Summer and the rapidly approaching school break means only one thing – the holiday season. Any tourist based business thrives in the summer season, and the passenger ferry market is no different. What is good for the passenger market however, has downsides for the freight ferry industry.
Passenger and freight generally form two very distinct divisions of the same ferry company, both with targets to meet and space to sell. From a ferry company perspective passengers are a far more lucrative proposition. Per metre, several cars will fit into the same space as a 16.5m truck, generating varying levels of increased revenue depending on the route and time of crossing. As an example, an average rate for a Dover – Calais crossing would be £180 for a 16.5m cargo unit. Four cars would fit into this space (assuming not loaded on mezzanine decks) at an estimate of £90 per unit, generating £360 in revenue! Passengers don’t get free meals or cabins, they buy drinks, spend money in the shops and use many of the facilities. And above all, passenger prices can be determined by supply and demand. Peak season prices are often double or even more, while freight prices remain constant all year round.
Come the holiday season, the lucrative passenger market means only one thing for the freight department operating Ropax ships…less space. And less space can mean letting down loyal freight customers which support the service 365-days per year. As an example, in the height of the holiday season the most popular tourist sailings on the Western Channel may only have as little as two or three freight spaces to sell! Someone is going to lose out.
Recent years had seen a decrease in passenger numbers, brought on by the rise of budget holidays and cheap package deals. Passenger traffic through the Scottish ports of Cairnryan and Stranraer was down 32 per cent in the 10 years up to 2008. However, the recession and the volcanic ash crisis have meant a swing back in the ferry operators’ favour. All the operators have launched deals and advertising campaigns to bring in the tourist traffic and in May this year Brittany Ferries reported a five fold increase in passenger numbers compared to 2009. Another example, new Irish Sea operator Fastnet Line, operating Swansea to Cork, claimed that due to collaboration with organisations such as Visit Wales and Tourism Ireland, passenger numbers were twice as high as expected.
So what does this mean for the freight ferry market? Even with the traditional summer shutdown in manufacturing, demand for freight space remains high and freight ferry customers need to think ahead and be prepared.
Archive for the ‘The ferry market’ Category
Ferries say ‘Goodbye freight, hello passengers’ in the summer holiday period!
Thursday, July 1st, 2010Too many ships / too many routes / not enough customers?
Monday, June 28th, 2010The Western European ferry market is having to contend with testing trading conditions at present, and there are a number of things happening that are not making it easy for ferry operators to turn a profit. From environmental compliance, the generally high cost of marine fuel and the introduction of ultra low sulphur fuel in areas such as the North Sea and Baltic Sea, these are all issues impacting on the bottom line of ferry companies over which they have very little direct control. In a weak freight transport market, ferry operators are chasing fewer customers to support their respective services which causes a “price war” on some routes where only the end user (aka the customer) benefits. With ships to fill and schedules to operate, ferry companies have little choice but to drop rates to attract new traffic and to try and keep hold of what they have already got. And so the circle of margin and profit erosion continues……
So, what can the industry do to combat these negative issues. Well, taking out some capacity would be a start, but this is easier said than done. What is stopping consolidation is not the ferry companies’ lack of money to buy their peers, but the European Commission’s competition rules. Both the MD’s of Stena Ro-ro and Norfolkline have recently claimed that these rules made it very difficult to tale over a competitor which had services on the same route. The general view from the ferry industry is that a softening of competition rules would actually help to create a more stable market through consolidation.
Take, for example, the Irish Sea market.
All the operators who have services on the Irish Sea would agree that the market has been tough now for nearly two years. However in this time, a draft of new tonnage has been introduced by companies such as Norfolkline, Seatruck and Stena Line. There has even been a new entrant to the market, Fastnet Line. Carriers such as Norfolkline and Seatruck have replaced older, smaller ships with bigger, newer vessels and Stena Line took the decision to remove their HSS high speed craft from year round use (due to fuel costs) and replace with a freight vessel offering more freight space, and more daily departures than when the HSS was operating full time.
Now, this is a market that is crying out for consolidation. There is not one company who is operating to capacity, and the major players would dearly love to be able to rationalise and consolidate. Indeed at a recent conference in Bremen, Germany the MD of Stena Ro-ro Bo Severed said “On the Irish Sea, there is intense competition, but from a competition rule point of view it is impossible to do something and we really need [consolidation], not only because we want a more stable market and more stable prices, but from an environmental point of view this is crucial. We need to look at ways soften competition rules to get this going”
Consolidation in other industries, such as air travel, is happening now as a direct impact of the global economic downturn and high fuel costs. Companies such as British Airways & Iberia, Untied Airlines & Delta have joined together in consolidating and combining their businesses to offer customers a network of services but to also benefit from “economies of scale”. There are many similarities between the aviation industry and the marine industry. The ferry industry needs “economies of scale”. I wonder how soon it will be before some of the “house hold” names of today’s ferry industry disappear through consolidation and become redundant brand names such as Sealink, Sally Lines and Ferryways?. Only time (and our leaders in Brussels) will tell!