Advantages of Short Sea Shipping: Why Should We Embrace it

0

Only Europe has the political landscape, the economic strength, and the geographical coastal advantage that nurtures the environment where Short Sea Shipping (SSS) to become a legitimate alternative to road and rail transportation. With that in mind, Europe’s adoption of short sea shipments should serve as a prime example for other nations to adapt to their environment. In this short article, we will look into describing what short sea shipping is, its advantages, as well as its drawbacks.

Short Sea Shipping (SSS), as opposed to Deep Sea Shipping, is a description for sea cargo transportations where the vessel voyage does not cross any major oceans. There is no specific range of cargo transit time that can qualify a shipment as a short sea shipment, nor there is any specific range of nautical miles a vessel travels to qualify a shipment as short sea shipment. But generally speaking, short sea shipping has a relatively short transit time and is often juxtaposed with road transportation as a cheaper but slower mode of transportation.

Advantages of Short Sea Shipments

The recent landscape of vessel transportation, as well as the improving efficiencies of port facilities has indicated that short sea shipments are getting more prevalent as an alternative. To list down all the advantages of using short-sea shipments, we will be referring a lot to a study by the University of Piraeus, surrounding the cost of short sea shipment comparing to road transportation.

Cost Effectiveness

Transportation and supply chain are often viewed as a cost factor to businesses instead of a revenue-generating segment. If we were to distill all decision factors in choosing a mode of transportation, and disregard all other factors such as transit time, sea transportation is hands down the cheapest alternative.

Sea transportation largely capitalizes on economies of scale in order to reduce its cost per cargo transported.

On aggregate, sea transportation may be deceivingly expensive. The cost of a vessel charter, cost of port utilities, cost of bunker fuels, and cost of vessel maintenance are numbered with multiple zeros behind the figure.

However, due to the large capacity of a vessel relative to a standard 20-tonne prime truck, the costs can be significantly lower, despite having multiple parties and intermediaries involved.

As detailed by the study made by the University of Piraeus, in Greece, an existing Roll On-Roll Off (RORO) route between Port of Lavrio and Athens operates 335 trips a year. Here is a table of assumptions made:

RO-RO Short Sea Shipping (Greece)

DescriptionAmountUnit of Measurement
Vessel Capacity (62.5% Utilization)400Number of Vehicles
Trips per year (Round Trip)
1 trip per day
335Trips
Vessel Intermediate Fuel Oil (IFO) Consumption95Tons per day
Marine Diesel Oil Consumption12Tons per day
IFO Price Assumption265Euro per Ton
Lubricant Oil Assumption12%of total fuel cost
MDO Price Assumption410Euro per Ton
Annual Fixed Cost453,833Euro per year
Vessel Insurance2%of initial capital cost
General Expenses60,000Euro per year
Annual Capital Investment Cost
(5% of New RO-RO Vessel)
Average Scrap Value EURO 1.6 million
3,434,099Euro per year
Maintenance Fee775,000Euro per year
Port Dues (Port of Lavrio)80Euro per cargo loading/unloading
Port Call Fee (Port of Thessaloniki)0.03501Euro per gross ton
Mooring Fee
RORO Vessel Length – 199.80 meter
0.4305Euro per meter of vessel length
Cargo Loading/Unloading fee (Port of Thessaloniki)59.93Euro per cargo loading/unloading
Source: the cost of modal shift: a short sea shipping service compared to its road alternative in Greece

Road Transportation

DescriptionAmountUnit of Measurement
Deployed Truck for Similar Cargo Delivered
Compared to RORO
200Trucks
Distance Travelled504km per trip
Average Fuel Consumption0.4Liters/km
Road Tolling Cost86.31Euro per trip
Diesel Price1.25Euro per liter
Cost of Lubricant0.1Euro per vehicle-km
Tyre Replacement600per 60,000 km travelled
Annual Maintenance and Report5000Euro per truck
Tractor and Trailer Truck cost
120,000 Euro with 5% interest rate
7805Euro per truck per year
Driver Salary25,284Euro per year
Vehicle Insurance3,000Euro per truck per year
Admin cost2,400Euro per truck per year
Inspection Fee70Euro per truck per year
Road Tax1320Euro per truck per year
Source: the cost of modal shift: a short sea shipping service compared to its road alternative in Greece

With this example above, the relative cost difference between RO-RO and road transportation is not significant. Average cost of Euro 409 per vehicle/trip (RORO) as compared to EURO 415 per vehicle/trip (Road Transport), by our calculation.

