Greater consolidation seems a likely response to difficult trading conditions and changes in the industry. These are challenging times for tug operators in Northern Europe. Rationalisation among shipping line customers with the emergence of new alliances and the increasing domination of larger ships on major trade lanes has combined to reduce the work available at many ports.
As Kasper Friis Nilaus, recently appointed group vice president and managing director, Svitzer Europe, observed: “There is no doubt 2017 is going to be a very tough year. We have seen surprisingly low volumes in January, continuing a trend that was evident in the fourth quarter of last year. So we know it is not going to be easy.”
The commercial challenges facing tug operators in this sector of the market are significant. It is generally agreed that there is an oversupply of tugs in Northern Europe and competitive tensions are, as a result, very high. At the same time, shipping company customers are going through an exceptionally tough time themselves, resulting in a severe downward pressure on rates.
Mr Nilaus added: “There is not going to be any volume growth overall in the Northern Europe harbour towage business for the foreseeable future. There may be some ports where port development creates growth opportunities, but, in general, volumes are going to be stable at best and in some ports there is a real risk of a decline in the volume of harbour towage work.”
These pressures are driving greater rationalisation within the Northern European harbour towage segment. Last April a major new player, Kotug Smit Towage, was formed following the merger of the European harbour towage businesses of Kotug and Smit. The newly amalgamated business, which operates in 11 ports in Belgium, Germany, the Netherlands and the UK, is headquartered in Rotterdam. The merger between the two companies’ tug fleets in the region is expected to generate efficiency savings and reduce operational costs, strengthening the two partners' competitive position.
Further merger and acquisition activity is likely, both as a result of a desire to achieve economy of scale and also as distressed operators are put up for sale. Towards the end of 2016, it was announced that the Spanish company Boluda is in negotiations with Germany's Linhoff group to buy the latter’s two towage operating subsidiaries, Urag and Lütgens & Reimers.
These have operations in Bremerhaven and Hamburg, Germany with a total fleet of some 20 tugs. This acquisition, expected to be finalised in February, will greatly strengthen Boluda’s European presence. To date the Valencia-based company operates primarily in France and Spain, but it will now gain a foothold in the important German port sector. Market reports suggest that Linhoff’s German tug business was in significant financial difficulties prior to the acquisition and insolvency was a real possibility if a buyer could not be found.
Boluda is sure to be a tough competitor for established players in Northern Europe and is in an expansionist mode at present. The company has a significant tug newbuilding programme underway, and the deployment of new assets could well be in Northern European ports as well as in the Mediterranean region in future.
Svitzer has no plans at present to extend its current Northern European network, which covers 14 ports in the UK and 13 in continental Europe, with a fleet of around 110 tugs. However, Mr Nilaus added: “If there was an opportunity to strengthen our market position through an acquisition we would of course consider it. But many of the tug operators that are likely to be available to acquire do not have a strong position in their respective markets and that is a problem.”
Overall, last year was a good one for Svitzer Europe with volumes of work proving stronger than anticipated in many sectors, and Scandinavia and the UK performing particularly well. “Now, however, things are going the wrong way with quite a significant decline towards the end of last year and the beginning of 2017,” said Mr Nilaus. He added: “We are not sure exactly why, but it may be the result of the fairly mild winter and less wind in many ports, which has reduced the requirement for tugs at a time when demand is usually high.”
There has been some good news for Svitzer's operations in Germany, however, with success in securing additional Maersk Line work in Bremerhaven. To meet that increased demand Svitzer has increased its tug deployment in the German port from two to five, including two azimuth stern drive (ASD) Damen-built ASD 2412 design tugs, each with a bollard pull capacity of 65 tonnes. Delivered from Vietnam late last year, Svitzer Rota and Svitzer Ran entered service in January.
Further upgrades to Svitzer’s Northern European tug fleet are planned throughout 2017. Investment is likely to be particularly evident in the UK where two new 80-tonnes bollard pull tugs are due to be delivered to meet demand for handling the large container vessels now servicing UK ports such as Felixstowe and London Gateway.
The company's newbuilding department is continuing to evaluate investment opportunities and is working on a number of interesting new technology developments. This includes a new compressed natural gas (CNG)-powered tug being developed in partnership with Damen and other hybrid designs. The company is also responding to the need to acquire tugs at the upper end of the power spectrum to handle the latest generation mega container ships in particular. “We have to invest in these bigger tugs to maintain our position in the market,” Mr Nilaus explained. “But given the limited opportunities to increase volume, it is a real challenge to get a satisfactory return on investment for such tugs,” he added.
One of the particular challenges that concerns Mr Nilaus is the threat of low-cost operators with non-unionised crews, often from low-cost regions, entering the market in some European ports. “We have to try to compete with such operators through our higher service quality, but that is not easy when customers, because of their own situation, are focused ever more on cost,” he said.