The low sulphur cap - impact on short sea shipping _presentation2 Freight by Water Conference September 2012 Mike Garratt MDS Transmodal

1.Impact on short sea shipping: Commission view (July 2011: impact assessment) “the 0.1% sulphur requirements in SECA’s on short sea shipping … will have some effects on shipping patterns” -but not quantified Could be mitigated by adapting existing measures (e.g. Marco Polo) to specifically target on modal shift -because otherwise there could be an undesirable modal shift from sea-based to land-based transport -modal shift impact estimated by a study funded by the Commission from Transport & Mobility Leuven (TML) but no specific mechanisms proposed

2.The view of the European Community Shipowners Association (ECSA) A study commissioned by the European Community Shipowners Association (ECSA) concluded “Depending on the actual modal back shift the overall outcome for the environmental performance might well be negative”. but “Obviously the use of MGO will have a positive impact on external costs generated by short sea vessels alone”. Study examined impact using MGO on range of different routes - impacts were not weighted - it anticipated loss of market share to fixed links - short crossings expected to win share over long crossings Concluded negative impact on shortsea shipping

3.Study by Transport & Mobility LEUVEN (2010) A report for the Commission to advise on modal impact –used to inform/endorse decision making Concluded impact would vary considerably by sub-mode –Lolo-7% –Roro freight only-4% –Small ro-pax-1% –Large ro-pax-2% (based on conversion to MGO instead of fitting scrubbers) Methodology based upon –modelling 21 different corridors within Europe, using origin- destination tables –calculating proportion of each ship type’s costs made up of fuel –estimating impact on modal split of an increase in fuel costs

4.Earlier Swedish maritime administration study (2009) also assumed + €200 versus HFO (present exch. rates) considered market by origin/destination/commodity analysed routings within and beyond Sweden concluded effects would include –concentration of overland rail haulage through principal port (Gothenburg) replacing local port traffic –transfer from SSS to through rail southbound to Continental mainland (via Oresund Bridge) –an increase in road haulage traffic in southern Sweden “the consequences for society of a [consequential] transfer of freight transport from shipping to road are not desirable from an environmental perspective”

5.The principal battle grounds Impact of higher fuel costs will be to: –reduce proportion of overall journey using ships –switch some long haul journeys from sea to rail (e.g. Spain to Benelux) Eurostat data generally weak at estimating SSS tonne kms –difficult therefore to assess impact Potential serious impact on vessel supply –Many ships currently operating will cease to be viable –The lower are charter rates the less likely are scrubbers to be fitted

6.The Fleet: Ships working in the SECA Total of 500 ro-ro & lo-lo intra Europe vessels operating in SECA (excluding local ferries) Lo-lo:202 Passenger ro-ro:123 Freight ro-ro: All will face significant challenges –one vessel so far fitted with scrubbers! –handful being built to use LNG

7.Model Output: using scrubbers Increased costs of 5-6% moved on longer routes –costs via Dover Straits only rise by 4% Proportion goods via Northern British ports falls by 5% –benefiting shorter crossings to the Thames Increased volumes by rail in the UK –But road kms increase even more

8.Model Output: using MGO Increased costs of 9–16% moved on longer routes –costs via Dover Straits only rise by 6% Proportion goods via Northern British ports falls by 24% –benefiting shorter crossings to the Thames Increased volumes by rail in the UK –But road kms increase even more

9.Potential of LNG (negligible sulphur) LNG currently offers MUCH LOWER costs than HFO Switch to LNG therefore favours SSS Challenge lies in –bunkering facilities not available –therefore no ships available –low charter rates discourage new investments –only a few new orders emerging Implication for modal split positive –UK study implies ‘northern’ GB ports GAIN 18% volume Very recent announcement last week therefore crucial Baltic ports (led by Helsingborg) awarded €30 million LNG infrastructure study –to allow ship-owners to build/operate LNG ships

10.Pan European Analysis: all unitised freight also employed MDST model covering all Continental flows –Origin x destination x commodity group model estimates current modal costs, region – region to determine minimum costs at current (generic) market rates model implies SSS (excluding short ferry crossings) is minimum cost mode for 31% of all international intra Europe traffic SECA measures raise maritime costs –Impact is to reduce by 9% total flows for which SSS is minimum cost solution m TEU Fuel oilGas oil% change Road (+ short ferries) % Road (+ fixed links) % Rail % Sea %

11.Summary SECA to be introduced in just 2.5 years; the time it takes to design and build a ship. Impact assessment by public authorities weak –no clear overall view on cost and mode shift implications Our modelling suggests impacts significant –freight market highly elastic Most efficient resolution to switch to LNG –but capital costs involved very high Significant danger of a loss of maritime market share and short term and expensive ‘solutions’.