coral reefs are also endangered as they are extremely sensitive to temperature change. Over 90% of marine species are directly or indirectly dependent on these reefs. iv Tourism: While tourism generates vast amounts of income for host countries, it can have negative social and environmental side effects. The most significant impacts are in the heavily visited coastal areas. Sewage and waste emanating from the local residents, resorts, hotels, restaurants and the housing that supports the tourism related employees can find their way directly or indirectly into the bays and ocean. Even when there is municipal infrastructure, the sewage system can become overwhelmed or inadequate, resulting in seepage or dumping into the ocean. Also, careless diving, snorkeling and other tour activities can damage coral reefs. Murray Silverman Protecting Our Oceans: Sustainability at Holland America Lines 3 oikos Case Writing Competition 2013 3rd Prize Ocean Protection The oceans are a global commons that is not under the control of a single nation, except for the territorial waters of coastal nations. There are a number of formal institutions and instruments that provide national governments the opportunity to cooperate in managing the ocean commons. These agreements may be bi-lateral, regional or global. Examples of these agreements include the UN Convention on the Law of the Sea (UNCLOS), which is a comprehensive treaty establishing protocols for the use and exploitation of the ocean and its resources. The International Whaling Convention (IWC), which implements the International Convention for the Regulation of Whaling, regulates the hunting of great whales. There are many other agreements and conventions, but they all apply only to nations that sign them, and even then there can be variations in enforcement. v Cruise Industry According to the World Tourism Organization (WTO), tourism has become one of the largest and fastest growing economic sectors in the world. vi Taking a cruise is a popular tourist experience and the cruise industry is one of the fastest growing sectors of the tourism industry. Prior to the mid-20th century, ships focused on transporting customers to a particular destination. The modern cruise industry traces its beginnings to the early 1970’s in Miami, USA with cruises throughout the Caribbean. The industry created a reasonably priced opportunity for many people to experience a resort type vacation. Sometimes, cruise ships are referred to as floating hotels or marine resorts, because like land resorts, they have rooms, restaurants, entertainment, shops, spas, business centers, casinos, swimming pools and other amenities. Cruise ships travel worldwide in every ocean, and frequently visit the most pristine coastal waters and sensitive marine eco-systems. Cruise packages typically include more than one destination. The most popular destinations are the Caribbean, the Mediterranean, a number of European ports, the Bahamas and Alaska. There are approximately 2000 ports capable of receiving cruise ships. The amount of time spent at a destination can vary from one-half day to many days, depending on the design of the cruise package. The length of cruises can vary from 2 days to over two weeks, with an average length of about seven days. Destinations vary from tropical beaches like Cozumel to nature-based destinations such as Alaska while others might feature historical and culturally rich locations such as Istanbul. The cruise product is incredibly diversified, based on destination, ship design, on-board and on-shore activities, themes and cruise lengths. Cruise accommodations and amenities differ and are priced accordingly. A typical classification of cruise types ranges from budget to conventional to premium and lastly to luxury. vii Exhibit 1 elaborates on the differences between these categories. The passenger capacity of cruise ships tends to be larger at the budget and conventional categories and varies from a few hundred to over five thousand passengers. The popularity of cruising is reflected in its growth. Since 1980, the industry has had an annual passenger growth rate of 7.6%. Between 1990 and 2010, over 191 million passengers have taken a cruise. viii Twenty four percent of the American population has cruised. As demand grew, the industry responded by building more cruise ships. As of 2012, there were Murray Silverman Protecting Our Oceans: Sustainability at Holland America Lines 4 oikos Case Writing Competition 2013 3rd Prize 256 cruise ships. ix Newer ships tend to be bigger, they include innovative amenities such as planetariums and bowling alleys and they are being designed to conserve fuel. The typical cruise passenger is predominately Caucasian (93%), average age is 46 years, well educated, married (83%) with an average household income between ($90-100k). x The leading factors in the customer decision to select a cruise package are the destination and the price. Customers tend to be very price sensitive. It does not appear that many customers factor a cruise line’s environmental practices into their choice of cruise lines. xi The uniqueness of the experience also ranks highly. The customer can choose from luxury, premium, conventional and budget offerings based on the packages being offered and the price. The packages are highly differentiated based on destination and the amenities associated with the ship. Ninety percent of the bookings come through travel agents. xii Industry Structure The cruise line industry is a 30 billion dollar a year global industry. Three major cruise companies dominate the industry, and in 2012 controlled 84.3% market share based on number of passengers: Carnival Corporation (51.6%), Royal Caribbean Cruises Ltd. (21%) and Norwegian Cruise Line (7.1%). xiii The major cruise companies each have a number of brands, allowing them to operate within the different pricing segments. The market shares of the brands of Carnival, which includes HAL, are listed in Exhibit 2 along with the market shares of other cruise lines. Many of HAL’s and Royal Caribbean’s brands were a result of acquisitions. The resulting consolidation of the industry led to the high level of market share concentration. However, this level of concentration was not viewed as anti-competitive by the Federal Trade Commission, because cruise ships are viewed as part of the resort industry, rather than as an independent cruise industry. Carnival Corporation had 2011 revenues of $15.8 