But, RO-RO total transit time takes 3.05 hours, whereas road transportation takes 6.3 hours assuming that we are travelling at 80km/hour.

Moreover, the total Cost of Marine Diesel Oil and Intermediate Fuel Oil for RORO shipment is around 11.3 Million Euro per year, whereas road transportation with similar loads cost 33.8 Million Euros per year.

Apart from Port Loading/Unloading Fee, and other Port Dues at both sides, the other costs of transportation are fixed. Therefore, the price will remain relatively close to EUR 409 even when the utilization of the RORO vessel is above 62.5% of the above assumption.

In a nutshell, economies of scale of short sea shipping are at play here, where the more cargo the vessel ships, the cheaper the cost per unit cargo transported.

Lower Carbon Emission and Other Pollution

Without a doubt, the transportation sector is one of the biggest contributors to air pollution. Shockingly, 90% of the population is breathing high-level pollutant air.

Air Pollution due to Short Sea Shipping
Source: who.int

Deaths linked to outdoor and household pollution is estimated at 7 million people per year, according to WHO. It is therefore not an exaggeration to claim that any minor adjustments or reduction of toxic emission can help save lives.

So, every time a business operation decides to transport cargo using short sea shipment instead of road transportation, that business has remotely contributed to saving lives.

Specific study with regards to the example given above (RORO service between Athens and Thessaloniki) also outlines that its RORO service produces the lowest climate change cost, discounting the final road leg of the journey towards ATC.

Regardless, any minuscule reduction in the effects of climate change is most welcomed, not to mention that SSS completely negates any kind of road accidents that also may cause lives.

Reduced Road Congestion

No one likes to be stuck in traffic, there is just no other apt description of the unnecessary void of time that is traffic congestion. But, the road networks in metropolitan cities and port connections are the aortas of civilizations as far as the Bronze Age. It is ironic that after more than 4000 years of using roads throughout the ages, we still couldn’t crack the code for road congestion.

Reduce Road Congestion with Short sea Shipping
Image Credits: pexels.com

Next time, while you are stuck in traffic, it’s nice to think that someone in the Western Persian region was also stuck in midday traffic while transporting his bag of goods across Mesopotamia.

Traffic congestion costs include the value of time spent in congested traffic, that can be otherwise spent on more productive activities.

However, the opportunity cost of traffic congestion is difficult to measure. How do you measure, with a degree of accuracy, and accounting for population density, the actual value lost from traffic congestion?

It’s better to narrow our focus on the congestion impact on business costs. A survey of business leaders in Portland, Oregon reported a list of congestion costs: –

  1. Longer travel time requires additional truck hire;
  2. “Rescue Driver” cost to meet delivery demands;
  3. The opportunity cost of other potential transportation;
  4. Increased Inventory;
  5. Longer production time.

It is also a stressful consideration for the transportation sector where trucking companies rely on intermodal transportation, which requires them to meet the deadline of the connecting nodes of transport such as rail, sea, and air.  

Short Sea Shipment posses as an alternative way to reduce the FTL (Full Truck Load) cargos on the road. Europe has a vast network of short sea shipping services, they have roughly 4800 vessels comprising of bulk vessels, RO-RO vessels, container ships, and tanker vessels.

