Cross Channel RoRo Ferries in Row Over Sulphur Regulations and Threat of Freight Rate Rises

UK – EUROPE – Suddenly, after six years of discussions and legislation, parties involved in the shipping sector, specifically the RoRo cross Channel trade, have woken up to the possible effects of the new European Union sulphur emission rules coming into force at midnight on New Year’s day. The Emission Control Areas (ECAs) in the English Channel and the North Sea, as well as the US and Canada and the Baltic, mean the maximum content of sulphur allowed in marine fuels used in the ECAs will be 0.1%, compared to the current limit of 1% today.

In September German heavy lift operator Rickmers-Linie, warned that price increases would inevitably follow the regulations as shipping lines switched to more expensive low sulphur alternative marine gas oil or invested in scrubbers, or conversion to cleaner fuels such as LNG or methane. Now, according to the national press, P&O Ferries has announced massive price increases from 1 January of £50 per trip for a family of four with a car, something the company takes issue with.

The alleged statement has led to the usual hysteria from the likes of the Daily Mail which has called the legislation a ‘Diktat from Europe’ and warned of ‘dangerous fires’ and ‘boats floating dangerously without power in busy shipping lanes’ but even it recognises this was voted through by the International Maritime Organisation (IMO) in 2008, not the EU, with six years for companies to suitably prepare their vessels.

A pleading video, and a report prepared by AMEC for the Chamber of Shipping and published 18 months ago, concluded that the implementation of the regulations could result in the loss of 2,000 maritime jobs and even cause ‘adverse environmental effects’ which seems stretching it a bit as the reason for regulation is to reduce pollution and consequent identifiable damage to health. It also concludes that the regulations will mean more freight moved by road as opposed to sea, again somewhat contestable, particularly in the case of the cross Channel market.

The unions have not been slow to have their say with the RMT stating that the report is now out of date and linking the cost of conversion with the current low oil prices. RMT General Secretary Mick Cash chipped in with the usual rhetoric saying the shipping industry’s approach is ‘a cynical attempt to wrest more subsidy from the taxpayer to meet conversion costs bound up with the austerity agenda of today’s autumn statement’ but National Secretary for Shipping Steve Todd gave a somewhat more measured appraisal saying:

“Seafarers, passengers and the national economy must not be forced to pay for the shipping industry’s failure to prepare for regulations introduced 6 years ago. New limits on the sulphur dioxide content of shipping fuel, required by international law, were announced by the EU in 2008 when the Chamber of Shipping welcomed them as ‘a major move forward’ as well as a realistic deadline. Some operators have taken preparatory steps and we recognise that but RMT cannot stand by and allow the shipping industry a free run at our members’ jobs on ferries and at ports in the North Sea and Channel.

“Leaving these alarmist statements to the eleventh hour is a crude ploy that causes unnecessary instability in the industry. In addition to the £725 million tonnage tax break the shipping industry has enjoyed since 2008-09, the EU gave ferry companies in the UK nearly €30 million (£23.7 million) in July specifically to help with costs converting vessels to low sulphur fuel.”

The UK Chamber of Shipping admits that the Amec report it commissioned was funded of course by ‘North Sea and Western Channel shipping operators’ so hardly likely to paint a rosy picture of a policy which in 2008 was welcomed vociferously by all involved. Put simply, operators have had enough time to convert ships or make alternative plans, if they haven’t done so, and many have, they should reconsider their management structure.

One really interesting factor in this is of course the current MyFerryLink cross Channel ferry dispute which we have written on at length. The UK Competition and Markets Authority (CMA) has always believed that the company, formed from the drowned bones of SeaFrance, had an unfair advantage with its parent company, Groupe Eurotunnel, having access to too much of a share of the market. With the final verdict due this month from the Competition Appeal Tribunal (CAT) on whether the company can continue to operate, how will a decision to effectively cut competition across the Channel be seen at a time when competitors are possibly about to raise fares across the board?

So what of that P&O fare hike? Speaking to the company today the complexity of the situation becomes more apparent. P&O are fully aware that to raise fares as has been quoted, particularly at certain times of the year, would simply be commercial suicide. Since the Amec report the fuel price has dropped dramatically, although the differential between marine gas oil and the diesel used formerly has remained about the same. The company has always fully supported the IMO legislation, with well over 2,000 staff watching the ferries depart Dover every day, pollution is something they are very familiar with, but an instant fare hike would be a blunt instrument which makes no sense.

The ferry companies are more interested in the passenger sector than the freight traffic, something many HGV drivers have complained about since time immemorial, but they remain experts at retail marketing, both on and off the water. Companies such as P&O understand the complex equation which now faces them and you can be sure that the bottom line will be guarded by a portfolio of measures as the situation unfolds, rather than a fare rise which would scare off the punters.