Delegates at trade association Interferry's 34th annual conference have been warned that the ferry sector is under particular threat from financial and environmental pressures on the shipping industry.
More than 230 senior executives in Istanbul heard that raising finance and lowering air emissions would pose unique challenges for ferry operators in the wake of global economic meltdown and global warming.
Critical legal issues – notably the risk of corporate manslaughter charges – also came under the spotlight, but the potential for boom rather than gloom dominated other sessions focusing on new market opportunities, money-making IT applications and the Interferry/IMO joint initiative to boost ferry safety in developing nations.
Surviving financial meltdown
The knock-on effects of the credit crisis will make it especially tough for ferry companies to fund new tonnage because they rarely rank as core clients, said Richard Jansen, global head of cruise and ferry at Netherlands-based ship finance leader DVB Bank.
With existing borrowers already struggling, he noted: "The shipping industry's newbuilding order book is worth US$700 billion over the next three years and owners are desperate to renegotiate their loans. If you're really lucky, your yard goes bankrupt before you do."
A third of the world ferry fleet was at least 30 years old, said Mr Jansen, so safety and regulatory issues underlined the need for investment. The problem was that ship finance volumes had dropped significantly, matched by a rise in the cost of financing. Shipping was now rated at BB or less in credit ratings and capital markets had been affected because investors did not understand the industry.
"Quite frankly we don't know where you're going to get equity financing for shipping," he continued. "As for the banks, we're basically closed for business. "Shipping represents only one or two percent of the portfolio for most banks and the big ones can live without it. They will concentrate on core clients and sectors – and the ferry sector is not usually considered core."
Mr Jansen suggested that export credit finance was "absolutely number one" among alternative solutions, followed by bond markets and sale/leaseback deals.
In a ferry operator's perspective of the changing business climate, Stena Line's North Sea Director, Pim de Lange, described the difficulties of balancing supply and demand in a highly competitive market.
He recalled that in late 2006 his company had responded to freight demand by ordering the world's two biggest Ro-Pax vessels for delivery in 2010 – but after a decade in which the market grew by an average of three percent per year, freight volumes had fallen by 17 percent since last year's economic collapse and there was now too much capacity.
"Looking back, I can tell you that we very much regret ordering the ships then because if we did so now they would be much cheaper," said Mr de Lange.
"On the other hand, we take a strategic view because shipping is a long-term business. The business will come back in time. Sea transport will be more favoured than road and ferries will be an important part of the infrastructure. We are optimistic for the future and ready for the upturn when it comes."
Action call on emissions
Johan Roos, director of sustainability at Sweden's Stena Rederi, argued that costs would rocket and services could fold unless the ferry industry was treated as a special case over proposals to reduce carbon dioxide and sulphur emissions.
Mr Roos, a member of Interferry's consultative delegation at the IMO, stressed that many of the planned regulations were based on calculations for trans-ocean shipping and placed an unfair burden on ferries.
"We are in danger of losing our competitiveness," he warned. "I am terrified that by 2015 huge volumes of freight will move back to road and pollution will be magnified. We need more people to say that we can't live with this. If short-sea shipping is not at the table we are going to be sacrificed."
He claimed that the IMO's call to reduce fuel sulphur content from 0.5 percent to 0.1 percent would increase costs for European ferry operators by £5 billion (US$8.19 billion) per year, which would have to be passed on to customers.
"We must go to the politicians and ask them how they think this will encourage a modal shift that benefits the environment," urged Mr Roos.
He added that the IMO Energy Efficiency Design Index (EEDI) was another example of "one size does not fit all" because nothing could be done on ferry design except to lower ship speeds.
"Services will go if existing schedules cannot be maintained," he predicted. "There's nothing wrong with improving efficiency but the framework must be relevant to the short-sea sector."
Oskar Levander, head of conceptual design at Finland's Wärtsilä Ship Design, agreed that the EEDI penalised speed too much. Short-sea ferries suffered because the formula benefited size of ship – "bulkers pretty much conform" – so a ship's index could depend more on speed than on good design.
He suggested that ferry efficiency could be improved by a combination of long hull form, smart propulsion and renewable energy sources such as wind and solar power, which could produce a 20 percent reduction in power requirements.
"A long vessel can be cheaper to build because the price depends on volume, not length – it's a maritime myth that length is the most expensive parameter of a ship," he said.
"Owners often say that they can't have a longer ship because of port restrictions. It might be cheaper for them to invest in this area rather than in too much power – a half-hour reduction in port turnaround times could mean a ten percent fuel saving."
Another potentially alarming flaw in the EEDI proposals was exposed by one of the winners in this year's Germanischer Lloyd-sponsored Interferry student competition, which stimulates research at maritime faculties worldwide.
Lennart Pundt, a PhD ship design student at Hamburg University of Technology, warned: "It might encourage 'legal optimisation' measures to lower a vessel's index, such as shifting power from the main to the auxiliary engines. That doesn't save carbon dioxide."
Legal alarm bells
New corporate homicide legislation under English law – the main maritime jurisdiction – may result in huge fines for casualties at sea, according to shipping lawyer Oliver Weiss, a partner at international law firm Ince & Co.