The member EU states engage in trades amongst each other within the region. In 2014, 1.8 billion tonnes of goods are transported via short sea shipment. To put it into perspective, 1.8 Billion tonnes require 90 million truck trips per year. That’s 90 million truck trips off the road by using Short Sea shipment!

Disadvantages of Short Sea Shipment

Heavy Capital Investment

Short Sea Shipping is heavily reliant on the infrastructures available since there is no amphibious vehicle capable of traveling both sea and land to ship goods (for now). Vessels still need seaports to berth, load, and unload cargos.

The land area, state approval, monetary commitment required to build a servicing port are massive. Investors and politicians also have to keep one eye on the future as well, as it is cheaper to upgrade an existing port than to build a new one. This is why the top 5 ports of the world are well over 10 years, and most likely have expansion plans that extend to well over the 2040s.

Port of Shanghai1991 – Post China Economic Reform
Port of Singapore1963 – Since the Independence of Singapore
Port of Ningbo-Zhoushan2006 – Merger between Zhousan and Ningbo Port
Port of Guangzhou1994 – Approved by Guangzhou Municipal Government
Port of Shenzhen1980 – Close proximity to Port of Hong Kong

Requires High Volume of Cargo

Even the smallest vessel charter is capable of carrying 1,500 deadweight tons. Whereas at the other end of the spectrum, general cargo vessels can load 50,000 deadweight tons or more.

A private voyage charter would only make sense if there is sufficient cargo to justify the load. Keeping in mind that, if a business owner has a load of 50,000 deadweight tons to transport to neighboring states or countries, the most viable option is transported via sea.

Nevertheless, these types of high-volume of cargo charter are not necessarily accessible to business owners that operate on a smaller scale. Therefore, logistics service providers often consolidate cargos to take advantage of the economies of scale of sea transportation.

Then again, logistics service providers have to balance between maintaining a consistent vessel schedule, and at the same time, ensure that there are sufficient cargos to justify the vessel charter.

Short Sea Shipping, therefore lacks one key aspect that road transportation has; The ability to cater to fragmented demand for transportation.

The ease of consigning truck operators to ship goods locally is enough to sway cargo owners to use road transportation instead, added by the fact that truck operators require minimal time to avail their trucks for transportation.  

Cabotage Rule and Short Sea Shipment

Cabotage policies significantly hampers to growth potential of short sea shipping.

Generally, cabotage policies are placed as a protective measure to shield the local shipping industry from international competitors.

This means that inter-country transportation can only be served by locally-owned vessels only. This ensures that the local shipping industry has the opportunity to grow without the disruption of foreign-owned vessels.

Cabotage policies are in place in most of the country, with the exception of the European Union Countries.

The lack of competition due to this cabotage policy breeds complacency. Businesses tend to be more efficient when there is competition.

It is no surprise then that the European Union has one of the most developed short sea shipping services as compared to its counterparts in China, USA, and East Asia countries such as Japan and Korea.  

Conclusion

The European Union has ticked all the right boxes to create the perfect environment for short sea shipping to be viewed as a viable alternative to road transportation. They have the right mix of a vast coastal area, consistent demand, lack of cabotage restriction, and developed port infrastructure.

We believe that other countries are following that blueprint, and with bigger vessels are built for deep-sea shipping, there is a pull towards the direction of a more developed hub-and-spoke network of global sea transportation. This means that we will be more reliant on feeder vessels servicing short sea shipments in the not so distant future.

Resources

OECD. 2001, Short Sea Shipping in Europe, European Conference of Ministers of Transport

Papadimitriou et. al, 2018, The Dynamics of Short Sea Shipping, New Practices and Trends, Palgrave Studies in Maritime Economics

Tzannatos and Papadimitriou, 2014, The cost of modal shift: a short sea shipping service compared to its road alternative in Greece, European Transport, ISSN 1825-3997

https://ec.europa.eu/transport/facts-fundings/scoreboard/compare/energy-union-innovation/road-congestion_en

LEAVE A REPLY

Please enter your comment!
Please enter your name here