Interferry 2008 - Hong Kong

Interferry 2008 - Hong Kong Conference Review

Interferry’s 33rd annual conference in Hong Kong (October 5-7) addressed the shipping industry’s latest challenges by demonstrating that in every crisis there is an opportunity. The trade association attracted a worldwide attendance of more than 250 delegates - close to the event record - with an upbeat programme showing how strategic thinking and cutting-edge technology can conquer hurdles like economic uncertainty, manning shortfalls and regulatory restraints.

 Daily delegate bulletins set the tone by featuring ancient Chinese proverbs such as “be not afraid of growing slowly, be afraid only of standing still”. The sentiment was echoed across topics ranging from InterManager president Ole Stene’s recruitment solutions to Dubai’s plans for a massive water transport system to reduce serious road congestion.

 The importance of long-term planning was stressed in a keynote address by Pansy Ho, CEO of Hong Kong-based TurboJet, which runs one of the world’s largest high-speed passenger ferry fleets – notably serving its parent group’s casino and tourism interests in Macau. “New conditions in the economic cycle put short-term pressure on the profitability of the organisation,” she noted. “Transportation is a long-term investment so we are seeking more strategic solutions, working closely with industry partners and even with local competitors on issues such as the labour shortage. What can be thought of as a threat is, on the other hand, an opportunity to strategise and think ahead about how we can mitigate the situation.” She revealed that, in a move to reduce fuel costs per head, the company had acquired two 418-passenger Austal catamarans as newbuilding resales from another Hong Kong operator and had also upgraded an existing vessel for conference and events charter. “Our service proposition has evolved from safe and reliable transport to added value customer services,” Ms Ho concluded. “Like all economic downturns in the past, we believe that strong management will enable us to weather the conditions.”

Spotlight on services

According to K M Fung, port logistics manager at the Hong Kong marine department, passenger throughput on Macau services alone had increased at an annual average of 12.4% since 2004. Carryings reached almost 17 million in 2007 and were forecast to rise to 25m per year by 2012.
TurboJet consultant Dr Tsui Shung Yiu explained the company’s growth strategy in the first of several case studies showing how operators around the world were responding to changing markets. He said that, by incorporating seamless airline transfers on existing and planned new routes in southern China, TurboJet was emerging as a pan-regional operator providing international links for business and leisure travellers.

Guangdong Maritime Safety Administration supervisor Li Huawen acknowledged the huge potential for new high-speed routes within China and to Taiwan, but emphasised the parallel need to enhance safety supervision via the ISM code, spot inspections and crew quality.
 The ‘indispensable’ role of jetfoils in Japan’s inter-island transport was described by Seiichi Nishimura, director of the Kawasaki Shipbuilding subsidiary responsible for technical support of vessels built in association with Boeing. The 22 jetfoils in service carried 2.8m passengers per year, but the declining population of remote islands and the increasing cost of fuel meant that government support would be expected.
 In a frank analysis of another Japanese operation, fuel costs coupled with over-estimates of passenger and freight traffic were cited for the sudden closure of a high-speed service between Honshu and Hokkaido operated by two latest generation 112m catamarans from Australia’s Incat.  Higashi Nihon Ferry’s Yoji Sumiya said that the vessels would be withdrawn by November after passenger numbers hit just a third of the projected target. He emphasised that the decision was no reflection on the performance of the recently delivered vessels, but did not indicate the company’s plans for them. He was joined in the presentation by Incat founder and chairman Robert Clifford, who pointed out that the relatively low 800-passenger configuration was designed to make more room for freight vehicles - but truckers had avoided the two-hour crossing because it did not offer them the mandatory four-hour rest break. “I’m sure the Asian community in general is going to find this generation of ship to be very suitable for their requirements,” said Mr Clifford, who later earned a standing ovation on receiving a rare Interferry Person of Distinction award. He joins International Maritime Organization secretary-general Efthimious Mitropoulos as one of only two holders.

Breaking into new markets

Case studies from Australia, Hawaii and Dubai illustrated that environmental considerations are crucial in winning support for new services. Stephanie Dawson, managing director of Sea SA, said the 2006 launch of her company’s two-vessel service across the Spencer Gulf in South Australia had provided the first alternative to a 350km road journey in a remote region popular with tourists. Following years of obstruction due to the perceived impact of developing road and utilities infrastructure, the operation had carried 141,000 passengers and more than 60,000 vehicles - with the vessels producing 733T of CO2 per year against 25,000T from comparable road volumes. A new loyalty scheme – one free trip in six – is called the Climate Clever Club.

