Overcapacity in freight and oil price volatility are ICG's most pressing issues

ANALYSIS:Fuel costs will continue to be a concern, but ICG hopes growth will help deal with excess capacity

FREIGHT AND fuel were ferry operator Irish Continental Group’s two weak spots in 2010, but its full-year results suggest the company feels it can overcome them.

The company admitted its freight business had suffered as a result of overcapacity in the market, while concern about volatility in oil prices haunts its outlook statement for the year ahead.

However, ICG was also praised yesterday by transport sector analysts for halting the rate of decline in freight revenues and for meeting “the challenge of higher fuel costs”, as NCB Stockbrokers analyst John Sheehan phrased it.

“The group’s modern fleet is at least as fuel efficient as any others in the sector, while airlines face a greater fuel headwind,” noted Sheehan.

While fuel costs are likely to remain a financial drain on the group in 2011, its statement indicates that it hopes the worst of the overcapacity difficulties in the freight market are behind it.

The roll-on, roll-off (ro-ro) Irish Sea freight markets have seen an increase in shipping capacity in recent times, coinciding with a period where demand has fallen.

“This has proven unsustainable and recent route closures have been the result,” ICG chairman John McGuckian noted.

The overcapacity issue may well yet be resolved, however, not by further route closures but by an improvement in global trade.

It is estimated the ro-ro freight market grew by about 3 per cent in 2010, after a decline of 14 per cent in 2009 and 4 per cent in 2008. McGuckian described this market growth as “reassuring”.

In the year to date, ro-ro freight volumes carried by Irish Ferries on the Irish Sea are up 11 per cent compared with the same period in 2010, a figure that beats some analysts’ expectations.

ICG’s results are also notable for its healthy yields from tourism markets. The near 8 per cent climb in passenger numbers at Irish Ferries, with just a 2.4 per cent decline in car numbers, comes in a year when total visitors to Ireland, both air and sea, fell about 15 per cent.

The company will be hoping to maintain that growth in 2011, even without the aid of volcanic ash.