Looking to increase freight business, Danish ferry operator is pushing on with an ambitious expansion in the Mediterranean
Ambitious growth plans in Turkey laid out by hard-charging Danish ferry operator DFDS are being slowed by a recession in that country, compounded by currency devaluation.
Simultaneously, much like its rivals, DFDS is battling on other routes, notably between Britain and Europe, because of the restrictions imposed by the pandemic while also being frustrated by the protracted and, so far, fruitless negotiations over Brexit.
The first “turned life upside down” for the group, according to DFDS chairman Claus V Hemmingsen in a review of trading, while the latter has “continued to create uncertainty in some of our most important markets.”
In response, the group was forced to make 650 out of 8,600 staff redundant, lay up several ferries and slash surplus costs. The latter is estimated to save up to US$40M a year.
But this is a company that takes the long view, as indeed it has since its foundation in 1866, and is relying on a steady return to normality through the rest of 2020 and into 2021. In a mark of confidence, in early September DFDS started a dedicated twice-weekly freight ferry service between Patras and Trieste and has been steadily expanding operations in the Mediterranean.
Spearheading the group’s ambitions is a six-strong fleet of new mega ferries, the first of which, Ephesus Seaways, started service in early 2019, just as the recession in Turkey was starting to bite. A major investment for DFDS, five of the mega-ferries are already in service, two in the Mediterranean between Trieste and Turkey, and three in the North Sea between Rotterdam and Immingham, Gothenburg and Ghent. The final ferry will start service in early 2021, the company tells Passenger Ship Technology.
Built by China’s Jinling yard, these 237-m long vessels boast a load capacity of 6,700 lane metres, enough to accommodate 450 trailers at a speed of 21 knots. By far the biggest in the DFDS fleet, they are designed for quick turnarounds. They feature three independent stern ramps plus internal ramps on each side, a configuration that “reduces time in port considerably,” the company says.
Despite the continuing economic difficulties, the Turkish strategy is clearly working, with profits on the Med jumping by 27% – adding considerably to the group’s full-year revenues of €1.6Bn (US$1.9Bn).
In bottom-line terms, from March the pandemic badly affected the group’s freight business, which accounts for about 84% of revenues, and led to the suspension of two of the most popular passenger routes – Copenhagen-Oslo and Amsterdam-Newcastle. Freight loads have however picked up and, as of mid-October, both routes had reopened under tight restrictions, for example with a ‘temporary dining concept’.
A successful conclusion to the Brexit talks is eagerly awaited. Half of group revenues derive from ferry and logistics services with the UK. “[The Brexit stalemate] created great uncertainty among consumers and companies, which led to trade volumes between the UK and the EU falling off from April and the rest of 2019,” Mr Hemmingsen told shareholders.
Meanwhile the group continues to roll out its ’Win23’ strategy that aims to outperform the broader European market in coming years with a steadily renewed fleet. The strategy will be led by new chief executive Torben Carlsen, who early last year replaced Niels Smedegaard after 12 years at the top. One of the objectives of Win23 is to snare more freight from three major industries – automotive, forest and metal, refrigerated goods – that currently account for 20% of revenues. Another important element of Win23 is a shift towards sustainable shipping.
Thanks to the support of its lenders, a robust financial position and a fast-growing freight business, DFDS remains optimistic about the future. Although fewer big-ticket items such as cars and trucks are being freighted to Europe in the wake of Brexit, some goods are not under threat. As Mr Carlsen drily put it “Refrigerated goods such as medicines and food are one of the last affected sectors because, after all, the British still need to have something to eat.”
However, the view from the bridge is clouded. As Mr Carlsen told shareholders in August, “let me stress again that uncertainty is extraordinarily high [and] the forecast and conditions may change significantly during the year.”
The chief executives of most ferry operators would endorse those words.
Green hydrogen, green seas
Despite all the difficulties imposed by the pandemic, it has given DFDS extra time to develop its goals for sustainable operation. A plan to retrofit one of its ships, Ark Germania, as a test vessel for fuel cells during the November dry docking had to be postponed but, explains vice-president communications Gert Jakobsen, there was a compensation.
“By being forced to go into more technical details, we have already learned a lot and are working on several spin-off projects [in sustainability],” he tells PST. “DFDS would not have been sufficiently mature to do these, had we not discussed fuel cells so much over the last 18 months.”
The ferry operator is involved in a joint project in Denmark to produce e-fuels in commercial quantities by 2023, with the purpose of surpassing the IMO’s stipulation of a 40% reduction in greenhouse gas waste within a decade. The other participants include energy group Orsted, Maersk, Copenhagen Airports and logistics group DSV Panalpina.
No firm decision has yet been made on the most suitable fuel, but a lot of work is being done. Mr Jakobsen says “Ammonia keeps getting more and more traction as the core solution for sustainable shipping in the longer term, whereas adding methanol to the fuel is a solution for the short term.
“Hydrogen has many positive aspects – for example, it is non-toxic, cannot pollute, and has good cost potential. But it is very difficult to store in large quantities. For liner companies like DFDS with green hydrogen production very near our core terminals, it is a potential candidate. So, from a DFDS perspective, green ammonia is the most promising candidate, with green hydrogen coming in as second, very closely followed by green methanol.
“Both ammonia and hydrogen are being produced in huge quantities today, and the production of green ammonia and green hydrogen is very scalable with [the amount of] investment being the only significant constraint. If renewable energy providers trust there will be a demand for these fuels, then they will be able to ramp up production to the required level over 5-10 years.”
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