 Hawaii Superferry vice-chairman John Garibaldi, joint founder of the company in 2003, recalled lengthy legal challenges from anti-tourism, anti-development lobbyists “despite our planning placing a premium on respect for the environment” – and in spite of government and business backing for the archipelago’s only passenger/vehicle ferry service. Using a 107m Austal catamaran built in Mobile, Alabama, US, the service started in August last year but was withdrawn due to protest action after only two days and did not resume for four months. Since returning from drydocking in March, the operation had proved demand by carrying 150,000 passengers and 40,000 vehicles.

Government and public support is already assured for a vast inland and offshore public water transport system that aims to ease Dubai’s crippling road congestion, according to Hussain Ali Al Saffar, marine projects director at the roads and transport authority. His conference presentation included an open invitation to consultants, shipyards and operators to help develop proposals in which existing 20-passenger wooden vessels would be joined by 11-passenger water taxis, 35-passenger water buses and two types of ferry carrying 100 and 250 passengers. Mr Al Saffar confirmed that Netherlands-based Damen Shipyards had submitted designs for the smaller vessels, with the water taxi service due to start next year. Offshore routes would be introduced from 2011 and the entire system would be integrated by 2020. By then, he added, the current three million population was expected to reach 16m – including five million on a water frontage extended from 79km to 1500km in 20 years due to the construction of artificial islands and peninsulas.

Focus on finance

The growing trend for private equity funds to own ferry companies was reviewed by Professor Alfred Baird of the maritime transport faculty at Napier University business school in Edinburgh, Scotland, who analysed European deals worth GBP7 billion over the past seven years. Observing that prime targets were services with a significant or dominant market share and protected barriers to competitive market entry, he warned: “The funds tend to pay high prices but there is an immediate focus on profit and they don’t stick around too long. That raises the question of whether there are better sources of money – shipping is a long term investment but PEFs are not.”

Tom Docherty, recently retired managing director of UK operator Red Funnel, suggested the tide might be turning when he traced events leading to the company’s acquisition last year by Infracapital Partners, the infrastructure fund of the Prudential financial services group. “We sold high at a time when money was readily available,” he noted, “but when the multipliers are not so good I think we could see a return to the management buy-out.”

Crewing crisis

Prevention is better than cure in avoiding critical seafarer shortages that could leave ships idle with drastic consequences for world trade.  That was the stark message from Ole Stene, managing director of Philippines-based Aboitiz Jebsen Bulk Transport, COO of Jebsen Management and current president of ship managers’ association InterManager. Calling for long-term recruitment and retention strategies to replace decisions based on short-term costs, he complained: “There’s an old saying in shipping – we don’t plan to fail, we fail to plan. Owners and managers should have seen the shortage coming at least five or six years ago but looked after their own interests and are now suffering from poor availability, high wages and a poaching explosion.” He said that the world fleet of 50,000 vessels was due to expand by 10,000 new ships over the next three years – needing an additional 400,000 crew and 45,000 officers.  While conceding that newbuilding numbers could fall due to the credit crunch, he went on: “The manning requirement is still a daunting prospect. In short there are not enough qualified seafarers to keep world trade moving safely and effectively. If we can’t do that, the world economy will collapse.” Mr Stene said recruitment was proving difficult even in the traditional Asian supply pools. A Filipino LNG tanker master could earn $250,000 a year – six times the president’s salary – but young people there and in India could earn high salaries in law, medicine or IT with better working conditions. Competition from other sectors and an expanding national fleet limited the potential from China, where – like Indonesia - the English language was also a barrier.
“To ensure that today’s problems are never repeated, we must accept that training is not an expense but an indispensable investment,” he went on.  “Seafarers are no longer a commodity that can be traded and undervalued. They are a valuable asset that is in sharp decline and in need of development and empowerment through long-term solutions. We can start by dealing with unfair criminalisation, putting cadet berths on newbuildings and ensuring the right story gets out about how high the rewards can be.”

A plea for cadets and junior officers to talk about life at sea in schools and colleges came from Nelson Yu, chairman of the Hong Kong joint branch of the Royal Institution of Naval Architects and the Institute of Marine Engineering, Science and Technology. He added that the branch had joined forces with the Hong Kong Shipowners’ Association and six other professional bodies to organise training attachments and public awareness seminars to help meet an annual requirement of 120 cadets. Currently there were only 150 Hong Kong-registered deepsea officers, most aged over 51. River trades had a similar age profile among their 300-400 officers and would need a further 200 to crew 20 new vessels due for delivery in the next few years.

A US perspective came from John Waggoner, CEO of Hornblower Marine Services, who said output from the main marine academies was not keeping up with attrition – especially as only 45% of last year’s 1,067 graduates were employed afloat. Meanwhile the ‘hawse-pipe’ route through the ranks from ordinary seaman to master was all but closed in an age that required such candidates to endure 224 classroom days at their own expense, which he calculated as $140,000 in fees and lost salary. His company offered academy internships, with the fees to be reimbursed if the employee left. Mr Waggoner observed: “And for the man who makes it – the joys of command! Limited authority, the threat of legal action, unions to deal with, better money ashore and the loss of family life. I remember having to reprimand my daughter after a long trip. She said I couldn’t tell her off because I didn’t live here any more.”

