Short Sea Shipping:
Practices, Opportunities and Challenges
Written by
Gary A. Lombardo, Ph.D.
Prepared by
TransportGistics, Inc.
Executive Summary
Short sea shipping is
a concept that has as its genesis traditional coastal sea transport
practices from ancient times. The early merchant vessels were small
in cargo capacity and tended to sail within sight of the coastlines
while moving goods and passengers from one sea port to another. Their
schedules, owing to their dependency on the winds and tides, were
flexible and thus their reliability was relatively low. Vessels and
crews lost at sea were not an uncommon event.
During the many
centuries that ensued, and especially during the past approximately
two hundred years, coastal shipping evolved whereby larger vessels
could carry increased cargo volumes as well as varied cargoes on a
more fixed schedule. Advancing technological improvements increased
safety. The merchant vessels became more fully integrated into their
region’s economy.
With the advent of
the automobile and truck leading to the development of national
highway systems in many countries since the 1950s, coastal shipping
entered a new phase, that of decline. The combination of governmental
subsidies and reduced transit time for road transport had shifted
cargo movement from water transport. Recently, increased road
congestion; recognition of the extraordinary road construction and
maintenance expenses; and technological advances of containerization
and cargo handling have lead many to view coastal shipping, in its new
incarnation as short sea shipping, an attractive complement to road
and rail transport.
About the Author
Dr. Gary A. Lombardo serves as an
Assistant Academic Dean at the United States Merchant Marine Academy.
He is the Founding Director of the Center for Maritime Studies and a
Professor of Maritime Business. His academic and professional
interests include international business, corporate strategy and
corporate finance. He has served as a dean during two prior academic
appointments. Dr. Lombardo has lived and worked in Europe and Asia.
He has been invited to deliver numerous seminars and speeches; and has
written more than seventy articles, book chapters and book reviews.
Additionally, Dr. Lombardo has served as a business consultant and is
a Foreign Expert invited to present lectures at various universities
throughout the People’s Republic of China.
This
white paper will examine short sea
shipping by offering a series of definitions to describe the concept.
The paper will then report on short sea shipping’s evolving practice
in the European Union and discuss its opportunities for both the
United States domestic and international markets. A conceptual model
to describe increased short sea shipping competitiveness will be
offered. The paper will conclude with commentary concerning what
needs to be done for short sea shipping to develop in the United
States.
Definition
One concise,
unambiguous definition of short sea shipping does not exist. The
concept has been defined in various ways. Short sea shipping has been
defined:
“as commercial waterborne transportation
that does not transit an ocean.
It is an alternative form of commercial
transportation that utilizes inland
and coastal waterways to move commercial
freight from major domestic
ports to its destination.”
An alternative definition is that short
sea shipping
encompasses maritime transport between the
ports of a nation as well as between a nation’s ports and the ports of
adjacent countries.
Non-generic definitions are also offered that situate short
sea shipping
within a
region.
Musso and Marchese offer the definitions of numerous other authors
that, in their entirety, provide a comprehensive view of the
phenomenon; but a lack of consensus about its definition.
This condition does not point to merely a semantic confusion;
but rather the inability to analyze short sea shipping universally in
such a way as to develop public policy initiatives and understand the
market conditions essential for commercial success.
Short sea shipping is
developing within the context of national and international
transportation systems; primarily as a non-deep sea complementary
segment to truck and rail transport. Thus, its importance increases
as it finds itself at the nexus of a seamless intermodal
transportation system that enjoys efficient cargo handling at each
node. Short sea shipping is a beneficiary of technological advances
related to the vessels it uses and the congested and increasingly
costly land transport of goods. A fundamental question as to its
viability does exist, “Can short sea shipping survive without
extensive government subsidies?”
