Short-sea shipping in Europe finished out 2006 with surging profits and double-digit growth, and it appears 2007 will bring much of the same, spurred on by industry mergers and acquisitions.

Denmark’s DFDS line expects 2006 profits to settle at $71 million, up from $38 million in 2005, while Finnlines’ earnings for the first nine months of last year were up nearly 90 percent to $45.7 million from $25 million in 2005.

The results are not only good news for the short-sea shipping companies, but European transport officials are also encouraged, considering they have tried for years to divert freight from the continent’s congested highways and onto ships.

The Baltic region has been largely responsible for the growth. Russia is experiencing an import boom, thanks to its rising revenues from oil, while trade flows between the Nordic countries and Estonia, Lithuania, and Latvia are also climbing since the three former Soviet republics joined the EU in 2004. The Gulf of Finland is emerging as a key transit route between Eastern Europe and Russia, offering shippers an alternative to deteriorating roads and poorly maintained rail lines.

Meanwhile, short-sea shipping companies are hoping to develop other regions, such as those in the south and in Eastern Europe. The Port of Rotterdam is also lending a hand—it set up a holding company three years ago to help grow a short-sea shipping and inland terminal network.

Nonetheless, there are some challenges to continued growth. Low-cost Eastern European and Russian truckers still get a sizeable portion of the overall transport business, and short-sea operators don’t have as much clout as large ocean carriers when calling at the major seaports. Moreover, there are many more regulatory barriers to short-sea shipping compared to trucking in the EU.

For its part, German auto giant Volkswagen ships roughly 20 percent of its annual European production (about 700,000 vehicles), either partly or entirely by short-sea routes.