Global outlook for the RoRo market · 19. Vessel size trends: ro-pax & freight only • charter...

Global outlook for the RoRo market

Mike Garratt and Antonella Teodoro Ro-ro Shipping conference

20 – 21st February 2014, Gothenburg

213059_presentation_v13

1. The paper will consider

• Intra European trade from a global perspective

• The European unitised and auto markets

• Trade and fleet deployment by corridor

• Public policy and case for longer routes

• A potential way forward

2. Overall world trade in 2013 • Estimated global trade for international tonnes grew 3.5%

– approaching the long run growth rate of the last 15 years (5.1% per annum)

• Global containerised trade (TEU) grew by 4.9%

– less than the (15 year) long term growth rate of 5.8%

– but an improvement on almost no growth in 2012

• Intra European & Med. trades grew 4.0%

– faster than than deep-sea imports at 2.9%

– a key indicator for the ro-ro sector

3. Global trade, unitised tones

• Far East penetration of European markets slowing • a positive development for intra-European ro-ro trades

Source: MDST World Cargo Database (WCD, v. 14.01.2014)

4. Market growth shifting eastwards



Imports

Exports

5. Intra European trade: unitised tonnes

• Intra European recovery focussed in Eastern Europe/Eastern Mediterranean

• Important for ro-ro to identify strong role in these markets

Source: MDST World Cargo Database (WCD, v. 14.01.2014) Source: MDST World Cargo Database (WCD, v. 14.01.2014)


• Food goods recovering: CAGR 4% between 2008-2013 - more protected against deep-sea competition • Consumer and industrial goods lagging behind

6. Intra European trades: unitised tonnes by commodity group

7. Auto trade (tonnes) index 1996=100


Auto trades have actually reversed direction of trade: • Global & intra-Europe

volumes now > 2008 • Decline in imports to N

America and Europe • Fastest growth in

European exports - now > imports • Growth in exports

crucial for a fleet as 90% of 2.7m car fleet capacity in > 3,000 car vessels.

m Tonnes

Year Global (excl.

intra) Europe & Med

IMP (excl. intra) N America Imp

(excl. intra) Intra Europe &

Med Europe & Med

EXP (excl. intra)

2008 19.8 6.2 5.8 14.5 3.5

2013 20.1 3.8 5.1 16.8 5.6

2020 24.5 4.7 5.2 19.7 7.2

CAGR 2008-13 0.3% -9.2% -2.3% 3.1% 9.9%

CAGR 2013-20 2.9% 3.1% 0.1% 2.3% 3.7%

8. Corridors ranked by tonnes moved and value added

m tonnes lane metres of ship per m tonnes

rank

1. British Isles – Near Continent: 41 (28%) 3465 10

2. Scandinavia – Continent: 34 (23%) 3619 9

3. GB – Ireland: 11 4452 8

4. Italy – Greece – Turkey: 10 5887 7

5. Scandinavia – Finland/Baltic S/Russia 7 10932 3

6. Benelux - Baltic/Scandinavia 7 7725 5

7. British Isles – Scandinavia/Baltic 6 10077 4

8. Iberia – British Isles/North Sea 3 8137 6

9. Europe – North Africa (West Med) 3 33894 2

10. Iberia – East Med 1 61540 1

Others 22

Total 145

• Shortest routes carry most cargo but add least value

9. Short-distance corridors (2012)

1: British Isles with France/Benelux Proportion accompanied: 61% LOW Lane Metres per million tonnes: 3,465 Forecast growth p.a. to 2020: 3.2%

2: Denmark/Germany/Poland and Scandinavia Proportion accompanied: 64% LOW Lane Metres per million tonnes: 3,619 Forecast growth p.a. to 2020: 1.9%

3: UK and Ireland Proportion accompanied: 80% LOW Lane Metres per million tonnes : 4,452 Forecast growth p.a. to 2020: 2.5%

