I am grateful for the opportunity to meet the committee and to update it on the report that was recently prepared at the request of the Department of Transport dealing with maritime connectivity in the context of Covid-19 and Brexit related challenges. The report builds on previous work carried out by the Irish Maritime Development Office in the area and it updates the land bridge study, which was delivered in 2018.
The report takes account of important issues, including, but not limited to, market conditions, including trade and tourism volumes, capacity and utilisation of maritime transport services, and emerging trends that may influence demand and supply conditions in the future. The report considers the desirability of State intervention in the shipping industry, taking into account lessons learned in dealing with this question over the past two years. The report also takes account of recent industry consultations and emerging national and international influences. The report concludes by updating previous advice and making a series of recommendations, laying particular emphasis on a contingency approach that recognises the complexity and uncertainty of current circumstances and the value of scenario planning in preparing for the unexpected. The recommendations we make are cautious and prudent, cognisant of the important and serious implications for the national economy and vulnerable sectors within it of failing to protect maritime connectivity.
I will deal with some key points in the report.
I will outline the structure of the presentation. The presentation gives an overview of freight volumes through Irish ports. It then focuses on roll-on-roll-off, ro-ro, and lift-on-lift-off, lo-lo, traffic or on a combined basis unitised traffic, which are really the areas of concern when it comes to Brexit and Covid-related challenges. We look at demand and supply factors and discuss the case for State intervention in the shipping market. I will conclude with summaries and recommendations from the report and inform the committee about a communications campaign that has been running to alert the market to the necessary preparations for Brexit it should be undertaking.
The graph in front of members tracks volumes through Irish ports over the past 13 years. It relies on the iShip index, which is an aggregate measure of volumes through Irish ports. The graph is set at 650 so, in many respects, what members see on the screen amplifies the effect but it will give members a clear understanding of how volumes have moved over the course of the past two years in particular. Members can see that there has been a tapering off in ro-ro volumes, particularly as we came into 2020 and Covid had its effects. As volumes are at that level, and members can see at previous points on the graph that they were often much higher in Irish ports in the past, there is sufficient capacity in Irish ports to handle forecast volumes. This gives a more detailed monthly analysis of ro-ro volumes, which is an area of particular interest when it comes to discussing Brexit and land bridge implications. What members see in this slide is a comparison between 2019 and 2020 monthly carryings through Irish ports. The blue bar represents 2020. From the beginning of the year, volumes were running behind last year's levels. When Covid started to take effect as we went into March, April and May, volumes fell very significantly. There were points when ro-ro volumes on some services and in some ports were 35% to 40% behind last year's levels. The decline was not evenly distributed across all ports and all services. Some services suffered to a greater extent than others.
As we moved through the year, particularly in July, September and November, we can see that volumes exceeded last year's levels. In July, we were coming out of a lockdown period where demand was suppressed because of the restrictions. As these eased, volumes increased. In November, it was noteworthy that volumes were significantly ahead of last year's levels. This is important because our view is that those volumes contain a significant amount of traffic that is building stockpiles in Ireland in preparation for the effects of Brexit. This is a phenomenon we have seen in previous deadlines as the effects of Brexit came into play and the market took steps to mitigate those risks.
In this slide, members will see the effects of Covid-19 on the passenger business through Irish ports. They can see that in quarter 2, volumes in the Republic of Ireland were down by 91% while in Northern Ireland, they were down by 83%. For the island as a whole, volumes were down by 88%. This phenomenon of suppressed passenger demand and reduced numbers of cars travelling, particularly on ro-ro services, frees up space on those services for freight. As we head into 2021, our expectation is that passenger volumes will remain suppressed and the space made available because of the absence of passenger cars will contribute to the response of the shipping industry in respect of services with increased volumes of freight were that to occur.
I will discuss some of the demand characteristics of the market. This slide deals with economic and seasonality effects and some of the effects of stockpiling. As we head into 2021, economic forecasts suggest a slowing down in the Irish economy. This will reduce freight volumes. As we move through this stockpiling period and enter quarter 1 of 2021, the likelihood is that volumes will be reduced as we eat into those stockpiles and those stockpiles are used to meet demand. In any event, volumes are generally down on peak demand in January of each year - sometimes by as much as 20%. This occurs routinely for seasonal reasons.
