It was announced yesterday (26th July 2011) that DFDS and LD Lines have partnered in a potential new deal to purchase the troubled French operator SeaFrance.

SeaFrance’s financial difficulties have continued since being placed in administration in June 2010, and they have been waiting for EC approval on a further injection of capital from owners SNCF. With the SNCF deadline date for offers of 26^th July,  it emerged yesterday that DFDS and Louis Dreyfus Armateurs Group, and have teamed up to bid for the assets of the failing cross channel ferry operator. The deal will be subject to official E.U. Competition Commission approval. If approved, DFDS would be the lead partner in the deal, taking a majority stake hold in the new business.

Seafrance currently operate 3 Ro-Ro vessels Rodin, Berlioz and Moliere along with a freight only Nord Pas De Calais. There had been ongoing speculation regarding the removal of the latter as Seafrance looked to remove costs.

If the DFDS/LD Lines deal is successful, this could potentially add an additional 2.9 million passengers and 550,000 freight units to the volume DFDS already carries on the Dover to Dunkerque route. It is clear, however, that if the new partnership is to be a success, it will have to streamline costs, and reverse falling Dover ferry rates in attempt to return the route to respectable profitability. One answer could be to reduce overall ferry capacity, thereby shrinking supply to assist a rise in rates.

The real question for freight and passenger customers is, will the new operator run a split operation into Dunkerque and Calais?  Or will they opt for consolidation and run a single route network?  Clearly each port offers differing commercial advantages. Dunkerque has a no strike agreement in place and as the port is further east it reduces running distances for the majority of freight travelling to and from Central and Eastern Europe. Dover to Dunkerque is, however, a longer crossing  and thus carries higher fuel costs  which could mean a Dover – Calais only option will be a serious consideration if the new operator is looking to reduce overall operating costs.

For further information, please contact our Customer Service Team on + 44 (0) 844 847 9000.

On the 31st May 2010 LD Lines added the Norman Trader to their, relatively new, Dover Boulogne route and increased the frequency to 7 sailings in each direction per day. At the time LD Lines M.D. Christophe Santoni declared – ‘The introduction of the second ship to the route reflects our determination to develop and establish the service.’ Yet 3 months later it was announced that the route would close with Santoni stating – ‘A return to profitability can only be achieved for the ferry industry by adjusting supply to demand, increasing prices and market consolidation.’

Santoni’s sentiment was echoed recently by P&O Ferries CEO, Helen Deeble. In August Deeble announced that her company was to undertake a major cost cutting exercise that could include service reductions and job losses. With two new superferries due in the first quarter of 2011 P&O owners DP World will no doubt be anxious that their investment starts to make returns.

The situation at SeaFrance is far worse. With a three month extension to its period of administration due to be granted until the 15th December the future of SeaFrance remains precarious. The only solution to the situation appears to be SeaFrance’s own recovery plan. Financial support granted by parent company SNCF amount to a staggering € 120 million year to date and forms only part of the global funding requirement of an estimated € 190 million. The recovery plan involves 725 redundancies from its 1600 strong workforce resulting in a new system of work patterns on board its vessels. Consultation with staff representatives is due to commence soon which in itself could cause industrial relation problems for the already beleaguered operator as one union official has warned ‘we will do what is required to ensure that SNCF does not forget where its responsibilities lie.’ Add this, to the requirement for SNCF and the French state to present a case for the long term financing of the company to the EC by the 15th of December, then there could be troubled waters ahead. Only the 28th September media reports suggest that SNCF have appointed a subsidiary of French bank Credit Agricole to find a buyer for its cross channel operator.

Amidst this background of uncertainty and cost cutting Eurotunnel has embarked on an aggressive sales campaign which has given them growth of 44% over the last 12 months. Through effective pricing strategies Eurotunnel’s market share has improved at the expense of all the other operators. Over the last year P&O and SeaFrance have lost 70,000 units each whilst DFDS (Norfolkline) have lost 35,000. In percentage terms the decreases are P&O -9.4%, SeaFrance -16.1% and DFDS (Norfolkline) -10.4%.

Commenting on the changing profile of carryings and price cutting P&Os Helen Deeble blamed Eurotunnel for ‘sparking a price war’ and in a letter to staff she added ‘This attack in the form of a price war emanates primarily from Eurotunnel which has slashed its freight rates to win back market share it lost to us after the tunnel fire. This has cost us a loss of volume and a significant downturn in revenues due to the lower prices we are having to charge our customers.’ In a counter to this however Eurotunnel CEO, Jacques Gounon accuses SeaFrance of a very aggressive pricing strategy off the back of not having to pay creditors whilst in administration.

Aside from the claims and counter claims one thing is for sure. Whilst the haulage and courier industries have been beneficiaries in the price war at some point something has to give when you consider the following:

LD Lines – Withdrawn from Dover – Boulogne.

SeaFrance – The future constantly remains uncertain and a solution of one kind or another has to be found. At the moment you couldn’t hazard a guess whether it will remain under SNCF control, come under new ownership or even close.

P&O – With two new superferries due in Q1 2011 offering 7500 lane metres fleet rationalisation must be a consideration which would yield cost saving at the expense of service frequency. With investment of £360 million in new tonnage P&Os owners will demand a speedy return on their investment.

DFDS ( Norfolkline) – New owners of the Dover Dunkerque route DFDS will turn their attentions to the profitability of their newly acquired routes now the process of integration nears completion.

Eurotunnel have forgone their price premium in return for volume improvement through a series of structured price offerings which suggests that a seasonal pricing model may be their answer to the problem of stagnant growth and falling prices.

Only time will provide the answers but whilst the Dover Straits remains in dire straits the next six months will surely see rationalisation and the tide of price cutting will turn, albeit slowly as ferry operators remain demonstratively unsure of what to do next.

For all the latest ferry news, visit www.freightlink.co.uk

SNCF made substantial losses of € 14 million in first 4 months of 2009. It is reported that Seafrance had a negative cash flow of € 41 million during 2009. Seafrance originally declared a recapitalisation plan of € 60 million in February this year, but recent reports suggest this is now closer to € 100 million.

Details of the plan to recapitalise are unclear other than reports to move 400+ Seafrance employees to other posts within SNCF and the potential sale of 2 ferries. Seafrance has applied to Brussels for funds, but any decision is likely to take considerable time. In the mean time, losses continue to mount on a daily basis. Last weekend’s strike action cost Seafrance over € 1 million in lost revenue alone!

How will this affect the market ?

Freightlink has seen a sharp increase in the number of enquiries from current Seafrance clients. Perhaps more importantly, we have seen a distinct pattern of new clients making sound business decisions by splitting volume and securing rates at today’s competitive prices rather than risk not having a second option should Seafrance suffer from further strike action, or even worse.

As Freightlink witnessed in 2007 when Ferryways was purchased by Cobelfret, the Ferryways ferry services disappeared within weeks, with many clients struggling to find space at competitive prices. It was a simple case of ferry economics, less space = price increase.

One thing is for sure, in the current unstable climate, none of the Dover operators are doing deals to encourage new traffic. Why cut rate, when the traffic could come at a much higher rate ?

Freightlink is able to offer highly competitive rates now for clients who commit support and volume. Please contact Steve Lonsdale – Sales Manager +44 (0) 7738 767 136 or our Customer Service Team 0844 847 9000 or visit freightlink.co.uk for our service information.