Scope to expand roro share

10. Longer distance corridors (2012)

4: Italy/Greece/Turkey Proportion accompanied: 75% MEDIUM Lane Metres per million tonnes: 5,887 Forecast growth p.a. to 2020: 2.2%

5: Finland/Baltic S/Russia to/from Norway/Sweden Proportion accompanied: 80% LOW Lane Metres per million tonnes : 10,932 Forecast growth p.a. to 2020: 2.1%

6: Benelux to Baltic/Scandinavia Proportion accompanied: 22% HIGH Lane Metres per million tonnes: 7,725 Forecast growth p.a. to 2020: 2.9%


11. Long distance corridors (2012) 7: Baltic/ Scandinavia to/from British Isles Proportion accompanied: 10% MEDIUM Lane Metres per million tonnes: 10,077 Forecast growth p.a. to 2020: 1.8%

8: Iberia to/from British Isles/North Sea Proportion accompanied: 85% HIGH Lane Metres per million tonnes: 8,137 Forecast growth p.a. to 2020: 3.1%

9: France/Italy/Spain to/from N Africa Proportion accompanied: 62% MEDIUM Lane Metres per million tonnes: 33,894 Forecast growth p.a. to 2020: 2.3%

10: Iberia/France to/from Black Sea Proportion accompanied: 81% HIGH Lane Metres per million tonnes: 61,540 Forecast growth p.a. to 2020: 3.1%


12. RoRo tonnes by type and area

- Highest current ro-ro tonnages on short (accompanied) routes

- low lane metres (low value added)/tonne carried

- RoRo becoming stronger in Eastern Mediterranean

- an area of high growth

- on longer crossings with higher lane metres/tonne carried

Source: MDST elaborations on Eurostat (v. August 2013)

Corridor 1 - English Isl. to/from France/Benelux Corridor 2 - Denmark/Germany/Poland to/from Scandinavia Corridor 3 - UK to/from Ireland Corridor 4 - Italy/Greece/Turkey Corridor 5 - Finland/Baltic States & Russia to/from Norway/Sweden Corridor 6 - Benelux to/from Denmark/Germany/Poland/Baltic/Scand./Russia Corridor 7 - Denmark/Germany/Poland/Baltic States/Scandinavia to/from English Isl. Corridor 8 - Iberia to/from France/English Isl./Benelux Corridor 9 - France/Italy/Spain to/from N Africa Corridor 10 - Iberia/France to/from Black Sea

13. Estimating ro-ro growth to 2020

Source: MDST elaborations on Eurostat (v. August 2013)


Overall annual growth of just 2-3% if share retained SECA threatens to reduce that growth Switch to longer routes offers growth potential if fuel costs solved

• Range of studies 2009-12 confirmed ‘0.1%’ emissions rule transfers cargo from sea to road/rail – reducing market for ships’ capacity >10%

• Extension of SECA to Mediterranean and Irish Sea likely

• Rail freight liberalization a further threat to longer haul services

• Ro-ro industry lacked coherent strategy in addressing SECA: – initial denial that any viable technology available

– a hope that EU would back-down

– then the conclusions by some that scrubbers could work proving policy makers ‘right’ to dis-believe a reluctant industry

– others have found chosen methanol cost effective

– now realization LNG can even be retro-fitted!

• But cost effective further investment implies larger ships and further industrial concentration in a stagnant market

• Increased concentration implies continuing ‘competition’ issues

14. SECA challenge

15. Vessel deployment by corridor

• Three largest ro-ro corridors employ relatively few ships

– 72% intra-European ro-ro tonnes carried employ only 45% of fleet capacity

• ‘SECA’ impact will reinforce this pattern to concentre few ships on short crossings unless industry structure changes

• Stagnant vessel supply informed by declining charter rates is failing to renew the industry

– which will reduce its cost effectiveness and scope for innovation

• Points towards determining how to engage with State institutions to mutual advantage

• No. of vessels deployed in Europe & Med estimated to have fallen by 8.1% between 2006 and 2014

• While lane metres has increased:

+7.4% in N. Europe

+5.0% in Mediterranean

16. Fleet & vessels development in Europe & Mediterranean

Source: MDST Databank (WCD, v. Jan.2014) Source: MDST Databank (WCD, v. Jan.2014)

17. Vessel deployment by geography (2006 – 2014)


Deployed service capacity matches demand Source: MDST Databank (WCD, v. Jan.2014) Source: MDST elaborations on Eurostat (v. August 2013)


But most fleet capacity employed on the longer routes

18. Fleet capacity by corridor

Source: MDST Databank (WCD, v. Jan.2014) Source: MDST elaborations on Eurostat (v. August 2013)

19. Vessel size trends: ro-pax & freight only

• charter market continuing to deteriorate for smaller vessels

• number of smaller ships therefore decline, replaced by larger ones

• increasing concentration and making start ups more difficult.

Source: MDST Databank (WCD, v. Jan.2014)

20. Ro-ro role in intra European trade 2012

• Total cross-border intra-European non-bulk trade approximately 714 million tonnes (maritime + non maritime)

• Intra-European by sea (exc. feeders) was 190m tonnes (27%)

• Volume by ro-ro: 146m tonnes

– ro-ro therefore 75% of all intra-European maritime trade

– ro-ro 20% of total intra-European cross-border non-bulk freight moved

• Tonnages similar to all cross-border rail freight (190m tonnes inc bulks)

• Yet ro-ro tonnages almost invisible to policy makers…port data collected but not interpreted as intra-European trade by sea….a gap to be filled!

• NEVER expressed in terms of tonne kms.

21. Challenges and opportunities for the ro-ro industry • Ro-ro industry developed in the 1970's to

– capitalise on European economic integration

– partner with emerging international hauliers

– opportunistically by-pass ports with outdated practices

• Its success was based upon offering a radical solution in rapidly changing circumstances

• Its failure to continue to expand to compete with inland modes can be explained by – rising energy prices

– decline in Western European industrial competitiveness

– being in competition with its own clients (international hauliers)

• Switching traffic from short crossing to long crossing services represents easiest opportunity to expand its market

22. Policy context • A broad European policy of co-modality

- to use the mode that minimises a wide definition of costs

- to allow public sector intervention where market distortion

• Longer distance ro-ro container ships offer lower costs per tonne km than overland haulage

- yet the only grant system designed to intervene suspended (Marco Polo) as it did not convince policy makers

- Motorways of the Sea to encourage switching by accompanied trucks is not environmentally efficient

- road pricing has stalled (French eco-tax blocked by civil unrest!)

• Health arguments so strong low sulphur rules likely to be extended.

- similar impacts to be expected with Mediterranean

• In the deep-sea sector regulators may be forced to accept scale advantages of increasing concentration outweigh threats of anti-competitive action (P3 etc)

Do similar opportunities exist in this sector?

23. A potential way forward

• Develop as a door-to-door industry, marketing to shippers

• Form relationships with ports with strong hinterlands rather than with transit ports – to minimise inland costs, integrating with distribution centres

• Present policy makers with: – coherent statistics to explain the industry’s present role

– an explanation of the advantages of scale and networks

– a proposed system of public sector support NOT based on opportunistic grant applications to maintain uneconomic services

– consider how collaboration could help to exploit LNG’s potential to reduce costs of longer crossings

• Focus on ro-ro's principle advantages – rapid handling

– ability to carry a wide range of cargo on the same ship

24. In Summary

• Market conditions improving as (most of the) European economy recovers

• But steady state forecast growth of only 2-3% per annum in medium term

• Currently continuing concentration of short crossings which employ too few ships

• Opportunity to expand market share through extending lengths of crossings – requiring pan-industry evidence to investors and public policy

makers

– exploiting LNG to reduce incremental costs/mile

• But SECA episode demonstrates failure of the industry to yet present a convincing case to political decision makers

Thank you!

[email protected]

Global outlook for the RoRo market · 19. Vessel size trends: ro-pax & freight only • charter...

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