On the supply side, it is interesting to note that there has been significant investment in the market over the course of the past number of years. Notable among those investments were Irish Ferries' investment in the MV W.B. Yeats while CldN made investments like the Selene. These represent very significant increases in capacity. These vessels were launched on the market as Brexit-busting vessels that offered significant additional capacity when needed on direct services to the Continent.
Overall, in the course of the past year, we have seen significant additions to capacity. Up to this point, six new services have commenced. Members will see on the screen that eight more services are planned for 2021. These are either new services or expansions of existing services. This represents a significant response from the market. Looking at the route map that outlines the services that are available, members can see the services outlined on the map here representing four different shipping companies and eight different services. This does not take account of the services that are planned to commence early in 2021.
It is worth noting that lo-lo capacity also makes a significant contribution on an annual basis. In 2019, more than 1 million 20 ft. equivalent units, TEUs, were moved between Irish ports and continental ports. The lo-lo industry is notable because it uses vessels that are not as specialised as those operating in the ro-ro market so there is greater availability. Operators have the ability to increase size. Given the prevalence of chartering in the lo-lo market, vessels can be off hire and new vessels can be taken on. Lo-lo has been shown to be a viable alternative to the land bridge with appropriate supply chain adjustments. That is something to which I will return as we look at other services because there are substitutes but the substitutes that work in terms of accommodating land bridge business require supply chain services for them to work effectively. On the lo-lo side, members can see the route map. There are nine different companies offering 23 different services.
It is important to understand the structure of the shipping market in Ireland. There are relatively low barriers to entry so it is open to new entrants. The market is served by a number of large high-quality providers - leading shipping companies in Europe and the rest of the world. The industry is capital-intensive so the participants in the industry have some costs creating an imperative to generate revenues to meet those costs so the industry will follow demand.
The industry and the market are highly competitive. There is a history of investment to retain and grow market share. I have referenced some of the investments in the recent past, and they are ongoing. The industry has a history of good service and meeting market needs, and it has responded commendably in meeting Covid challenges and demonstrating its resilience. Our shipping services and port companies have kept going, and they are to be commended for this.
The market structure supports the view that the industry will respond to changes in demand based on commercial imperatives. On the supply side, the big question, and what is not entirely clear, is the extent to which the land bridge will continue to function. Undoubtedly, there will be delays and disruptions at UK ports, and we are taking that as a sensible working assumption and advising importers and exporters accordingly. In the communications campaign we have been running for the last two months, we have been highlighting this and asking importers and exporters to take appropriate steps. However, the Dover-Calais route and, indeed, the services provided through the Channel Tunnel, are important trading arteries for the UK. The shipping industry believes that Dover-Calais and the Channel Tunnel will overcome the problems and will continue to provide services, notwithstanding its acceptance of difficulties on 1 January, as the users of the system develop an understanding of the new circumstances. It is not in the UK's interest for Dover-Calais to fail and it is in its rational self-interest to do everything possible to ensure that it works.
Demand for land bridge services is relatively inelastic, and this is a conclusion we reached in the land bridge report. Even with some increases in cost and time, there was still significant demand for land bridge services. We tested this out in regard to delays of up to 12 hours, although beyond that it definitely becomes more difficult to see the extent to which the land bridge will continue to be used. Nonetheless, inelasticity has been tested out to 12 hours. Land bridge traffic existed before the Single Market and with customs controls, and I am old enough to remember that. In those circumstances, it did provide a competitive option for importers and exporters. We are cautioning, however, that some sectors are heavily reliant on the superior speed of the land bridge, and as the alternatives are not capable of delivering the speed or the flexibility of the land bridge, this means that alterations to supply chains are necessary under those circumstances to make the alternatives work.
On the supply side, we tested our assumptions through consultation with the industry, and those consultations have been ongoing over the course of the last nine months. What we have found is that there is surplus capacity on all routes and there is a desire in the industry to meet emerging demand, which I described earlier as a commercial imperative. There is some support for a collaborative approach. We recommended in the report that we should test the extent to which participants in the industry can collaborate to provide greater coverage and greater frequency for users, and this met with some success in that there have been some announcements in regard to ferry companies operating on different days of the week to provide greater coverage.
