Why ferry operators have little margin for error for in the Baltic

This article was first published in Spring/Summer 2018 issue of the International Cruise & Ferry Review. All information was correct at the time of printing, but may since have changed.

The English Channel, North and Baltic Seas have become famous both as a minefield of regulation, and a hotbed of innovative design for many robust, sustainable businesses. Operators here have dealt with very stringent emissions requirements for several years. Compliance strategies are varied. Operators such as DFDS and Finnlines have fitted scrubbers to their vessels, allowing them to use cheap heavy fuel oil, but with the sulphur content removed by carefully treating the exhaust gases. However, Baltic countries still disagree on what should be done with the washwater from certain types of scrubber systems, which can have an acidifying effect on the surrounding environment if left untreated.

Many local operators have taken a financial hit to burn more expensive 0.1% sulphur fuel. Now, the rest of the world’s maritime industry may face what some anticipate will be a supply crisis when International Maritime Organization’s 0.5% sulphur limit for ship fuels enters force in 2020. But ferry firm Danske Færge (Færgen), which operates vessels on several domestic routes between Denmark’s islands and has a small number of international routes, has had plenty of time to get used to it.

“We already comply with the sulphur requirements so [any fuel supply crises] will not affect the fuel we’re using,” says John Steen-Mikkelsen, head of Færgen. “We’re using distillate fuels that have below 0.1% sulphur content, and we have one ro-pax vessel using heavy fuel oil with a scrubber, which is functioning perfectly.”

Steen-Mikkelsen has a dim view of the way that environmental regulations are conceived and enforced in the ferry business. “The sulphur rule came from international regulations and suddenly became a very narrow and national one for the Channel, North Sea, and Baltic, where the restrictions became much more stringent than in the rest of the world,” he says.

The practice of applying broad-brush regulation on a smaller scale has created other difficulties for the market. “The upcoming rules on ballast water and carbon dioxide emission schemes will be a challenge for the industry, although the operators will have to cope with it,” says Steen-Mikkelsen. “Once again, the challenge for local operators is that international rules are supposed to fit all. This originated from a discussion about how we prevent invasive species being carried from Asia to Europe, and so on. But looking at the very narrow domestic waters around Europe, I think it’s a different discussion than the international one. You could argue that with short distances between Europe’s coasts, species will travel anyhow, even if there are no vessels.”

Being a service that is mostly domestic, Færgen’s vessels are exempt from having to be fitted with ballast water systems – a cost that can reach US$5 million in some cases. “We’re fortunate that authorities look at Denmark’s domestic waters as one body,” Steen-Mikkelsen comments. “We’re mostly within domestic waters and although we have one route connecting Sweden and Denmark, we think the country is very much of the same opinion – it’s one sea. It won’t bother our company much, but the question remains for other operators. Will the Baltic Sea be recognised as one sea? Is it being considered as one sea by all countries represented within it?”

Steen-Mikkelsen indicates that part of the difficulty arises from the fact that while customers are onboard with having the latest, cleanest environmental technology on their ferries, this enthusiasm evaporates when they buy tickets. “We have to increase the ticket costs to a certain extent, but customers don’t want to pay for it,” he explains. “Everyone thinks that having more environmentally friendly transport is a good idea, but with the kind of trade we have to compete with – fixed transport links and bridges – we can’t convince a customer to pay a ‘plus’ ticket just because we’re running on green technology. If you’re competing with a bridge, people will just queue for the bridge.”

There are other ways to keep costs down, however. “We run on a crew base where we always adjust the security part of the crew to the customer level,” says Steen-Mikkelsen. “So, we always try to look into the forward curves and bookings to ensure we have the exact required number of crew onboard. That fits to the commercial and security sides of operation. It’s about hitting the right levels.”

Currently, that level is rising. “We foresee a slight increase in 2018,” Steen-Mikkelsen says, citing the ongoing refugee crisis in the Mediterranean as the reason. “As a domestic ferry company, we’re in competition with the low-cost carriers that go from Scandinavia and Denmark into Europe. When migration from Iraq, Turkey and Lebanon to southern Europe started, we saw that other businesses were running into trouble getting people down to these areas. I think that’s benefited the northern part of Europe – a lot more Europeans went north than south in the holiday season.”

Currently, Færgen operates seven routes using 12 ro-pax ferries aged between five and 35 years. “For the time being we will not be making any changes to our vessels, but we always try to increase customer satisfaction, and keep the focus on our customer numbers,” says Steen-Mikkelsen. “We’re looking into renewing the fleet, but a lot depends on the next tenders coming up.”

Given that the next tender renewal is in six years’ time, there is no hurry. But today, many operators in this region are pre-empting the next piece of stringent emissions regulations by incorporating batteries – or at least internal spaces for them – into their newest vessels. Batteries regularly double the energy storage capacity for a ferry of a given size and weight, and many of today’s hybrids will likely be able to increase their proportion of battery power in years to come. For the time being, says Steen-Mikkelsen, the relevant infrastructure for this technology, at least in terms of shorepower facilities, is “not there yet”.

“We’re considering battery solutions for some of our routes,” he says. “It’s a technology that’s coming, so it’s something that we always have to look into. But it depends on timing and, for our business, the requirement for the next tender.”