The Ro-Ro market in 2004

What is really new?

A quick look at the fleet evolution shows that the 'pure Ro-Ro' concept is still in fashion in some areas, but by all accounts limited in its capacity to spread further afield. The Ro-Pax concept today seems to be a more promising direction in terms of fleet renewal. Thus there were 6 pure Ro-Ro and 18 Ro-Pax ships ordered in 2004, of which none unfortunately were dedicated to tramping. These figures should be compared with the 78 PCTC ships ordered in the same period to emphasize the huge gap between these two categories of ships, but which could perhaps promote a closer synergy in the not too distant future. This distortion within the fleet evolution of the deep sea and the short sea fleets was already largely apparent before, particularly in 2003. In addition we have seen 17 ships sold for scrap whose average age was 33 years for an average capacity of 900 lane meters. At the same time, 6 new Ro-Ro units were delivered largely compensating the demolitions taking into account the much larger average size of modern ships (between 2,000 and 4,000 lane meters).

Thanks to good fundamentals in an admittedly very restricted market, freight rates firmed up in a healthy and steady trend throughout the year without any noticeable seasonal effect. It should be noted that nearly all business is transacted in euros, which is fairly unique in shipping circles being the result of a market concentrated around Europe and further supported by a strong currency. We are still a long way from the rocketing rates which have been experienced by containerships, bulk carriers or even tankers - all directly dependent on the Chinese economic boom - but the freight levels achieved finally allowed the few owners who ordered ships during the last 5 years to obtain good return on their investments, and for those who bought second-hand ships 3 to 5 years ago to enjoy today excellent profits.

Second-hand activity has been very sustained throughout the year 2004 with over thirty pure Ro-Ros changing hands as well as a dozen Ro-Paxes. With the majority of ships bought or ordered having been financed in dollars, owners have often been able to appreciate that market values in euros were considerably higher than those in dollars in their books. In the same way as for newbuildings, the philosophy of second-hand buyers is rarely speculative, they most frequently are operators of lines, or else, owners whose investment is backed by a decent time charter commitment (3 to 5 years). We have seen in particular transactions of modern units such as the purchase of two ships from the Turkish owner UND (2,700 lane meters, 21.5 knots) by Norfolkline, but also 3 ships from compatriot EGE (2,500 lane meters, 20 knots) by Grimaldi (Naples). These sales go together with a rationalisation of the fleet employed between the Adriatic and Turkey since three of these ships will be replaced by two bigger units (3,700 lane meters, 22,5 knots) on order for UND at Flensburger shipyard.
 

The seaborne trade of second-hand cars bound to West Africa and the Middle East continued on the spurt of the second half of 2003, absorbing almost all ships equipped with at least one car-deck, but also the smaller car-carriers. During the autumn, Iraq decided to limit car imports to 4 year-old units with effect from January 2005. If this regulation is to be applied for a long period of time, ships employed on this might go through a difficult period and see their rates severely corrected downwards, since few of these units are able to find employment in standard shortsea trade, as the majority have deck heights or speeds which make them incompatible with the requirements of liner operators. Consequently, we anticipate a possible two-tiered market with firmer rates for the more modern units employed on mix trailers/containers trade routes and weaker rates for ships of proven low specifications but to whom the shortage of car-carrying tonnage has given in 2004 a second lease of life.

As far as intra-EU seaborne transportation of new cars is concerned, we have seen a reshuffling of the game, with Suardiaz, the long-standing privileged operator for Gefco, being pushed out of their contracts, principally to the benefit of Trasmed and UECC on the Atlantic runs, but also of Grimaldi Naples and LD Lines in the Mediterranean.
 

For several years, projects for 'Highways of the Seas' have been proliferating in the hopes of obtaining subsidies from the EU, but as of now none have really seen the light. We are rather afraid that these 'subsidy hunters' will shortly be seeing the doors to this treasure closing, as the rise in freight rates makes these projects even less economically viable. A very strong rise in oil prices and therefore bunker prices could proportionally give back a little competitiveness to the maritime option over the road, but the business world by and large is unlikely to get too keen about such a scenario.

KESS, the short sea trade arm of K-Line has long-term chartered 4 ships of 2,100 cars with collapsible decks ordered by Ray Shipping in Poland. It is likely that this concept will be repeated in the future, possibly with even larger ships. In addition, the outsourcing of production units of the major manufacturers towards Eastern Europe will very probably transform the Adriatic into a main crossroads of car trades.
 

We anticipate that hiret rates will continue their firmer trend for quite a time. This is in fact indispensable to enable the few tramp owners to make a step towards ordering new tonnage. However as newbuilding prices have shot up both in Asia as well as in Europe, it will be necessary to wait for prices to calm down before we can see this process getting off the ground. Meanwhile, it is highly probable that in the next 2 to 3 years, the rare orders for pure Ro-Ros of even Ro-Paxes will be exclusively limited to owners who will operate the ships themselves. On the other hand, a further important depreciation of the dollar against the euro is quite likely to be a factor which would set off speculative orders for newbuildings in shipyards outside the euro zone.