Practices
The European
perspective concerning short sea shipping has been developed based
upon considerable practice and study during the past approximately
twenty or so years. A cursory examination of a European map leads one
to understand the potential extensive reach of a comprehensive
international short sea shipping network. The following map indicates
short sea shipping trade routes in Europe; and selected short sea
shipping trade routes are identified in the following table.
Selected Short
Sea Shipping Trade Routes |
Gioia Tauro – Genova
|
Bordeaux – Setubal |
Naples –
Barcellona |
Rotterdam – Felixstowe |
Rotterdam – Oslo |
Helsinky –
Gdansk |
Patras –
Brindisi |
Stuttgart – Birmingham |
Lisbon – Brest |
Bilbao – Antwerp |
Gdansk - Copenhagen |
Bilbao –
Bordeaux |
Antwerp – Hamburg
|
Antwerp – Felixstowe |
Valencia –
Livorno |
Rostock – Gothenburg |
Antwerp – Lisbon |
Athens – Trieste |
Hamburg – Stockholm |
Bilbao – Gothenburg |
Athens – Taranto |
Bremen – Southampton |
Taranto-Benelux |
Athens –
Marseille |
Barcellona – Genova |
Marseille –
Naples |
Piraeus - Rotterdam |
Gioia Tauro – Genova
|
Bordeaux – Setubal |
Naples –
Barcellona |
In 2000, short sea
shipping accounted for approximately 41%, and road transport for
approximately 45%, of ton-kilometers for cargo movement within the
European Union (EU). However, short sea shipping accounted for only
6% of total tonnage movement within the EU, compared to 80% for road
transport, given that the sea mode is used typically for longer
distances. Short sea shipping accounted for about 70% of the cargo
movement, measured in ton-kilometers, beyond its borders. The fact
remains that although the sector is growing in size and importance;
its growth rate and resultant market share is reportedly less than
that of road transport. Road transport registered market shares of
approximately 45% and 40% during 2000 and 1993 respectively.
Although varying statistics are reported from multiple sources;
which create challenges when attempting to reconcile the data, the
reader is provided an insight as to the evolving market for short
sea shipping compared to road transport.
The growth of short
sea shipping is consistent with the goals of the European Commission
as expressed in a number of forums and documents over an extended
period of time.
The promotion of greater short sea shipping appears to be a
continued expression of the Commission. Its research findings
indicate that short sea shipping is:
-
environmentally safe in terms of producing less carbon dioxide
compared to other modes of transport;
-
perceptually lacking in terms of its image to provide door-to-door
service;
-
an
administratively complex transport mode requiring varying
administrative procedures across different European Union member
states; and
-
harmed by
port inefficiencies and port service providers’ relative
inflexibility.
The difficulties expressed above have
resulted in the European Commission’s resolutions to:
-
sponsor
exercises to identify bottlenecks, potential solutions and best
practices;
-
change
perceptions of short sea shipping from that of a port-to-port
service to one of door-to-door intermodality;
-
harmonize
administrative and documentary procedures both across states and
provinces within a nation as well as across nations; and
-
enhance
port efficiency and operations.
Short sea shipping
has experienced a decline in freight rates due to the intense
competition of road and rail transport. The resultant reduced
profitability is a serious strategic concern in capital intensive
companies planning for growth. This concern is highlighted by the
European Commission’s view that short sea shipping should be
enhanced to:
-
achieve
environmental goals as outlined in the Kyoto Protocol of the
1990s;
-
promote
transport safety and sustainability;
-
strengthen
relationships among European Union member states and between
member states and non-member European states; and
-
meet
current and future economic growth demands.
Thus, we find that
the European Commission, in a number of documents, has
expressed its view that short sea shipping is a key factor in the
drive for economic cohesion within Europe.
Opportunities
A successful short
sea shipping program offers an opportunity to add value to a
national or international transportation network and, thus, increase
the affected economy’s efficiency and ultimately the societal
standard of living. These benefits will accrue when the short sea
shipping program addresses the myriad issues inherent in the
transportation infrastructure network.
