By
David Mott |
“With three competitors on the Channel there is now more than enough capacity to meet all passenger and freight demands,” says Niels Smedegaard, president and CEO of Danish-owned ferry giant DFDS Group. “I don’t think there is necessarily room for three operators,” he adds.
Two operators, DFDS and P & O, will be closely monitoring the latest newcomer, a SeaFrance workers’ co-operative backed by Eurotunnel which had a €65 million offer for the bankrupt French ferry company accepted by a Paris court. Smedegaard said the new Eurotunnel marine operation potentially has a more than 40 per cent share of the whole market and that the DFDS will “be pointing this out to the competition authorities and we are also concerned with the whole issue of state subsidies in SeaFrance.”
P & O is more guarded, but has similar concerns. Under the latest deal announced on 11 June 2012, the Channel Tunnel operator will buy three former SeaFrance ferries and lease them to the co-operative under the French flag, the domestic flagging a condition of the French court. Initial estimates are that around 300 jobs will be saved from total of more than 800.
When DFDS began Channel operations in 2010 by purchasing the Norfolkline business between Dover and Dunkirk, Smedegaard could not have imagined that the next natural progression to the Dover-Calais route would be so complicated. To achieve this and to reinforce a wider presence on the Channel, the Scandinavian company has formed a joint venture with LD Lines, part of Louis Dreyfus Armateurs.
Smedegaard continues: “When we started on Dover-Calais with two ships and 10 daily departures, one of the vessels, Barfleur [re-named Deal Seaways] – was chartered from Brittany Ferries. We did this because we thought we would get one of the more modern SeaFrance ferries which had been laid up in Calais since the beginning of the year. But our bid was turned down.” Did this mean Deal Seaways which has been in and out of service in recent times, will now be purchased? “It is possible,” says Smedegaard.
LD also had an offer turned down and both companies confirmed at the end of 2011 they would not renew their bids, citing continued trade union intransigence as the reason. In the new venture, which at the time of writing had still to be signed and sealed, DFDS will own an 82 per cent share and LD, the balance. “We like big majority stakes in our ventures and this one represents our respective inputs into the venture. Under the deal, due in operation on 1 July 2012, the routes covered are Dover-Dunkirk with three DFDS vessels, Dover-Calais with two, and the western Channel Portsmouth-Le Havre and Newhaven-Dieppe with a total of three vessels.
Farther away, Marseille-Tunis is also included with one vessel. From a total of nine vessels, four are owned and five chartered. In broad terms, although chartering offers more flexibility, ownership is a much better guarantee of continued operation.
Smedegaard believes the new joint venture expanded the DFDS route network in line with the company’s strategy of creating a European shipping and logistic network. He added that when DFDS first began operating on the Channel two years ago between Dover and Dunkirk, “we realised it was very competitive and held an internal audit to see how the product could be improved.” The new Eurotunnel operation is also booked to start on 1 July 2012, but Smedegaard believes it will need more time to get off the ground. His counterpart at LD Lines, Gildas Maire, says: “This new company confirms our strategy to create a European leader in the Channel ferry business.”
DFDS, based in Copenhagen, already had strong UK representation even before it started on the Channel. A leading operator on the North Sea and Baltic covering no fewer than 25 passenger and ro-ro routes, it also has extensive logistics activities. There was hope among analysts that with just two operators on the Channel short sea routes, there might be a return to more realistic rates. But the admission that there is potential over-capacity with three lines appears to rule this out.
Expansion at the level now being seen on the Channel was first forecast five years ago when Smedegaard took over at the top of what is Northern Europe’s largest short sea shipping and logistics group. He says: “When I started in DFDS in 2007, one of my tasks was to create a new strategy and try to sharpen the organisation a bit and get us to earn some more money. After a few months we announced a strategy where we indicated we wanted to take part in the consolidation we expected would take place in our segment – short sea shipping from Russia in the north to Spain in the south.”
Financial figures published in May showed a slump to US$16.7 million pre-tax loss in a seasonally ‘slow’ first quarter this year, from US$1.2 million profit 12 months ago, due to recession in key markets depressing cargo volumes on the North Sea and in the Baltic. Smedegaard explains: “The current year has begun with some headwind, but we are more efficient than before and financially very solid. This means we can continue to pursue opportunities for consolidation.” As such, the company expects annual revenue to increase marginally this year to about US$2.1 billion. Because of new operations like the Channel, the company is sticking to its forecast of an operating profit between US$224 million and US$232 million before special items against US$258 million last year.