The Ro-Ro market in 2003

A busy year

2003 was undoubtedly an eventful year for the entire maritime industry, with numerous charter rate records being broken throughout. The ro-ro market was by no means a bystander. On the contrary, 2003 propelled to the forefront the incredible correlation between global geopolitics and ro-ros. The deployment of military forces of the Anglo-American coalition for the war in Iraq was the market�s driving force from the first quarter until the beginning of the summer. The end of the war, in turn, did not lead to a complete collapse of the market but merely to a return to the economic levels proper to a non-military one. However, the fall of Saddam Hussein and its repercussions on the Iraqi economy produced a certain number of �side effects� whose consequences will probably be less powerful but more enduring. Indeed, whilst the skyrocketing of rates observed during the first months of the year did not bear a structural dimension, it revealed the striking vulnerability of those operators whose trades are based exclusively on chartered tonnage. This exposure is bound only to aggravate in the next couple of years as the fleet of vessels dedicated to the charter market increasingly shrinks while, at the same time, volumes transported on numerous routes are registering strong increases.

The saturation of shipbuilding yards, particularly in Asia, coupled to the high costs associated with building in the European yards, where prices have spiked further following the recent appreciation of the euro, represent fundamental obstacles to the development of a fleet available for tramping. The outlook is even bleaker if one compares the potential returns from investing in tankers, bulkers, or even containerships against those from ro-ros. As of January 2004, the orderbook stood at 17 vessels (PCCs, PCTCs and Ro-paxes being excluded from this figure) of which only 6 are destined for the charter market. In 2003, only 7 pure ro-ro vessels were ordered, of which none were earmarked for chartering. If one also takes into consideration the fact that during the course of the year 21 vessels were sold for scrap, the logical conclusion to be drawn is that the market will find itself facing a shortage of tonnage in the very near future. In stark contrast, not only did the �deep sea� sector of the market see no less than 55 newbuildings (PCCs and PCTCs) being ordered, but the sale and purchase sector was very active, with Greek and Norwegian owners picking up the lion�s share of second-hand tonnage. As a result, it appears that we are increasingly heading towards a segmentation of the market into two tiers: on the one hand, numerous projects for the creation of lines whose success hinges on modern vessels that are increasingly becoming rare, on the other, a significant but ageing fleet of vessels whose features are obsolete.

Marco Polo, the European programme to support the creation and financing of new trades, will come just in time to back, we hope, the best initiatives. Against the foreseeable inadequacy of tonnage available on the charter market, the newbuilding alternative appears to be strategically placed to allow these new trades to come to life. However, despite the political will behind these efforts to alleviate road traffic, the competitive costs of the latter remain a considerable obstacle. Unless new legislation is passed, forcing one way or another a deviation of traffic towards the sea, the risk is that the road will ultimately prevail.

The charter market remains concentrated in the Northern European and Mediterranean zones. However, throughout 2003, but especially during the last quarter, the Persian Gulf saw a substantial growth in activity. The latter was not experienced in China, where outstanding economic performances have generated incredible benefits reaped by the bulk and tanker markets in terms of imports and the container market for exports, but up to now still not affecting ro-ro commerce. Nonetheless, it is our belief that this remarkable economic boom will soon spill over into the ro-ro dimension.
 

Deployment of military forces

Over the course of the first 4 months of the year, a total of 36 vessels were fixed on the open market by the British Ministry of Defense (MOD) and 23 by the United States Military Sealift Command (MSC), in order to meet their logistics requirements for the war in Iraq. Initially it was the British who very skillfully entered the market as from January 2003 raising rates only marginally (approximately 25 %) after chartering in about 20 units, the bulk of available tonnage in the 1,200 and more lane meter range. Soon enough, the steady and firm demand of the two governments lead a good number of operators to release tonnage from their lines against considerable profits. The ensuing result was that the market boomed. At its peak, charter rates reached levels three to four times higher than just a few months earlier: $ 18,000 per day for units of 1,300 lane meters and $ 46,000 per day for 5,000 lane meters over a period of 3 to 6 months. In this perspective, of particular notice is the initiative of the Danish government that chartered on period a vessel of 2,400 lane meters, the �Tor Anglia�, to meet their transport requirements. The vessel, throughout the course of the year, ended up being employed and sub-chartered several times to other European Ministries of Defense, signaling perhaps a move towards a greater coordination between the military organizations of the European Union. In fact, just as in the case of the operators dangerously exposed to chartered tonnage, military organizations will need to take precautionary measureswell ahead of time in order to meet their future deployments, otherwise they risk having to scramble the last minute to put their hands on available vessels. In this perspective, throughout the course of the year, SOL/Transprocon has successfully stood out, winning a great number of military tenders not only with their own tonnage, but also by making the most of arbitrage with vessels fixed on the spot.
 