The Corporate Manslaughter Act came into force last year and no actions had yet been taken, said Mr Weiss.
"Senior management are not liable to be jailed," he stressed, "but the fine for a minor casualty could be five percent of company's turnover averaged over the previous three years. For a serious offence, it could be ten percent of turnover."
It was not possible to insure against criminal negligence so companies would not be able to limit their liability for loss of life under the Athens Convention. P&I Clubs might pay for legal costs but nothing else.
"Think of the consequences of another 'Herald' or 'Estonia'," he went on. "Some of the best names in the industry could disappear if they had that sort of casualty. At the same time, victims would get absolutely nothing. A lot of legislation is being introduced without much thought on where it's going."
Market opportunities
Upbeat sessions on emerging markets and pro-active IT systems demonstrated the ferry industry's will to adapt, invest and innovate in even the most challenging of times.
Among insights into the fast-growing urban transport sector, the mayor of Istanbul revealed that sea transport had accounted for 60 percent of the city's budget – some US$8 billion – over the past five years, helping to make conference host company IDO the world's largest ferry carrier with 100 million passengers and seven million cars per year.
Delegates heard that, under an IDO contract, Istanbul has become the world's first city to operate a widespread on-demand rather than scheduled water taxi network. The initial six-strong fleet will rise to 35 vessels capable of handling 200,000 calls per year by the end of 2010 – with ultimate plans for 120 craft serving 600 landing stages.
Sean Collins, Managing Director of London waterbus service Thames Clippers, described the company's growth from a one-vessel operation in 1999 to a network set to carry 3.2 million passengers this year through a mix of commuters, tourists and event-goers.
"Terrorist bombings on the London Underground in 2005 created overnight demand from commuters and led to an 80 percent increase year on year," he reported. "In 2006 we were acquired by the owners of the O2 arena and they made a £20 million (US$32.7 million) investment in six new vessels.
"Now, from November this year, we will finally be accepted into the Transport for London family with the introduction of the Oyster pay as you go card."
A review of emerging markets in the Middle East and Black Sea outlined tourist growth in Oman, where the National Ferries Company operates the world's fastest diesel-powered passenger ferries – two Austal-built vessels capable of more than 50 knots – and where port spending represents 19 percent of the current five-year, US$23 billion infrastructure budget.
Fares Al Balwi, CEO of Riyadh-based operator MACNA, described the vast scale of religious, labour and tourism markets in Saudi Arabia, Sudan and Egypt, where annual 2.5 percent growth in the combined population of 150 million was among the highest in the world.
"The El Salam accident in 2006 was a big wake-up call to the Red Sea market," he admitted. "Passenger numbers fell by a third due to lack of confidence but they have returned with the introduction of high safety standards, strict port state control and a shift from conventional vessels to high speed catamarans. Now there is a lack of tonnage, so that is a great opportunity for owners and yards."
Alexander Gevrek, Operations Chief at the Ukraine's Ukrferry, focused on the potential of Black Sea routes between his country, Turkey, Bulgaria, Russia and Georgia.
"The EU is promoting Motorways of the Sea and we believe this will provide a natural fit for ferries in our region to develop connections with the Mediterranean," he declared.
In a forum on revenue-generating IT solutions, six leading providers joined forces to explain the evolution of ticketing and booking systems into sophisticated applications able to support sales via the internet and mobile phones.
Some travel and ferry operators expected to make up to 90 percent of their sales through the net – even though recent research into the "look before you book" phenomenon had produced estimates that the future conversion rate would be only 10,000 to one.
Steve Chamberlin of US-based Revenue Technology Services told delegates: "Systems are getting away from being reactionary to becoming predicative. Rather than looking back 30 or 90 days on what your system did, you can now make use of an alert system that tells you what you need to do to forecast demand and capacity, optimise availability and maximise price."
Interferry activity update
In a review of the joint IMO initiative to reduce ferry fatalities in developing nations, Interferry project leader Roberta Weisbrod announced tangible progress on the pilot programme in Bangladesh and called for funding support to carry the initiative forward.
Ms Weisbrod, Principal of the US-based Partnership for Sustainable Ports, said the crew training element had just been launched with two trial sessions each attended by 50 crew members.
The original one-day schedule, using a video format, had been extended to three days following consultation with the Bangladeshi authorities and initial feedback had indicated that the course was well received.
"We now need modest implementation funding and could use assistance from national and international fundraising agencies and foundations," she stressed. "We have reached out to the US Embassy and now have something to show them and other potential sources of aid.
"A course for 50 people would cost as little as US$2,000, which pays for the training staff and compensates crew for loss of wages."
Meanwhile Bangladesh had been invited to test a prototype satellite-based radio messaging system for relaying weather warnings in remote areas. The trials would take place as part of a worldwide project organised by an alliance of national meteorological services.
Ms Weisbrod added that Interferry members were also due to meet Bangladeshi representatives to discuss solutions for overcrowding.
CEO Len Roueche reported that Interferry membership now extended to 215 companies in 30 countries. Three new board members were elected during the AGM – Sean Collins of Thames Clippers and P&O Ferries CEO Helen Deeble, both from the UK; and Pansy Ho, CEO of Hong Kong-based Turbojet.
