30 June 2018

Freight flows from Finland to Germany tend to favour mostly the road route along the North Sea - Baltic Corridor despite the drop in marine fuel oil prices

RoRo Fig01 binomial logit

In the framework of the Scandria®2Act work on multimodal transport, the Technical University of Denmark (DTU) and the University of Turku (UTU) undertook an investigation of the potential market shifts in the Ro-Ro connections along the Scandria®Corridor, resulting from the introduction of stricter regulations on the quality of marine fuels.

As of 1/1/2015, the maximum sulphur content of marine fuels used in the Sulphur Emission Control Areas (SECAs), which include both the Baltic Sea and the North Sea of the Scandria®Corridor, has been reduced from 1% to 0.1%. In order to comply, ship operators in the short run can either shift from Heavy Fuel Oil (HFO) to Marine Gas Oil (MGO), or continue using HFO but install scrubbers on board that clean exhaust gases from the hazardous sulphur oxides. Both options are costly and are expected to negatively affect the competitiveness of short-sea shipping vis-à-vis land-based solutions, mainly road transport which, however, has a higher carbon footprint among other externalities.

The investigation is based on a modal split model that the project team developed to estimate the market shares of available alternative options. The model takes into consideration the transport cost, transit time, and frequency of services offered along alternative routes. The calendar year preceding the enforcement date of the new regulation (2014) was used for calibrating the model, which was then applied on 2015 input values to produce modal split estimates.

The investigation concerns the one-directional trade between Lahti, Finland and Berlin, Germany. The case was selected because: (i) both the Scandinavian - Mediterranean (ScanMed) and the North Sea - Baltic (NSB) TEN-T core network corridors intersect each other in Finland and Germany creating two alternative options at corridor level, (ii) there are several available routes along these corridors, which include maritime legs of varying lengths, and (iii) Scandria®2Act has project partners or associated organisations in these regions that could help with the provision of the necessary information.

A ‘nested binomial logit’ formulation was selected to model exports from Lahti to Berlin (Figure 1). This means that route selection is a two-stage process, where the shipper first decides on which corridor to take (ScanMed or NSB) and then selects among the available routes along the chosen corridor. The ScanMed routes examined are associated with connections between Helsinki and the German ports of Rostock and Travemünde (Option A1) or between the Finnish port of Hanko and the ports of Rostock and Lübeck (Option A2). The route involving the Turku-Stockholm and Trelleborg-Rostock connections has been excluded from the analysis as being both longer and more expensive than the other ScanMed alternatives. The NSB routes involve either the medium-distance Helsinki-Gdynia (Option B1) or the short-distance Helsinki-Tallinn (Option B2) connections.

RoRo Fig02 MFO prices

In terms of data, the official port statistics of Helsinki and Hanko for years 2014 and 2015 were used to estimate traffic. Ship capacity (in terms of lane-meters) was taken from the Clarkson’s world fleet database, while the Marine Traffic Voyage Planner and Google Maps estimated distances at sea and on land, respectively. General cargo was selected as the typical freight based on the international trade statistics of Finland. Cargo value was taken at 70,000 € per lane-meter and the annual opportunity cost of capital at 4.5%. Assumptions were also made on the average length of trucks (14m) and trailers (16m), the average truck speed (90km/h when driving) and the typical truck cost for east-European drivers (0.4 €/km). The calculation of vessel speeds was based on published schedules and of vessel costs on the Finnlines rates (although some connections were served by other companies).

In view of the dramatic drop in fuel prices that took place in the second half of 2014, we examined three different scenarios:

  • Compliance: The heavy fuel oil (HFO) purchased at 2014 prices is replaced by marine gas oil (MGO) at 2015 prices;
  • No regulation: Operators continue using HFO, which is now purchased at 2015 prices; and
  • High prices: Operators comply by using MGO which, however, is now purchased at the 2014 prices (high level).
RoRo Fig03 modalsplit estimate

The preliminary results of Figure 3 show that the model functions as expected. The lower 2015 prices of the ‘compliance’ scenario (even if they concern MGO) favour the longer sea legs of ScanMed which, collectively, gain shares (1.15%) against the shorter maritime connections of the NSB corridor. The gain would have been much higher (3.79%), should operators were allowed to continue burning HFO. The situation, however, reverses when fuel prices return to their 2014 level and the expensive MGO penalizes the longer Ro-Ro connections (in this case, NSB wins 5.15% shares from ScanMed). In fact, this scenario lies closer to the actual case (NSB gains 4.66%), despite the actual drop of prices in 2015. Possible explanations include: (i) the expectations of higher fuel prices that led to capacity increases along the short Helsinki-Tallinn services, and (ii) the longer-term contracts of the Finnish Ro-Ro market.

The model was subsequently used to assess the possible effects of introducing an Eco-Bonus scheme along the lines of the recent Swedish proposal. As expected, the 30% subsidy of the operating costs of the Ro-Ro ships that this proposal suggests would favour the longer maritime connections of ScanMed, which gains an additional 3.31% of the market. Caution is needed, however, as the benefits of such measures are not confined within the geographic borders of the Member State that initiates them.


Contact / Further information:
George Panagakos
Technical University of Denmark
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Direct: +45 45 25 65 14

Harilaos N. Psaraftis
Technical University of Denmark
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Direct: +45 45 25 15 19







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