Market
Insights May 2021
"Grimaldi closes a deal to take over part of the fleet and facilities of Armas Trasmediterránea" Grimaldi has recently closed the agreement with the Spanish shipping company Armas Transmediterránea for the acquisition of five vessels and a series of operating rights both in cargo and passenger terminals in the ports of Valencia and Barcelona as well as storage and other facilities in Valencia, Mallorca, Ibiza and Mahón. The agreement also includes the right to operate maritime transport services between the ports of Valencia and Barcelona with ports located in the Balearic Islands.
Analysis of Fundación Valenciaport Through Grimaldi's latest acquisition of part of the assets and operating rights of Armas Transmediterránea, the Italian shipping company continues with its strategic commitment to the Western Mediterranean, thus entering into the provision of national cabotage maritime transport services covering the route between the Iberian Peninsula and the Balearic Islands. Grimaldi, which already has a wide range of Ropax and RoRo services between Spain and Italy and also with Africa and other Mediterranean countries, will now compete in the traffic between Spanish ports. The agreement is based on the acquisition of five Ropax vessels (Ciudad de Palma, Ciudad de Granada, Ciudad de Mahón, Volcán del Teide, Volcán de Tijarafe), the rights to operate maritime passenger transport services between the mainland and the Balearic Islands (from the ports of Valencia and Barcelona) and the transfer of two terminals for handling rolling cargo and passengers in the ports of Valencia and Barcelona, as well as warehouses, offices and ticket offices in Valencia, Mallorca, Mahón and Ibiza. One of the reasons that may explain the sale of these assets is the weak financial situation that the shipping company Armas Transmediterránea is going through. In 2018, the Armas group acquired the Trasmediterránea shipping company, the largest passenger and freight transport company between the mainland and the islands. However, it seems that the coronavirus crisis and the fall in tourism have made the Spanish shipping company more financially vulnerable. As a result, the company has been forced to cut the frequency of services sharply over the past year, leaving some of
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February 2020
the routes in this market with a single operator. Given its current financial situation, Armas Transmediterránea made a rescue request to the Sociedad Española de Participaciones Industriales (SEPI) for an injection of public funds to provide it with liquidity. Trasmediterránea's debt exceeds 800 million euros and it is asking SEPI for 100 million euros in aid. Faced with this situation, Trasmediterránea has not only had to mortgage some of its vessels, but has also had to sell crucial operating rights of its company to Grimaldi. Although it is true that the Armas Transmediterránea shipping company has an extensive network of connections between the Iberian Peninsula with national cabotage destinations and with the strait (Canary Islands, Balearic Islands, Ceuta, Melilla, Morocco and Algeria), as well as intra-insular connections, for the time being, the agreement is limited to connections between the peninsula and the Balearic Islands. In order to assess the effect that Grimaldi's entry may have on competition on these connections, it is interesting to identify the market structure and the number of operators offering maritime transport services (Table 1 and 2). | Table 1. Characteristics of maritime services from Valencia and Barcelona to Ibiza, Palma de Mallorca and Mahón, 2017 - 2019.
Number of Weekly Number of vessels services frequency BALEÀRIA 2017 3 6-56 3 2018 3 6-56 4 2019 3 6-56 4 TRANSMEDITERRÁNEA 2017 4 3-12 6 2018 4 1-12 5 2019 4 1-12 5
Source: Own elaboration. (Data: Lineport)
| Table 2. Characteristics of maritime services from Denia and Gandia to the Balearic Islands, 2017 - 2019.
Number of Weekly Number of vessels services frequency BALEÀRIA 2017 2 1- 12 3 2018 2 7 2 2019 2 7 2 TRANSMEDITERRÁNEA 2017 - - - 2018 1 1 - 3,5 2 2019 1 1 - 4 2
Source: Own elaboration. (Data: Lineport)
As Tables 1 and 2 show, there are currently only two active companies operating the lines under study, namely Baleària and Transmediterránea (which from now on will be Grimaldi's). Moreover, when we analyse the connections in detail, it is necessary to
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highlight that Baleària and Transmediterránea compete for exactly the same markets, with services from Barcelona and Valencia to Ibiza, Palma de Mallorca and Mahón. On the other hand, traffic from Denia is operated exclusively by Baleària and from Gandia by Transmediterránea. In this way, Grimaldi enters directly into competition with Baleària for these traffics, at the same time as it will begin to manage terminals in Barcelona and Valencia, two of the key ports in these connections. In addition, everything seems to indicate that from next July Grandi Navi Veloci (GNV) will enter as a third operator to compete for traffic between the mainland and the Balearic Islands, specifically on the links between Valencia and Barcelona with Ibiza and Palma de Mallorca. This shipping company, which was acquired by MSC in 2011, has ruled out for the moment entering to offer services and compete in intra-island connections, where it does have extensive experience in this type of cabotage traffic in Italy. After the closure of the island shipping company Iscomar in 2016, the market situation in which three operators simultaneously cover these routes has not occurred again, which means an increase in competition for passenger and vehicle traffic. Therefore, one of the doubts that strongly emerges is whether, given the characteristics of this type of service, the volume of passengers generated is sufficient to guarantee the economic and financial viability of the three operators. As already noted, the collapse of Iscomar suggested that the volume of traffic between the mainland and the Balearic Islands might not be sufficient to maintain three active operators. Iscomar's difficulties began with the impossibility of continuing to compete in that market niche with the other operators' clear commitment to modern fleets and lower prices. If we compare Iscomar's crisis and the level of indebtedness it reached, it is not far from Trasmediterránea's current reality. To assess the size of the market, Table 3 shows the number of national cabotage passengers embarked and disembarked in Spanish ports that have traffic with Balearic ports in 2019. | Table 3. Number of liner passengers by port of origin and destination, 2019
Port Cabotage passengers Ibiza 2.306.606 La Savina 2.072.820 Barcelona 730.564 Valencia 479.798 Denia 446.884 Ciudadela 354.530 Palma de Mallorca 227.686 Gandia 86.562 Playa d'en Bossa 67.316 Mahón, Menorca 7.503 Alcudia 4.875
Source: Annual report. Balearic Islands Port Authority. 2019
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As shown in Table 3, the main ports of embarkation and disembarkation are Ibiza and La Savina (Formentera). These are followed by the three major ports of connection between the mainland and the islands, namely Barcelona, Valencia and Denia. However, it is important to bear in mind the strong seasonal component of this traffic, which reaches its maximum frequency during the summer months, with some ports then ceasing to operate this route (such as Denia) and others drastically reducing the levels of frequency offered. In regular line traffic, Graph 1 shows the number of passengers in the different ports of the Balearic Islands, where a positive trend can be seen throughout the period analysed. | Graph 1. Number of scheduled passengers, 1996-2019.
