SHORT SEA SHIPPING IN THE MEDITERRANEAN, OPPORTUNTIES & CHALLENGES
This event was planned more than a year ago but had to be rescheduled because of the
elections and the earthquake. I’d like to thank Nedim Ölçer, Koray Arıkan and Giuseppe Farina
for having worked hard to make this happen together with Umberto Masucci
SSS is not the name of a new virus, or a new AI tool, nor does it stand for a paramilitary
organisation. It is easy to get lost in abbreviations and develop conditions of anxiety in this
polarized post-truth world, surrounded by conflicts, environmental threats, trade wars etc etc. .
No, no no. We are among friends. But still this should not give you comfort in any way as what I
am about to say is sort of important and I optimistically believe that we are still in darkness
before dawn.
SSS simply stands for Short Sea Shipping and is responsible for more than 70% of sea transport
in this region, which consists of the interconnected seas of Med, the Aegean, the Marmara Sea,
the Black Sea, the North Sea and the Baltics and all the rivers in these regions. SSS refers to
maritime transport of goods over relatively short distances, as opposed to the intercontinental
cross-ocean shipping.[i] To make an analogy, long-haul intercontinental transport routes are the
highways of the oceans connecting different parts of the world through massive transshipment
ports, where huge tankers, container ships and bulkers operate, while SSS routes represent the
inner roads. Both are essential.
In a typical voyage, sailing time in relation to time spent at ports is usually shorter than in longhaul shipping which has specific implications in terms of fuel consumption and therefore for the
decarbonization discussion as well as in terms of time spent at ports which plays a huge role in
cost management. So both decarbonization through shifting to new fuels and digitalization of
shipping in ports and on ships is of crucial importance.
In terms of capital structure, shipowners is the SSS segment are largely family-owned
enterprises with usually overstretched financial structure with limited access to external
financing.
Here are some facts:
The merchant fleet operating in this region encompasses around 1,500 ships with an average
age of ca. 20 years. A vast majority are coasters, consisting mostly of smaller specialty ships
(<5,000 GT) with a lower draft and often ice-class characteristics. These vessels generally burn
less polluting low-sulphur gasoil, in contrast with heavy fuel oil used by larger transcontinental
ships sailing major oceans.
Türkiye, Italy, the Netherlands, Spain and Germany are the most prominent short sea shipping
nations in European waters and together constitute the largest share in SSS fleet in Europe with
average vessel sizes ranging from 5,500 dwt to 12,200 dwt.
A closer look renders the following picture: Turkey and Italy together are the two main short sea
shipping countries in the EU with respective shares of 19,3% and 17,6 % in total seaborn SSS
traffic. This makes together a striking 37% of traffic that was transported by these two nations.
So together we have huge vested interest in collaborating with each other to maintain and grow
this business. If you combine the Netherlands, the three nations will account for 55%. (TR 344
mio t, İt 314 mio t, NL: 305 mio t, EU 27 total 1,782 mio to). The Netherlands and Spain come
next.
The traffic is largest in the Med, followed by North Sea and the Baltic (32%, 22%, 22%). Liquid
cargo represents ca. 40% of the SSS traffic.
Top three SSS ports are Rotterdam, Antwerb, Istanbul and Trieste. Rotterdam keeps the lead in
liquid, dry bulk and container SSS traffic. While fatest growth was in Zeebrugge, the sharpest
decline is in Piraeus.
Average age of vessels: The global merchant fleet is getting very old and will require hundreds
of billions of dollars for its required green transition, more than half of the world’s fleet is over 15
years old. Italy 17.3, Turkey 21.4 yrs. Let’s face it, oldest segment of ships in this region are the
coasters. According to UNCTAD, 42% of ships are above 20 yrs age, and their average size e is
6,500 dwt.
Here are the challenges:
– Shipping is currently navigating economic headwinds such as trade policy tensions,
geopolitical risks, changes in globalization patterns, increases in shipping distances,
growing environmental regulations. Balancing environmental sustainability, regulatory
compliance and economic demands has never been so difficult.
– Headwinds from Environmental Regulations will be very difficult to navigate. The costs
involved in the green transition could prove to be prohibitively expensive for many
smaller owners, which represents the majority of the SSS in the Med. Remaining in
shipping will be too high for some players and their capital could be better employed
elsewhere. So a consolidation in the industry is likely. Early adaptors to new low-carbon
fuels and digital technologies will survive, others will be consolidated.
– However, shipowners face the challenge of renewing the fleet without clarity regarding
alternative fuels, green technology and regulatory regimes to guide ship owners and ports,
while port terminals face similar challenges in vital investment decisions.
– While there is much talk about government support and subsidies for ship recycling,
retrofitting, new-build incentives and low-carbon fuel subsidies, national governments are
largely quiet. EU ETS (Emmission Trade System) will be applicable for vessels larger
than 5,000 gross tons from 1 Jan 2024. For smaller vessels it is an unavoidable imminent
reality.
– New builds: Today, there are great uncertainties regarding fleet renewal. Uncertainty
surrounding fuel technology and higher newbuild prices of around 15% have played a
role in limiting new orders for tankers and bulkers. Shipowners find themselves in a
dilemma: should they invest in ordering additional ship capacity and fleet renewal without
clarity on the best alternative fuel and green technology options? Alternatively, should
they wait until the alternative fuel pathway and regulatory regime become clearer and
more established before making decisions?