U.S. Domestic Market
The characteristics
found in the transportation network for the U.S. domestic market are
similar to that of other domestic markets found in nations with
advanced economies as well as in the international transportation
networks where at least one member nation has an advanced economy.
Most developed
nations rely on a national highway system to carry cargo. Due to
the fact that annual freight movement increases far surpass that of
annual highway mileage construction, highway congestion has become a
significant problem. Highway congestion is apparent in terms of the
increased travel time necessary to make a journey. Highway travel
time also increases the social welfare cost due to resultant
inefficiencies. Freight movement inefficiencies are projected to
increase dramatically as US highways “. . . experienced a doubling
of vehicle miles traveled in the past twenty years while the total
highway mileage has only increased by 1%.”
This general trend is expected to continue.
Most nations rely
on a cabotage policy. In the United States, the Jones Act requires
all vessels operating between US ports to be domestically built,
owned, operated, and staffed. Many privately owned domestic
shipyards in the United States operate with high cost structures,
thus building vessels that are not always competitively priced. An
extensive domestic short sea shipping network will require a
tremendous fleet build-up and the shipyard costs of construction
will be a competitive issue.
In addition to
vessel construction costs, short sea shipping is dependent on
achieving a competitive cost structure to vie with trucking and rail
for the shippers’ contracts. One cost consideration is the
requisite upgrading of port and terminal facilities currently geared
for deep sea merchant vessels; not the needs of smaller short sea
shipping vessels. Longshore labor rates are another factor that may
cause increased costs for cargo shipped via short sea vessels.
Further, the Harbor Maintenance Tax, as currently configured, will
add to the cargo transportation costs for shippers selecting the
short sea network. The tax is an ad valorem charge on
exports, imports, other shipments, and passenger transportation
involving use of a harbor.
Finally, as in all
development projects, standards in the early stage have yet to
emerge. Revenue and cost projections dominate data developed based
upon actual experience. Strategic decision making is guided by
modeling and forecasting rather than short sea shipping experience.
Competitive advantages may possibly accrue to those successful
organizations that first develop short sea shipping as a
commercially viable enterprise and enter the various market
segments. However, the firms that are the first in the market may
enjoy potentially high rewards; but correspondingly high risks. If
they are unsuccessful they may potentially push their organizations
into bankruptcy.
MARAD has taken the
lead public policy role and dedicated substantial effort during
approximately the past three years to understand and educate key
personnel in the transportation sector about the short sea shipping
potential. The government agency hosted its second annual Short Sea
Shipping Conference during November 2003 to advance the discussion
by interested transportation and maritime executives, governmental
officials and foreign dignitaries. The Conference included a
breakout session, “Obstacles and Solution Strategies for Effective
Short Sea Shipping (SSS) in the Western Hemisphere.” The objective
of the session was to identify and propose specific solutions to the
major obstacles impeding SSS implementation and growth along coastal
routes, between coastal ports, along navigable rivers and across the
Great Lakes. Participants represented consulting groups;
engineering/design firms; federal, state and local government
agencies; port authorities; shippers; shipyards; terminal operators;
and vessel operators. Their candid remarks contributed greatly to
the discussion that took place. Three obstacles were identified and
discussed
during the session:
-
Obstacle #1: A Lack of Awareness. The
session participants suggested that three equally important and
critical activities will build awareness. Increased coordination
and prioritization are needed among local, state and provincial
authorities in Canada, Mexico and the United States. A greater
understanding of the complementary interests and relationships
among the various transportation nodes is needed. Further,
increased knowledge about the costs of short sea shipping is
needed. Participants recommended that increased education and
outreach to governmental leaders, organized labor, and the general
public were essential as well as increased participation in
shipper organizations to make short sea shipping’s beneficial
aspects known. Advocacy, R&D, outreach materials and research
study cost categories were identified.