billion and averaged net income to revenue of 13.0% over the three years 2009-11. Royal Caribbean had 2011 revenues of $7.5 billion and averaged net income to revenue of 6.1% over those three years. xiv There are a number of Cruise Line Associations. The largest is the Cruise Line Industry Association (CLIA), whose membership includes 22 of the world’s largest cruise line companies, accounting for 97% of the demand for cruises. The cruise lines have the ability to compete with each other on the basis of a highly diversified set of offerings. Much like hotels, they offer different levels of comfort and style, all priced accordingly. In addition, cruise lines can vary destinations, cruise lengths, ship themes and amenities in the packages they offer. To the envy of traditional hotels, the major cruise lines operate at 100% occupancy levels. They do this through a marginal pricing strategy, adjusting prices downward as the date of departure approaches. There are major barriers to entry and exit in the industry due to the high cost of purchasing ($300-500 million) or selling a single cruise ship and the large investment required to operate a cruise line. In terms of the supply chain, there are many sellers to choose from in terms of food, supplies, equipment and fuel. On the other hand, ship builders are few and are in a strong negotiating position. Cruise ships need many employees. There might be as few as 2 to 2.5 passengers for each employee. While there is an ample supply of cabin Murray Silverman Protecting Our Oceans: Sustainability at Holland America Lines 5 oikos Case Writing Competition 2013 3rd Prize stewards and other lower skill jobs, there is a shortage of qualified deck and engineering officers. xv Regulations The mechanisms governing the shipping industry are complex and multi-layered. Shipping activities are regulated by a mixture of the international law of the sea and the laws of various nations. The country where a ship is registered is called the flag state. The flag state is obligated to ensure that the ships it registers comply with regulations set down in international conventions and agreements to which the flag state is a signatory. The International Maritime Organization (IMO) plays an important role in developing regulations relating to shipping. xvi The IMO is the United Nations’ specialized agency responsible for improving maritime safety and preventing pollution from ships. Their regulations relate to safety, labor standards and the environment. Even though a ship may be registered in a flag state that has not ratified a particular IMO convention, that ship must conform to the conventions adopted by nations it visits. Since almost all cruise ship ports are in nations that have ratified the IMO regulations, cruise ships must abide by IMO regulations. Sustainability in the Cruise Industry There is a wide range of environmental and social aspects and potential impacts associated with cruise ship operations. There are discharges to water and to air, enormous amounts of waste are generated and there are environmental aspects associated with inputs such as packaging and food sourcing. Social aspects relate to employees, cruise customers and impacts on destination communities. The environmental aspects and impacts are displayed in Exhibit 3. Prior to 2000, each of the 3 major cruise companies listed above had been convicted of violations of U.S. water quality laws. In response to these convictions, the Cruise Line Industry Association (CLIA) developed Cruise Industry Waste Management Practices and Procedures. xvii CLIA members have adopted these voluntary environmental standards, which exceed the requirements of U.S. and international laws. Formal adoption is reflected by a cruise line including the requirements in the company’s Safety Management System (SMS). As a result of these standards and an industry-wide effort to be responsible environmental citizens, the cruise industry has dramatically improved its environmental performance. However, some cruise lines perform better than others in the environmental and social arena, because CLIA does not describe the manner in which the voluntary standards are to be implemented by their members or impose consequences for failing to incorporate them. Also, there may be a failure to adhere to an adopted voluntary standard due to equipment failure or operator error. Lastly, the standards do not address every environmental issue. In comparing performance across cruise lines, Holland America Line has been recognized as a top performer. Murray Silverman Protecting Our Oceans: Sustainability at Holland America Lines 6 oikos Case Writing Competition 2013 3rd Prize Holland America Line and Sustainability Holland America Line (HAL) was founded as a shipping and passenger line in 1873 and offered its first vacation cruises in 1895. Over its first 136 years, HAL has carried over 11 million passengers. In 1989, HAL became a wholly owned subsidiary of Carnival Corporation. HAL maintains its own identity, operating its own fleet and managing its marketing, sales and administrative support. In 2011, HAL operated 15 mid-size ships and expected to carry 750,000 passengers to 350 ports in 100 countries. HAL operates ships with passenger capacities in the 1200 to 2100 passenger range. HAL is recognized as a leader in the industry’s premium’ segment. HAL has more than 14,000 employees and is headquartered in Seattle, Washington, USA. xviii Holland America has received a number of awards for environmental sustainability and responsible tourism. In 2006, HAL was awarded the Green Planet Award, which recognizes eco-minded hotels, resorts and cruise lines for outstanding environmental standards. xix This award was based on their ISO14001 certification and the installation of shore power plug-in systems on three ships. In 2008, Virgin Holidays awarded HAL the Responsible Tourism Award based on reducing dockside emissions by 20%, increasing recycling by 50% and instituting a training program to avoid ‘whale strikes’. xx HAL was named the World’s Leading Green Cruise Line at the World Travel Awards in London in 2011 xxi and they received a 2010 and 2012 Rear Admiral William M. Benkert Gold Environmental Protection Award from the U.S. Coast Guard. xxii HAL does not advertise its environmental credentials or accomplishments to potential customers, nor do any of their competitors. In 2009, HAL rele ...

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