Yorck Niclas Prehm: ‘Greening’ the Largest Ships Would Cost $243 Billion

The regional leader in cargo transport and logistics, Liburnia Group from Rijeka, Croatia, will soon host a prominent expert in maritime transport, Yorck Niclas Prehm, who will give a lecture on the latest trends in the industry at their New Year’s celebration. Prehm is a long-time maritime enthusiast, analyst, and expert in the transport of general and heavy cargo. Throughout his 20-year career, he has held various positions, from sales, chartering, procurement, project management, and market analysis at leading shipping and brokerage companies worldwide. Three years ago, he joined the German company Toepfer Transport GmbH as the head of the Research Department and is responsible for publishing numerous European and global analyses and indices in maritime transport.

How does the logistics map of the world look today after two years of significant challenges in maritime transport and logistics?

Maritime transport is generally a very resilient business, and facing disruptive challenges is part of its traditional and natural cycle. However, the main difference this time was the rapid speed at which the market situation changed and the way some fundamentals of the business were altered. While we all relied on previously globalized and well-established commodity flows and supply chains, we failed to assess the risk posed by geographically non-diversified sources of production. The rapid change in the geopolitical environment accelerated the entire situation. Thus, what was once a stable and well-functioning logistics map of the world has now become quite unstable, and neither the industry nor its clients have a choice but to accept the situation that has arisen. The coin has two sides. The rapid and significant increase in freight rates has helped shipowners recover after a long period of dangerously low revenues, while at the same time, ‘shippers’ and forwarders faced an explosion in transport prices.

Have freight rates and container transport costs finally stabilized? What is the situation today compared to six months ago, and what policy do you expect from shipowners in the coming year?

Our focus is on general and heavy cargo ships, and in that sector, freight rates have fallen in the last six months. However, they are still more than double their ten-year average.

The market has begun to settle into some healthy frameworks from a complete ‘overheating,’ in the sense that shipowners need to earn enough to increase orders for new ships, while at the same time, freight rates must be acceptable to shippers.

The race of container shipowners for general cargo ships (MPP), which have filled the inadequate capacities of container ships, has slowed down; however, fleet utilization is still at high levels. Therefore, in the coming months, we expect stable freight rates, both in general cargo transport and in the dry cargo market, as well as in the operation of ships on shorter routes, in the so-called shortsea market (note: mainly within part of one continent, e.g., the Mediterranean or the Baltic or Western Europe), which is otherwise more stable.

What is the current global supply and demand ratio for new ships? Are there enough of them, and what is the condition of the existing global fleet?

It is difficult to accurately and numerically present the supply and demand ratio as it is a very specific market. However, it should be noted that about 30 percent of the current fleet of general cargo ships will reach the end of their economic lifespan in the next five to ten years, and only three percent of the current fleet is in planned orders for new builds. The average age of the fleet is rapidly increasing, and most new ships are already booked for some long-term projects and will not be available on the market in the coming years. At the same time, demand for cargo ship space is also rapidly increasing.

What is driving such a surge in demand?

The main drivers of these trends are renewable energy sources, particularly wind energy. The Council of the European Union has set a binding target at the EU level that by 2030, 40 percent of total energy must come from renewable sources, increasing the current target of 32 percent. A key factor in achieving high political goals for the transition to green energy is modern general cargo ships, as they form the backbone of the transport of the technology needed for this transition.

A significant driver is also the oil and gas business. According to estimates from the International Energy Agency (IEA), demand for natural gas will increase by as much as 50 percent by 2040. Currently, between two and a half and three thousand offshore projects are nearing the end of their lifespan and will require dismantling and/or renewal by 2040.

In the European shortsea segment, 52 percent of the fleet is over 20 years old, and less than seven percent of the current fleet is in the order books. Our analyses show that we can expect a significant shortage of tonnage in the smaller segment of up to 3,000 dwt, as well as in larger segments between six and ten thousand dwt.

Thus, in both the general and heavy cargo segment and in general European traffic on short routes, it is very questionable whether the shrinking fleet will be able to meet future demand.

What consequences could this have for both the maritime industry and the European economy? What is the current situation in European shipyards?

In Europe, there are only a few shipyards specialized and active in building cargo MPP and shortsea ships. Most of them are in the Netherlands, with a few in Spain and Portugal. Thus, the market is absolutely dominated by Chinese shipyards, where 40 percent of all new world ships for shorter routes are built and 99 percent of new ships in the MPP sector. Europe currently heavily relies on one country that should urgently deliver the much-needed fleet, especially in the current geopolitical relations.

Maritime shortsea transport is the backbone of the entire European economy. Two years ago, more than 60 percent of all cargo traveling to and from European ports was transported by shortsea ships. For Croatia, that share was as high as 75 percent. Therefore, the shipping fleet is vital for all of us. To ensure enough ships for future demand, we must revive and accelerate the construction of cargo ships in Europe as soon as possible.

Neither the renewable energy sector nor the maritime industry can afford to depend on just one supplier outside the European Union. Europe urgently needs a political and economic framework to address this situation.

Read the full interview in the latest digital and print edition of Lider.