– The global ship orderbook is still relatively low, which will limit fleet growth in the coming
years while vessels are ageing. To comply with the emission requirements (IMO EEXI
and CII), ships are expected to reduce speed and take time off for retrofitting, which in
turn will reduce the active supply. At the same time, capacity at the large leading
shipbuilding yards is declining and uncertainty about future fuels is amplifying concerns
about a potential supply crunch in ship carrying capacity. (The global ship orderbook remains
moderate at 10 per cent of the world’s existing fleet (ca. 4200 vessels)) .The value of the orderbook
increased by nearly 20 per cent in the first quarter of 2023, compared to the same
quarter the previous year. This reflects a more sophisticated vessel product mix and a
rising demand for green technology and alternative-fuelled vessels.
(This is unfolding against the backdrop of the Energy Efficiency Existing Ship Index (EEXI) and Carbon
Intensity Indicator (CII) from IMO, which came into force in November 2022. Complying with these new
requirements will alter effective active supply due to operational limitations.)
– Ports and terminals are facing similar hurdles. They also require clarity about the future
regulatory framework and the alternative fuels that will be in demand. Only then can they
make informed investment decisions regarding equipment, terminal replacement,
construction and, potentially, alternative fuel bunkering facilities.
– Ship Recycling: Despite an ageing fleet, ship recycling remains low. In 2022, 7.5 million
gross tons, representing less than 0.5 per cent of the total active fleet was sent for
recycling. Despite more stringent environmental rules and rising steel costs, market
conditions took precedence, with shipowners eyeing the peaks in freight rates. Demand
for older tonnage increased the average value of older vessels.
– Some disruption at ship recycling yards, including financial pressures in yards in
Bangladesh and Pakistan have also constrained recycling activity.
– Türkiye is proven to be a major recycling hub with a 6% share in the world, coming after
Bangladesh, India and Pakistan. Our shipyards do meet environmental and labour
standards of the EU.
– Digitalization: Another driver of change facing the sector is digitalization. Maritime
logistics is increasingly dependent on more efficient ports and digitalized processes.
While the COVID-19 pandemic deeply disrupted global supply chains and logistics, it
also led to an increase in innovation in the industry, with an important growth in
investment for paperless digital solutions. Customs modernization, port reform, trade
facilitation, and the promotion of the use of electronic trade documents will all help to
achieve faster transactions, lower costs, and reduce delays. Also the use of IOT between
ships and ports will streamline and minimize port time, hence reducing costs and waiting
time.
– Ship Finance: Ship financing has also changed since the 2010 financial crisis, with a
reduction in capacity of the overall ship finance market (Clarksons Research, 2023c). While
shipping has traditionally relied on bank debt, other financial structures include equity,
debts, and leasing (Stopford, 1997). There has also been a geographical move eastward
with many western banks reducing their exposure to shipping. In 2021 and 2022,
shipping finance activity remained modest with shipowners relying less on debt for
liquidity and more on operations, thanks to a strong market and high freight rate
environment. Banks saw repayment activity increase, especially in container shipping
(Clarksons Research, 2023c). The financing landscape is also influenced by the rise in green
finance, which requires ships to comply with conditions such as the Poseidon Principles
(a framework for integrating climate considerations into lending decisions to promote international shipping’s
decarbonization) , the Climate Bonds Initiative, the European Union Taxonomy or the Green Shipping
Programme (Norway). More recently, the collapse of three banks in the United States and the
rescue of Credit Suisse have added uncertainty to this capital-intensive industry. Credit
Suisse is the world’s 10th largest shipping lender with about half its portfolio involving
Greek shipowners. UBS Group AG will likely shrink the $10 billion shipping portfolio it
inherited from Credit Suisse Group AG after its emergency takeover in March 2023 (Paris
C, 2023). Speculation about the future of shipping portfolios, underscoring the importance
for shipowners to continue diversifying their sources of finance.
Here is the opportunity and a simply receipe:
– Increasing shipbuilding capacity is crucial to ensure that shipping meets global demand
and its sustainability goals.
– Near-shoring & friend-shoring reshoring will increase transport activity in the Med
especially for Türkiye and Italy.
– In order to meet emission standards EU is promoting a higher degree of intermodal
transport on road, rail and sea. As a result, SSS freight transport is expected to grow by
around 25% by 2030, and 50% by 2050. (The EU passed an initiative called Fit for 55 (to
reduce carbon emissions by 55% by year 2030) )
– Shipbuilding activity should pick up in the years to come as the need for fleet renewal
intensifies.
– We need to strengthen the cooperation between Türkiye and Italy’s maritime community,
the shipyards, shipowners and the maritime supply chain stakeholders in order to keep
and further grow our market shares and to avoid bottlenecks in shipbuilding.
– As an ex-President of Istanbul PC I hereby call on both parties to set up a working
committee to meet in regular intervals in order to devise joint action plans to respond to
our ageing fleet problem by
o using our shipyard infrastructures more efficiently for new builds and retrofitting,
o jointly lobbying for desired actions by the regulators, i
o increasing cross border financing options for our industries,
o recycling and collectively transitioning to a sustainable maritime industry
by building institutional capacity and expertise and strengthen maritime
administrations in both our nations in order to effectively monitor and enforce
compliance with international maritime regulations.
Sinan Dallı
20. Nov 2023
President 2011-2013
Propeller Club of the US – Port of Istanbul