We are operating in a benign charter market, so if additional capacity needs to be brought in, it is available in a reasonable time period. When we look at response times, which are dealt with in the table on the right-hand side, we can see four levels of response. First, the industry indicates that it has surplus capacity which is available immediately. Second, it indicates it can alter schedules to provide additional capacity and that is possible within a one-day to three-day time period. Third, it can redeploy vessels within the respective fleets, which can take up to a week. Fourth, it can charter in, and that process can take between two weeks and a month, depending on the circumstances in the market, the availability of suitable vessels and so on.
Turning to the case for State intervention, particularly in light of recent developments, we are asking is there a need for State intervention, and if there were a need, what would it look like. Our understanding is that it would require the State to go to the industry to provide the capacity that is needed, and that it is the self-same industry that is indicating clearly that it will respond in its own way and is capable of doing so. There is no evidence of market failure at the moment, and we have seen that through the variety of different responses that I have outlined. If there were to be intervention, there is a risk of market distortion and a risk of doing lasting damage as a result. There is a risk of breaching state aid guidelines and a risk of legal challenges, such as those that occurred in the UK when an attempt was made to intervene in the market. The evidence supports the view that the market will respond as I have outlined. The shipping industry is opposed to State intervention and the response of the shipping industry is demonstrably good, so the conclusion is that the case for State intervention has not been made successfully at this time. We fully acknowledge that, in extreme circumstances, State intervention may be required but our contention is it is not required at this time.
In summary, freight demand in January will be lower than normal because of economic considerations, because of the stockpiling that is currently ongoing and because of seasonal factors. Supply of capacity will be higher than normal because of the interventions in the market by the industry that I have mentioned, both from incumbents and from new entrants. The evidence shows there is surplus capacity on all routes. The market will be motivated to respond to emerging demand because of the structural issues in the market that I have outlined. State intervention is problematic. Holding out the prospect of State intervention in a functioning market is also potentially damaging because it creates an expectation and it can delay the spontaneous response of the market. However, importers and exporters must “ACT now”, and this “ACT now” phrase is an acronym for “assess, communicate and trial”, which has been part of an ongoing press and radio campaign that has been running for the last couple of months. We are asking importers and exporters to assess their current arrangements in order to be sure they will work as we go forward, to look at the alternatives and to assess those as well, to communicate their requirements to shipping companies so the steps that shipping companies are capable of making can be taken in advance, and to trial the alternatives and not leave that to 1 January.
To conclude, the recommendations in the report are that State intervention is not required and that we should maximise industry collaboration to overcome the challenges we face. That is a process that is ongoing and is part of the consultations we have been having and continue to have with industry. There should be scenario and contingency planning. That process is ongoing and we are involved regularly with the Department, teasing out different scenarios and planning for the unexpected to the extent that is possible. We have looked for a commitment from the shipping industry, and we have taken a different direction on this than in the UK. A capacity framework was put in place with the Department of Transport and we have gone directly to industry and asked it to prioritise vital supplies, such as medicines. The response was very favourable and a protocol has been put in place that will give access to officials from the Department of Health to shipping companies if there is a difficulty, and shipping companies have agreed to prioritise the response. We recommended a communications campaign and I have outlined that this is already ongoing.
We have recommended that we closely monitor developments in other member states and in related industries, such as aviation, to ensure that developments there do not place the maritime industry at a disadvantage. We have recommended that measures taken in those industries, and in other member states, should be applied in Ireland if and when they are applicable and beneficial here. We also recommend that there will be ongoing monitoring of market conditions. Such monitoring has been a feature for at least the last two years as we prepared for Brexit and when the Covid pandemic took an effect at the beginning of this year. We now operate a weekly monitor and update the Department with that information each week. We consult regularly and that was weekly with industry, shipping companies and ports. As many of the problems that we faced have been resolved, the meeting schedule has been extended so we now meet as required. Suffice to say, the monitoring of the market and our engagement with the Department on that issue has never been more intense. By way of information, I hold aloft the flyer that is being used to encourage importers and exporters to act now and take the necessary steps for assessing, communicating and trialling. That concludes my presentation and I am happy to take questions.