The regulatory climate

Among panellists debating regulatory pressures, Lloyd’s Register passenger ship manager Richard Goodwin suggested: “The ferry industry needs to lobby to make sure that regulations are practical. Sometimes when you sit down to discuss what’s coming along, the train has already left the station.”

By chance, Interferry directors had already shown their support for this approach while meeting at the conference, which coincided with the IMO’s latest Marine Environment Protection Committee meeting in London. Using its IMO consultative status, the association had just been rebuffed in asking MEPC58 to reconsider the proposed 0.1% sulphur limit in fuel used in the Baltic and North Sea Sulphur Emissions Control Areas from 2015. The Interferry board – concerned that fuel costs would prompt a 30-35% rise in freight rates and an environmentally damaging modal shift to road - responded from Hong Kong with a circular to members urging that in future they should lobby their national shipping administrations before and during IMO meetings.

Regulatory concerns dominated a paper by Paul Gannaway, managing director of Singapore’s BatamFast Group, who argued that international fast ferry operators needed ‘special limits’ variations making generic maritime regulations more sector-specific. Certain regulations intended for the general betterment of international shipping had no real value without such ‘situational adaptiveness’, said Mr Gannaway, secretary of the Singapore regional ferry operators association, whose company carries 2.7m passengers a year on Indonesia services. “One success was that we were allowed Simplified VDR as opposed to the IMO requirement for full VDR,” he continued. “We need more solutions to these technical quagmires. There’s no problem with a 20-mile domestic route, but the regulations on a 20-mile international route are like having three ex-spouses and their lawyers on your case.”  He claimed the fast ferry industry could learn from airlines, which enjoyed greater standardisation of equipment and more influence over regional and commercial processes.

A session on terminal design hinted that one such lesson from the aviation industry was imminent. Martin Westphal, marketing director of Spain’s TEAM, the passenger boarding bridge specialist, revealed: “EU airports already have to guarantee access to the disabled. I think we can expect seaports will have to comply very soon.”

Help from technology

Delegates were updated on a range of technical developments designed to meet emerging safety and environmental regulations. SOLAS ‘Safe Return to Port’ requirements due in force from July 2010 were outlined by Daniel Povel, risk assessment specialist at Germanischer Lloyd, who said it might be difficult to find space for safe areas and the separation of essential systems in certain ship designs.  “On the other hand, there could be everyday benefits from more reliable operation as a result of design improvements,” he offered.

In open discussion, naval architect Stuart Ballantyne, CEO of Australia’s Sea Transport Solutions, interjected: “Wouldn’t it be nice if safe return to port applied to aircraft!”

The use of natural gas as a clean burning fuel was reviewed by DNV expert Torill Grimstad Osberg, who was project approval coordinator for the Glutra, the world’s first LNG-fuelled ferry delivered in 2000, and is now involved in developing large gas fuelled ship designs as well as IMO regulations due in place next year.

She said that gas fuel virtually eliminated SOx emissions while NOx and CO2 emissions were reduced by at least 75% and 20% respectively. Safety was a challenge due to the risk of explosion, but she stressed: “We were partners in the BigLNG research project from 2006-08 to develop a large ro-pax design and we didn’t find any show stoppers.”

The potential for further reduction of diesel engine air emissions through developments such as exhaust gas recirculation and diesel particle filter was examined by Stefan Mueller, director of the marine application centre at MTU Germany, who declared: “Tests with these new technologies prove that future emissions limits can be achieved.”

Interferry activity

During Interferry’s annual general meeting, CEO Len Roueche revealed that membership had doubled over the past five years to 215, of which 40% were owners and operators. With 43% of members coming from Europe and 39% from the Americas, he predicted: “I think future growth can be very strong in Asia, the West Mediterranean and Africa.”

Interferry project leader Roberta Weisbrod reported on the joint initiative with the IMO to reduce ferry fatalities by 90% in developing nations. The campaign is being piloted in Bangladesh. Ms. Weisbrod, principal of the US-based Partnership for Sustainable Ports, said that a crew training DVD produced in association with Videotel Marine International was about to be tested. The next steps included completion of a South Korea-funded vessel inventory to guide recommendations on technical modifications; and enhancement of the cell phone network to extend text messaging of weather forecasts. 

Dr. Stanley Ho, Executive Chairman of Shun Tak, ended the conference on an optimistic note with a short speech at the Gala Dinner. "Thank you all for being with us.   We can  confidently predict that Interferry and its conferences are assured of a great future."