Shippax conference
Difficult times for European ferry operators
Facing overcapacity, stagnant demand and the looming 2015 deadline for the introduction of the European Commission directive on low sulphur fuel, ferry operators are struggling for answers
AT the Ferry Shipping Conference 2013, held on board the P&O Ferries vessel Pride of Rotterdam plying between Rotterdam and Hull, a succession of senior executives from leading European ferry companies lined up to set what is a depressed scene. They outlined their current struggle to cope with the consequences of economic problems in most of Europe, while they have to make crucial decisions that will cost money, about how to respond in 2015 when they will have to comply with a 0.1 per cent sulphur limit. At the same time they face increased competition from other transport modes, such as low-cost airlines, and fixed link tunnels and bridges. It is no surprise that no-one was talking about placing new
orders, which have all but dried up. The notable exceptions are some domestic ferry operators that are investing in innovative technology using alternative fuels including liquefied natural gas (LNG) and battery power. In the opening panel debate, these challenges were laid
bare. Setting the scene Bo-Lennart Thorbjornsson, of BOLT Consulting said that weak performance, especially in the Mediterranean, has resulted in continuing cost and capacity cuts, route changes and tonnage being laid up. In the Baltic the estimated rise in passenger numbers was 1-4 per cent. UK routes numbers have declined by 2-3 per cent, while the Mediterranean is down sharply. This closely follows the economic trends in the countries these operations are serving. “Freight volumes are stable but rates are low in northern Europe, due to the effect of weak public spending and the impact of currency exchange rates,” he said. But the freight market is showing signs of slow improvement, apart from in Greece, although exchange rate imbalances are affecting revenues and costs. “Some consolidation is continuing and operators are still
struggling with their future strategies for the 2015 sulphur directive coming into force.” Helen Deeble, chief executive at P&O Ferries questioned whether the ferry market has become a low margin game. “Structural changes have chipped away at returns – the loss of duty free, low cost airlines, bridges. We can run for cash rather than profit in the short-term but in the long-term ferry operators need finance for investment to replace inefficient tonnage. Politicians do not understand the costs of transport,” she said. “Maybe we need more innovation and creativity. There will
70 I Passenger Ship Technology I 2nd Quarter 2013
be a dramatic escalation in operating costs in 2015, despite the industry’s efforts at lobbying the European Commission and governments. It is difficult to pass on increased fuel costs despite our efforts to reduce fuel consumption.” In the face of this gloomy outlook, Ms Deeble remained optimistic for the future. “There will always be a need for ferry services. But how will demand and service patterns change? There could be a need for more alliances to deal with the low sulphur costs. There are too many ships, routes and ports on shortsea services, but how would such alliances be agreed regarding revenue sharing arrangements?” Michael McGrath, chief executive of Stena Rederi, stressed the need for new growth opportunities. “Current traffic levels are not enough for profitability. Leisure travel has dropped since duty free ended and we need to look for new revenue opportunities. We still have outdated business models,” he said. “There is a need for more crewing flexibility [and a] need to look at sales and distribution, land-based operations and fleet management. The ferry industry has a lot to learn from the airline industry. We have overestimated the potential to create demand through new products and innovation. There is a need to adjust costs to reflect current revenue potential.” One specific major challenge is the introduction of the sulphur
directive in 2015. He commented: “There is a need to look for technical solutions for 2015. As things stand we face a big cost increase because we will need to buy gas oil.” This is one reason for the reluctance to place new orders, but it is not the main one. “The financial and economic crisis is the main reason for lack of orders. There is a glut of secondhand tonnage and low prices so there is no incentive for investment in new vessels. The regulatory issue is relevant but secondary to this,” Mr McGrath said. Mr McGrath said that the surplus tonnage in Europe
prompted Stena to look for new opportunities further afield, and this has resulted in the operator opening new routes in Asia, and in the Black Sea.
The operators now appear to accept that any lingering hopes that the sulphur directive might be postponed have been extinguished. Peder Gellert executive vice-president of Danish operator DFDS said: “We have had extensive discussions on the sulphur directive. It is now clear that it is not going to be delayed
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