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Eurotunnel Heads Back to Future With Ferry Acquisition

Eurotunnel Chief Executive Officer Jacques Gounon
Eurotunnel Chief Executive Officer Jacques Gounon Jacques Gounon said, “There’s an evolution in traffic, notably towards heavy goods vehicles, which can’t be fully captured by the Channel Tunnel.” Photographer: Fabrice Dimier/Bloomberg

July 5 (Bloomberg) -- When the Channel Tunnel rail link between Britain and France opened in May 1994, prospects for shipping routes between the two countries looked bleak.

More than 18 years on and Groupe Eurotunnel SA is spending 65 million euros ($82 million) buying three roll-on roll-off ferries as its rail shuttles struggle to lure heavy-truck traffic and freight-train volumes remain below targeted levels.

The purchase, from a defunct arm of French railroad SNCF, aims to win 9 percent of cross-Channel truck and car traffic, Eurotunnel Chief Executive Officer Jacques Gounon said. The move will also allow the Paris-based company, which already has about 40 percent of the market, to tap a trend toward “mega trucks” that are becoming too large for its trains.

“There’s an evolution in traffic, notably towards heavy goods vehicles, which can’t be fully captured by the Channel Tunnel,” Gounon said in an interview. “I’m thinking of very long and heavy trucks that face difficulties getting on our shuttles, plus things like dangerous materials, which have always been excluded.”

The Paris Commercial Court accepted a bid for the Berlioz, Rodin and Nord-Pas-de-Calais vessels on June 11 after Eurotunnel pitched a proposal that aims to “recreate some activity” after the collapse of SNCF’s SeaFrance unit in January rather than simply seeking to secure a “good deal,” Gounon said.

Employee Payoff

The service will operate between Calais, also the site of the Channel Tunnel’s French portal, and Dover, about 10 miles from Folkestone, where the subsea link emerges into England.

Sailings will commence once SNCF has distributed 25,000 euros in severance pay to each SeaFrance employee, with the cash to be used to establish a workers’ cooperative that will lease the ships from Eurotunnel, which will in turn buy capacity and market it to clients, Gounon said in Paris.

The venture will employ 500 people in France and another 100 in England and should break even within 18 months, he said.

According to Eurotunnel’s strategy, the shipping arm will complement its rail shuttle, with trucks directed onto ferries in the event of tunnel traffic being restricted, and vice versa.

That will avoid diverting customers to companies such as P&O Ferries, which claims a 35 percent share of the Dover-Calais market and “is one of our major competitors,” Gounon said.

Cheap Solution

“Since SeaFrance disappeared things have become simpler for Eurotunnel and their market share has increased considerably,” said Jean-Baptiste Roussille, an analyst at Societe Generale in Paris with a “buy” rating on Eurotunnel. “It’s a rather cheap way to try to balance competition in this market.”

Still, Britain’s Office of Fair Trading said yesterday in a statement that it’s considering whether Eurotunnel’s acquisition of SeaFrance assets creates a merger situation that might result in a “substantial lessening of competition” in U.K. markets.

P&O spokeswoman Michelle Ulyatt said in an e-mail that the company hasn’t seen full details of Eurotunnel’s proposals but is “concerned that a level playing field is preserved.”

In addition to P&O, a unit of Dubai World that offers 23 90-minute return sailings a day with six ships, the new business will compete with Danish ferry operator DFDS A/S, which began operating between Dover and Calais in February in a venture with Louis Dreyfus Armateurs after failing to buy SeaFrance assets.

Gounon said in the interview that Eurotunnel at no stage expected to kill off the ferry companies, and that developments in European logistics may push more business in their direction.

Rules Relaxed

Britain in December began a 10-year trial allowing trucks 7 feet longer than the current 16.75-meter (55 feet) limit onto its roads, while European Transport Commissioner Siim Kallas last month opened the way for cross-border operations with 25-meter, 60 metric-ton vehicles between consenting member states.

Larger wagons are already permitted in Finland, Denmark, the Netherlands and Sweden, which is trialing a 30-meter limit.

“Mega trucks will have a massive impact on rail freight,” said Philippa Edmunds, who heads the Freight on Rail campaign group. “There’ll effectively be no upper limit on length.”

Eurotunnel’s SeaFrance initiative is one of several that the company is pursuing to help increase tunnel usage.

Gounon purchased GB Railfreight in 2010 to help boost rail-freight flows that were languishing two-thirds below a 1998 peak and reduce Eurotunnel’s reliance on cargo flows from train operators such as SNCF, and the company is working with EuroCarex, which groups French, Belgian and Dutch airports, on a project to run mail trains through the tunnel at night.

SNCF’s “catastrophic” abandonment of wagon-load rail freight means Eurotunnel still faces an uphill task in maintaining overall cargo volumes, the CEO said, with the market having accounted for around 40 percent of the total.

Eurotunnel shares have gained 25 percent this year, valuing the company at 3.67 billion euros, as passenger express operators Eurostar Group Ltd. and Deutsche Bahn AG develop plans to connect London with Amsterdam, Cologne and Frankfurt.

To contact the reporter on this story: Chris Jasper in London at

To contact the editor responsible for this story: Chad Thomas at

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