By
Rebecca Gibson |
Providing an extensive, high-speed ferry service on London’s River Thames, UK operator Thames River Clippers faces a unique challenge. “Currently we are operating a fleet of 13 relatively high-speed catamarans on inland waterways according to a code that was initially developed for ships sailing in open waters,” explains Sean Collins, the line’s CEO. “We would like to construct a new type of ferry, which would leverage innovative technology to improve operational efficiency by reducing weight and emissions, but conflicts with legislation outlined in the high-speed craft code will make it very difficult to do so. We’re collaborating with the UK Maritime and Coastguard Agency and organisations like Interferry to lobby for an amendment to the code that satisfies this type of vessel.”
Challenging operating environments are not a new concept in the ferry industry. Various environmental, passenger safety and governmental regulations have been imposed over the past few years, forcing operators to alter their operations and vessels to ensure compliance. One of the biggest challenges currently facing the passenger shipping industry is the new legislation limiting sulphur oxide (SOx) emissions, which becomes mandatory on 1 January 2015. Generally, new regulations usually apply to newbuilds straightaway, which enables operators to find a compliant solution before they start construction, but the SOx regulations will also apply to existing vessels from the start of next year.
“When the SOx law was proposed, it was presumed that seven years would give the ferry industry plenty of time to adjust and if the 2008 economic crisis hadn’t occurred, we probably would have been ready to comply by 1 January 2015,” says Christophe Mathieu, deputy managing director of French operator Brittany Ferries. “However, we have been unable to fully invest in all of the necessary technology to install scrubbers, retrofit our engines, or build compliant newbuilds and there has been little recognition of this. Brittany Ferries is fully committed to becoming a more ecological fleet by 2018 through its ‘Route to Compliance’ strategy, but like many other operators we need more time.”
New regulations regarding sewage treatment have also forced Canadian operator British Columbia (BC) Ferries Services to install C$70-80 million worth of sewage treatment equipment across its fleet and terminals. With further environmental legislation expected to be enforced in the near future, BC Ferries is doing everything it can to keep operational costs to a minimum.
“While our fuel costs have risen to more than double what they were a decade ago, we’ve introduced new vessel operating procedures and installed more efficient equipment onboard our vessels, which has reduced our overall fuel consumption levels by around six million litres over the last few years,” says Mike Corrigan, president and CEO, BC Ferries. “We are now looking at the financial viability of converting some of our fleet to run liquefied natural gas (LNG) and we have already started the procurement process for three LNG-fuelled newbuilds.”
LNG is also a key priority for Brittany Ferries. According to Mathieu, the company is pushing hard for the fuel to become the norm for the shipping industry. He says: “We’ve just signed a £225 million contract with STX France for the construction of a dual-fuel ferry, which will operate primarily on LNG fuel when she enters service in spring 2017. We’re also retrofitting three of our existing vessels, enabling them to run on LNG as well as traditional marine gas oil and heavy fuel oils.”
However, technological innovation is expensive, meaning it is not always a viable method of boosting profitability, especially when finances are already being squeezed. “It costs around C$800 million per year to run our ferry system and as C$180 million of our yearly costs are subsidised by British Columbia’s government, that pretty much dictates the number of services we can provide to the community,” says Corrigan, explaining that BC Ferries has a 60-year operation contract with the Province of British Columbia. “Recently, the government asked us to reduce our services by around 10%, so there is now a disparity between the level of service the government is prepared to fund and the level of service customers expect us to provide. In addition, we operate using a mainly fixed-cost structure, which makes it very challenging to provide value for money to our regular passengers who don’t want to pay more for tickets.”
Pressures on its cost structures and business model have led BC Ferries to seek new opportunities to generate revenue. “Since the recession started in 2008, BC Ferries’ traffic has decreased by around 10% and the market isn’t likely to change significantly in the short term,” admits Corrigan. “You can only cut a certain number of costs, so to compensate for our falling passenger numbers, we are seeking smarter ways to manage costs and generate additional revenue. For instance, our commercial services division now accommodates drop trailers – which were previously carried on our competitors’ tugs and barges – and we are developing a new revenue and reservations system that would enable us to offer differential pricing.”
BC Ferries’ 35-ship fleet offers short, mainline and long-haul cabin services on 25 different routes, providing an ideal opportunity for the operator to generate increased revenue by driving passenger spend. “We have continued to profit from onboard retail sales. One reason is because we sell products that are manufactured or grown in British Columbia, which satisfies the demands of our regular customers,” says Corrigan. “We are also working to improve our onboard amenities for passengers travelling on our mainline or long-haul services.”
This article appeared in the Spring/Summer 2014 edition of International Cruise & Ferry Review. To read the full article, you can subscribe to the magazine in printed or digital formats.