Northern Europe and the Baltic absorb new tonnage

Scandinavian DFDS Tor Line and Stena Line, but also Finnish Transfennica have increased their global transport capacity by taking delivery of new units (ro-ros and ro-paxes), but also by resorting to the charter or outright purchase of the rare recently-built vessels available. Consequently, the two vessels of 2,600 lane meters of the AWSR consortium were fixed to Transfennica for a period of 3 years at an estimated rate of � 12,500 per day. The Finnish owner further strengthened his position by fixing for a similar period the two Stena newbuildings built at Dalian (3,000 lane meters, 22 knots). In this category of vessels, the only remaining units available were Bogazzi�s �Aronte�, her sistership �Sea Chieftain� of Stena, and �Stena Foreteller�, the latter released by Cetam at the end of year. Eventually, Stena Roro purchased the �Aronte� and towards the end of the year reached an internal agreement to give away two of their units to the line division, thus drying up in one single stroke the market for large modern vessels available for charter.

Also DFDS was very active on the chartering front, as they continued their trend of selling their oldest units against charter-back from their buyers. This process, which began three years ago (12 vessels sold out of which 8 during 2003 alone), has allowed the Scandinavian owner to substantially rejuvenate the average age of his fleet all along while integrating his newbuildings. Cobelfret, for their part, turned out to be scarcely involved in the charter market  being more interested in sale and purchase with the acquisitions of the Dag Engstrom�s �Romira� (2,700 lane meters, built 2002) as well as the three B&N units �Anna Oden�, �Britta Oden� and �Eva Oden�. These vessels all offer a solid car capacity and will be deployed in competition with DFDS on the UK loop.
 

What is happening elsewhere?

The Caribbean zone, undoubtedly affected by the dollar�s depreciation, generated very little chartering activity, thus confirming the tendency observed over the past 3 years that the need for ro-ro tonnage is dwindling. Crowley released two vessels in 2003, �Stena Shipper� and �Stena Clipper�, replacing them with only one 2,700 lane meter vessel the �Crowley Americas�, bought by Atlantica Shipping from UND at the beginning of the year. In the Far East, pure ro-ro deployments are almost non existent, although a number of Japanese operators are in the process of developing designs for ships which would be destined for intra-Asian trades and offering a good mix of rolling cargo and cars. Whether this will in turn actually generate a chartering activity remains to be seen. Grimaldi and UECC, for their part, deploy between Northern Europe and the Mediterranean versatile ships of 2,500 to 3,000 cars intake with high and heavy space, so logically this scheme should work out also in Asia.
 

Prospects 

The old Continent, whose ideas are anything but outdated, appears to be increasingly the maker of the future of the ro-ro market. However, all the various initiatives, whether backed by legislation or not, will be required to make economical sense in the short term if they want to see the light. Tramp owners� loss of interest to invest in pure ro-ro newbuildings has the potential to widen even further the gap that already exists in this two-tier market. On the one hand, there are the historical operators of a fleet that for the most part is owned and who are consequently barely active on the chartering side, on the other hand, the operators unwilling to invest in newbuildings either because of their insufficient critical mass or due to their low-freight paying trades. The only way to reverse this trend is for an enduring and structural rise in charter rates so that owners will again dare to invest in new tonnage and play the market. There is also the possibility that the shortage of tonnage foreseen in the near term coupled with high charter rates for vessels of average quality will lead charterers to place orders sooner rather than stand by and wait. In such a case, the principal loser would be the charter market, whose activity would be substantially reduced. Our hope is that a number of historic specialist tramp owners will anticipate such a trend and assist in the rejuvenation of the tramp fleet as well as in setting the stage for a come-back of the time-charter market.