Source: Annual report. Balearic Islands Port Authority. 2019
On the other hand, another expected effect of a non-collusive oligopoly consisting of three operators offering a transport service with a high degree of homogeneity is competition on ticket prices and service level. Thus, in order to gain market, share over their competitors, operators can use state-of-the-art vessels that provide better comfort and service to customers during their stay on the ship. In turn, as a complement to the vessel or as a unique strategy, operators would be expected to adjust their prices as an effective differentiation tool on the passenger's decision, which could trigger a price war. One of the positive aspects that Grimaldi's arrival is undoubtedly expected to have is the commitment to a clear strategy of sustainability in its vessels, making significant investments in this direction. Grimaldi has great financial power, experience, environmental interests and an innovative character comparable to the investments in the fleet of its main competitor to carry out the necessary improvements in its modernisation. This would complement Baleària's activity on this line, contributing to the sustainability of a strategic traffic for Spain, with an incalculable environmental value. Beyond the competition that may be caused in the Balearic traffics, according to Grimaldi's official confirmation, it is hoped that this is the first stage of an agreement on which they can continue to make progress. Therefore, the door is open for Grimaldi to
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continue acquiring operating rights from Armas Transmediterránea. If this is the case, different scenarios can be considered by the Italian shipping company to design the strategy that best suits its final objective. Taking into account Armas Transmediterránea's current connections, Grimaldi could continue to focus on the Mediterranean by purchasing the rights to operate the services provided by Transmediterránea between the different islands that make up the Balearic archipelago (Table 4) or, on the other hand, opt for the connections available between the ports of southern Spain and the countries located in the Strait of Gibraltar (Morocco, Algeria, Ceuta and Melilla) (Table 5). In the case of the routes between the different islands belonging to the Balearic Islands, it should be noted that the number of shipping companies offering services is greater, with Baleària, Transmapi, Mediterránea Pitiusa and Transmediterránea itself currently operating. To these should be added the FRS shipping company, which has recently made its entry as an official operator on the islands official.
| Table 4. Characteristics of maritime services between the Balearic Islands, 2017 - 2019.
Number of Weekly Number of vessels services frequency 2017 1 10 1 TRANSMEDITERRÁNEA 2018 1 7 1 2019 1 7 1
Source: Own elaboration. (Data: Lineport)
| Table 5. Characteristics of maritime services between the mainland and the strait, including Ceuta and Melilla 2017 - 2019.
Number of Weekly Number of vessels services frequency 2017 7 1- 42 9 TRANSMEDITERRÁNEA 2018 7 1-35 8 2019 7 1-36 5 2017 5 1 -14 5 ARMAS 2018 4 1 -7,35 6 2019 4 1,25-6 3
Source: Own elaboration. (Data: Lineport)
On the other hand, whether the shipping line prefers to enter the route covering the Iberian Peninsula and the Canary Islands (Table 6), or to start offering services between the Canary Islands (Table 7).
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| Table 6. Characteristics of maritime services between the mainland and the Canary Islands, 2017 - 2019 Number of Weekly Number of vessels services frequency TRANSMEDITERRÁNEA 2017 3 1 3 2018 4 1 4 2019 4 1 4 ARMAS 2017 1 1 1 2018 1 1 1 2019 1 1 1
Source: Own elaboration. (Data: Lineport)
| Table 7. Characteristics of maritime services between the Canary Islands, 2017 - 2019 Number of Weekly Number of vessels services frequency ARMAS 2017 7 5 - 41 7 2018 9 5 - 49 9 2019 9 3 - 49 9
Source: Own elaboration. (Data: Lineport)
Therefore, Grimaldi's entry into the national cabotage routes between the mainland and the Balearic Islands strengthens the operator's commitment to Mediterranean traffic. To this, it is necessary to add the entry of a new competitor for these services such as GNV and the experience accumulated by Baleària, resulting in a new scenario of competition on this route. The potential consequences of the entry of these competitors on the market and the distribution of traffic are unknown, with a somewhat distant precedent, as Iscomar has little to do with the shipping companies that have arrived to compete. However, it is to be hoped that the positive effects which, according to economic theory, can be generated by the increase in competition due to the entry of new competitors on the quality of service provision and the prices perceived by passengers, will be fulfilled. The future scenario for this market is undoubtedly very interesting, as will be the decisions to go ahead with the purchase of new rights by Grimaldi.
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