ECONOMY

Golden mean sought in coastal shipping industry

Unless Greek legislation regarding coastal shipping is urgently harmonized with EU directives, the industry will continue operating in an unfavorable business environment and will be unable to attract much-needed investment, a recent study suggests. According to the report, «Greek Coastal Shipping 2005: Concern for New Investment,» prepared by business consultancy firm XRTC, the present Law 2932/2001, which maintains state intervention and stipulates an upper age limit of 30 years for vessels, is strongly at odds with market requirements as operators will have to withdraw from service about half their present fleet by 2008. The study raises a number of poignant issues. First, it points out that the definition of coastal shipping lacks clarity. «Is the industry to be conceived as floating bridges, mainly aimed at serving the public interest by linking the mainland with the islands and meeting the needs of their inhabitants, the transportation industry and tourism, or as expensive fixed capital which both has to be written off and leave attractive profits for its shareholders?» The report takes the view that the answer lies somewhere in the middle and can easily be found if certain critical facts are taken into account. For instance, five operators (ANEK, NEL, Minoan Lines, Blue Star Ferries and Hellenic Seaways) carry 13 million passengers annually. At the same time, there are 81 subsidized routes which receive subsidies totaling 40 million euros. Second, ferry operators’ net results are constrained in the domestic market, where government intervention persists at both operating and economic levels. Their main demand remains the harmonization of the Greek legislative framework for coastal shipping with the rest of the EU – in other words, full deregulation. Social policy? The sector’s listed companies are cited as claiming that they are expected to implement social policy in the form, particularly, of fare ceilings and discounts for a host of social groups, but also a spate of regulations at operating level such as the setting of specific routes and crew composition. They also complain that at the same time no protection is offered against adverse developments such as the rising price of fuel. Third, the state is expected to meet the considerable requirements of an especially complicated island pattern. Its obligation to ensure the social character of coastal shipping, with a view to maintaining the country’s territorial continuity and securing the prerequisites for the islands’ economic development, constitutes a heavy «political weight» whose compatibility with the entrepreneurial spirit of operating companies requires particular resolve and boldness. The study notes that the harmonization of the existing legal framework with that of the EU, under the threat of the country’s referral to the European Court, poses new goals and creates new opportunities, liberating the operators from being agencies of social policy and casting them as fully competitive entities. The envisaged government support at an oversight level should upgrade the sector and create new opportunities for investment. The biggest present problem is the lack of vessels and new ships, which is certain, if the current situation persists, to lead to its shrinking. The rise in profitability over the last two years should not lead to complacency, the report says, as this could be due to a rise in capacity utilization given the lack of vessels. This is a very delicate balance and the government should discriminate in its strategy toward the companies. «The companies have individually clarified their strategies and it should not be misunderstood that they expect market liberalization in unison, as a large number of them survive on subsidies, unfortunately offering low-quality services. The lack of vessels further hampers the role of regulator in setting strict criteria for subsidies, as its main concern is ensuring the provision of a social service,» the XRTC report notes. The state should be credited with coordinating the improvement of port infrastructure, which has been a standing demand of ferry operators in recent years, particularly after the extensive modernization of the fleet. The recently announced loan from the European Investment Bank toward that end adds optimism for a further improvement of sea transport. But the question remains whether the authorities will take a bold step by turning port management over to specialized private operators. The coastal shipping operators’ results for 2004 show that the general financial situation in the sector is slowly improving and points to a new reality, although this improvement was slower than in 2003. Demand grew more slowly, both at home and abroad, but a welcome development is that seasonal fluctuations appear to be blunted with the appearance of new and faster vessels that can affect overall demand.