Longterm prospects for the European Short Sea Shipping by Alkis John Corres, Aegean University

Ladies and Gentlemen, Good Morning and Welcome to ECONSHIP @ Chios

Short Sea Shipping is the biggest cargo distribution transport mode in the EU.

Short Sea Shipping is one of the terms coined by the EU Commission.. ..and it has taken us quite a long time to define it. In the end we have settled to refer to ‘’ No cross ocean marine transportation’’ ..so, even though the distances are shorter, it does – in theory- include larger ships. However, the truth of the matter is that we are effctively talking about smaller ships.

We have devoted some space to demonstrate how small size impacts operating cost and the results were surprising. The typical cost of a short sea dry cargoship is 0.52 USD per dwt ton per day all inclusive, 5.8 times higher than that of a panamax. On tankers, the cost difference is even higher standing at 7.7 times. One can therefore conclude that the cost of intra Community marine transportation costs on a per ton basis between six and seven times more than cross ocean transport.

Old ship age is also impacting operating cost. Here however, more work is needed to be conclusive. Nevertheless, there are indications that high age can increase the operating cost significantly – say 30%- , or ever terrifyingly by a factor of two. Wijnolst & Waals have shown there is quite a lot of old tonnage trading in the coasts of Europe ( 38% has been 25 years old or higher) Today this percentage is higher due to the lack of new buildings.

It is worthwhile perhaps to see why older ships are more expensive to run Old engines burn more fuel Ship speed is lower (by design and/or by wear) Direct maintenance costs are higher for hull/engines/fittings Down time lost to repairs or detention cost dearly Manning requirements tend to be higher, and finally Ship and cargo insurers are imposing overage premiums on old vessels.

Is there a therapy for a fleet’s high age? Yes, there is We need essentially to see more new ships joining and more old ships leaving the fleet. This in theory is the job of the market but it does not seem to do it in SSS. Few scrappings and even fewer newbuildings year after year maintain the status quo, while ...Time makes sure that every ship in the fleet gets one year older with every year that it passes.

In view of the important drawbacks old ship age brings, why new ships are not built? Largely because the profit margins in SSS are thin and do not justify investments in new tonnage. There is also a regulatory dimension: state funding for shipbuilding in the EU – including state loan guarantees – have been banned by a series of shipbuilding directives. That, has virtually killed shipbuilding activity in Europe. ..and so old ships live on becoming more uncompetitive every year that passes.

While we are on regulatory matters.. The EU has been unwilling to take steps in the direction of external costs with a penalizing effect on SSS, ..as we all know No Tax = Subsidy (mainly for road transport) The use of SSS - despite efforts - has not been made materially easier No funds have been made available aside of the Marco Polo trickle and EU funded R+D projects, some of questionable usefulness to anybody.

Then, came the world financial crisis ! ..to find the EU in complete disarray ..after years of Maastricht policies leading to slow growth ..and without proper means to defend itself against systemic risks. Unlike other regions such as the US, China, Libya and Brazil there have been no financial stimulus packages to support economic activity, and so.. ..the SSS market has been suffering the full blast of the crisis within its fragmented coastline.

This brings me to my next topic, the EU’s coastline paradox. Europe has the longest coastline in the world after Canada. It is 2.5 times longer hat that of Russia Five times that of the US, and 6.5 times that of China. All countries, including the above, reserve for their own flag ships their domestic transport services, except the EU. So, a 100 miles long voyage in the EU can be an international voyage, while a 2,000 voyage in the US is still a domestic voyage.

US flagged ships only can serve US domestic trade If you are wondering why is this important, it has direct impications on market access US flagged ships only can serve US domestic trade Chinese flag ships serve the Chinese domestic trade (since 1993) Russian flagged ships in Russia, Indian flagged ships in India ..and so on.

So, who serves the EU ‘s domestic trade? Every flag you can thik of as long as it is from one EU member state port to another. A practically unlimited supply of ships.. ..working miracles on freight rates. Now tell me if that rings any bells regarding the narrow profit margins in SSS we talked about earlier. If it does not, start comparing the manning costs of a Ukrainian vessel to those of an EU flagged ship.

How has such a thing escaped the attention of the EU Commission? Well, it hasn’t. The Green Paper by Commissioner Borg (2006) specifically addressed this matter by suggesting as the Treaties demand the creation of a Single Market through common territorial waters for the EU. Some say that lobbying by a group of deep sea interests has scuttled the proposal, leaving the role of defending the EU flagged operators ..to Port State Control.

Last but not least, air pollution legislation brings with it big changes. I am talking about taxes on fuel, Emmission Trading Schemes and Energy Efficiency Design Indexing. In its present form the EEDI is going to have brutal consequences on dry cargo and tanker ships to achieve the requisite reduction in emmissions. Emmission Trading can trigger unprecedented consequences for flags.

In view of all the above, we need to answer a simple question: Do we want to have an EU flagged SS fleet at all? Silence is no option. We have used it for two decades and it corresponds to a ‘’No’’ ‘’No’’ requires no action at all as EU SSS heads for extinction anyway under the present and expected regimes. If the answer is ‘’Yes’’ Europe needs to wake up and start doing things

Here are some suggestions. Check the supply side of shipping to restore profitability. That calls primarily for a Single EU Market featuring common territorial waters. Internalize external costs across the board. Review the Shipbuilding Directives to revive EU shipyards Start preparing for the repercussions of legislation on climatic change. Thousands of ships will be scrapped and will not be replaced by EU flagged ones unless we act now. Talk to SSS operators, not to deep sea operators about SSS issues. Address the manning question remembering that if the Europeans leave the shortsea, so will the EU flagged vessels.

It is no coincidence that all six measures listed have a regulatory character. It is evident that the future of SSS rests squarely on regulatory rather than market parameters. This brings to mind other EU malfunctions which currently hit the headlines raising the question of efficiency in policy drafting at EU level. It also points to the direction of a need for a fundamental review of current industrial policy in the domain of the Short Sea.....

..if we don’t move, we must kiss goodby an old faithful who has wasted away as a result of our inaction.

Thank you for your attention . Ladies and Gentlemen, Thank you for your attention .