-
Obstacle #3: Increased Public Funding Needed to Complement
Private Investment. A series of four
equally important recommendations were offered: 1) gain initial
support for vessel construction; 2) secure funding for start-up
costs; 3) receive funding for inland waterway and landside
improvements; and 4) use existing Harbor Maintenance Tax
infrastructure fund balances to support short sea shipping
initiatives. Expected benefits include public transportation
improvements, highway congestion relief, environmental and health
and welfare benefits and the growth in the short sea shipping
industry with a commensurate increase in employment. Vessel,
start-up, facility and infrastructure cost categories were
identified.
U.S. International Market
MARAD, undaunted
by the potential obstacles, advocates the development of an
international short sea shipping network to complement the emerging
domestic network. The U.S. is pursuing the development of a
distinct international short sea shipping network with Canada and
Mexico. To this end, the three countries signed a Memorandum of
Cooperation during November 2003 to . . . “collaborate and cooperate
with each other in sharing knowledge and information on Short Sea
Shipping . . . “ and . . . “to aid in each other’s efforts to
promote the concept of Short Sea Shipping . . . “.
In addition, the United States, the Gulf of Mexico States Accord and
the Gulf of Mexico States Partnership signed a Memorandum of
Cooperation during November 2003 to “ . . . address the common goals
of advancing short sea shipping . . . “.
Challenges:
Two interrelated
challenges exist: one, to master an understanding of the short sea
shipping concept and two, to develop short sea shipping as an
efficient and effective complement to the existing transportation
system. The conceptual model is offered to focus discussion and
eventually enhance understanding concerning the short sea shipping
concept as a commercially viable enterprise.
Short Sea Shipping
Conceptual Model
Conclusion
The challenge is to develop the appropriate
commercially viable business model for short sea shipping in the
Western Hemisphere and an enhanced business model for Europe. This
challenge must meet the inflexible demand of time
sensitivity in a just-in-time commercial environment. The fundamental
issue of freight mobility to satisfy the market place must be
addressed by the short sea shipping business model.
The critical success
factor for adopting the short sea shipping concept is that it must
facilitate cargo movement as an inexpensive, seamless component of an
integrated, intermodal transportation system. This business model
must also overcome the tyranny of current practices which heighten
resistance to change.
Advocates of short
sea shipping in the United States need to move beyond the discussion
stage. The next stage requires applied research to develop short sea
shipping’s commercially viable feasibility. Short sea shipping should
investigate opportunities to gain market share, initially at the
expense of current profits. If the business model is sufficiently
attractive, the profits will flow during the subsequent time periods.
Advocates are deluding themselves to think that short sea shipping
will be profitable at its introduction stage. This tension between
striving for market share or profitability is faced by virtually all
entrepreneurs who are involved in business start-ups. The general
rule is that profitability will ensue after sufficient market share is
gained. The lack of scale economies and experience at the
enterprise’s onset detract from its ability to earn a profit. The
importance of strategic planning, effective budgeting, and milestone
development is paramount. Responsible maritime professionals are the
ones to make short sea shipping a reality in the Western Hemisphere
and a larger presence in Europe.
Continuation
Please consider this
white paper as a continuum in this subject area, succeeding white
papers will address common issues and address them with common
solutions. We encourage our readers to direct any specific questions
or comments to
papers@transportgistics.com.
The
views expressed in this article are those of the author and do not
necessarily represent the views of the United States Merchant Marine
Academy, the Maritime Administration, the Department of
Transportation nor any other U.S. Government agency, or
TransportGistics, Inc.
Author’s
note: the map and selected short sea shipping trade routes are
provided courtesy of Dr. Walter Vassallo, Transport Economist, AMRIE,
The Alliance of Maritime Regional Interests in Europe.
Disclaimer
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presented herein represents the opinion of the author but not
necessarily the opinion of TransportGistics, Inc. nor is it presented
as a legal position or opinion.
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