Does short sea have a future?

In recent times, Royal Wagenborg and Royal Niestern Sander have devoted a lot of attention to the Kroonborg, the innovative offshore vessel. However, we mustn’t forget that both companies in the north of the Netherlands specialise in and have become great through “short sea” vessels. It’s time that we pay more attention to this sector, especially as we are now seeing a few lights at the end of the tunnel in this niche market after a couple of lean years. Coastal shipping is expected to be sufficiently profitable again within five years and what ship owners most need is competitive ships. 

 

What is “short sea shipping”?

“Short sea shipping” is shipping between member states of the European Economic Area and between European ports and other ports on the Mediterranean Sea or the Black Sea. It is less clear how big a ship is allowed to be in order to be part of the short sea fleet. Often, people stick to ships with a load capacity between 1,000 and 10,000 DWT.

 

5.5% reduction

With almost 4,800 ships, Europe’s short sea fleet is a substantial size. Over half of them are dry cargo vessels. There are also over 1100 tankers, about 800 container ships and over 300 RO-RO vessels. The average age of the ships is beginning to increase substantially. The dry cargo ships are the oldest, with an average age of 18 years. The continuing crisis has resulted in a lack of new orders in the sector, while the outflow of ships from the fleet has continued. The European short sea fleet has now reduced by about 5.5% compared with the peak time before the crisis.

Positive trends

The above description paints a less positive picture of the sector, but a number of positive trends in the European short sea sector are clearly set to arrive. For example, a large number of new environment-related regulations will probably mean that modernising old vessels is not an option if we are to progress in the years to come. Stricter rules on sulphur emissions are forcing shipowners to invest in a scrubber or radically adapt their ships to use less sulphur-containing fuels, such as gas oil, LNG or methanol and there is often no room on existing tonnage for all the additional equipment that such a refit requires. In addition, hull shapes have been further optimised and the installed power in the engine room has mostly decreased substantially. All in all, new ships are significantly more economical than old ships and it is hardly possible to operate older ships competitively due to the low freight prices which have existed for years. The upshot is that purchasing a new ship seems inevitable.  



Another trend is for cargo charter parties to increasingly opt for a sustainable “green” ship, in which shipowners have usually been unable to invest due to the reluctance of banks. However, even they are cautiously seeing a little more potential in the short sea sector. Although the order books of shipyards are currently at modest levels, a gradual increase in orders for new “green” vessels seems more than likely, which is good news for the shipbuilding industry.

 

Scenarios

Recently, former Wagenborg managing director Albert Engelsman put the European short sea market into perspective at a network meeting in Groningen. “The market is expected to be fully back in profit again by 2020. In addition, the worldwide fleet is declining to some extent, bringing supply and demand more into balance. And yet, shipping companies in the short sea sector must have a plan ready and plan for different scenarios if these positive trends don’t materialise”, as Albert Engelsman put it.

 


Innovation

In the years to come, as the market recovers, the major players will mainly have to rely on creativity and innovation. Wagenborg Shipping is one of the major shipping companies in the Netherlands with a tradition of coastal shipping. Albert Engelsman confirmed that the short sea market is not yet in the best of health. Just as in the big bulk shipping sector, the period immediately preceding the crisis saw large numbers of ships enter the market at higher and higher prices. “We are still suffering from overcapacity”, explained Engelsman during the NMT Network meeting. “When an owner goes bankrupt, his ship is sold for a lower price and still remains on the market. This does nothing to help keep freight prices up.”

 


Freight price 10% up

Yet Albert Engelsman definitely saw light at the end of the tunnel for the short sea market. He noted that demand was increasing again. Wagenborg is signing contracts for 2016 and 2017 at a freight price which is up by about 10%. “Customers want the security of knowing that their freight will be delivered on time and they are prepared to pay a higher price for it. In addition, the oil price is at a historically low level, which has a favourable effect on shipping costs”, Engelsman explained. 


The short sea sector is also confronted with regulations designed to make the shipping industry more sustainable, e.g. to reduce emissions and address the problem of ballast water. Although the use of the required technologies increases the price of a new ship, innovations in ship design can also deliver economic benefits. For example, the Reestborg, a ship built in 2013 has over twice as much load capacity (23,000 tons) as the Egbert Wagenborg (9,000 tons) dating from 1998, while the m.v. Reestborg requires 15% less power. All of this is the result of a smarter design, including the use of an eco-bow. This is only one example of how costs can be saved. However, Wagenborg is looking for ways of sailing more “economically”, such as more efficient scheduling of maintenance and the remote monitoring of ships.

 


Creative and innovative applications

Shipping companies operating in the short sea sector need “competitive” ships in these difficult times. Ships that – thanks to innovative and creative applications – save money and deliver more. That is where the opportunities lie for both shipyards and suppliers. The strength of the northern Netherlands marine sector lies in its ability to conceive creative and innovative applications, as is evident from the fact that the Ship of the Year award was won by Royal Niestern Sander with Kroonborg.