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Why the ferry sector is poised for consolidation

Tue 09 Apr 2019 by Rebecca Moore

Why the ferry sector is poised for consolidation

Rebecca Moore believes market conditions, digitalisation and decarbonisation will lead to more consolidation in the ferry sector

The ferry market is ripe for consolidation. The 2020 sulphur cap, the need to invest in new technology and Brexit are key drivers.

The sector needs to invest in new technology, newbuilds and retrofits to meet the 2020 low sulphur cap. Companies can tap into this investment by joining forces, and therefore the regulatory requirements and decarbonisation drive make consolidation a strong trend.

Investment in digitalisation is also required, which is likely to be a spur for companies to seek consolidation opportunities.

Brexit is another driver for consolidation. Ferry operators may decide to distribute their eggs across several baskets to limit their exposure to the risk Brexit creates. One example is DFDS, which acquired Turkey-headquartered U.N. Ro-Ro last year. DFDS executive vice president and chief financial officer Torben Carlsen explained in a panel at Shippax Ferry Shipping Conference in March that acquiring this company made DFDS less vulnerable to Brexit. “North Sea consolidation opportunities are limited due to regulatory requirements. We had to look outside northern Europe to an area with no regulatory concerns with our investment.”

This could be a pointer for where future consolidation might occur: in areas not affected by Brexit and where regulations do not impose restrictions on merger and acquisition activity.

This acquisition also highlights the direction future consolidation by ropax operators might take, with a greater focus on roro opportunities than passenger ship opportunities. 

Shippax lead conference moderator Philippe Holthof pointed out that in 2018, ferry operator financial performances were mixed with growth shown in the freight market, while stagnating passenger numbers were in evidence. Ferry market lane-metre capacity has grown from 14,400 m in 2017 to 20,000 m in 2018. Passenger capacity grew by a more subdued 3,000 in the same period.

This is a strong indication that we will see more consolidation by ropax operators within the freight/roro sector.

Aside from DFDS’ 2018 acquisition, there were two other recent acquisitions that highlight this is a trend likely to accelerate. Grimaldi’s acquisition of Finnlines shows how successful this can be and may encourage other companies to follow suit. Finnlines was struggling financially in 2009, but under Grimaldi has thrived and invested in its fleet with Grimaldi’s financial backing. This shows it can be wise for companies to work together.

Elsewhere, P&O Ferries has been acquired from Dubai World by its sister company DP World. There is no doubt this is seen by P&O Ferries as a huge positive. Its chief executive Janette Bell told delegates at Shippax “I am personally delighted. DP World values us as a best-in-class integrated logistics provider. I am excited at what we can achieve and the opportunities this opens up for the business.”

The ferry sector is fragmented, with many operators in Europe, the Mediterranean and southeast Asia struggling to increase profitability and throughput and facing fierce competition. Add to the mix the 2020 low sulphur cap, digitalisation and Brexit, and the perfect storm is created for consolidation opportunities.

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