Supply and demand in the short sea market is out of balance. According to Bloem Doze Nienhuis’ second short sea study, this balance will not be recovered until 2020.
According to the study, the demand for cargo in the short sea sector has been more or less stable at 1.8 billion tons between 2005 and 2012. At the same time, the short sea fleet grew by twenty per cent from 38 to 47 million tons dwt.
In 2005, the short sea industry was reasonably profitable. With an annual growth of four per cent in cargo and a net stable fleet it takes until 2020 to recover the 2005 balance.
Volatile Freight Rates
One of the key findings of the first study of March 2012 was that short sea freight rates were highly volatile caused by, amongst others, heavily fragmented available ship tonnage. The study recommended to concentrate supply through mergers and partnerships such as pooling to increase the utilisation of ships and profit from economies of scale.
Short Sea Freight Rate Index
In 2012 and the first half of 2013 freight rates reached an all time low. In addition, cargo transport of two of the most important short sea clients in the EU (the steel and wood industry) remained low.
However, a reliable indicator for short sea freight rates is lacking. The authors propose to create and implement a reliable and representative short sea freight rate index. This will professionalise the industry and will make freight rates more transparent for stakeholders.
Asset Light Shipping Companies Perform Better
Analysis of the five big players in short sea shows that “asset light” shipping companies perform better than competitors that own many ships. Financing problems and losses seem to concentrate at the end of the chain: the ship owner.
Arrears Will Weigh on Cash Flow
Financing is difficult for the short sea industry. In consultation with banks, repayments are postponed to prevent banktruptcy. When the cargo market improves, these arrears will weigh on the cash flow in the years to come.
Bloem Doze Nienhuis
The research was conducted by Johan Wagelaar RA and Rabia Genç MSc from Bloem Doze Nienhuis, where Wagelaar is associate partner and Genç is financial analyst.
Picture: The Marin, a short sea vessel near the port of Rostock (by Norbert Kaiser, Wikimedia Commons)
